Covington’s Africa Practice Hosts African Leadership Academy

Covington’s Africa Practice Hosts African Leadership Academy

By: Flannery Gallagher

On October 3, 2018, Covington and Burling hosted the African Leadership Academy (ALA) for a celebration of its impressive ten-year existence. Located in Johannesburg, ALA offers a two-year diploma program to some of the most promising students from across the continent. To date, ALA has provided 983 students from forty-six African countries with a world-class education steeped in values of ethical and entrepreneurial leadership. Many of the school’s accomplished alumni remain dedicated to the advancement of Africa long after they leave ALA. While most ALA students attend university off the continent, 70 percent of alumni are currently in Africa or have worked on the continent full-time following university.

The barriers to quality education that so many students in Africa face make ALA’s contributions all the more important. Accordingly, 95 percent of ALA students receive financial assistance to attend the school. Though there have been improvements in recent years, Sub-Saharan Africa has the highest rates of education exclusion of any region in the world. According to the UNESCO Institute for Statistics, one-fifth of children between the ages of 6 and 11 are out of school, as well as one-third of youth between the ages of about 12 and 14. As for the age population served by ALA, nearly 60 percent of youth ages 15 to 17 are out of school. Rapidly growing African populations and economies make improving access to quality education critical for continued progress on the continent.

As part of the celebration, ALA Dean Hatim Eltayeb moderated a panel discussion between United States Senator Chris Coons and ALA alumni, Brian Karugira and Gift Kiti. The panelists shared their leadership values and ALA’s role in their personal and professional development. Senator Coons observed that there has been a long history of bipartisan leadership and collaboration in Congress and across administrations when it comes to policies concerning Africa. The presence of Senator Coons was especially timely given his leadership role in the Senate’s passage of the BUILD Act earlier that day.

The BUILD Act, which has enjoyed broad bipartisan support, will combine the existing Overseas Private Investment Corporation (OPIC) with a new agency, the International Development Finance Corporation (IDFC). The IDFC, unlike its predecessor, will have the ability to take an equity stake in development projects. The new legislation also doubles the authorized financing ceiling to $60 billion. Senator Coons remarked that the legislation removes risks associated with investing in emerging markets, such as those in Africa, and that it will increase the visibility of the United States in Africa in relation to countries like China. Part of the development of ALA’s campus was financed through OPIC, and the IDFC will continue to drive investments in projects that advance development priorities across Africa.

As ALA looks forward to its next ten years, co-founder and CEO, Chris Bradford, reflects, “The urgency of growing a critical mass of ethical and entrepreneurial leaders has never been greater, and the proof that we can do so has never been so compelling.” Covington provides pro-bono legal services to ALA and is deeply committed to providing pro bono services to individuals and entities throughout the continent. Covington was particularly proud to host ALA’s celebration as Witney Schneidman, Chair of the firm’s Africa practice, currently serves on the ALA advisory committee.

 

 

 

Compliance Risks from Local Content Requirements – Considerations for Doing Business in Africa

Over the last several decades, Foreign Direct Investment (FDI) by multinational companies has become a critical engine of economic growth in Africa, with FDI in the extractive industries particularly significant. A common response by local governments in Africa to increased FDI is “local content” requirements, which are designed to ensure the participation of the local population in economic activity flowing from FDI. Due to weak oil prices and other challenges, the United Nations reported in June 2018 that FDI in Africa fell to $42 billion in 2017, a 21 percent decline from 2016. Nevertheless, according to the World Bank, economic growth in Africa is recovering steadily since the 2008 economic crisis and is expected to reach 3.1 percent in 2018 and tick up to 3.6 percent between 2019 and 2020. As companies assess opportunities on the continent, understanding local content requirements—and how to mitigate compliance risks when navigating this challenging area—is critical.

What are Local Content Requirements?

While local content requirements can take a number of different forms, their general purposes are to ensure the participation of nationals in the workforce, and the promotion of local suppliers, goods, and services. While short-term job creation is part of the local content equation, local content requirements also target longer-term gains in technical capacity and workforce development. An example of a fairly typical local content requirement is a preference for qualified nationals in hiring. Some countries may set a specific percentage requirement for the employment of country nationals. For example, Angola’s Petroleum Activities Law of 2004 sets the local workforce target at 70 percent, and oil companies are required to submit an annual “Angolanization” plan to the Ministry of Petroleum detailing how they plan to achieve this target. Additionally, many local content requirements establish some preference for qualified local suppliers and may require multinationals to partner with local businesses in a joint venture.

Compliance and Fraud Risk from Local Content Laws

Local content requirements create a number of significant compliance and fraud risks. They may create convenient opportunities to channel money or other things of value (e.g., jobs) to government or parastatal entity officials, their families, or affiliates. The most obvious way that this can happen is for a company to contract with a local content provider for overpriced, or even non-existent, goods or services. As described in a Transparency International paper on the topic, “[p]oliticians and public officials may abuse their power and influence to use local content requirements to benefit their allies and/or family members, and international companies may pay bribes and kickbacks to local companies to serve as the ‘front’ in bidding processes.” Even if government or parastatal officials are not the beneficiaries of local content transactions, these transactions can raise self-dealing concerns, because they present opportunities for employees to steer lucrative contracts to relatives or associates.

For an example of how these risks can manifest, consider the 2017 U.S. Securities and Exchange Commission (SEC) Foreign Corrupt Practices Act (FCPA) enforcement action against oilfield services company Halliburton. The SEC’s cease-and-desist order—to which Halliburton agreed without admitting or denying the allegations—focuses on a series of transactions dating back nearly a decade. In 2008, Halliburton officials were advised by Sonangol, Angola’s state-run oil company, that Sonangol was considering vetoing further subcontract work for Halliburton because the company was not in compliance with local content requirements.

The SEC alleged that following this warning from Sonangol, Halliburton identified a local company owned by a former Halliburton employee who was the friend and neighbor of the Sonangol official with authority to approve Halliburton subcontracts. According to the SEC, a Halliburton employee then undertook a series of efforts to engage the local company to fulfill local content requirements. When an alleged effort to engage the local company as a “commercial agent” with commission fees based on existing revenues from Halliburton’s Angolan operations was rejected because, among other reasons, it would require an extensive integrity due diligence process, Halliburton allegedly turned to an arrangement where the local company would provide ill-defined “real estate transaction management consulting services.” This consultancy arrangement was approved, the SEC alleged, on a sole-source basis outside of Halliburton’s standard procurement processes, and resulted in the payment of $3.7 million to the local company for no meaningful services.

While the SEC did not allege that any of this $3.7 million was channeled to any Sonangol officials, it alleged that the engagement of the local company outside of Halliburton’s applicable procurement processes, and the concealment of the true purpose of the engagement, violated the FCPA’s accounting provisions. Whereas Halliburton allegedly earned $14 million on the underlying services subcontracts approved during the period of the local company’s engagement, Halliburton paid nearly twice that—$29.2 million—to settle with the SEC, and was required by the SEC to retain an independent compliance consultant for a period of 18 months to review and evaluate the company’s anti-corruption policies and procedures.

Risk Mitigation Strategies

There are a number of risk mitigation steps companies can implement to reduce and mitigate compliance risk flowing from local content requirements.

First, as a baseline risk mitigation measure, companies facing local content issues should perform compliance risk assessments and develop and implement anti-corruption compliance policies and controls, and ensure that employees and third parties in sensitive positions are trained on these policies and controls. Apart from being a critical item in meeting regulatory expectations, risk assessments, in which companies review their operations and compliance risks, typically through both desktop review and interviews of employees and relevant third parties, enable companies to better focus their compliance efforts. Because effective compliance programs are not “one size fits all,” risk assessments are a necessary step to allow companies to target their key risks and efficiently deploy resources in the development, implementation, and maintenance of their compliance programs.

Second, because of the significant compliance and fraud risks that may arise from local content requirements in certain jurisdictions, companies operating in high-risk markets and industries should consider developing special compliance policies procedures for local content transactions. Given how local content requirements involve cross-cutting commercial, human resources, procurement, and government affairs issues, they require holistic, cross-functional, and practical solutions with input from multiple stakeholders other than just compliance professionals.

Third, regardless of whether a company has special procedures for addressing local content issues, it is critical that local content partners be subject to appropriate integrity diligence and contractual obligations. Robust, risk-based diligence on third parties is a critical part of any anti-corruption program, but it is even more important when dealing with local content partners. Attention must be given to whether the local partner is a government or parastatal official, is owned (directly or indirectly) by such an official, or has close economic or familial ties to such an official. If these circumstances are present, the likelihood that the official could be viewed as receiving an improper benefit related to the company’s desire to further its business interests is significant. Beyond diligence, it is often appropriate to include various compliance-related provisions in contracts with local content partners, including affirmative obligations to comply with applicable laws or compliance policies, audit and investigation rights, and termination rights.

Finally, companies engaging local content providers should implement an oversight plan, and be proactive in addressing compliance issues. While diligence and contractual provisions are critical front-end risk mitigation steps, close oversight is necessary throughout the entire life cycle of a local content relationship. This includes close scrutiny of contracts, scopes of work, invoices, and deliverables to ensure that local content partners are providing actual services in line with agreed upon terms and conditions. If red flags arise, such as invoices for services outside the provider’s contractual scope, or excessive charges, they should be promptly investigated.

This article was prepared by Covington attorneys qualified to practice law in the United States and the United Kingdom. It does not constitute legal advice. If you have further questions about your compliance programs, how to conduct due diligence on a local partner, or Covington’s anti-corruption work in Africa, please contact Ben Haley at bhaley@cov.com or David Lorello at dlorello@cov.com.

 

Congress takes the lead on U.S.-Africa Policy

While the nation has been transfixed by the confirmation hearings of Judge Brett Kavanaugh for a seat on the Supreme Court, Congress passed significant legislation on Africa that has attracted virtually no attention.

On October 3, the Senate passed the Better Utilization of Investments Leading to Development Act, better known as the Build Act. President Trump is expected to sign the legislation in the next several days. The Build Act could be the most significant U.S. initiative toward Africa in the Trump era.

For one, the legislation will transform the Overseas Private Investment Corporation (OPIC) into the U.S. International Development Finance Corporation with a budget of $60 billion, twice the size of OPIC’s current budget. Most importantly, the USIDFC will take equity positions in investments, something that OPIC never had authority to do. Equity investments have been essential to the support that Chinese and European development finance funds have provided to companies from their respective countries. The new agency is a much needed instrument of commercial diplomacy that the U.S. has been sorely lacking. Not only will it lead to more U.S. investment in Africa, which will be a stimulus to economic development across the continent, but it makes U.S. companies more competitive and reduces the risk in a growing market that is not well understood by American business.

Six days prior to the passage of the Build Act, Congress reauthorized the Global Food Security Act, first passed in 2016. This landmark legislation, which supports the Obama-era Feed the Future program, is a government-wide strategy to combat hunger and malnutrition in developing countries. As the Alliance to End Hunger notes, the program focuses on increasing sustainable agricultural development, especially in the vital first 1,000 days between a woman’s pregnancy and her child’s second birthday. Since 2011, an estimated 5.2 million families no longer experience hunger and 3.4 million children are living free from stunting as a result of Feed the Future’s work.

In the next several weeks, Congress is expected to pass a third piece of legislation, the Women’s Entrepreneurship and Economic Empowerment Act. This bill would expand the authority of United States Agency for International Development’s microenterprise development program to include small and medium businesses owned, managed, and controlled by women. It would also work to reduce gender disparities related to economic opportunity, support women’s property rights, and eliminate gender-based violence. This legislation has passed the House and is actively supported by CARE, the global anti-poverty organization, and President Trump’s daughter, Ivanka Trump. It has strong bipartisan support in the Senate and 11 cosponsors.

Africa will lose two of its strongest Congressional champions, House Foreign Affairs Chairman Ed Royce and Senate Subcommittee on Africa Chairman Jeff Flake, when both retire at the end of the year. It is worth noting, however, that the Build Act passed the Senate by a 93-6 vote and similarly strong support in the House. While the Trump administration has yet to formulate a policy toward the region, Congress has stepped up in a strong bipartisan manner to play a pivotal role in promoting U.S. interests in Africa, especially as it concerns women, the private sector, and economic development more generally.

 

This article was originally published on the Brookings Institution’s Africa in Focus blog. Since the blog’s original posting, President Trump has signed the Build Act into law.

 

Smart Power: Investing in Youth Leadership and Development

“So, young people…my message to you is simple, keep believing, keep marching, keep building, keep raising your voice. Every generation has the opportunity to remake the world.”

-President Barack Obama, 2018 Nelson Mandela Annual Lecture, South Africa

 

Of the many statistics that define Africa’s complexity, this may be the most important one: With 200 million people between ages 15 and 24, Africa has the youngest population in the world. This demographic is expected to double by 2045. The question is whether Africa’s youth population is a “ticking time bomb,” a concern expressed by Zambia’s finance minister, Alexander Chikwanda, or, if the continent’s demography will contribute to sustained economic growth and diversification. Despite fast economic growth from 2000 to 2015, the absolute number of poor has increased in Africa and about 70 percent of young people live below the poverty line.

Engaging Africa’s youth is therefore critical, and has to become a top policy priority for African governments and other stakeholders. It is encouraging that some progress has been made. For example, the African Union’s theme for 2017 was “harnessing demographic dividends through investment in youth.” Aligned with this is recent Africa Growth Initiative research that contends governments need better policies and well-trained civil servants in order to enhance job creation, implement pro-poor policy interventions, and ensure effective public service delivery.

A step in this direction occurred last month in Johannesburg, when 200 young leaders from across Africa gathered for the inaugural meeting of the Obama Foundation Leaders: Africa program. The initiative’s goal is to equip these emerging leaders with the tools and inspiration they need to tackle some of the toughest challenges facing their communities, countries, and the continent. Working with President Obama and others, the young leaders took part in skills workshops, engaged with each other, and participated in a town hall with the president.

The gathering coincided with Mandela Day—a celebration of Nelson Mandela’s life—100 years after his birth. Despite the huge strides made by Mandela and others in Africa, the continent still struggles with corruption, slow-moving bureaucracies, and underperforming civil servants. These constraints have far-reaching effects. As President Obama noted in his remarks for the 2018 Nelson Mandela Annual Lecture: “In fact, it is in part because of the failures of governments and powerful elites to squarely address the shortcomings and contradictions of this international order that we now see much of the world threatening to return to an older, a more dangerous, a more brutal way of doing business.”

Despite these shortcomings, President Obama’s message was one of hope based on the belief that the next generation of leaders will utilize technology, innovation, and entrepreneurship to improve governance and opportunities. Indeed, a recent study by the African Union and the OECD found that government action is key to overcoming challenges related to growth, jobs, and inequalities. Elemental to this is the need for government institutions to deliver services efficiently and to create a regulatory environment that fosters development, economic growth, and job creation for today’s youth. Young leaders need to become change agents in the public and private sectors in order to ensure that the continent’s youth population contributes fully to the region’s progress. I have personally observed the positive impact of youth leadership initiatives in Africa, as a member of the Global Advisory Board of IREX, a nonprofit organization that manages YALI’s Mandela Washington Fellows program, and a board member of Emerging Public Leaders.

The Young African Leaders Initiative (YALI), created by the Obama administration and continued by the Trump administration, seeks to achieve this goal. In reality, YALI is one of the most innovative and impactful initiatives implemented by the U.S. in Africa; the fifth class of YALI’s Mandela Washington Fellows recently completed six weeks of leadership training in the U.S. and a summit in Washington with senior administration and congressional officials. Since YALI’s first class of fellows arrived in the U.S. in 2014, nearly 4,000 young Africans have participated in the program. Not only are the Fellows transformative leaders in the areas of public service, business and nonprofits, but more than 77 percent report sustained relationships with other fellows across the 49 countries of sub-Saharan Africa from which they are selected.

Another innovative program, Emerging Public Leaders (EPL), is a public service leadership organization providing high performing African youth with the tools and experiences necessary to become future public leaders and change agents. Through its highly selective Public Service Fellowship, EPL recruits and places talented university graduates into critical civil service positions for two years. Much like the U.S. government’s Presidential Management Fellows program, EPL provides future government leaders with the skills to think critically, act ethically, and ultimately drive good governance in civil service institutions.

Over the past decade, EPL has recruited and supported over 160 fellows through its flagship program in Liberia, the President’s Young Professionals Program, and its recently launched program, Emerging Public Leaders of Ghana. EPL’s longer-term goal is to expand its model beyond Liberia and Ghana to form a pan-African network of 500 public sector leaders by 2022.

Africa’s future is its youth. With nearly 60 percent of Africa’s 1.2 billion population under the age of 35, today’s youth face an unprecedented challenge to create and sustain meaningful change in their communities, countries, and across the globe. Empowering and investing in tomorrow’s leaders is a powerful way not only to honor the legacy of Nelson Mandela, but to work for a future that is secure and equitable.

Dr. Schneidman is a member of the Global Advisory Board of IREX that manages YALI’s Mandela Washington Fellows program and a board member of Emerging Public Leaders. This piece was also cross-posted on Brookings’ Africa in Focus Blog.

 

A Step Along the Road to a Legally Binding Treaty on Business and Human Rights

We reported following the 2017 UN Forum on Business and Human Rights on the progress of an international treaty on the subject. On 19th July 2018, the Open-ended Intergovernmental Working Group (OEIGWG) presented the draft text of a treaty to the High Commissioner for Human Rights (through the Permanent Mission of Ecuador, acting as Chair in the process).

The draft has been crafted pursuant to Human Rights Council Resolution 26/9 under which the OEIGWG was given the mandate to “elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises.”

The text will serve as the basis for negotiations in the fourth session of the OEIGWG in October 2018.

Key Elements of the “Zero” Draft (16.7.2018)

Previous discussions of the OEIGWG contemplated the possibility of any eventual treaty creating direct international legal obligations for businesses. However, as it stands, the draft would only impose obligations on state parties to take legislative and other measures to ensure business accountability and access to remedy for victims.

As drafted, the treaty would require state parties to:

  1. Guarantee the rights of victims of human rights violations – in the context of business activities with a transnational nature – to access to justice and remedies, including restitution, compensation, rehabilitation and guarantees of non-repetition. States would be required to provide effective mechanisms for enforcement of remedies against any offending persons (including businesses), including foreign judgments and would establish an “International Fund for Victims” to provide legal and financial aid to victims (Article 8).
  2. Ensure that domestic legislation imposes human rights due diligence obligations on persons with business activities of transnational character within a state party’s territory or otherwise under their jurisdiction or control. Proposed due diligence measures include requirements for businesses to:
  • monitor human rights impacts of their business activities, including the activities of subsidiaries and entities under a business’ control or linked to its operations, produces and services;
  • prevent human rights violations within the context of business activities;
  • publically and periodically report on non-financial matters, including environmental and human rights matters;
  • conduct human rights impact assessments; and
  • reflect due diligence requirements in all contractual relationships involving business activities of transnational character.

State parties would be given the option to exempt certain small and medium-sized undertakings from the scope of such obligations (Article 9).

  • Ensure liability for violations of human rights undertaken in the context of business activities of transnational character with effective, proportionate and dissuasive criminal and non-criminal sanctions, including monetary sanctions. Legislation should impose liability for harm caused by operations to the extent a relevant business exercises control over the operations, exhibits sufficiently close relations with its subsidiary or foresaw or should have foreseen risks of human rights violations within its chain of economic activity (Article 10).

The draft also covers certain key matters relating to the operation and enforcement of treaty obligations, including:

  • The concept of mutual legal assistance: state parties would be required to assist other state parties in initiating and carrying out investigations, prosecutions and judicial proceedings in relation to cases covered by the treaty (e.g. by facilitating the seizure of assets) (Article 11).
  • Obligations on states to submit periodical reports on measures taken to a Committee of experts.

Criticism

Early criticism of the draft includes concerns that:

  • States would only be obliged to legislate with respect to natural and legal persons (including businesses) in the context of “business activities of a transnational character”, appearing to exclude domestic companies. This conflicts with the notion set out in the preamble of the draft treaty and recognised under the non-binding UN Guiding Principles on Business and Human Rights that “all business enterprises, regardless of their size, sector, operational context, ownership and structure shall respect all human rights, including by avoiding causing or contributing to adverse human rights impacts through their own activities and addressing such impacts when they occur”. Conceptually, it appears strange that domestic companies should not be required to comply with the same human rights standards as transnational businesses.
  • There is a lack of clarity surrounding what rights will be covered under the treaty. The draft refers to “all international human rights” and those recognised by domestic law. It has been argued that this should be defined more clearly, for example by reference to particular treaties (see here).
  • Draft Article 10 attempts to define the boundaries of civil liability broadly. States are required to ensure civil liability where harm has been caused by human rights violations including where a business exhibits a “sufficiently close relation with its subsidiary or entity in its supply chain” or “to the extent risk should have been foreseen” within its supply chain. This may well be a hotly contested issue in further negotiations (as discussed here), particularly in light of recent and ongoing case law in jurisdictions including the U.K. and Canada on the subject of parent company liability for alleged human rights violations by subsidiaries or connected businesses.

What Does this Draft Mean for Business?

Treaties can take years to negotiate and there are several key areas where further clarification and discussion is arguably required before the zero draft progresses. Furthermore, certain states (including the U.S.) continue to boycott the negotiating process and it is unclear at this stage how much state support the treaty will garner and how many states would eventually ratify the treaty and take measures to comply.

However, what is clear from the draft is that such a treaty could impact many businesses operating transnationally. Pursuant to treaty obligations, signatory states may enact and enforce legislation (i) requiring companies to conduct human rights due diligence; and (ii) providing legal recourse (civil, criminal or administrative) to victims who allegedly suffer negative impacts to their human rights as a result of such business activities.

Independently from the treaty process, states continue to enact or consider domestic legislation imposing human rights due diligence obligations on corporates (see our recent alert here). Companies are advised to track such legislation and consider the robustness of their human rights due diligence policies and procedures.

We will continue to monitor discussions and progression of the treaty.

If you have any questions concerning the material discussed in this client alert, please contact the following members of our International Employment practice:

Christopher Walter                           +44 20 7067 2061                  cwalter@cov.com
Tom Plotkin                                       +1 202 662 5043                    tplotkin@cov.com
Hannah Edmonds-Camara               +44 20 7067 2181

hedmonds-camara@cov.com

 

This information is not intended as legal advice. Readers should seek specific legal advice before acting with regard to the subjects mentioned herein.

Covington & Burling LLP, an international law firm, provides corporate, litigation and regulatory expertise to enable clients to achieve their goals. This communication is intended to bring relevant developments to our clients and other interested colleagues.

The 2018 AGOA Forum: A turning point for US-Africa commercial relations?

The 2018 AGOA Forum—named for the African Growth and Opportunity Act passed in 2000 and extended three years ago to 2025—could be a turning point in U.S.-African commercial relations. AGOA abolished import duties on more than 1,800 products manufactured in eligible countries sub-Saharan Africa (those with established or making continuous progress with market-based economy, rule of law and pluralism, elimination of trade and investment barriers to the U.S., human rights, labor standards, fight against corruption, and economic policy to reduce poverty among others). Another 5,000 products are eligible for duty-free access under the Generalized System of Preferences program. As of today, 40 African countries are AGOA-eligible.

REGIONALISM VS SINGLE COUNTRY TRADE AGREEMENTS

Africa’s trade ministers will be coming to Washington the week of July 9, riding the momentum of having adopted the African Continental Free Trade Agreement in March. Once fully implemented, the AfCFTA, as it is known, requires members to remove tariffs on 90 percent of goods and to allow free access to goods, services, and commodities. The AfCFTA is central to accelerated regional integration and economic development across the region.

While Africa is forging new trade relations internally, the Trump administration has a new proposal for future U.S.-Africa trade relations, and wants to establish “a free trade agreement that could serve as a model for developing countries.” Kenya, Côte d’Ivoire, and Ghana are under consideration as partners for developing the first model according to sources in the Trump administration.

The question for this AGOA Forum is whether it can forge a common vision between Trump administration officials and Africa’s trade ministers on how to structure a post-AGOA trade relationship. Specifically, can Africa’s continental free trade ambitions, embedded in the AfCFTA, be harmonized with the Trump administration’s model free trade agreement based on a single country?

The AfCFTA should be the ideal tool to foster U.S.-Africa commercial relations, with an agreement between Africa at the continental level and the United States. American corporations benefit from a continental approach versus a country-specific one. In fact, by 2030, Africa will be home to 1.7 billion people and $6.7 trillion of combined customer and business spending. The AfCFTA presents the opportunity for a single point of entry, reduced cost of doing business, economies of scale, lower tariffs, and increased commercial transaction—which could contribute to job creation in the U.S. However, the AfCFTA still has to come into force, and some African countries, including economic powerhouses like Nigeria, have not yet joined the initiative. It is therefore critical for the African Union to adopt a more proactive strategy for its relations with the U.S. and propose an attractive continental partnership to the U.S. to advance mutual interests.

The task will not be easy for the African Union and the AfCFTA and, on the surface, it is hard to see where compatibility will be found in the differing approaches to the future of U.S.-African trade relations. In fact, the U.S. tried to forge a free trade agreement with South Africa and the Southern African Customs Union more than a decade ago and was unsuccessful. Moreover, U.S. free trade agreements are comprehensive, complex, and take time to negotiate. Given the rapid rise of China’s trade with the continent and the European Union’s Economic Partnership Agreements—which increasingly puts American goods at a significant tariff disadvantage in a growing number of African markets—a singular model trade agreement could do little to bolster the U.S. trade and investment position across an African continent working to fully integrate into the global economy. Moreover, Africa is seeking a regional approach to its trading relationships and not a country-by-country process.

While the U.S. Trade Representative works to develop a future U.S.-trade relationship with Africa, a positive Trump Africa legacy could revolve around its support for the bipartisan BUILD Act (Better Utilization of Investments Leading to Development Act), which is making its way through Congress and, if passed, would create the U.S. International Development Finance Corporation (USIDFC). The new agency would transform the existing Overseas Private Investment Corporation by doubling its size and enabling it to make equity investments of up to 20 percent in U.S. projects, among other new capabilities. As Africa is the largest part of OPIC’s current investment portfolio, the proposed USIDFC promises to be a key part of any enhanced U.S. commercial engagement in Africa.

WORKING TOWARD COMMON GROUND

The 2018 AGOA Forum could be a turning point for U.S.-Africa commercial relations. The African Union has already made important progress by organizing an annual AGOA mid-term review, along with its partner organizations (the United Nations Economic Commission for Africa and the regional economic communities), to help organize the AGOA Forum. However, if Africans do not succeed at putting a continental approach on the agenda during the forum, they should quickly follow up with an evidence-based comprehensive strategy that will provide options to the U.S. to best serve mutual interests, advance the continental perspective and Agenda 2063, and make America more competitive in a context where China and the European Union are winning. A win-win strategy is the way forward from both sides.

Post contributed by guest blogger Landry Signe, a David M. Rubenstein Fellow at Brookings’ Africa Growth Initiative and is not affiliated with Covington & Burling LLP. This piece was also cross-posted on Brookings’ Africa in Focus blog.

Recent Media Interviews on African Business Trends

Witney Schneidman, Chair of Covington’s Africa Practice, recently participated in a number of media interviews where he discussed various business trends on the continent. Below are links to those interviews.

  •  An interview with CGTN that compared the commercial approaches of China and the United States in Africa. LINK
  • CNBC-Africa’s Closing Bell had Witney Schneidman on their program to discuss Cyril Ramaphosa’s first 100 days at the President of South Africa. LINK
  • An interview with CNBC’s Squawk Box regarding the Chinese commercial presence in Africa. LINK

What Companies Need to Know About France’s Loi Sapin II Anti-Corruption Law

On June 3, 2018, French tycoon Vincent Bolloré warned investors that Groupe Bolloré—a logistics provider with extensive operations in former French colonies in Africa—may suffer negative commercial and financial consequences as a result of a corruption investigation initiated by French authorities. Mr. Bolloré was questioned for two days by French police in April 2018 over allegations that Groupe Bolloré’s global advertising agency, Havas, provided improper benefits to the Presidents of Guinea and Togo in exchange for lucrative business contracts. Mr. Bolloré’s prediction on the investigation was bleak; he noted that the investigation will “last for 10 years, raids will be carried out, people will be questioned, the press will cover it day-to-day.”

The Groupe Bolloré investigation is one of the first high-profile investigations by French authorities since the December 2016 passage of France’s new anti-corruption law, titled “Loi relative à la transparence, à la lutte contre la corruption et à la modernisation de la vie économique,” (“The law on transparency, the fight against corruption and the modernisation of economic life”), but commonly referred to as “Loi Sapin II,” given its sponsorship by former French Finance Minister Michel Sapin.

Commentators have pointed to the Groupe Bolloré investigation as a game-changer in French enforcement of anti-corruption laws, one that marks the ushering in of a new era of accountability for French businesses operating in Africa. We have previously covered developments relating to Loi Sapin II here and here. Below, we outline key aspects of the Loi Sapin II regime and its broader implications for companies operating in Africa.

Background on Loi Sapin II

Although France joined the Organization for Economic Co-Operation and Development (OECD) Anti-Corruption Convention in 1997, as recently as 2012 the OECD has pressed France to improve its anti-corruption enforcement efforts. Notably, US anti-corruption enforcers have brought several high-profile Foreign Corrupt Practices Act (“FCPA”) enforcement actions in recent years against French companies, each with significant financial penalties, and French enforcers have been criticized for taking no or limited action in some of those matters.

Loi Sapin II is notable in a number of respects. Specifically, the law (1) expands the extraterritorial reach of France’s anti-corruption laws; (2) obligates certain business organizations to implement compliance programs; (3) creates a new anti-corruption agency, the Agence Francaise Anticorruption (“AFA”); (4) improves protections for whistleblowers; and (5) creates a settlement framework known as the Convention judiciaire d’intérêt public (“CJIP”), which has been likened to a deferred prosecution agreement (“DPA”) under US practice.

  1. Extraterritorial Reach of Loi Sapin II

 Perhaps the most important change in Loi Sapin II is the elimination of a dual criminality requirement for prosecution of extraterritorial conduct, significantly extending the ability of French authorities to reach corrupt conduct occurring overseas. Previously, French authorities had jurisdiction to prosecute offenses committed outside of French territory where: (1) the victim or wrongdoer were French citizens; (2) the alleged conduct was unlawful under the law of the local jurisdiction and French law; and (3) either the victim or the relevant foreign authority filed a complaint. Loi Sapin II removes these requirements, and also permits prosecution of persons or entities (regardless of their citizenship or nationality) who carry out all or part of their economic activity on French territory.

  1. Mandatory Compliance Program Requirements

 Article 17 of Loi Sapin II imposes mandatory compliance program requirements for French companies that employ 500 or more employees with gross revenue of more than €100 million, as well as all consolidated subsidiaries of parent companies that meet the aforementioned size and revenue requirements. As of June 9, 2017, companies that meet these criteria were required to implement the following measures: (1) an anti-corruption code of conduct; (2) internal and external whistleblowing procedures; (3) risk-mapping that considers the company’s industry focus and geographic coverage; (4) third-party due diligence procedures; (5) internal and external accounting controls; (6) anti-corruption training; and (7) an internal monitoring and assessment system. In December 2017, the AFA published recommendations for the implementation of these measures. An English version of the AFA’s Guidelines can be viewed here.

  1. Powers of AFA

 The AFA replaces the previous Service Central de Prévention de la Corruption (“Central Service for the Prevention of Corruption”). It is anticipated to have four times as many staff as its predecessor agency (more than 60 compared to 16) and a budget of €10–15 million. While the AFA does not have the power to investigate or prosecute bribery allegations, it has substantial powers to ensure that covered entities comply with Article 17 requirements. This includes the power to request documents, conduct site visits, and interview personnel during such site visits. As an enforcement mechanism, the AFA is empowered to impose fines against companies that fail to comply with program requirements, as well as relevant company leadership. Fines may also be imposed for refusal to share information requested by AFA.

  1. Whistleblower Protections

 Loi Sapin II includes stronger whistleblower protections than were previously available under French law. These protections extend to any disinterested person who in good faith reports a violation of French law or an issue that poses a serious threat to the public interest of which he or she has personal knowledge. Companies are required to guarantee confidentiality and protect the identity of whistleblowers (Article 9), and are prohibited from retaliating against whistleblowers (Article 10). To enjoy the law’s protections, a whistleblower must first report suspected wrongdoing to his or her supervisor; only when the supervisor does not act within a reasonable timeframe or in the event of imminent danger is the employee permitted to report directly to the authorities. Loi Sapin II also provides immunity to whistleblowers (Article 7); and anyone found to create an “obstacle” to the filing of a whistleblowing report may face a fine of €15,000 and up to one year in prison, while revealing a whistleblower’s identity carries a potential two-year prison sentence and a fine of up to €30,000.

  1. CJIPs

 Loi Sapin II introduced a resolution mechanism for enforcement actions known as the “CJIP” (short for “convention judiciaire d’intérêt public”) into French Criminal Law. Similar to deferred prosecution agreements employed by US authorities, CJIPs are negotiated settlements that apply to corporate entities. Under a CJIP, an organization may, without pleading guilty, agree to a combination of monetary remedies and compliance measures for alleged violations of Loi Sapin II. Like US DPAs, CJIPs may require the imposition of corporate compliance monitors. While France’s CJIP regime does not include a formal framework for assessing credit in a resolution for a company’s cooperation in the government’s investigation or voluntary disclosure of potential misconduct, we expect that these issues will prove to be significant factors in French prosecutors’ decisions whether to proceed by CJIP, and, if so, the remedies under a CJIP.

Considerations for Companies Subject to Loi Sapin II Operating in Africa

With the Loi Sapin II regime still in its relative infancy, trends are difficult to predict with confidence. However, we see two immediate takeaways for companies subject to Loi Sapin II:    

  1. Companies Should Be Prepared for Significantly Increased Risk of Investigation of Extra-Territorial Conduct Under Loi Sapin II

It is perhaps too early to predict whether the Groupe Bolloré investigation will prove to be the tip of the spear in an aggressive anti-corruption enforcement campaign by French prosecutors over the coming years. However, we would expect more high-profile investigations to follow, and the combination of Loi Sapin II’s extensive extra-territorial reach and its whistleblower provisions significantly increases the likelihood that corrupt conduct abroad will come to the attention of French prosecutors. This raises the stakes for French companies dealing with allegations of corruption abroad. Companies finding themselves in this position would be well-advised to conduct internal investigations that are sufficiently prompt and thorough to withstand pressure-testing from enforcement authorities, and also to take swift remedial actions, including appropriate enhancement to anti-corruption policies and controls. While time will tell, as French enforcers begin to hit their stride and the investigation and resolution process under Loi Sapin II becomes more mature, we expect that there will be increased focus on issues of self-reporting, cooperation, and remediation, much as is the case in US and UK investigations. Moreover, recent enforcement actions have demonstrated increasing cooperation between French authorities and foreign enforcers, including US enforcers, raising the prospect of investigations and enforcement actions with multiple regulators at the table.

  1. Loi Sapin II’s Compliance Program Requirements Will Require Significant Resources and Consistent Efforts

Entities subject to Loi Sapin II’s mandatory compliance program requirements must grapple  with a series of requirements and AFA oversight of their compliance programs. Although the AFA has indicated that it does not wish to dictate the specific methods through which companies achieve their compliance objectives, the AFA guidance will undoubtedly inform the measures that companies subject to Article 17 of Loi Sapin II (and perhaps companies not strictly subject to Article 17) put in place to meet its requirements. The AFA guidance is largely consistent with OECD best practices and the guidance that has emerged relating to the FCPA and UK Bribery Act; indeed, the AFA has indicated that it sought to integrate into its recommendations the requirements of international anti-bribery legislation to ensure that French standards are consistent with international best practices. Accordingly, companies that have already implemented compliance programs consistent with the guidance relating to the FCPA and/or the UK Bribery Act and are subject to the Article 17 compliance program requirements in France will likely be able to retain the core elements of their compliance programs, although additional measures may be required to meet some of the prescriptive requirements set forth in Loi Sapin II.

What this means in practice is that companies subject to Article 17 may not have the luxury of a prolonged timeframe to build a mature and effective compliance program. What is more, the AFA guidelines, which include detailed methodologies for risk assessment and monitoring the effectiveness of compliance programs, make clear that a “check the box” approach will be insufficient. As a result, companies that are subject to Article 17 would be well served to seek advice from professionals with experience implementing, and sustaining, compliance programs that pass muster with US and UK authorities. Moreover, even after initial implementation processes are complete, companies subject to Article 17 would be best advised to perform periodic assessments of the effectiveness of their programs.

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This blog was prepared by Covington attorneys qualified to practice law in the United States and the United Kingdom. It does not constitute French law advice. Covington partners with French counsel with anti-corruption expertise to provide integrated anti-corruption compliance advice that takes into account French law as well as the international best practices that have developed under the US Foreign Corrupt Practices Act, the UK Bribery Act, and other international anti-corruption laws and conventions. If you have further questions about Loi Sapin II or Covington’s anti-corruption work in Africa, please contact Ben Haley at bhaley@cov.com or Sarah Crowder at scrowder@cov.com.

The Roggeveld Wind Farm in South Africa

On 4 April 2018, Covington’s client Building Energy, a multinational company operating in the renewable energy industry, signed a power purchase agreement (PPA) with the South African state owned utility Eskom Holdings SOC Ltd (Eskom) to build, own and operate a 147 MW wind plant in Roggeveld (on the border of the Western and Northern Cape provinces of South Africa). Building Energy had been awarded preferred bidder status under Round 4 of the South African Department of Energy Renewable Independent Power Producer Procurement (REIPPP) programme for the wind project in April 2015. The Roggeveld wind farm will generate around 613 GWh per year and the energy generated will provide energy to 49,200 households every year, while avoiding the emission of about 502,900 tons of CO2 emissions. Construction work is scheduled to begin in 2018 and the commercial operation date is foreseen to be in April 2021. Matteo Brambilla (Building Energy’s Managing Director for Africa and the Middle East) commented “We are delighted to have signed the agreement in the presence of Minister of Energy of South Africa, for the construction of the Roggeveld plant, which represents our first wind farm in South Africa. We are also excited to develop two of the 2.3GW of renewable energy projects allocated by South African Government in the first major investment deal under President Cyril Ramaphosa”.

The REIPPP programme was implemented to assist the development of the renewable energy sector and encourage private investment in South Africa. The national renewable energy target is for 18,800MW to be supplied by renewable energy by 2030. Furthermore, the programme is designed to contribute to developing foreign investment, socio-economic and environmentally sustainable growth. The REIPPP programme has already delivered 5,243 MW in the space of four years, projects covered by the programme mainly consist of solar photovoltaic, concentrated solar power, biomass, landfill gas, small hydropower and biogas. A large spectrum of funding mechanisms have been utilised, ranging from a variety of foreign private equity, local private equity and large commercial and development banks. Some of the funding is composed of local private equity funds for black economic empowerment purposes to represent surrounding communities. The so-called “Broad Based Black Economic Empowerment” (B-BBEE) legislation is a central part of the South African government’s economic strategy. The B-BBEE policies are an enabling framework that allows government to implement a standard framework for the measurement of B-BBEE across all sectors of the economy. The aim is to increase the number of black individuals that manage, own and control the country’s economy, and to decrease racially based income inequalities. In public sector projects, achieving B-BBEE goals is a significant evaluation criterion.

In the past year the energy sector in South Africa has faced a series of political turbulence pertaining to several factors. The country’s economic volatility was evident when a cabinet reshuffle carried out by former President Jacob Zuma in March 2017 ultimately resulted in South Africa’s economic outlook taking a turn for the worst when credit ratings agencies downgraded the country’s sovereign rating. This was followed by the resignation of President Jacob Zuma, earlier this year, who was subsequently replaced by Cyril Ramaphosa. Eskom has also shown some reluctance to sign PPAs relating to twenty-seven independent power producer projects under the REIPPP programme. The signing was further delayed in March 2018 by an application brought in the North Gauteng High Court by the National Union of Metalworkers of South Africa (NUMSA) and the civic group “Transform Republic of South Africa”, to interdict Eskom from signing the twenty-seven outstanding renewable energy deals. The application alleged that (i) the entry into the PPAs would damage Eskom’s financial position and (ii) the purchase price in the PPAs over the next twenty years exceeded Eskom’s short-run marginal cost and the average price of electricity. The North Gauteng High Court ruled against NUMSA and was of the view that a case for urgency had not been made. As a result the new energy minister, Jeff Radebe, was not prevented from signing the PPAs, including the Roggeveld PPA. The projects are expected to create over 61,000 jobs and draw investment worth 56 billion Rand to the economy, according to the energy department. The conclusion of the projects marks a new dawn for South Africa’s REIPPP programme, as this reaffirms the government’s commitment to renewable energy and reinforces President Ramaphosa’s national agenda.

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