Caveat corruptor! The potential perils of building resource projects in Africa

African nations are among the world’s most corrupt which makes resource companies operating in many African countries vulnerable to the UK’s draconian Bribery Act

Listening to a talk on the UK’s anti-corruption legislation at the recent London Natural Resources Forum from Richard Brown, a partner at lawyers Travers Smith, one must wonder how safe it is to manage a resource company operating in Africa, where nearly all countries fall high on Transparency International’s corruption index.  Paying inducements to grease the wheels of bureaucracy in some form or another has been something of a way of life right across the continent, but the prospective penalties for a UK company, or indeed for any company with operations or assets in the UK even if these are non-related to the resource sector, have become so severe that being caught out could result in massive fines, prison sentences or both.  There are many parallels here with the U.S. anti-corruption legislation – the Foreign Corrupt Practices Act of 1977, but the UK Bribery Act 2010, which came into force in 2011, is deemed to be the strictest of all.

What has to be alarming for executives, and investors in companies operating in Africa, is that the legislation does not just apply to the companies themselves but also to employees and ‘associates’ operating in the countries involved.  In the past companies which would consider themselves morally above reproach have sometimes employed, often at considerable expense, local fixers with purported strong government contacts, to help them through the local permitting and legislative maze.  How these local agents have achieved their results has been viewed with something of a blind eye.  But no more.  Should one of these agents fall foul of anti-corruption legislation, even totally unbeknownst to the company which pays them, then that company is as liable as if they had made the corrupt inducements themselves.

Under The UK Bribery Act, the crimes of bribery, being bribed, the bribery of foreign public officials, and the failure of a commercial organisation to prevent bribery on its behalf are all included.

The penalties for committing a crime under the Act are a maximum of 10 years’ imprisonment, along with an unlimited fine, and the potential for the confiscation of property under the Proceeds of Crime Act 2002, as well as the disqualification of directors under the Company Directors Disqualification Act 1986. The Act has a near-universal jurisdiction, allowing for the prosecution of an individual or company with links to the United Kingdom, regardless of where the crime occurred. Described as “the toughest anti-corruption legislation in the world”, concerns have been raised that the Act’s provisions criminalise behaviour that is acceptable in the global market, and puts British business at a competitive disadvantage.  But given the potential application of the Act to ‘companies with links to the UK’ it is more wide ranging than just applying to UK companies so needs to be taken into account by any company with any financial links to the UK – which would probably include most Western resource companies.

While it seems to have taken time for prosecutions to have come about, a recent successful case brought by the UK’s Serious Fraud Office, which administers the Act, demonstrates some of the penalties which may result.  The recent jail sentences imposed on directors of a UK company, Smith and Ouzman, convicted of bribing officials found guilty of two counts of corruptly agreeing to make payments relating to deals struck in Kenya where the company’s CEO received a three year jail sentence will have raised awareness of the potential seriousness of the offence.

Speaking at the recent Global Anti-Corruption and Compliance in Mining Conference 2015 in London, the SFO’s Joint Head of Bribery and Corruption, Ben Morgan, recognised that corruption-free mining is not a reality.  He commented that to really get to grips with compliance you do have to think about what happens down the line if something goes wrong. The sector needs effective enforcement of those who break the rules, and that’s where the SFO comes in, along with our sister agencies internationally. As the Smith and Ouzman case demonstrates, the agency does indeed have teeth!

Why should it be particularly relevant to resource companies operating in Africa?  Purely because of the widespread corruption throughout the whole continent.  Only one country, Botswana, is seen by Transparency International as coming in above 60 on its Corruption Perception Index (100 best and 0 worst) ranking as the 31st least corrupt nation out of 175 on the Index.  Even the continent’s most advanced economy, South Africa only ranks 67th out of 175 on the Index with a well below par score of 44.  Some other African nations rank right at the bottom of the global index.

And why are resource companies singled out as being among the most at risk?  In part because gaining mining and exploration licences can be particularly prone to complex legislative and bureaucratic hurdles making bribery to speed matters up and ensure fair treatment endemic in many African countries… For investors the prospect of unlimited fines, imprisonment of top executives and disqualification of directors makes it particularly important for investors to try and judge the ethical position of management and directorate.

So resource companies operating in Africa, or elsewhere for that matter, wherever they may be domiciled if they have any UK links at all, are potentially open to prosecution under the Act should they fall foul of the legislation and interpretation of what actually comprises corruption can be something of a legal minefield.  Caveat corruptor and caveat investor!

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