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Africa: Fighting Corruption On Its Own Turf

Africa: Fighting Corruption On Its Own Turf

Africa foregoes millions in corruption fines to foreign governments. Why not keep the money on the continent to fortify their own anti-corruption campaign?

The world recognizes that corruption distorts economic environments and landscapes, unfairly tilting the playing field to the detriment of all nations and their citizens. In most countries, corruption is subject to prosecution under criminal law. In the United States, the Foreign Corrupt Practices Act (FCPA) largely focuses on publicly traded companies, holding their organizations and executives accountable when they pay bribes to win business or receive favorable treatment anywhere in the world. The UK Bribery Act addresses any company’s failure to prevent the offering of bribes and affects both UK companies operating abroad and overseas companies with a presence in the UK.

In recent years, we have seen many enforcement actions taken against large corporations for paying bribes. For example, in May 2016, the U.S.-based financial services company Och-Ziff Capital Management revealed that it would pay the U.S. Securities and Exchange Commission (SEC) up to $414 million in penalties to settle an FCPA action in which Och-Ziff was accused of offering bribes to government officials in Niger, Guinea and Chad to obtain natural-resources deals. This was the fourth-largest FCPA settlement of all time. Among other bribes, an Och-Ziff agent provided “nice cars” to a Nigerian public official, and donated $100,000 to the official’s favorite charity.

Although the crimes of which Och-Ziff was accused, and for which it was investigated, prosecuted and penalized, occurred in Africa, all the money the firm paid went to the SEC. None went to the African countries that suffered from the corrupt practices that fouled their business environments and damaged their reputations – internally and abroad – as safe and transparent places in which to transact.

In other words, Och-Ziff committed its crimes in Africa but its punishment was levied abroad, and the fines that were collected stayed abroad. Had they not, that money could have been used by Niger, Guinea and Chad to strengthen their own fight against corruption. For example, earlier this year a large multinational manufacturer was fined over $130 million under the FCPA, and over 15 percent of the fine was slated to go to the U.S. Consumer Financial Fraud Fund, thereby defraying costs related to the prevention and investigation of corruption.

In another case, in 2015 Goodyear Tire & Rubber subsidiaries in Angola and Kenya were found to have violated the FCPA by paying $3.2 million in bribes to state-owned and private businesses to increase tire sales. Goodyear paid over $14 million to the SEC. But, again, the affected countries received no part of the fine, and there is no public record of any substantive investigation conducted by authorities in Angola and Kenya that resulted in any meaningful action.

This is unfortunate. It’s critical for African governments to investigate incidents of corruption within their borders and assess their own fines where appropriate.

Left Out of the Bargain,” a study conducted by the Stolen Asset Recovery Initiative (StAR), a partnership between the World Bank Group and the United Nations Office on Drugs and Crime, looked at 395 settlements that took place between 1999 and mid-2012, resulting in $6.9 billion in financial sanctions. According to the study, nearly $6 billion resulted from fines imposed by a country “different from the one that employed the bribed or allegedly bribed official” (mostly countries where the corrupt companies operated or were headquartered). Of that nearly $6 billion, “only about $197 million, or 3.3 percent, has been returned – or ordered returned – to the countries whose officials were bribed or allegedly bribed.”

Anti-corruption laws discourage the payment of bribes when companies are transacting outside their borders. But in Africa (apart from a handful of companies in South Africa and, to a lesser extent, Nigeria), there are few companies that possess the scale and global reach of a Siemens, with a 2016 market capitalization of approximately $90 billion (and a history in which for some time bribes were considered “a line item” in its budget), or Och-Ziff, with almost $34 billion under management last year. Even the largest African companies (outside South Africa and Nigeria) are primarily local players, without any significant international footprint. And even if one takes a strictly regional view, local anti-corruption laws rarely are enforced robustly in cases where African companies dealing with other African companies have been found to have transgressed.

This situation needs to change.

What African Governments Can (and Should) Do

It is critical that African governments enhance their contracting processes when dealing with all companies, including multinational corporations. Laws should be drafted to discourage both foreign and indigenous companies from offering and paying bribes. Governments also should consider including anti-corruption language in contracts, and require companies to certify that they will abide by these provisions when bidding on public contracts. In conjunction with local anti-corruption laws, that would give the government the necessary authority to investigate and punish any incidence of bribery committed by indigenous and multinational companies.

Governments also should strengthen local institutions to ensure that anti-corruption legislation is fairly applied. Intelligence gathering is key to investigatory processes, and historical trends shows that employees are one of the best sources of information. Therefore, strengthening reporting mechanisms such as whistleblower hotlines – and giving whistleblowers both incentives and protection – would go far towards enhancing the intelligence-gathering process.

Of course, fighting corruption is expensive. And as most African governments do not have the resources, technology, experience or expertise to take on large multinationals (or often even far smaller local businesses), they need to find creative ways to utilize the internal investigative platforms of companies found to be committing corrupt acts. African governments should also explore creative ways of cooperating in situations where companies are being investigated by authorities with stronger enforcement records, like the United States and the UK. This cooperation could take the form of signing agreements to share document production and facilitating the availability of key witnesses.

If, for example, a multinational is building a power plant in Ghana, that company typically will have an executed contract with the Ghanaian government. In lieu of robust local anti-corruption laws, consideration should be given to including language in the contract that would first have the company acknowledge the receipt of the local laws, then agree to comply with them and accede to the government’s power to prosecute them should it be found that corrupt payments have been made to public officials. Such a contract would give the Ghanaian government authority to investigate and punish companies that violate the agreement.

This would be eminently possible if Ghanaian law covered not only local companies but also foreign multinationals. Such a law might even remove the need for anti-corruption language in those contracts by simply requiring companies doing business in Ghana to acknowledge the law and pledge to abide by it.

Models do exist. In 2014, for example, Brazil passed its Law to Combat Corruption, targeting any firm operating in Brazil, including foreign entities with a permanent presence in the country. This gave Brazil authority to prosecute and collect fines from local companies committing crimes abroad and from foreign multinationals operating in Brazil.

For example, in 2016 San Paulo-based aircraft manufacturer Embraer agreed to pay $20 million to Brazil to resolve incidents of bribery conducted in the Dominican Republic, Saudi Arabia and Mozambique. The settlement was agreed to in parallel with the U.S. Department of Justice and the SEC, which received a total close to $200 million. This bilateral settlement process is full of possibilities for African nations, and it’s worth noting that since the law’s enactment, Brazil’s ranking on Transparency International’s Corruption Perception Index generally has improved, even with the ongoing national crisis precipitated by the home-grown scandal involving the semi-public national petroleum company, Petrobras.

But despite all the actions taken globally to root out and punish corruption, it is difficult to find case studies in which African governments have successfully prosecuted and fined either a multinational or even an Africa-based business for engaging in corrupt practices. In 2010, Nigeria entered into an out-of-court settlement involving millions of dollars with Siemens in exchange for dismissed charges. Although not bribery related, the Nigerian government in 2016 did assess $1.7 billion in fines against the South Africa-based MTN Group, Africa’s biggest mobile phone company, for a variety of regulatory violations. However, the fine, although large, was far smaller than what the government originally asked for, and many in Nigeria, including government officials launching investigations into the negotiations between the government and MTN, are not happy about the settlement or how it was derived.

Unfortunately, right now, in most of Africa, the political will to end corruption is lacking, especially as it pertains to multinationals. Many African economies are immature, still trying to find their footing and desperately in need of investment and development capital. Therefore, they are leery of doing anything – such as investigating and punishing bribery – that might appear to discourage business. And too many people are actively taking advantage, either directly by receiving bribes or indirectly by profiting from the business that multinationals bring to the region. In addition, these countries lack the proper resources, investigative skills, funds, and well-staffed and incentivized anti-corruption agencies to put up a good fight. Rich companies can hire the best lawyers who can delay cases until the government changes. All these factors too often make the very idea of prosecuting multinationals in Africa seem like David versus Goliath.

But David did slay Goliath.

With the proper will and commitment, African nations can create mechanisms to stop, or at least reduce, the incidence of corruption on the continent. In the not-so-long run, this would make Africa a more attractive place for business and investment, benefiting its people while creating a better climate for multinationals wishing to access Africa’s rich, growing markets.

Published May 2017

© Copyright 2017. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.

About The Author

Irumire David Okhumale
Managing Director
Forensic & Litigation Consulting
FTI Consulting

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The views expressed in this article(s) are those of the author and not necessarily those of FTI Consulting, Inc., or its professionals.
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