Jan 09

Knowing Who to run from is Half the Compliance Battle – Real Due Diligence

Doing business in countries perceived to be high risk for corruption and FCPA compliance issues (and unhappily my country Nigeria sits squarely within that category) requires a clear picture of who your local partners are, and whether associating with them represents any sort of risk to you from a compliance perspective.

If you’re dealing with a local company you want to confirm, at a minimum, who the shareholders and directors are and the physical location of the business. Identifying the individuals behind the business is the first of several steps you need to take as you seek to map any relationships they might have to local government officials (i.e “foreign officials” under the FCPA) for compliance purposes.

As recently as three years ago, it was not a requirement in Nigeria for directors and shareholders of local companies to submit copies of their identity documents as part of the company registration process. Individuals could (and sometimes did) register companies claiming to be two or more different directors and shareholders, and the public would be none the wiser.

Regulations were introduced in 2013 requiring subscribers to submit copies of their drivers license, national identity card or the information page of their passports in confirmation of their identity. Unfortunately, companies registered prior to January 2013 do not have those identity documents on record, requiring a bit more effort in confirming the true identity of the named subscribers.

However, the more interesting challenge lies in identifying, understanding and mapping the relationships that might exist between your business partners and local government officials.

It’s been my personal experience that transparent links or access to government officials are not necessarily the problem. After all, major multinational oil companies operating in Nigeria do have entire departments focused on maintaining links with key government officials as part of their stakeholder engagement policies.

Your partners may well be ex-staff of such companies seeking to leverage their industry experience and government connections in starting something new. From their perspective, their local knowledge, access and influence within government circles are rather valuable assets which they bring to the table. But valuable or not, what you don’t want is an unethical partner that could exploit that access on your joint behalves in ways that expose you to very serious risks under the FCPA.

So what to do? And where to begin?

The personal, “word-on-the-street” reputation of your business partner is very important. You need to get an accurate sense of whether this is someone who cares about doing business ethically, or someone you should be very worried about.

Unfortunately information like this is never immediately obvious (“it’s not written on the forehead”, as we say locally) so you’re going to have to ask around. And because word goes round when a foreigner asks around, you need to be careful about word getting back to your partner. That could be very embarrassing.

Print and social media searches can be very helpful, but your best bet is to learn all you can from the locals. There are very successful business people here who others would warn you to flee from, leaving cloak and staff behind. You should listen to them.

Next comes your traditional relationship-mapping exercise.

Again in my experience, typical mapping exercises tend to focus too narrowly on the more direct relationships between individuals and government officials, for example whether “A is a known or suspected business associate of B” or if “C is a political associate of D” or “E is a spouse, sibling, child or other biological relation of F.” If there’s no direct, documented relationship between A and B or C and D then it is obvious that there’s no compliance risk involved. The boxes are ticked, the file is closed and everyone is happy.

But this approach sometimes misses other non-linear relationships and links that may be much more relevant for compliance purposes. We live and operate within very complex social networks here. It is therefore vitally important to understand how private individuals within those networks could influence, benefit from, or act as proxies for Foreign Officials in a corruption or compliance context.

Your partner’s business relationship with the younger brother of the trusted dressmaker to the wife of the President could be the real reason your company wins or retains that government contract.

Leave a Reply

Your email address will not be published. Required fields are marked *