In this article we discuss Africa-related enforcement actions under the UK Bribery Act 2010 (UKBA) (and previous UK legislation) and reflect on the issues that corporates and their advisers should be considering when entering or operating in African markets.
Corruption remains a major legal and economic risk for doing business in Africa. The African Development Bank (AfDB) estimates that USD 148 billion is lost to corruption in Africa every year. Whilst it is difficult to generalise about corruption in Africa as the risks vary significantly across the continent, any organisation operating in Africa should take steps to assess, manage and mitigate corruption risk.
The reach of the UKBA is now well understood by international businesses. UK companies and persons doing business in Africa (or anywhere in the world) have to comply with the provisions of the UKBA, which prohibit all forms of bribery: active, passive, public and commercial, and including facilitation payments. In addition, section 7 of the UKBA makes it a criminal offence for a commercial organisation to fail to prevent bribery by an "associated person", namely a person or entity providing services to it. The "corporate offence" (as section 7 UKBA is informally known) is very broad and creates jurisdiction over any UK or foreign company or partnership which carries on a business, or part of a business, in any part of the UK. Where corporates can establish that they had adequate procedures in place to prevent bribery they will have a defence to the corporate offence.
The effect of the UKBA's extra-territorial reach allows UK law enforcement agencies to investigate and prosecute companies that have only a slight connection to the UK, including where the unlawful conduct occurred wholly outside the UK.
Enforcement of the UKBA has been boosted by the introduction in 2014 of Deferred Prosecution Agreements (DPA). A DPA is an agreement whereby a prosecutor and corporate defendant can settle certain types of criminal cases, including for corruption. The company agrees to be charged but the criminal proceedings are immediately stayed upon entry into the DPA. When the DPA expires at the end of a stipulated term, and assuming its terms have been met, the criminal proceedings are discontinued. A DPA is not offered to a defendant as of right but a company which co-operates with the authorities (and co-operation usually includes self-reporting) may be invited to negotiate a DPA, thus avoiding a criminal conviction and consequences that may attend a conviction, such as debarment. The UK government has to date recovered over £1.6 billion in financial penalties and disgorgement through DPAs.
Smith and Ouzman
Before considering Africa-related enforcement actions under the UKBA it is worth noting that in 2014, after the UKBA had come into force but in relation to charges brought under pre-UKBA bribery legislation, Smith and Ouzman Ltd, a company specialising in printing security documents such as ballot papers, was convicted of corruptly agreeing to make payments of £395,074 to influence the award of business contracts in Kenya and Mauritania. This was the first SFO trial resulting in conviction of a corporate for foreign bribery. Of interest is that the SFO thanked the Kenyan, Ghanaian and Swiss authorities for their assistance in securing the convictions, suggesting that the SFO received significant co-operation from agencies in those jurisdictions.
The first DPA entered into by the Serious Fraud Office was in 2016 and related to allegations of corruption in Tanzania. The SFO agreed the DPA with Standard Bank Plc (Standard Bank), a UK regulated bank and a subsidiary of the Standard Bank Group Limited, a publicly owned company registered in South Africa. By the time of the DPA Standard Bank had been acquired by the Industrial and Commercial Bank of China and was called ICBC Standard Bank.
In February and March 2013, Standard Bank and its sister company, Stanbic, acted for the Government of Tanzania to raise commercial finance for its development plans through a $600m sovereign note private placement. Stanbic was a Tanzanian company, directly owned by a UK company and ultimately owned by the Standard Bank Group. Negotiations with regards to the placement began in February 2012. Standard Bank and Stanbic initially proposed charging the Government of Tanzania a 1.4% fee of the gross proceeds raised, but by August 2012 the deal had lost momentum. In September 2012, Stanbic proposed involving a Tanzanian company called Enterprise Growth Markets Advisors Limited (EGMA) in the deal for an additional 1% fee (US$6m), following which the deal concluded.
EGMA's director and one of its shareholders was a Commissioner of the Tanzanian Revenue Authority and the transaction was within his jurisdiction. Another EGMA director had been CEO of the Tanzanian Capital Markets and Securities Authority and knew government officials involved in the transaction. Standard Bank accepted that the money paid to EGMA was intended to induce representatives of the Government of Tanzania to favour Standard Bank's and Stanbic's bid for a joint mandate.
The conduct was discovered when EGMA withdrew its fees (paid into a bank account with Stanbic) in large cash amounts, triggering reporting obligations within the bank.
Standard Bank self-reported the matter to the SFO and co-operated in the SFO's investigation. Standard Bank was ordered to pay a discounted financial penalty of US$16.8m, to disgorge its transaction profits of $8.4m and to provide compensation to the Government of Tanzania of $6m plus interest of approximately $1m.
Standard Bank was charged with the corporate offence under the UKBA. Standard Bank conceded that at the time of the offence, its compliance procedures were not adequate in respect of situations where two or more entities within the bank were acting on a joint mandate.
In 2017 the SFO entered into a DPA with Rolls-Royce plc in relation to payments made by the civil aerospace, defence aerospace and energy businesses of Rolls-Royce to intermediaries in seven overseas markets, including Nigeria. The payments made related to contracts earning the business over £250 million in gross profits. Rolls-Royce was ordered to pay nearly £500 million as a result of the corrupt arrangements. At the time, the penalty was the highest imposed on a company for breaches of UK bribery legislation, although it has subsequently been exceed by the Airbus disposal (€983,974,311 to the UK authorities out of a total to the combined UK, US and French authorities of €3,592,766,766).
In relation to corruption in Africa, Rolls Royce had engaged a Nigerian company to assist it with bidding in relation to two projects in Nigeria. The Adanga project concerned the sale by Rolls Royce of two gas compression engines to an international oil and gas exploration company. A public entity called National Petroleum Investment Management Services (NAPIMS) responsible for supervising the Nigerian government’s investment in the oil and gas sector oversaw the bidding process. The Egina project concerned the supply by Rolls Royce of gas turbine generators and compressors and related Long Term Service Agreements. Egina was an offshore oil field project operated by Total Upstreams Projects Nigeria, which was responsible for bid evaluation and the submission of recommendations to NAPIMS. A relative of the directors of the Nigerian company engaged by Rolls Royce to assist with the Adanga and Egina projects was employed by NAPIMS.
The Nigerian company was classified by Rolls Royce as a customer or distributor rather than an intermediary which enabled mark ups to be paid to the company. According to the Statement of Facts supporting the DPA, the Nigerian company used the additional funds to make a number of payments to officials involved in the NAPIMS approval processes, including officials working on the Adanga and Egina projects. In return, Rolls Royce employees received confidential information about the bidding processes and influence over the requirements of the customer in the tendering process.
Rolls Royce did undertake some diligence in relation to the Nigerian Company but it was ineffective. Following corruption concerns being raised in the press, Rolls Royce obtained two independent due diligence reports from third party providers. Both these reports highlighted corruption risks and a meeting was held with the Nigerian company to discuss these concerns. Rolls Royce employees also raised concerns internally. The Higher Risk Committee of Rolls Royce met to discuss the findings but Rolls Royce accepted for the purpose of the DPA that the meeting was not independent and that not all relevant information was placed before it. Accordingly, Rolls Royce continued to use the services of the Nigerian company.
Ultimately Rolls Royce accepted a charge that it had failed to prevent bribery of the relevant Nigerian officials. There was, however, no financial benefit to Rolls Royce as it ultimately withdrew from the tendering processes due to corruption concerns.
Unlike the ICBC Standard Bank DPA, the Court did not award compensation to any victims of Rolls Royce's corrupt conduct, noting that it was often impossible to trace, through intermediaries, what bribes were actually paid. The Court also recognised that victims still had a private right to pursue a claim against Rolls Royce for any losses suffered.
Smith and Ouzman, ICBC Standard Bank and Rolls Royce were all significant outcomes for the SFO. The decisions of ICBC Standard Bank and Rolls Royce to co-operate in the SFO's investigation would have made it quicker and easier for the SFO to obtain the necessary evidence to support the charges. Co-operation avoids the need for enforcement authorities to spend time and resources on obtaining mutual legal assistance from foreign countries, which can be a complex and protracted process – and in some cases, may prove ineffective. The conduct in the Rolls Royce case spanned three decades and much of it occurred before the UKBA came into force.
The SFO has now concluded nine DPAs and in that time the conduct that is expected of a company that wishes to secure a DPA has become clearer and more certain. It is likely that DPAs will continue to play a significant role in the SFO's enforcement activity.
- Ongoing SFO Investigations
The SFO has opened a number of investigations related to Africa that are ongoing. Corruption investigations disclosed by the SFO are into:
- a private natural resources company in relation to the acquisition of mineral assets in the Democratic Republic of Congo
- A global mining group in relation to activities in the Republic of Guinea
- A FTSE-250 defence contractor in relation to the conduct of business in Algeria.
- Proceeds of Crime
In addition to investigating corruption, UK authorities have various tools that enable them to recover the proceeds of corruption that find their way into the UK. In 2018, the SFO was able to recover gains from a corrupt deal in Chad. The corrupt conduct was by a Canadian company that admitted to breaching Canadian anti-bribery laws. In that case, Griffiths Energy International bribed Chadian diplomats to illegally secure commercial interests in Chad. One of these corrupt arrangements resulted in the wife of a diplomat purchasing heavily discounted shares that were later sold for significant profit. Following the takeover by Griffiths Energy by a UK corporation and share sale via a UK broker, the corrupt proceeds entered the UK’s jurisdiction and the SFO began civil recovery proceedings to secure the £4.4m in share sale profits.
The UK will likely also be assisted in its efforts to recover the illicit proceeds of corruption through the introduction of Unexplained Wealth Orders (UWO), which became available in 2018. A UWO is an order granted by the Court at the request of an enforcement authority where there are “reasonable grounds for suspecting that the known sources of the respondent’s lawfully obtained income would have been insufficient” to allow the respondent to obtain the specified property. The UWO requires a person to provide a statement setting out the nature and extent of their interest in property and how it was paid for. If a respondent fails to comply with a UWO, the property will be deemed to be the proceeds of crime.
- Enforcement Activity in Africa is Increasing
The efforts of the US Department of Justice (DOJ) to enforce the Foreign Corrupt Practices Act (FCPA) and, more recently, of the SFO to enforce the UKBA have played a significant part in addressing corruption in Africa. There has also been an increase in regional anti-corruption efforts across Africa.
The OECD has played a major role in promoting anti-corruption enforcement efforts globally through monitoring the implementation of the OECD Convention on Combating Bribery of Foreign Public Officials. In 2008, the OECD and the Africa Development Bank launched a partnership to support African governments in their efforts to fight bribery and corruption. Twenty-one African countries are members of the Joint Initiative. One objective of the partnership is to increase the capacity for effective anti-bribery enforcement and to support international bribery efforts. The policies and standards promoted by the Joint Initiative are drawn from international conventions such as the African Union Convention on Preventing and Combating Corruption, the UN Convention against Corruption and the OECD Convention on Combating Bribery of Foreign Public Officials. The Joint Initiative has developed a practical Anti-Bribery Guidance and Compliance Handbook for African Companies tailored specifically to the corruption risk profiles of Joint Initiative member countries.
It is also worth noting the significant role that the Multilateral Development Banks play in deterring corruption in Africa. The Africa Development Bank (AfDB) has become more active in bringing suspension and debarment proceedings relating to concerns about corruption in AfDB-financed projects. The current sanctions list shows over 100 companies or individuals who have been debarred by the AfDB and many more who have been cross-debarred as a result of enforcement action by other MDBs, in particular the World Bank. It is also worth noting that the World Bank’s enforcement arm, the INT, recently indicated that it is investing significant resources into formally evaluating companies’ compliance programs during an investigation (an approach that is also favoured by the SFO and the DOJ).
Other key regional efforts include "special courts" in Nigeria to prosecute financial crime and corruption cases and new legislation on corruption in Kenya (the Bribery Act 2016) and Rwanda (N°54/2018). In addition, there has been significant cooperation between African states and other authorities. For example, the UK Prosperity Fund has supported the United Nations Office on Drugs and Crime in implementing the UN Convention against Corruption for five countries in East Africa to improve procurement processes, whistleblowing regimes and investigations. The "State Capture" corruption case in South Africa arising out of the former presidency of Jacob Zuma has been cited as creating a possible turning point for anti-corruption enforcement in South Africa.
- What should businesses do?
Africa provides vast opportunities for corporations and investors but corruption risk remains a significant issue to tackle. When using M&A or a JV to establish or expand a business on the continent, it is important that pre-acquisition due diligence interrogates what the relevant risks are and how they are managed and that appropriate representations and warranties are obtained in relation to corruption, money laundering and other criminal and regulatory risks.
The enforcement risk arising from extra-territorial legislation such as the UKBA and the FCPA can be managed through the implementation of strong compliance programmes. Taking a proactive approach to compliance and making it integral to the way in which the company operates and its culture is key. A strong compliance programme will include a risk assessment; policies and procedures that focus on high risk areas such as facilitation payments, gifts and hospitality, sponsorship, political and charitable donations and conflicts of interest and will include effective reporting mechanisms (such as whistleblowing) and escalation procedures. Corporates should also put in place systems to manage third parties (including by conducting appropriate due diligence) and include anti-corruption clauses in contracts. There should be regular and effective communications and training to staff to develop understanding of the risks, ensure a zero tolerance attitude to bribery and promote an open culture. The board should provide oversight of the implementation of an anti-bribery programme and set the "tone from the top". The compliance programme should also be reviewed and monitored to ensure effective implementation and continuous improvement.
Addleshaw Goddard has advised clients interested in the continent for over two decades and we enjoy close relationships with lawyers across Africa. We regularly assist our clients in putting in place and implementing policies and procedures that help to reduce the risk of compliance related issues such as money laundering, bribery and corruption and sanctions breaches. We also assist our clients globally either conducting internal investigations or subject to government investigations in relation to corruption and other financial crime and conduct issues.