With the threat of corporate criminal liability for non-compliance, firms looking to conduct business in Africa should therefore ask themselves one question:
‘If the regulator knocked on my door tomorrow, would I be able to demonstrate that I have effectively implemented adequate procedures?’
Proactive compliance: implementing adequate procedures
Operating in emerging markets may come with additional regulatory risks and challenges but these risks can be managed through the implementation of proactive compliance measures.
The UKBA guidance sets out six principles for the design and implementation of adequate procedures to prevent, identify and manage bribery and corruption risks. These principles are similar to those found in the FCPA Resource Guide, Sapin II AFA Guidelines and other international guidance, including ISO 37001 anti-bribery management systems.
To avoid corporate liability under s.7 of the UKBA, firms must be able to demonstrate that they had effectively implemented the following procedures at the time the alleged offence occurred:
- top-level commitment / senior management commitment to ABC compliance
- ABC risk assessment
- proportionate ABC policies and procedures
- due diligence (transaction, third parties and employees)
- ABC training and communication
- ongoing monitoring and review of ABC controls
We’ve outlined the key challenges and success factors that your firm may wish to consider when implementing ABC risk assessment and third-party due diligence controls.
Key considerations for ABC risk assessments
If you operate in or are looking to expand operations in an African jurisdiction, it’s crucial to conduct a full enterprise-wide ABC risk assessment to understand your exposure to bribery and corruption risks, and implement adequate mitigating controls. Many firms find themselves in regulatory turmoil because they failed to fully appreciate the bribery and corruption risks inherent to the environment in which they operate, or to their activities, business associates, business model, sector or products.
While your ABC risk assessment should be proportionate to the size and nature of your business, there are three critical factors you should consider: geographic, business partnership and sector risks. These are in addition to customer, product/service/transactional, business opportunity and delivery channel risks, which are key factors that should also be reflected in your assessment.
1 Geographic risk
Bribery and corruption happens worldwide and is certainly not an Africa-centric issue. Each of the 54 countries in the African continent has its own intricacies, socio-economic and political realities, and different levels of governance. Both the Transparency International Corruption Perception Index (TI CPI Index) and the Trace Bribery Risk Matrix provide a good baseline to understand perceived corruption risks in the jurisdictions you operate, or wish to operate, in. But it's essential to keep in mind that each country bears its own specific sets of risks – and you should factor these nuances into your risk assessment.
2 Business partnership risk
Regardless of jurisdiction, entering into business relationships with third parties brings with it bribery and corruption risks. As illustrated in the case studies above, some particular high risk scenarios include:
- firms that engage the services of third-party intermediaries to obtain or retain business (including politically exposed persons, their relatives and close associates)
- requirements to use local suppliers for the delivery of projects
- entering into joint ventures
- conducting business through subsidiaries
- lobbying governments
- firms active in industries that are highly reliant on relationships with public entities and public officials
These risks could potentially be more prevalent and perhaps harder to manage if you operate or are planning to operate in certain African jurisdictions. Depending on the specific countries you are targeting, your geographic risk assessment may flag weaker regulatory frameworks or enforcement, more opaque governance, or challenges in using or developing infrastructure needed to carry your business. All these circumstances can heighten bribery and corruption risks.
Entering into or maintaining a third-party relationship in a jurisdiction with higher bribery and corruption risks should therefore be treated as a red flag. You should review those relationships, assess whether they fall within your firm’s risk appetite and apply enhanced levels of due diligence.
3 Sector risk
Certain sectors may carry higher bribery risks than others, for example:
- sectors where there is a heavy reliance on government licences and permits
- sectors where there is a heavy reliance on government contracts (including contract for the provision of debt instruments)
- sectors that are lightly or poorly regulated
The oil and gas, telecommunication, construction, extractive, transportation and finance industries are commonly known for carrying higher bribery and corruption risk.
Understanding the vulnerabilities of the sector in which you operate is therefore crucial for the implementation of adequate controls.
Overcoming challenges with third-party due diligence
Corruption and a lack of transparency is also not unique to Africa. And yet for investors entering the continent and wishing to understand its business landscape, backgrounds and political influence of third parties, there are a number of challenges.
One factor is the availability and reliability of publicly available information. Records in some jurisdictions may not be well maintained or readily accessible. They may be on paper, requiring manual retrieval, with information that is out of date, incomplete or simply ‘missing’. Access is often not quick or straightforward: it's not unheard of for records to be withheld based on who the shareholder is, for example.
Secondly, the local media landscape is mixed. On one hand, bloggers and civil society increasingly call corrupt politicians to account but, on the other, the traditional press can, in some jurisdictions, be unreliable, thereby providing little insight for the provider.
A third factor to consider is the local business environment, which often features business elites and dominant families with far-reaching links and political influence. While understanding and navigating the potential political exposure of third parties can be onerous, it remains a critical exercise.
So where does this leave provider? And where does this leave the provider trying to conduct due diligence in Africa? While these challenges are real, armed with patience, forethought and the right resources providers can work around these factors to deliver meaningful intelligence.
Investors should consider using providers with a proven track record in the region who understand and adhere to anti-corruption practices. A suitable provider should speak the local language, have an extensive network as well as detailed understanding of the political dynamics. That on-the-ground intelligence from a well networked business community can provide essential context and background, often in far greater detail than you would find in the public domain.
With an investment in time and a refocus of where the information comes from, firms can mitigate these challenges and access hugely detailed insight.