This week I have been exploring and reviewing the Beny Steinmetz guilty verdict in a Swiss court for bribery and corruption in the obtaining of mining rights in Guinea.  As reported by the BBC, the corruption was engaged in by the Beny Steinmetz Group (BSRG) which paid $2m to Mamadie Touré, fourth wife of the then Guinean President, Lansana Conté, to help it secure rights to mineral deposits back in 2007. The corruption was memorialized in contracts which specified for BSRG to make payments and transfer shares in the mine to her. To monetize those rights BSRG then sold 51% of the mining rights to the Brazilian company Vale for some $2 billion. Today I want to conclude with some lessons learned for the compliance professional in this sordid tale.

Joint Ventures

Initially, every compliance professional should under the risks inherent in every joint venture. They are beyond those in the typical third-party sales relationship. This difference requires extra vigilance from the compliance

Mike Volkov has noted that when you create a JV, there are a number of difficult issues to analyze. Initially, is the requirement of adequate due diligence. This is more difficult than in a traditional merger. Next is the set of governance issues surrounding control of the JV. If your JV partner is a state-owned enterprise, the issues become even more complex. The interactions between the company and a state-owned enterprise within the JV itself should be regulated so that they are not perceived as intended to improperly influence the state-owned enterprise, “either directly or in other areas of interaction.”

Even if the JV involves a private, as opposed to state-owned partner, the compliance issue then becomes the controlling the actions of the JV salespeople, JV staff responsible for regulatory interactions, and JV-retained third-party agents and distributors. In the JV context, a company has, by definition, less control. As a result, these issues need to be addressed in the formation of the JV. The issue becomes even more difficult when the company entering the JV has less than 50 percent control. 

Swiss Prosecution

This is one of the first Swiss criminal trials involving monies paid through Swiss banks which went to fund bribery and corruption outside Switzerland; particularly with a non-Swiss national involved. This is of no small amount of significance. BSRG has long been under investigation by US authorities for potential violations of the Foreign Corrupt Practices Act (FCPA). Indeed to Mamadie Touré, wife of the then Guinean President, Lansana Conté who received the bribe payments immigrated to the US after her husband died and was identified in the Indictment against Frederick Cilnis as a “Cooperating Witness”. She was scheduled to testified at Steinmetz trial but never appeared.

Although jurisdiction was clearly established in Switzerland, it was not clear why this criminal trial occurred in Switzerland. Yet it portends a greater willingness of Swiss officials and prosecutors to bring such criminal charges when Swiss interests are involved. It also means greater cooperation between Switzerland and other countries’ prosecutorial services on anti-corruption investigations.

Regime Change

This is not a reference to Saddam Hussein-style regime change but democratically elected regime change. When this occurs every compliance professional needs to take a look at the business in all high-risk counties where regime change occurs. You should begin with  risk assessment to evaluate the contacts that they may have had with the prior administration or the prior regime. From there an organization should consider the risks associated with that change because if there is a local content requirement, you have partnered that was connected to the old regime but are on the outs with the new regime.

Every CCO should also review a wide variety of actions outside the US from the compliance perspective, even if the actions do not at first blush appear to directly impact compliance. With regime change,  you can quickly find yourself on the opposite end of an administration and fairly or unfairly have your company linked to the prior administration and scrutinized simply on that basis. This is whether or not corruption led to the contract.

Additionally, doing business in a transparent manner is one of the most important things a company can do. A company should take clear steps to ensure they conduct business in an above-board manner. Transparency is the light that clears out the darkness in securing any governmental contracts or government interactions so that when they are reviewed, they will pass the light of day muster.

Compliance is the Key

In the Volkswagen (VW) emissions-testing scandal, VW went from one of the most trusted car manufacturers in the world to an organization that did not seem to know not only its left hand from its right hand but to even where either hand resided. This was much worse than a death of a thousand cuts where information dribbled out on a daily basis. Yet as bad as things were for VW, consider the entire German auto industry that, through no fault of their own, were put under a regulatory and reputational scrutiny.

In the face of all this, Ulrich Grillo, BDI then president of the German global industry association, insisted that the German national brand would not be damaged by “the unacceptable behavior of one company”. He added “I don’t think that this single case, however big, significant and unacceptable as it is, is damaging the whole image of the brand Made in Germany.”

Grillo recognized that compliance is the answer. He urged companies to check their “management processes, including compliance and control systems.” He suggested the question to ask should be “Are we doing everything right?” When you have the President of a national industrial association saying compliance is the answer, compliance as the answer has arrived. In the context of regime change, you need to sit up and take notice.

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