What Companies Need to Know About World Bank and African Development Bank Debarment (and How to Avoid It)

In March 2017, World Bank Group president Jim Yong Kim announced that the World Bank would provide a record $57 billion in financing for projects in sub-Saharan Africa in the 2018–2020 fiscal year period. Consistent with that commitment, the World Bank’s most recent annual report indicates that $19.8 billion was issued to partner countries and businesses in sub-Saharan Africa in the 2018 fiscal year. Moreover, the African Development Bank (“AfDB”) reached its highest ever disbursement level in 2017 at approximately $7.4 billion, and it has set an overall lending target for 2018 of approximately $9.5 billion. This means that there are and will continue to be substantial opportunities for companies to bid for and participate in World Bank and AfDB-financed projects in Africa. It is important for companies embarking on such projects to understand the risks associated with the sanctions and debarment procedures that the World Bank, AfDB, and other multilateral development banks (collectively, the “MDBs”) have put in place to ensure that development financing is used for its intended purposes and is not misspent through fraud, corruption, or other forms of misconduct.

The World Bank has aggressively enforced its sanctions and debarment procedures for several years, and the other MDBs, including AfDB, have in recent years followed suit. According to a report published by the World Bank’s Office of Suspension and Debarment (the “OSD Report”), the World Bank imposed sanctions on 489 firms and individuals from 2007 through 2017, excluding sanctions imposed on sanctioned firms’ corporate affiliates and cross-debarments imposed under the 2010 Agreement for Mutual Enforcement of Debarment Decisions between the World Bank, AfDB, the Asian Development Bank (“ADB”), the European Bank for Reconstruction and Development, and the Inter-American Development Bank (“IADB”). The increasing enforcement activity of the other MDBs is reflected in the number of cross-debarments that have recently been imposed by the World Bank. For example, the 2018 annual report published by the World Bank’s Integrity Vice Presidency (“INT”) indicates that the World Bank cross-debarred 73 entities and individuals in the 2018 fiscal year alone, in recognition of debarments imposed by AfDB, ADB, and IADB.

We described the World Bank’s sanctions and debarment process (which is similar to the other MDBs’ processes) in a prior alert. In this post, we discuss the kinds of misconduct that can lead to sanctions proceedings, the potential consequences of a sanctions proceeding, and steps companies can take to guard against the risk of a sanctions proceeding.

What conduct leads to sanctions proceedings?

The World Bank and AfDB sanctions procedures define “sanctionable practices” to include fraudulent, corrupt, collusive, or coercive practices in connection with the awarding or execution of a Bank-financed contract, or the obstruction of a Bank audit or investigation. Most sanctions cases are based on fraudulent practices, followed by corrupt and collusive practices. According to the OSD Report, 81% of World Bank sanctions cases between 2007 and 2017 involved allegations of fraudulent practices, 20% involved allegations of corruption, and 10% involved allegations of collusion (the figures exceed 100% as some cases involved allegations in more than one category).

A fraudulent practice is defined as “any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation.” Past fraudulent practices matters have involved: the misrepresentation of facts in tender submissions (such as the qualifications, experience, educational background, or availability of key personnel); forgery or falsification of documents (such as audited financial statements, bank guarantees, powers of attorney, business licenses, references, expense claims and supporting documents, and purported agreements with sub-contractors or joint venture partners); over-billing, including by submitting inaccurate time sheets or misrepresenting work progress; failure to disclose agreements with or payments to agents, sub-contractors, or joint venture partners; and failure to disclose conflicts of interest.

A corrupt practice is defined as “the offering, giving, receiving or soliciting, directly or indirectly, of anything of value to improperly influence the actions of another party.” Past corrupt practice cases have involved active corruption (including the payment of bribes, directly or through third parties, to influence tender processes, secure contracts, influence the implementation of projects, or facilitate the processing of invoices) and passive corruption (such as accepting bribes to direct contracts to particular contractors, or to approve inaccurate progress reports or fraudulent invoices). Several cases have involved the provision of non-monetary things of value, such as purported study tours that were primarily recreational in nature, vehicles provided to project officials for personal use, and extra-contractual services.

A collusive practice is defined as “an arrangement between two or more parties designed to achieve an improper purpose, including to influence improperly the actions of another party.” Past collusive practices cases have involved parties simulating competition by bidding with knowledge of each other’s prices or agreeing in advance to win different tenders and share the profits; making arrangements with procurement staff to obtain confidential tender information, modify bid specifications, or artificially inflate prices; and directing contracts to parties in exchange for kickbacks.

Obstructive practices are broadly defined to capture any conduct that may impede an investigation or hinder the Bank’s contractual audit rights. Past cases have involved outright refusals to cooperate with audits or investigations; providing inaccurate or incomplete documentation in response to requests for information; fabricating documents; and deleting email correspondence relevant to an investigation.

Coercive practices include harming a person or property, or making threats, to improperly influence the actions of a party. Coercive practice cases are rare, but in 2014 the World Bank debarred an individual for fraudulent and coercive practices on the basis that he submitted a fraudulent expense claim and made threats in an effort to have the fraudulent expenses paid.

What are the potential consequences of a sanctions proceeding?

The same range of sanctions appears in the respective sanctions procedures of the World Bank and AfDB. The sanctions, which are generally publicized, may be imposed in connection with a negotiated settlement or a contested proceeding.

The most commonly-imposed sanction is debarment, which means that the sanctioned company or individual is declared ineligible to participate in or otherwise benefit from any Bank-financed project. A debarment may be permanent or for a specified period of time, which in practice ranges from less than one year to many years—for example, the World Bank’s Sanctions Board recently imposed a 22.5-year debarment in a case involving allegations of corrupt, collusive, and obstructive practices. A debarment of longer than one year will generally qualify for cross-debarment by the other MDBs.

Debarment is often combined with “conditional release,” which means that the sanctioned party must demonstrate that it has satisfied certain conditions to have the debarment lifted. A party may also be “conditionally non-debarred,” which means that the party will remain eligible for participation in Bank-financed projects but must comply with specified conditions, failing which the non-debarment will be converted into a debarment. The conditions that are imposed typically include the implementation of a satisfactory compliance program and may include additional conditions such as cooperation with Bank investigations or the appointment of a compliance monitor.

The MDBs may also require sanctioned parties to pay restitution or other financial remedies. For example, in 2014, AfDB required four companies implicated in the Bonny Island corruption matter in Nigeria to pay a total of $22.7 million, to be used in AfDB projects preventing and combating corruption in countries across Africa. In 2017, a company that settled a corrupt practices case with the World Bank agreed to pay a financial remedy of €6.8 million to the DRC.

Finally, the MDBs frequently make referrals to national law enforcement authorities, which may initiate their own investigations and bring administrative or criminal enforcement actions. The introduction to INT’s 2017 annual report noted that the World Bank has “formalized information sharing and joint activities with . . . counterparts through 55 cooperation agreements” and “helped national authorities and other anti-corruption bodies stay apprised of relevant fraud and corruption risks by making 456 referrals in 101 countries.” INT’s 2018 annual report indicates that a further 43 referrals were made in the 2018 fiscal year. There have been a number of instances in which parallel enforcement actions were brought by an MDB and a national law enforcement authority—for example, in 2015, Hitachi Ltd. entered into settlements with AfDB and the U.S. Securities and Exchange Commission (“SEC”) based on allegations that its subsidiary channelled payments to the African National Congress to secure power contracts in South Africa. In a press release announcing the settlement, the SEC noted that it appreciated the assistance it had received from AfDB’s Integrity and Anti-Corruption Department and hoped the cooperation would represent “the first in a series of collaborations.”

How can a compliance program help?

Companies involved in MDB-financed projects should implement policies, procedures, and controls to guard against the occurrence of sanctionable practices. Even if such controls fail to prevent misconduct, they can put the company in a better position to defend itself in a sanctions proceeding. For example, when determining whether a misrepresentation was reckless for purposes of assessing whether a company has committed a fraudulent practice, the World Bank’s Sanctions Board has indicated that it will consider whether the company took precautions that were commensurate with the risk at issue. Similarly, in assessing whether a company should be held responsible for the actions of a “rogue employee,” the Sanctions Board generally considers whether the company had controls and supervision in place sufficient to prevent or detect the misconduct in question. If a company is sanctioned, being able to demonstrate that a robust compliance program is in place may help the company secure a shorter period of debarment or avoid the imposition of a compliance monitor.

The compliance measures that are put in place should be guided by a thoughtful risk assessment, the Integrity Compliance Guidelines published by the MDBs, and the patterns of conduct on which past sanctions cases have been based. In addition, insights regarding the control failures underlying past enforcement matters can be gleaned from past World Bank Sanctions Board decisions, which have been published in full since 2012. For example, past decisions have highlighted the importance of taking steps to ensure that no inaccurate or misleading information is included in tender submissions (including by implementing four-eye verification procedures and processes to authenticate key documents, structuring performance incentives in a way that promotes ethical practices, and providing sufficient guidance to personnel involved in preparing submissions); ensuring that robust financial controls are in place and regularly tested through audits; and ensuring that the use of agents is subject to appropriate due diligence and monitoring. Many of these principles will be familiar to anti-corruption compliance professionals, as they are consistent with the compliance best practices articulated by enforcement authorities including the U.S. Department of Justice (“DOJ”), which we discussed most recently in an alert describing 2017 guidance released by the DOJ’s Fraud Section regarding the criteria it has generally found relevant in evaluating corporate compliance programs.


This article is intended to provide general information. It does not constitute legal advice. If you have questions about navigating World Bank or AfDB sanctions proceedings, or implementing a compliance program that can help mitigate debarment risk, please contact Ben Haley at bhaley@cov.com, David Lorello at dlorello@cov.com, or Sarah Crowder at scrowder@cov.com.

Covington Strengthens Africa Practice with Key Additions to Johannesburg Office

We are pleased to share that partner Ben Haley has relocated to the firm’s Johannesburg office to lead the firm’s Africa-focused compliance and investigations efforts. Mr. Haley joins another recent addition to the Johannesburg office, Robert Kayihura, who will lead the office’s Public Policy and global problem solving practice.

Mr. Haley is an experienced compliance and investigations lawyer who assists corporations and individuals in navigating the dynamic enforcement environment. In addition to representing companies and individuals in complex internal and government investigations, Mr. Haley regularly advises clients on a range of compliance issues, including by conducting risk and program assessments, providing advice in connection with proposed transactions, and assisting companies in building and strengthening compliance programs and controls. He has deep experience on the ground in Africa, including in Kenya, Nigeria, Tanzania, Uganda, and South Africa. His recent engagements in Africa include:

  • serving as lead counsel in a compliance integration and enhancement project for one of the world’s largest fast-moving consumer goods companies;
  • supervising a large-scale project focused on the use of data analytics to address and mitigate compliance risks; and
  • advising a major East African financial institution on complex sanctions and AML issues.

For nearly two decades, Mr. Kayihura has assisted leading multinationals in making critical business and legal decisions relating to operations in Africa. Drawing on his collective experience as an entrepreneur, outside counsel, and as legal director in Africa for both Uber and Microsoft, Mr. Kayihura is able to draw on a diverse set of perspectives to provide holistic solutions to regulatory and policy issues. His clients benefit from his carefully honed understanding of best practices for engaging with national governments, regional policy-making bodies, and other key stakeholders across the continent.

The firm’s expanding presence in Johannesburg will allow clients with cross-border interests to further leverage Covington’s extensive resources to achieve their business objectives on the continent and similarly, to support African businesses as they seek do business around the world. By pairing these on-the-ground resources with an experienced public policy and government affairs team led by Witney Schneidman, Covington’s Africa team is able to deliver integrated advice on a range of complex and cross-cutting commercial, policy, government affairs, and compliance issues.

If you would be interested in discussing how Covington can assist your organization in achieving its business goals related to Africa, please contact Witney Schneidman at wschneidman@cov.com, Ben Haley at bhaley.com, or Robert Kayihura at rkayihura@cov.com.

China in Africa: Recent Developments

In 1998, China announced its “go out” or “go global” policy aimed at encouraging its enterprises to invest overseas. In 2013 this policy was reinforced with China’s introduction of its One Belt, One Road (OBOR) or “Belt & Road” initiative, which seeks to enhance development and trade routes in the region, connecting China with other countries along the ancient Silk road and a new Maritime Silk Road. Significant international anxiety has been expressed about China’s global ambitions generally, and as it pertains to Africa in particular, with some calling China’s OBOR initiative “neo-colonial” and raising concerns about China’s investments in Africa serving as a possible “debt trap.” On the other hand, China’s general policy of non-interference has led African leaders to describe China’s partnership with African countries as a “win-win.”

Below we examine recent trends related to China’s activity in Africa, including China’s 2018 FOCAC pledge of US$60 billion in financing, recent commitments made at the BRICS Summit, and China’s increasing foreign direct investment (FDI) on the continent.

Forum on China-Africa Cooperation (FOCAC)

On September 3, 2018, Chinese President Xi Jinping pledged US$60 billion in financing for projects in Africa. Of this total pledge, US$15 billion will take the form of grants, infrastructure, and concessional loans; US$20 billion will be available in credit lines; US$10 billion for development financing; and US$5 billion to buy imports from Africa. China made a similar US$60 billion pledge in 2015.

At the opening ceremony, President Xi emphasized China’s “five-no” approach to Africa:

[N]o interference in African countries’ pursuit of development paths that fit their national conditions; no interference in African countries’ internal affairs; no imposition of our will on African countries; no attachment of political strings to assistance to Africa; and no seeking of selfish political gains in investment and financing cooperation with Africa.

It is China’s policy of non-interference that leads many African leaders to echo South African President Ramaphosa’s rejection of the view that a new colonialism is taking hold in Africa regarding China’s investment in Africa.

A recent briefing paper published by Johns Hopkins School of Advanced International Studies’ China Africa Research Initiative concludes that “Chinese loans are not currently a major contributor to debt distress in Africa.” Although the initiative raised concerns in 2015 about the ability of African countries to repay Chinese loans due to fluctuating commodity prices and decreasing absorptive capacity, data analyzed in 2018 suggests that in at least eight of 17 countries, Chinese loans are quite small and have not contributed to debt problems. In six other countries, Chinese loans are larger, but those nations have also borrowed heavily from other creditors. In three countries, Chinese loans are currently the most significant contributor to high risk of actual debt distress; these countries are Zambia, Djibouti, and Congo.

In Zambia, a country that in 2012 could borrow more cheaply than Spain, bond yields have risen above 16 percent. According to The Economist, this suggests that investors fear Zambia will default. After having much of its debt cancelled under the IMF’s 2005 heavily indebted poor countries (HIPC) scheme, Zambia is now saddled with new debt worth 59 percent of its GDP. Although no one knows the exact amount, it is suspected that China holds between a quarter or one third of Zambia’s debt. One fear is that if infrastructure projects financed by the Chinese are cancelled, China may refuse to roll over existing loans. Alternatively, The Economist opines that China could demand to take control of a state-owned entity as compensation.

The coming months will be revealing in terms of how China responds to African nations nearing default on Chinese loans.

Highlights from 10th Annual BRICS Summit

In July, leaders from Brazil, Russia, India, China and South Africa (BRICS) met in Sandton, South Africa for the 10th Annual BRICS Summit. The Annual BRICS summit aims to strengthen economic and political ties between member countries.

In 2010, China invited South Africa to BRICS. Many questioned why China invited South Africa to join BRICS rather than other larger developing economies (e.g. Indonesia and Turkey). Some pointed to the “economic complementarities” between China and South Africa. See Foreign Capital Flows and Economic Development in Africa: The Impact of BRICS versus OECD at 31 (2017). As with China’s investments throughout the continent, its invitation to South Africa to join BRICS promoted China’s self-interest. Today, South Africa is China’s largest trading partner on the continent.

Since 2010, China has financially bailed out many parastatals (state-owned entities), which are common throughout Africa. At the 10th BRICS summit in July, China announced significant loans to two South African parastatals—Eskom, the public utility that provides electricity to 95 percent of South Africans and is the largest producer of electricity in Africa, along with Transnet, the country’s largest port, rail, and pipelines company. Eskom secured a US$2.5 billion loan from the China Development Bank, while the Industrial and Commercial Bank (ICB) extended US$27 million to Transnet. Transnet is said to deploy the funds for “general corporate uses,” providing the port and freight-rail operator “with liquidity in the near term.” Both loans have been described as “normal commercial loans” that are guaranteed by the government, which Eskom will use to fund the construction of the Kusile coal-fired power station.

This funding comes at a time when the state-owned entities face difficulties raising finance from local banks and investors. Eskom has growing debt burden that stood at over US$25 million at the end of March 2018; the loan secured from China Development Bank raised its debt ceiling significantly. Absent a revenue surge to help with interest payments, Eskom could be compelled to convert its debt into equity.

According to Institute of Race Relations (IRR), privatisation may be the viable option for struggling state-owned enterprises (SOE) such as Transnet and Eskom. Privatisation or bust by IRR argues that the alternative to privatisation is continued poor governance and rapid costs in both tax payers and continued delay in meeting the country’s need to upgrade and expand its economic infrastructure. Earlier this year former Finance Minister Malusi Gigaba issued dire warnings about Eskom, stating that the economy would collapse if Eskom’s liquidity crisis went unresolved. Consideration is being given to ring-fencing and selling stakes in Eskom’s non-core businesses or power stations as well as into Eskom’s business as a whole. In anticipation of possible privatization and an end to the electricity monopoly, the government forbade Eskom from constructing new power stations. The government advertised for private competitors to enter the market, but none were forthcoming mainly due to Eskom’s unnaturally low prices which deters profit-seeking enterprises from seeking to compete.

Of course China’s investment in Africa began prior to South Africa’s invitation to BRICS in 2010. China’s overall foreign direct investment (FDI) in Africa has also increased dramatically in the 21st century. In 2003, China’s FDI in Africa was approximately US$491 million. In 2014, it was US$32.4 billion.


What will come of China’s “go global” policy as it pertains to Africa? One thing is apparent: China’s influence throughout the continent will endure for decades. This, in part, is assured by China’s involvement with African parastatals that now rely on Chinese financing to remain liquid. China’s reputation on the continent, and the attitude of African leaders toward Chinese investment, will likely be influenced by how China responds to any African country that does default on a Chinese loan.

Summary of the Final 2018 Report of the President’s Advisory Council on Doing Business in Africa

In its final deliverable of the 2016–2018 term, the President’s Advisory Council on Doing Business in Africa (“Council”), issued a call to the U.S. Government and the American business community to make a deliberate effort towards nurturing greater U.S. commercial engagement with Africa. The final report was prepared by the private-sector members of the council and does not necessarily reflect the views or policies of the Trump Administration.

The final report followed the Council’s fact-finding trip with U.S. Secretary of Commerce Wilbur L. Ross and Under Secretary Gilbert Kaplan to Ethiopia, Kenya, Côte d’Ivoire, and Ghana from June 24–July 5, 2018. The Council’s trip was designed to underscore the commitment by the U.S. government and the American business community to expanding trade and investment in Sub-Saharan Africa. Details of the delegations’ experience in each of the four countries visited are summarized in the full report, available here.

The Council set forth numerous recommendations inspired by the delegations trip to the continent. A summary of the Council’s key recommendations follow.


The Council observed that it is necessary to secure financing in support of trade and investment flows to Africa, while also finding ways to help mitigate risk exposure for U.S. businesses. The Council proposed numerous solutions calculated to promote U.S.-Africa commercial and investment flows. These include:

  • Make the Export-Import Bank (EXIM) fully functional. EXIM is the export credit agency of the United States, designed to facilitate exports. For the last three years, EXIM has been unable to authorize transactions of more than $10 million due to a lack of a three-board member quorum. The Council highlights the need for the Senate to confirm pending EXIM nominees and, absent that, encourages the Administration to seek alternative ways to realize a fully functioning EXIM.
  • Pair Concessional and Commercial Financing. Selectively blending aid funds with export financing (i.e. concessional financing) is attractive to African governments because such financing is not counted under the IMF’s limits on non-concessional borrowing. The Council highlights this type of financing as an effective method to mitigate competition from China and Europe.
  • Promote African country access to U.S. Dollar Liquidity. African nations are experiencing low levels of U.S. dollar reserves as a result of higher dollar-denominated debt servicing, among other issues. This is further complicated by the fact that many African countries have very little revenue inflows from exports and taxes due to the pervasiveness of the informal business sector in most countries. Pressure on U.S. dollar reserves within African countries has an adverse effect on the private sector. Absent a robust response from the U.S. Government, the Council warns of private sector companies turning to alternative currencies like the euro and yuan. To this end, the Council calls on the U.S. Government to explore “how official U.S. agencies can prudently engage with African Central Banks in swapping dollar liquidity for local currencies, baskets of reserve currencies, and/or transferable and liquid commodities.”
  • Passing the Better Utilization of Investments Leading to Development Act of 2018 (the BUILD Act). The Council expressed its support for passage of the BUILD Act, which was passed by Congress on October 3 and signed into law by the President on October 5, 2018. The law transforms the Overseas Private Investment Corporation (OPIC), a U.S. Government agency, and components of the United States Agency for International Development (USAID) into a new institution called the U.S. International Development Finance Corporation (IDFC). Witney Schneidman, the Chair of Covington’s Africa practice, discusses the BUILD Act in more detail here.
  • Develop Mechanism to Sell Aggregated Risk Exposure from U.S. Agencies to Private Investors. The Council calls for the development of a mechanism to facilitate the ability of private investors to buy aggregated risk exposure from U.S. agencies. Support of trade and investment flows to Africa has attendant risks. Upon deploying and transferring the risks to private investors, the U.S. Government would be able to do more by taking advantage of its competitive strength as it contributes to Africa’s economic growth. This will foster stronger economic ties between the U.S. and the continent, providing ample opportunities accruing for U.S. businesses.
  • Increase Visibility of the African Development Bank (AfDB). Noting the commonalities between the goals of AfDB, OPIC, and USAID, the Council calls for an effort to raise the profile of the African Development Bank’s (AfDB) within the U.S. business community. Bringing the AfDB into deals between U.S. and African businesses would be a win-win for all parties concerned.

Public Procurement

  • Provide private sector public procurement expertise to the U.S. Government. The Council highlighted the need for “more consistent, thoughtful consultation” with the private sector regarding challenges of the competitive tender process in Africa. The Council specifically called for more training of Foreign Commercial Service and Political/Economic officers who are placed in Africa.
  • Support Direct or Unsolicited Public Procurement Proposals. In addition to competitive tenders, the Council calls on the U.S. Government to support private sectors proposals submitted directly to African Governments.
  • Promotion of Rule-of-Law in Support of Best-Value Procurement. Perceived risks of doing business in Africa continue to deter private sector engagement. The Council calls for continued and enhanced efforts by the U.S. Government to encourage greater transparency and more efficient and predictable processes related to business transactions. The Council highlights this opportunity as having the potential to encourage a “second wave of U.S. firms actively examining opportunities in Africa.”
  • Department of Commerce Should Develop a Modern Database Platform. Encouraging many Small and Medium Enterprises (SMEs) to look for new business opportunities in Africa should be a priority for the U.S. The Council observed that most SMEs were risk averse, and lacked information about how to navigate the risks on the African continent. To address these concerns, the U.S. Department of Commerce should create a platform to enhance information dissemination on key investment and other opportunities across Africa.

Trade Facilitation

In their engagement with government officials while in Africa, members of the Council observed that numerous benefits would accrue from governments’ collaboration with industry. A key area of mutual engagement where this could play out to the distinct advantage of all parties is in the modernization of customs processes and regional integration. Other areas of potential improved market access and trade facilitation include cross-border cargo movement, regional economic collaboration, as well as unlocking value in the manufacturing and extractive industries.

The Council recommends that the U.S. Foreign Commercial Service (FCS), the U.S. Trade and Development Agency (USTDA), and the Office of the U.S. Trade Representatives (USTR) engage in the process of connecting U.S. businesses with African governments in the sphere of trade and commerce. The Council also supports an effort to incorporate U.S. private sector input through the African Union, Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) or Economic Community of West African States (ECOWAS).
Global Value Chains

The Committee noted that African nations would benefit significantly from economic diversification. Both the private and public sector were united on the need for development of value-added products through encouraging domestic economic investments in order to create employment and added value downstream. This would improve revenue collection through taxes and lead to long-term sustainable development.
Africa has always had a low share of global trade, currently around two percent. By establishing robust engagement through its various consulate offices, agencies and U.S. firms active in African markets, the Council encouraged the U.S. Department of Commerce to engage in bilateral discussions to establish specific mechanisms that will advance trade facilitation and regulatory cooperation.

Technology and Digital Economy

Technology is a vital tool in driving economic growth, embraced by African nations throughout the continent. The creation of inclusive digital societies manifests in nearly every aspect of the economy. The Council encouraged U.S. Government’s engagement with local technology partners in the development of market-friendly policies calculated to trigger economic growth and sustainable development. The Council articulated several principles to this end:

• Foster appropriate regulatory policies that support the growth of the digital economy;
• Commit to cross-border data flows;
• Embrace international competition;
• Enable market-based economics and avoid unnecessary regulations; and
• Get data protection right, by recognizing variants across industries in how they use data.

Workforce Development

According to the Committee’s report, the volume of exports from the U.S. to Africa has been affected by lack of skilled human capital and the absence of vocational training programs. A significant percent of U.S. exports to Africa require highly skilled operators, without which the consumers of the product would remain unable to purchase the product, even if offered competitively. In order to enhance skills development across the continent, exporters should offer after-sales services and training on the installation and maintenance of the products and technologies in the destination market. This would contribute to the development of Africa’s workforce and demonstrate the U.S. Government’s commitment to the market while increasing the opportunities for U.S. businesses in Africa. This could be achieved through the creation of regional training hubs in order to deliver skills closer to the destination market, which would in turn create brand visibility, foster trust, loyalty, and enhanced reputation.

MOU Implementation

The Council’s delegation to Africa found that the U.S. Government and U.S. companies need to demonstrate that they are committed to expanding trade and investment in Sub-Saharan Africa, and do so in a coordinated manner. A clear example of such ambition was the signing of Memoranda of Understanding (MOU) between the U.S. Government and three of the governments of the countries visited (Ethiopia, Kenya, and Ghana). This is an encouraging first step designed to invigorate U.S. commercial engagement in Africa.

Covington’s Africa Practice Hosts African Leadership Academy

Covington’s Africa Practice Hosts African Leadership Academy

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.


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



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.