[Article] Why every successful Ghanaian business should care about compliance risks

Despite repeated public discussion in Ghana about bribery and corruption being the scourge of society, the truth today is that many businesses pay bribes to public officers and others, because they feel it is a necessary evil to ‘get things done’.

If this is true, what possible incentive can there be for successful businesses to change their behaviour? We conclude in this article that foreign investment and partnership with global firms may force a change of behavior in Ghana.

The current economic challenges don’t appear to have deterred the international community from considering Ghana a favourable target for investment. Foreign direct investment in Ghana is still at one of its highest levels in the last 10 years, and growth trends suggest this will continue for the forseeable future.

The Ghana Investment Promotion Center estimated that the provisional figures forforeign direct investment in Ghana would reach $1.3 billion by the end of 2014, this is an almost a 100% increase from the 2013 figures (source: FDI Figures for Ghana Hit 1.3 Billion in September’, myjoyonline, 10th November 2014).

Foreign-based companies continue to enter the market and in sectors, such as oil and gas, the recent introduction of the local content laws mean that a large number of foreign companies operating in Ghana require local partnerships in order to be allowed to do business. In other sectors such as agriculture, foreign entities consider a Ghanaian partner with familiarity with the particular local challenges, as essential. This makes it advantageous for Ghanaian companies to position themselves as attractive joint venture partners for foreign entities.

So what are the hurdles for Ghanaian companies looking to partner with foreign companies?

A sobering scenario is the simplest way to answer the question posed in this article. Let’s imagine that a few years ago I started a local business with a few partners. We quickly registered our company name and trade mark, by hiring an agent to process the various documents and get the business up and running. We know the agent had sources at the various public authorities that he “kept sweet”. But it was worth it: being a first mover was essential to the success of our business.

A couple of years on and our business has grown well. It now turns over a healthy profit. Meanwhile our Chief Financial Officer has maintained relations with various agents who assisted with our setup. Now we can get away with filing our annual accounts late, we acquire and register land titles swiftly, and we can see the business expanding quickly into new territories.

It then happens that we discover a number of foreign investors looking to acquire businesses in our sector. This is major for us: a foreign acquisition could be like winning the lottery. Before we know it, dizzying figures are beingpresented to buy us out.

Having never been in this position before, we rush to our professional advisors and ask them to give us a rundown of the acquisition process. They tell us that one of the key issues is “due diligence”, which is a detailed root and branch review of the business to assess whether it poses any risks to the acquiring company. From the perspective of our advisors, there should be no major concerns.

The company has never been involved in any serious litigation, the insurers and regulators are happy, and there doesn’t seem to be a black mark against our name in the business community. For ourdue diligence the representatives of the acquiring firm arrive in Ghana to personally review our operations.They pore over our books day and night for over a week.

And then comes the hitch.

They have talked to our Chief Financial Officer, and suddenly the deal is off.

As many in Ghana know, it is a criminal offence to bribe a public official. Almost everyone also knows that such provisions of the law are rarely enforced, and that “facilitation” is a part of theculture. Officials often feel justified in accepting “tips” in order to help customers cut through the “red tape”, blaming their low salaries.

So what happened in the scenario? Our financial officer comes to see me, saying that the foreigners packed up when he was asked to explain the reason we had an annual provision of GHS 10,000 in the accounts for ‘facilitation’. As such, to my mind, there is nothing wrong or corrupt about the payments we made to get our documents processed by the authorities.

The Bribery Act and FCPA

Under British and a wide range of other foreign laws, such facilitation payments are considered to be corrupt, and have been criminalized. The UK Bribery Act came into force in 2011, and impacts British businesses operating anywhere in the world.

A British company or individual can be prosecuted for bribery and other corrupt inducements, and not only for their own actions, but also for those of a connected party such as an agent, or joint venture partner from which they derive a benefit. This includes businesses bribing other businesses.

The American equivalent is the Foreign Corrupt Practices Act (“FCPA”), which focuses on bribes to public officials. Both the UK Act and the FCPA have extra-territorial effect. While legislation normally regulates activities within a country’s borders, the UK Act and FCPA can be used to prosecute violations that occur anywhere in the world.

The actions of foreign subsidiaries and other third parties such as agents, consultants, distributors, and joint venture partners acting for the benefit of the UK or US company or individual can also result in criminal liability.

So it is clear: a Ghanaian business associated with a foreign company can present as a major compliance risk to that foreign company. It is also worth noting that similar legislation exists throughout Europe, and even China has enacted international anti-bribery laws and started prosecuting under them.

FCPA prosecutions are big business in the United States. Fines are hefty and no company wants to be caught breaking the laws. Between 2010 and 2015, 72 companies paid a total of over USD 4.85 billion in fines for FCPA breaches (source: ‘The 2014 FCPA Enforcement Index, FCPAblog.com, 5th January, 2015).

Part of the reason enforcement has been so successful is because whistleblowers stand to gain significantly from reporting non-compliance. Regularly such investigations have involved US businesses operating in African countries, including Nigeria and Benin. Ghana has not had a major embarrassment in this regard, but one feels it may just be a matter of time, unless the culture changes.

So what can Ghanaian businesses do to reassure potential foreign suitors?

It is of course essential to develop a robust anti-corruption compliance framework, to current international standards. This is a tangible way of demonstrating your company’s commitment to being a responsible business partner, as well as helping to avoid corruption.

The framework should include internal accounting and auditing controls designed to ensure that the business can identify bribery ‘red flags’: “facilitation” should jump out as an unusual item of expenditure and a potential concern. An anti-corruption and ethics code should be devised which consists of rules and procedures to detect and deter violations of applicable anti-corruption laws for both the company and any agents or authorities that it interacts with.

The policy needs to be communicated to and embraced by all levels of the business, and needs to be monitored to fit the changing needs of the organization. It should provide a system for reporting and dealing with breaches, and be enforced by suitable disciplinary measures.

A key issue when implementing such policies is to ensure careful engagement with the public authorities who will be affected by such culture change. Businesses facing increased anti-corruption regulation are prone to complain that the public officers they deal with will make their lives a misery.

However, this need not be the case. Refusing to pay bribes does not have to mean that it becomes more difficult to get normal services done. Communication with the authority about the new compliance regime, particularly when members of an industry act together, can lead them to accept and respect the changes. A successful outcome often depends on engaging with the right level of the authority in question, and getting the right professional advice.

Is there light at the end of the tunnel?

Our sobering scenario could still have a happy ending. The deal may have fallen through for now, but it allows our business a chance to put together a robust new compliance framework, ultimately getting rid of the “facilitation” provision in our accounts.

And while in the short term such changes may be painful, it should not be too long before the foreign investors are back, and in greater numbers. If they see that we have a compliance framework that is to international standards, they may well write us an even bigger cheque in order to fend off other suitors from around the world.

By: Korieh Duodu is Counsel (UK and Ghanaian qualified) with Bentsi-Enchill, Letsa & Ankomah. He is the author of Defamation: Law Procedure and Practice (Sweet & Maxwell 2010) and an editor of Clerk & Lindsell on Torts (Sweet & Maxwell 2011). Adu Ampofo is also a UK and Ghanaian qualified barrister at Bentsi-Enchill Letsa and Ankomah.