By Amanda Peters – Amanda.Peters@EthicalBoardroom.com
Businesses can face many varied challenges when navigating the issues of corruption and bribery in Africa and China. Africa’s economy is on the rise. Companies face numerous legal and operational risks when considering doing business in Africa. The current primary concerns are centred on issues of bribery and corruption, both of which have historical persistence in African business. Bribery and corruption have been accepted as part of doing business in Africa in the past and this has been changing over the last ten years. The continent has grown economically and multinationals are increasingly setting up business in the continent to reap some of the benefits. As individual countries are developing anti-corruption laws the risks are falling on the continent. In addition, the growing middle classes are putting pressure on the infrastructure and government to remove bribery and corruption from the system which has led to the development of more transparent business operations overall. This trend is expected to continue, improving the challenges faced by new businesses and taking effect gradually. Bribes remain a relatively common part of daily African life with Sierra Leone, Liberia and Kenya amongst the main offenders.
In a similar light, multinational companies are attempting to overcome corruption and bribery risks in China. For example, currently US regulators are investigating whether JPMorgan, the biggest U.S. bank, violated the Foreign Corrupt Practices Act (FCPA) by hiring children and relatives of well-connected politicians in attempts of directing business to the bank in Asia, specifically China. As currently the world’s second-largest economy, China still performs poorly in surveys by Transparency International, a Berlin-based anti-corruption organisation. China continues to be an environment where bribery and corruption in business is commonplace, accepted and tolerated. Consequently, Chinese authorities are currently attempting to make very public examples of certain multinational companies. Government corruption is a widespread problem in China that is causing difficulties for businesses, both domestic and foreign in the country. Chinese authorities are ramping up enforcement of anti-bribery laws against companies and anti-corruption laws in both business and politics. However, like in Africa, although the climate is improving it is expected that changes will be gradual and take time to be fully adopted into daily life and infrastructure.
Currently, the largest risk to multinationals comes from US enforcement of the FCPA. The FCPA was passed in 1977, and since that time 42 defendants have faced actions involving conduct in China, with Nigeria ahead in the top place of the list with 55, according to Shearman & Sterling LLP, which represents clients in FCPA matters and tracks cases on its website. The FCPA law, enforced by the US Justice Department and SEC, has placed a ban on payment of money or any item of value to foreign officials to obtain business or an improper advantage. The law also impacts companies with shares traded in the US through barring off-the-books accounting and internal controls violations that might potentially conceal bribes.
Africa and China cause significant challenges for FCPA laws and the UK Anti-Bribery Act as both of these markets contain a lot of businesses that are state-owned. This has created a whole host of political tensions tied to business and bribery allegations and charges. By barring improper payments to employees in these state-owned enterprises and in government offices, the FCPA and UK Anti-Bribery Act have been affecting how companies manage to deal with officials in these two countries, where companies are keen to set up new business. The government still permeates the majority of what would be otherwise considered as the private sector within the countries of Africa and China.
Further to this, when doing business in these countries it is not unusual to involve third parties –a culturally accepted norm and also a product of the fact that so many businesses are in fact state- owned – introductions to prominent officials through middlemen can be key to doing business. Enterprises will commonly hire third-party intermediaries to make introductions. These third parties can also offer language interpretations and cultural mediations and this leads to the facilitation of strong business relationships. However, in their very nature these third party arrangements pose a further level of corruption and bribery risk in these countries. Third parties may also act as sales agents, distributors, consultants or joint venture partners, and in their role they pose a high risk of collecting and passing bribes or improper information leading to corruption.
Although the economies and political systems are showing substantial development in Africa and China caution should be applied by corporations attempting to do business in these countries as changes will take time, patience, effort and tolerance in combination with a strong ability to navigate the many challenges that lie ahead.