facing up to corruption in nigeria

Facing up to Corruption in Nigeria

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This report was written by Kristóf Gosztonyi, Alison Taylor and John Bray, Control Risks.

Facing up to Corruption in Nigeria

Introduction 1

The changing national and international environment 3

Nigerian anti-corruption initiatives 3

Nigeria in Transparency International’s Global Corruption Barometer 2007 4

Continuing challenges 5

Case study – Corruption through a middleman 6

Corruption in business transactions with government officials 7

International enforcement 8

Recent international enforcement cases relating to Nigeria 9

Implications of emerging compliance norms 10

Internal compliance programmes and controls 11

Compliance policy and codes of conduct 11

Internal controls 12

Attention to detail 12

‘Going transparent’ 13

Strategies for success 13

Engagement strategies 14

Quality 14

Business intelligence 14

Tenders 15

Sending the right message 15

Taking time 16

Nigeria’s ‘time tax’ 16

Soft skills 17

Networks and connections 18

Consultants, commercial agents and advisers 19

Working with ‘Big Men’ 22

Community relations 23

Legal issues 23

Local intelligence 23

Community Liaison Officers 24

Cash payments and possible alternatives 24

Problem-solving 26

Polite refusal 26

Demands for small payments 26

Be prepared to take losses 27

Collective initiatives 27

Escalation 27

Legal confrontation 28

Conclusion and outlook 29

Appendix 1. Interview methodology 30

Appendix 2: Control Risks in Nigeria 30

FACING UP TO CORRUPTION IN NIGERIA

Corruption remains endemic. We know that. It’s virtually impossible to avoid, and it sucks in even

the most unwilling. And for people to say that they don’t participate, well frankly, I don’t buy it. I

just can’t buy it.

Nigeria is one of the most vibrant markets in Africa, with an entrepreneurial business culture and

recent reforms in the banking sector that have won international plaudits. Foreign investment

historically has been dominated by oil and gas, but has broadened substantially in recent years

into finance, private equity, power, telecoms, consumer products and mining.

However, despite Nigeria’s size, and the energy and talents of its people, it has failed to achieve

its full potential. The reasons include poor leadership, poor infrastructure and a history of high

levels of corruption. The Nigerian market has long been notorious for graft, partly as a result of

the country’s reputation as the world leader in financial crime, but also because of the systematic

abuse of its oil wealth over several decades by the political class. As a result, many leading

investors that might otherwise have flocked to the country have stayed away.

Against this background, this report seeks to answer one simple question: is it possible to do

business successfully in Nigeria without involving employees in corrupt practices? The report

draws both on Control Risks’ own experience in Nigeria and on the findings of more than 30

specially conducted interviews with senior executives, lawyers, journalists and officials. We wanted

to know what strategies succeeded, and, if they failed, why they failed.

Sceptical assessments such as the quotation at the head of this section remain commonplace,

and none of our interviewees could offer a ‘silver bullet’ that would avoid all graft-related problems.

Nevertheless, experience shows that it is possible to avoid corruption with a combination of good

management, diplomatic skill and determination verging on bloody-mindedness. As in other high-risk

markets, the main themes that emerged from our interviews included:

• The need for clear ethical leadership combined with an effective and well-resourced internal

compliance programme.

• A requirement for both determination and imagination when responding to problems.

• The importance of ‘soft’ diplomatic skills, including the ability to identify and work with the right

allies in both business and government circles.

The report presents a distillation of our interviewees’ experiences. We share their view that

Nigeria presents a particularly tough business environment. It may not be possible to win every

battle. Resisting corruption demands a heavy investment of time, determination and ingenuity.

Nevertheless, we believe that it is possible for companies to face up to corruption in Nigeria, and

that this is an essential ingredient of ultimate commercial success.

Introduction

Nigerian former civil servant

Because of the FCPA [US Foreign Corrupt Practices Act] investigations there is definitely a sense

of edginess in the business community. There is no longer the sense that anything goes in

Nigeria. People have woken up to the potential pitfalls of doing business in this way.

Both in the national and the international arenas there has been a growing trend towards tighter

enforcement of anti-corruption legislation. Within Nigeria, the most important developments include

the setting up of the Economic and Financial Crimes Commission (EFCC) in 2004, followed by a

series of high-profile investigations and prosecutions. On the international scene the most prominent

cases include those involving the German engineering company Siemens and the US companies

Willbros and Halliburton. No one is suggesting that the corruption problem has been solved, but

would-be bribe-payers clearly need to take the risk of prosecution more seriously.

Nigerian anti-corruption initiatives

Many Nigerian interviewees in our survey expressed frustration with the widespread perception

that Nigerians are indifferent to corruption. They felt that the country’s reputation was in part

unjust, and served to stifle business success. At the same time, they rightly pointed out that

international players share responsibility with Nigerians for many of the most prominent corruption

cases that have come to light.

The factors contributing to high levels of corruption include a widespread sense that government

institutions at every level serve the personal interests of office-holders rather than the national

interest or the good of the wider community. This is typically seen as a legacy of decades of military

rule, and even of colonialism. Since government officials and political leaders are themselves

perceived to be ‘on the make’, there is little shame in cheating officialdom, or in offering incentives

to bureaucrats in return for personal favours. Even in the most hopeful scenario, it will take years

and probably decades to overcome these deep-seated public attitudes.

Nevertheless, as our interviewees pointed out, the Nigerian government has taken important

steps towards institutional reform, notably by setting up the Independent Corrupt Practices and

Other Related Offences Commission (ICPC) in 2000 and the EFCC in 2004. Further significant

developments include the government’s decision to prosecute Nigerian officials implicated in the

international investigations of Willbros and Siemens. Siemens’ business in Nigeria was suspended

for several months while the investigations were under way. There have also been a number of

domestic corruption investigations involving many former governors as well as prominent

businessmen – often the same people.

These investigations had a psychological impact on Nigerian decision-makers, at least initially.

According to one respondent:

After the case against the former Vice-president [Atiku Ababakar] in particular, people see

what is happening above them and they are scared. There is certainly an increased culture of

accountability.

However, the EFCC’s credibility has been weakened by a widespread debate about how far its

anti-corruption investigations represent a genuine reform initiative, and how far they amount to a

political instrument used by the government to eliminate political rivals. For example, former president

Olusegun Obasanjo (1999-2007) is widely alleged to have used EFCC investigations as a tool to

disqualify a number of his competitors in the run-up to the April 2007 presidential, regional and

National Assembly elections, though the majority of these individuals were never subsequently

prosecuted.

Furthermore, there have been questions about the extent of the current administration’s commitment

to the commission. In late 2007, Nuhu Ribadu, the then head of the EFCC, was forced to take a

year’s compulsory study leave after the EFCC launched its largest-ever corruption investigation

into the activities of several state governors. This was largely read as an indicator of the continuing

political influence of some of the individuals under investigation, particularly former Delta state

governor James Ibori. The outcome of the continuing Ibori investigation will be seen as a litmus

test of whether the EFCC has regained its independence.

PAGE 3FACING UP TO CORRUPTION IN NIGERIA

The changing national and international environment

Nigerian former civil servant


The politicisation of certain anti-corruption cases in Nigeria is not really open to question.

However, it is nonetheless very difficult to predict the outcome of specific cases because of the

rapidly evolving nature of power politics, and business and political relationships. In this context,

many investors prefer to avoid involvement with politically exposed individuals altogether. Therefore,

despite patchy enforcement, the prominence of continuing investigations within Nigeria has certainly

led to altered behaviour, with a diminished sense that certain individuals are ‘untouchable’ or

above the law. Companies and individuals that pay bribes incur political as well as legal risks.

Nigeria in Transparency International’s Global Corruption Barometer 2007

The Transparency International (TI) Global Corruption Barometer offers an insight into Nigerians’

perceptions of their own institutions. The survey, which was conducted by Gallup International on

TI’s behalf, showed that citizens took a particularly poor view of the police, which was given a rating

of 4.5 on a scale of one to five where five represents the highest level of corruption. Other institutions

that performed poorly include political parties, the national parliament and the tax authorities.

Despite this poor evaluation, Nigerian respondents took a comparatively positive view of the

future: some 64% thought that their government’s efforts to fight corruption were effective, a

response that may have reflected approval of the EFCC investigations taking place at the time of

the survey. Some 62% thought that corruption levels would decrease in the following three years,

compared with 9% who thought they would stay the same, and 29% who thought that they

would increase.

Nigerian perceptions of corruption’s impact on different sectors and institutions

(1=not at all corrupt; 5=extremely corrupt)

Source: Transparency International Global Corruption Barometer 2007

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Continuing challenges

Although some limited progress has been made, our interviewees agreed that coping with

corruption remained a major challenge in the Nigerian market. Companies that have extensive

contact with the government, or that work in areas considered of primary strategic interest to the

government, are at the greatest risk of becoming involved in corruption. A former high-ranking

civil servant summarised the situation as follows:

The rule of thumb is that if the business cannot survive without working with the government

there is a greater likelihood of corruption. If there is barely any interaction, then corruption is

minimal.

The problem of corruption is closely linked to the general inefficiency of the government and of

public administration. A financial consultant explained:

The system is so inept that without something extra to guarantee the process there is no way

of knowing the timeline.

However, inefficiency is not the only issue. Corrupt officials may deliberately create obstacles –

even when none existed – in the hope of receiving payment for removing them. The CEO of a

food processing company reported from his own experience:

The government and their agencies stall us. They see that we are making money and want a

piece. We get accused of the most ridiculous things: aiding and abetting smuggling, for example,

so customs can delay and get money.

A second key area of concern is the private business interests of government officials, which are

frequently in strategic sectors such as the oil industry, and often create conflicts of interest.

Problems can arise if companies seem to be setting up in competition with them. As a recently

retired civil servant pointed out:

….the minute you step on the toes of business interests that exist in government, you’re in

trouble

The CEO of the food processing company offered a similar comment from his own experience:

Government officials occasionally use bureaucratic bottlenecks to discourage investors. This

is especially so when such officials have interests in a particular business or industry.

Surprisingly, an initially approved business proposal we had submitted to the government was

revoked and not too long after, a minister claimed he already had a plan to start a project of a

similar nature.

A security manager in the Niger delta gave an overall summary of the situation:

The private sector is the engine of the country. But where your business is with the public

sector, government officials will demand payments from you, even if you think it’s not right.

However, there are still honourable people in society and in all government departments. For

example, the police system is corrupt, but some police are still good.

Finding these ‘honourable people’, and steering a path through the complexities of government

bureaucracy, are major tasks: they are all the more important at a time when international

enforcement of legislation against foreign bribery is becoming stricter than ever.


Case study – Corruption through a middleman

Many of the major international corruption cases reported in Nigeria involve the participationof an intermediary who passes on bribes to senior officials or politicians on behalf of foreignclients. One of our interviewees outlined a scenario showing how such arrangements workin practice. The challenge for more honest companies is how to win business against suchcompetitors.

Let me give you a practical example: I am a good friend of the minister. It will not be the

minister who would be personally involved in corruption, he will be very careful. His name

and deputy’s name will not be linked to the company that wins the tender. He will use a

proxy: a childhood friend, but not a relative. That would be easily recognisable. You would

be very stupid to use a relative: he is traceable. You use a friend.

That friend will then contact the company. He will be saying he acts on behalf of the

decision-maker. ‘I know you are interested in XYZ contract. I can help your company’, he

says. The company would ask him: ‘Whom do you know?’ He says, ‘I am close to the

decision-maker, and I believe I can convince him.’ So then the company says: ‘Can you

prove it?’

First this man arranges a small contract for the company or he can arrange access to

the minister. So he calls the minister or the PA and sets up a meeting with the minister.

Together with the company he then goes to Abuja and the minister sends a car to pick

them up. Then, during the meeting, the minister says, ‘Mr X [the mediator] is somebody

you can rely on.’ The minister will not ask for anything, not indicate anything. Then the

minister will tell the mediator what he wants.

So now the considerations: the money will be given to the proxy [the middleman]. The minister

will have no direct link with the flow of money. Then later on the proxy will transfer the

money to the minister. Paying the money might be difficult for the company but it will still

be given under a title, under the header of a professional fee, e.g. a law firm, an external

accountant fee, etc.

One can channel a lot of ill-gotten money through legal companies. It can still be done.

The company will put it as a professional fee; the proxy would give an invoice for professional

services. The money then will not necessarily go offshore, but it will be changed into US

dollars or pounds sterling on the black market. Then the proxy would take it to the

decision-maker in cash.

Corruption in business transactions with government officials

Our interviewees’ responses echo the findings of the World Bank’s Enterprise Survey for Nigeria,

which was based on a survey of 1,891 Nigerian firms in 2007.

Some 40% of respondents to the World Bank survey reported that they needed to make informal

payments to public officials to get things done, or to secure an operating licence. Roughly one-

fifth were expected to give gifts when meeting tax officials, and 44% said they were expected to

give gifts to secure a major government contract. These figures were roughly comparable to the

regional average for sub-Saharan Africa except in the case of securing operating licences, where

Nigerian companies were twice as likely to face demands for bribes.

Perhaps surprisingly, only 24.7% of companies reported that corruption was a major constraint,

compared with 31.7% for the wider African region. This finding may suggest that many Nigerian

companies have come to see some form of bribery – whether in the form of small gifts or more

substantial payments – as an inevitable operating cost. This relatively relaxed view is not an

option that is open to reputation-sensitive international companies complying with their own

countries’ laws against foreign bribery.

Nigeria’s overall ranking in the World Bank’s Doing Business surveys is 118th out of 181 countries.

This serves as a reminder that – while corruption is undoubtedly a problem – it compares

favourably with its regional competitors in many other respects.

Percentage of companies reporting corruption in government transactions:

Nigeria and African regional average compared.

Source: World Bank Enterprise Surveys - www.enterprisesurveys.org


0%

10%

20%

30%

40%

50%

Informal paymentsto officials to get

things done

Nigeria Africa regional average

40.90%42.16%

40.29%

19.57%

22.85%20.95%

44.57%43.73%

When securingoperating license

When meeting taxofficials

When securing majorgovernment contract


International enforcement

In the international arena, there are two significant trends. The first concerns the US Foreign

Corrupt Practices Act (FCPA), which first came into force in 1977, but has been enforced with

particular vigour in the 2000s (see chart). The act empowers the US Department of Justice (DoJ)

and the Securities Exchange Commission (SEC) to prosecute US companies for paying bribes to

foreign officials.

US companies caught up in recent Nigeria-related FCPA cases include Halliburton/KBR, Baker

Hughes and ITXC (see below). The FCPA also covers foreign companies that are listed on US

stock exchanges. Recent examples include the oil services company Vetco Gray, which was formerly

owned by the Swiss-Swedish conglomerate ABB. In 2004, ABB and two Vetco Gray subsidiaries

paid a penalty of $16.4m to settle a series of charges relating to – among other countries –

Nigeria. In 2007, three Vetco Gray subsidiaries pleaded guilty to charges of bribing Nigerian customs

officials via a freight forwarding company (see below).

The US has been particularly strict in enforcing its anti-bribery legislation, but other countries are

catching up. In 1997, all member countries of the Organisation for Economic Co-operation and

Development (OECD) signed an Anti-bribery Convention whereby they undertook to implement

similar legislation to the FCPA. Enforcement remains uneven, but recently there has been a

series of cases in Germany, of which Siemens is the most prominent example. Meanwhile,

investigators from France and the UK are also known to have investigated potential cases in

Nigeria, though so far none of these has led to a prosecution.

2002

0

10

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40

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60

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80

90

100

200720052004 2008 Janto Oct

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91

97

63

39

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Ongoing investigations from previous years

New investigations

Total reported open FCPA investigations 2002 - 2008

Source: Shearman & Sterling LLP


Recent international enforcement cases relating to Nigeria

Recent cases have involved a series of high-profile corporate names. In almost all cases

the bribes were paid to Nigerian government officials via ‘consultants’ or other intermediaries.

Halliburton/KBR. In February 2009, Halliburton and KBR jointly agreed to pay a fine of

$402m in relation to FCPA charges brought by the DoJ as well as a further $177m to the

SEC. The charges related to bribes paid in connection with the activities of KBR, a

Halliburton subsidiary operating in Nigeria. KBR had been the lead partner in a consortium

to build a gas facility at Bonny Island in the Niger delta region, and had reportedly paid a

total of at least $182m in bribes to Nigerian officials via British and Japanese intermediaries.

In September 2008, Jack Stanley, who had served as KBR’s CEO and chairman, pleaded

guilty to FCPA offences: he could face a seven-year prison sentence.

Siemens. The German engineering conglomerate, paid a fine of €201m (approximately

$285m) to the Munich prosecutor in October 2007, followed by further penalties totalling

$1.37bn to the US authorities in December 2008. Siemens had made most of its payments

either through ‘consultants’ or direct from a company ‘slush fund’. The company came

under US jurisdiction because it is listed in the US as well as in Germany. German and US

prosecutors conducted a thorough investigation of the company’s operations throughout

the world. Many of their findings related to Nigeria. The German court’s findings, which

were subsequently leaked to the press, reported a series of bribes paid to Nigerian ministers

and other officials to obtain telecommunications projects. In the US the SEC’s complaint

cited payments to – among others – the wife of a former Nigerian vice-president.

Willbros. In May 2008, Willbros Group and Willbros International, both of which are

registered in Panama, agreed to a fine of $22m to settle FCPA charges in connection with

bribes reportedly paid in Nigeria and Ecuador. The Nigerian payments reportedly had been

channelled via two ‘consultants’ to obtain a major pipeline contract. Four senior Willbros

executives have pleaded guilty on related charges and currently await sentencing.

Paradigm. In September 2007, the DoJ reached a non-prosecution agreement with

Paradigm BV, a private company registered in the Netherlands, which was in the process

of moving to Houston, Texas. The charges related to improper payments in Kazakhstan,

China, Mexico, Nigeria, and Indonesia. In Nigeria a Paradigm subsidiary had made payments

of between $100,000 and $200,000 via an agent to Nigerian politicians with a view to

securing a service alliance with a subsidiary of the government-owned Nigerian National

Petroleum Corporation. Paradigm agreed to pay a $1m penalty and to adopt an enhanced

set of internal anti-corruption controls.

Baker Hughes. In April 2007, the oil services company Baker Hughes agreed to pay

penalties totalling $44.1m to settle a series of FCPA complaints. One component of the

charges related to Nigeria, where the company had paid customs brokers without taking

steps to ‘adequately assure itself that such payments were not being passed on, in part, to

Nigerian customs officials’.

ITXC Corp, a US-based telecommunications company, recruited a serving Nigerian

Telecommunications Limited (Nitel) deputy general manager to serve as its commercial

agent when bidding for a contract with Nitel in 2002. After winning the contract, it paid the

agent a retainer of $10,000 and two subsequent payments totalling $155,541, representing

the agent’s share of the profits. In 2005 and 2006, the DoJ and the SEC charged the

regional director for Africa and two other senior executives with breaches of the FCPA. The

regional director was sentenced to an 18-month prison term, and his two colleagues were

sentenced to five years’ probation, including periods in a community confinement centre,

and home confinement.

>>


Implications of emerging compliance norms

Our respondents agreed that these international prosecutions had begun to have an effect on

local business practices, particularly but not exclusively in the banking sector, and this has had a

ripple effect on the wider economy. One source explained:

People are becoming nervous. … Banks are using the ‘Control Risks’ of this world to check

the background of their customers in transactions. People are becoming more aware that [if

they conduct their business in a corrupt way] they are coming up as red flags – so they must

be more careful when they want international financing.

Nigerian banks have also had to adapt to the new compliance environment. A senior banker

described the situation faced by Nigerian banks looking to expand:

If you [as a bank] want international branches, you have to change. The way you do business

is changing because of the internationalization of business. For instance, Nigerian banks are

buying banks in Africa and want to set up offices in London or in New York. One integrity-

related mistake screws your plans altogether. Therefore, Nigerian companies are also forced

to change.

A third senior banking official argued:

Yes, it is possible to do business without corruption. The government is increasingly adhering

to the rule of law. It recently enacted the Fiscal Responsibility Act, Enforcement of Due

Diligence in Contracts, pursuit of creditable bid process, cancellation of questionable bids,

adherence to international anti-money laundering and Know Your Customer policies, as well

as stiff actions against culprits is changing behaviours amongst businesses and the citizenry.

It’s now widely seen that meritocracy is evolving. So it is becoming easier to do business

without resorting to bribes or corruption.

Banks are among the first to adopt higher standards because the financial sector is more tightly

regulated internationally. However, in part because of the recent FCPA cases, companies in other

sectors – including construction, telecommunications and energy – are also becoming more careful.

In principle there is a general trend towards tighter compliance. As the next two sections will show,

the practical application of these principles requires skill and determination.

Vetco Gray. In July 2004, the DoJ and the SEC announced the results of parallel criminal

and civil FCPA cases against the Swiss-based civil engineering company ABB Ltd and two

subsidiaries, then known as ABB Vetco Gray (based in Texas), and ABB Vetco Gray UK

Ltd. According to the DoJ charge, the two companies had paid bribes worth more than

$1m to officials of National Petroleum Investment Management Services (NAPIMS), a

Nigerian government agency that evaluates and approves potential bidders for contract

work on exploration projects. The payments were disguised as consultancy fees and made

via an intermediary. The ABB parent company and the subsidiaries between them paid a

total penalty to the US authorities of $16.4m. Vetco Gray was subsequently accused of a

further set of illicit payments to customs officials (see below).


We have integrity and that makes a huge impact. That is a book I want to write, “Integrity as a

Commodity”. It is the most valuable resource. If you have it and maintain it, people will rally

around you. Integrity is more valuable than any cash.

As this quotation emphasises, integrity is a source of commercial benefit – a ‘commodity’ in itself.

Well-designed compliance programmes send an important message both internally and externally.

By making a public commitment, companies ‘burn their bridges’. Bribery to win business is no

longer an option. However, demonstrating, reinforcing and maintaining integrity requires systematic

attention at all levels of the company. According to our respondents and Control Risks’ own

experience, the implementation of an effective compliance policy depends on three factors – senior

management support, a meticulous concern for external process and regulation, and effective

internal controls.

Compliance policy and codes of conduct

Most leading international companies have codes of conduct, but there are wide variations in the

determination and persistence with which these codes are applied. Siemens had a well-drafted

compliance code, but until recently failed to enforce it, or to follow up on clear ‘red flags’. An

essential part of all effective compliance systems is support from the top. Thus if staff members

are confronted with corruption demands, they must be confident that they will receive senior

management support in upholding an ethical stance – even if financial losses can be expected

through refusal to pay bribes.

An effective compliance system ensures that the entire organisation understands and buys into

the company’s ethical business policy. It also makes sure that adherence to the company’s

policies is adequately controlled and that breaches are sanctioned and punished. As an example,

a risk manager at an international bank explained how his company’s system worked:

We have a very elaborate compliance policy and code of conduct. Our staff is continuously

trained and made aware of our policies. To check possible internal corruption, we have developed

a template: a standardized business practice which promotes accountability and transparent

office relations. Employees also go through compliance training programmes. Realistic targets

are given to staff especially those in the marketing department so that they are not in any

way pressured into corruption in attempting to meet targets.

A risk manager of a large oil company highlighted the consequences for employees who failed to

abide by the corporate ethics code:

Penalties vary. The worst case is a dismissal. These penalties have been implemented.

People have been sacked and incidences of corruption have decreased.

An executive director of a large international bank working in Nigeria underlined the importance

of training and communication:

People need to be aware of the rules and regulations involved. You need to build the organisation

on structure, processes, systems and policies. You need to clearly lay down these rules as

guiding principles that govern business ethics. You need to be aware of your rights and the

officer’s responsibilities. You need to clearly communicate these. You must plan to do and

only do those things that are perfectly legal. Of course, training is critical. All staff must go

through an induction and orientation program with an emphasis on imbibing the company’s

governing values and code of conduct.

Experiences show that both local and international staff are happy to support and ‘buy into’

integrity policies as long as these are applied consistently.

Internal compliance programmes and controls

CEO of a power company


Internal controls

Internal controls are a critical component of this consistency. As the CEO of a company in the

power sector put it:

In this country you have to have eyes around your head. Even your driver will try to dupe you.

For the big items you make sure things are sourced proper but there is still plenty of room for

corruption in a country where receipts are rare. So when you send people to the market to

buy things for staff lunches, you just need to know the cost of things and you need to be able

to trust people eventually, to know that you have people with integrity.

Another thing we do is employ both in-house and external people like engineers to double

and triple check bids and workmanship. We also do financial checks, check references, websites,

and talk to personal contacts and their competitors to look into potential contractors. This

again takes time, a minimum of a month but it is always both a formal and informal process.

An oil industry risk manager mentioned another technique for exercising additional control:

Some staff sometimes connive with contractors. Our transactions are nevertheless standardized

with adequate documentation. We also do independent market surveys to have knowledge of

the current prices of commodities and prevent over-invoicing.

When companies apply these controls, it is easier to detect inconsistencies and to crack down on

offenders.

Attention to detail

Nigerian regulations are often so contradictory and unclear that it is difficult to identify which rules

apply in particular cases. Nevertheless, however difficult it may be, it is essential to follow rules and

regulations meticulously, especially in tender situations. There are two primary reasons for this:

• First, corrupt officials can exploit breaches of the rules to extort bribes.

• Secondly, the easiest way to disqualify an honest bidder (i.e. one who refused to pay a bribe)

during a tender is to refer to technical errors in the proposal.

As ever, it is essential to send out a clear external communication regarding the company’s ethical

and legal stance. As a Lagos-based lawyer pointed out:

You must stay consistent – always comply – so there is no vulnerability. Consistency as to the

message is also crucial. When there are mixed signals, it causes trouble. The message gets

out very quickly that this company follows the rules; or that it doesn’t.

Similarly, the CEO of a power sector company argued:

[One] strategy to deal with things like over-invoicing is to be watertight in your dealings. Our

contracts are all negotiated, vetted and fixed ahead of time. They are seen by international

lawyers and accountants, and undergo bank-ability tests… This all takes time and money

though. Our major contract took nine months to process and the costs in legal and advisory

fees were very high.

A retired diplomat, now working as a consultant, stated:

If you want to be more conscientious then you have to do things to the ‘T’ and don’t mess

around with budgeting. Just because bribing may come out of the PR budget line doesn’t

absolve the act. … The best thing to do is recognize corruption, confront it, be transparent

and be efficient because the more you cut corners the bigger your ‘circle of placation’ [i.e. the

number of people you need to ‘placate’ through bribes] becomes.

‘Going transparent’

Our interviewees emphasised that new entrants to the Nigerian market have a better chance of

resisting corruption if they lay down high standards from the beginning, and stick to them. By

contrast, the task is harder for established companies that may in the past have tolerated lapses

in their compliance procedures, and now wish to follow them more consistently or – in the phrase

of one of our interviewees – to ‘go transparent’.

More and more international companies are likely to find themselves in this situation as local and

international enforcement becomes more effective. A Lagos-based lawyer described how one of

his client companies had met the challenge:

The company reassessed itself at the highest level possible and self-reported its corrupt

payments, wiping out profits for the last two years. But this helped communicate to the market

that it was serious about eliminating corruption.

When managers visited local government officials to inform them of the change of policy, it was

possible to cite this reassessment and use it to explain the change in long established policy.

Although there was resistance, the company was a big player and succeeded in gaining

acceptance eventually. In the longer term, the company’s business has recovered and it is more

successful in Nigeria than before as a result of its improved reputation, which has helped build

its customer base.

The process of ‘going transparent’ clearly incurred high legal and financial costs, but can be seen

as an investment that would put the company on a sounder basis for the future. Rightly, the

company had taken a strategic approach, including a thorough review of its existing operations,

an assessment of potential risks, and a plan to communicate its new policies to local government

counterparts. The strategy has paid off.


Strategies for success

One of our interviewees, an executive director in his mid-40s, insisted that ‘avoiding

bribery is possible. It just depends on the right strategy.’ He then launched into a summary

of what was required:

• People need to be aware of the rules and regulations involved.

• You need to build the organization on structure, processes, systems and policies.

• You need to clearly lay down these rules as guiding principles that govern business

ethics.

• You need to be aware of your rights and the officers’ responsibilities.

• You need to clearly communicate these and make demands on your rights.

• You must plan to do and only do those things that are perfectly legal.

• Of course training is critical. All staff must go through an induction and orientation

program with an emphasis on imbibing the company’s governing values and code of conduct.


One big thing is how you compete with others. For example, one will stick to the books, while

others break all the rules. Faced with such adversaries, good companies have to be more inventive.

In today’s national and international legal environment, high standards of internal compliance are

essential, but they are not in themselves sufficient to win business. If honest companies are to

compete in Nigeria, they need to develop effective engagement strategies. This requires a high

degree of diplomatic skill.

Quality

The starting point has to be quality and competitive pricing. This is true of any market economy,

but in regions with a high risk of corruption it is even more important for companies to be able to

demonstrate a sharp competitive edge. The executive director of a bank illustrated the point from

his own experience:

We have a strong brand and our reputation is founded on our core values. We are a clear

leader in Nigeria and our distinctive position is sustained through our superior competitive

position and the unmatched benefits we pass on to our discerning customers. We have the

best risk management practices and the best assembly of skilled manpower. These advantages

help us to avoid bribery and corruption.

A managing editor in the media sector offered similar comments:

Reputation and a good product are crucial. They may not win all your battles but they are a

good survival strategy. … The genuineness and quality of your stories and the reputation of

the newspaper or magazine can help to compete favourably in the market while avoiding

corruption.

A lawyer argued:

Cutting edge! If you have something that puts you ahead of others, then you can get through

without corruption. For example ten years ago there were only land lines. We had a problem:

communication didn’t function. At that time, the [telecommunications] companies that came in,

they didn’t need anything, no contacts, they just needed quality. The companies bid, and got

what they wanted. …

However, he added that the telecommunications sector had been a special case at the time and,

as the ITXC and Siemens cases show (see above), it has since been far from free of corruption.

Some respondents emphasised that not all tenders are likely to be corrupt. It is especially for

complicated jobs – when ‘you have to deliver’ – that quality considerations take a more prominent

role. Such projects often go to the most qualified bidder. At least some interview partners believed

often such companies did not need to pay bribes: ‘Those who don’t bribe are the best in terms of

know-how and technical skills’.

Business intelligence

The second requirement is good business intelligence. Again, this is important everywhere, but

especially in weak institutional environments such as Nigeria. For example, a manager from the

power sector emphasised that it is important to:

… know your clients, your partners, your products and your materials. We do open market

procurements to make sure that we are getting the right price, and the procurement people

are constantly being watched.

Good intelligence requires a high degree of political sensitivity, not just commercial expertise. As

far as possible, companies should avoid becoming involved in partisan politics. Nevertheless,

external political agendas constantly intrude into the commercial arena. As a former senior civil

servant explained:

Nigerian Lawyer

Engagement strategies


You really need to consider the circle of wealth and power in this country. That circle is very

small. So the chance of stepping on someone’s toes – if you are a foreign investor setting up

a company – is high. Because the circle is so small, the same people who are in government,

have stakes in the major business areas, and control a lot of the media.

Making a similar point, a manager from the oil industry commented:

Another way we fight corruption is the establishment of a policy of not giving contracts out to

companies which are partly or fully owned by a member of our staff or government officials.

However, avoiding businesses connected with officials may be difficult both because – even now –

the political and commercial elites are closely intertwined, and ownership structures are often

opaque. Acquiring intelligence requires the right mix of alertness on the part of individual business

people, well-chosen connections and good advice.

Tenders

Good intelligence is particularly important when planning to put in a bid for official tenders. One

key piece of advice from our interviewees was to be selective. One respondent from the power

sector went so far as to suggest avoiding government tenders altogether:

Corruption in the tendering process is impossible to avoid, so we simply don’t engage with

the government.

Others agreed with the need for selectivity, but pointed out that there can be huge differences

within the public sector between different ministries, agencies and departments, as well as

between different regions within Nigeria. In the early 2000s, the government introduced the so-called

Due Process Mechanism to reform public procurement. This has been implemented more effectively

in some states than in others. The Cross River and Lagos state governments are cited as

comparatively positive examples.

Often there are important clues that make it possible to assess how far a tender is likely to be

rigged. These include very short deadlines, vague evaluation criteria or – on the other hand –

very narrow specifications that may be designed to favour a particular supplier. A careful assessment

of the risks makes it possible for ethical companies to focus on the opportunities where they have

a realistic chance.

Sending the right message

Intelligence goes both ways. It is important for officials and business partners to know who they

are dealing with, and what to expect. Once officials know that a certain company is an absolute

non-payer, the incentive to create artificial administrative obstacles disappears: there is nothing to

be gained from delaying papers or misclassifying goods. A consultant recommended:

Don’t be afraid to build a reputation around yourself of being intolerant of corruption. I have

heard government officials complaining ‘ah, we won’t get anything from them!’

By contrast, if companies are known to pay bribes, even if reluctantly, they are more likely to

encounter predatory behaviour from officials and politicians. For example, bureaucrats may

deliberately delay processes and create time-consuming administrative errors in the hope of

encouraging companies to pay bribes in the hope of solving problems.

At the same time, an honest reputation is a major advantage when seeking to attract honest

clients, who typically will be working hard to maintain compliance standards in a difficult environment.

A senior solicitor argued:

A law firm with good reputation can stay away from corruption. A reputation for integrity is

important to attract clients. Businesses these days are far more aware of the havoc corruption

scandals can play with their bottom line and their international reputation so they need clean

partners all around.


He continued by emphasising the importance of a clear and unequivocal message:

One thing is crucial: don’t give out mixed signals. They might not like to hear what you say,

but what people really hate is being misled!

As the lawyer demonstrates from his own experience, high compliance standards should be

considered a source of commercial benefit, not simply a cost.

Taking time

Companies operating in Nigeria must in any case be prepared to pay an extra ‘time tax’ as measured

by the hours and days needed to deal with officials on routine transactions. A willingness to spend

time is even more important when negotiating major business deals. As a lawyer observed:

It is possible to do business in Nigeria without engaging in corruption or bribery. The reality,

however, is that firms that go strictly by the book might experience some delays in closing up

business deals, particularly with the public authorities.

If would-be investors are seen to be in too much of a hurry they surrender a negotiation advantage

to their commercial or official counterparts. Often this can lead to an implicit demand for a bribe

to speed things up. However, taking time to get the details right – and to face down demands for

illicit payments – is a much better investment. Senior management – whether in Nigeria or at

head office – need to be prepared to back up local staff who are encountering such delays,

rather than pressing them to complete the task in hand at all costs.

Nigeria’s ‘time tax’

Nigerian official procedures are notoriously time-consuming, even – as shown by the chart

below – by the standards of other sub-Saharan African countries. Companies in a hurry

may be tempted to offer bribes to officials in return for speeding up procedures. However,

in practice, this is likely to be counter-productive as well as illegal: companies that pay

‘speed money’ give officials an incentive to create obstacles to be paid to remove them.

Nevertheless, companies that refuse to pay bribes face other costs in the form of a heavy

‘time tax’, and they must be prepared for this.

Time spent dealing with officials

Source: World Bank ‘Doing Business’ database - www.doingbusiness.org

0

100

200

300

400

500

600

700

800

900

1000

Hours per year that a medium-sized company spends preparing, filing and paying tax returns.

Average number of days required to secure a construction permit.

Nigeria Africaaverage

OECDaverage

938

318

210

0

50

100

150

200

250

300

350

400

Nigeria Africaaverage

OECDaverage

350

270

165


Soft skills

If you are a smart Westerner, you will be able to get around a lot of things. If you are a dumb

Westerner, you will get hit even more.

Our interviewees repeatedly emphasised the importance of ‘soft skills’. By this they meant a

combination of political and cultural savvy, together with a quick and accurate grasp of complex

and culturally confusing situations, including body language. The importance of these skills is

summarised by the statement of a media sector manager:

Soft skills are critical. My business moves slowly as it is because I try to follow due process.

Without soft skills, connections, negotiation, networking, my business would grind to a halt.

For many expatriate staff, doing business in Nigeria can be confusing. The country provides a

less institutionalised and more informal context, one in which social values, attitudes and body

language, as well as acceptable and unacceptable behaviour, vary from those in Western societies.

Our interview partners repeatedly emphasised how this affected the ability of expatriate staff to

understand and react to situations appropriately. According to a manager in the media sector:

Social and negotiating skills, political ‘savvy-ness’: it’s all very important and very difficult for a

foreigner to do well. We have a very specific environment. No one is going to spell out that

they want a bribe. We have particular ways of talking about it here in Nigeria and most relies

on the body language. If you want to do business successfully in Nigeria you need to learn

the body language.

An understanding of body language helps to provide clues to implicit messages. If you understand

that someone is implicitly demanding a bribe, then at least you know that you will need to develop

alternative strategies. A CEO from the power sector explained this point as follows:

One challenge we face is that I have a lot of foreign staff who don’t understand the body

language, so our projects are stalled while they try and figure out why they are being stalled.

If you can read the body language at least you know why the situation is being stalled.

However, expatriates enjoy advantages as well as disadvantages. According to a Nigerian

businessman in the consumer goods industry:

Expats probably do better than we in avoiding corruption. It’s a colonial mentality. Some

Nigerians still see white people and they are impressed. So actually expats have less excuse

for paying bribes… I know very successful Westerners who live and work here, and all is fine!

Foreigners can plausibly claim to be operating according to a different business model and mode

of behaviour. Indeed, it may be easier to deflect implicit demands for bribes by pretending not to

understand what is going on. However, pretending not to understand is not the same as actual

incomprehension. The key to success is to develop a high level of skill in interpreting both overt

and hidden signals, and to respond accordingly.

Nigerian businessman


Networks and connections

Building up a good personal and company network is a key aspect of the ‘soft skills’ that our

interviewees mentioned. At best, such networks will include trusted individuals in key positions

who can be relied on to assist, without demanding illicit favours in return. These connections can

help in routine transactions with the local administration, customs or even the police. As a

consultant explained:

If you get a good civil servant, often they really do more than they need to. I always make

contact with civil servants for my clients. They can get to the bottom of why things are being

delayed, follow up, and frequently streamline and speed up the process.

Similarly, the owner of an import and export business reported his experience:

Political and business connections make things run faster. In customs, you can even make

friends, and that helps you to avoid paying things because they don’t try to dupe their friends

with higher rates.

Connections can also offer support in time of crisis and difficulties. Since a purely legalistic

approach to challenge bureaucratic discrimination or political extortion is unlikely to be effective,

the clout of well-placed contacts can help to make the system work. A lawyer pointed to one

particular company as an example:

There is a major international company. They have a reputation of taking care of people.

They are not spoken of in terms of bribery. They are spoken of as good corporate citizens.

They make government officials look good. They are expensive and they keep their word.

And, regardless of your circumstances, they are friends for life and keep their word.

He added that this particular company made a point of not being vindictive when they encountered

problems, or when the political situation changed:

They won’t get involved in pursuing revenge against people that victimised them that have

now lost power. This helps them win the trust of government officials.

When seeking out allies, companies should look for individual ‘champions’ of integrity and reform.

However, they should not confine themselves to individuals. As noted above, regions within

Nigeria differ when measured by the degree of rule of law, and the efficiency of their governments

and administration. Moreover, certain agencies and ministries are also considered more honest

and efficient than the rest.

Social skills: ‘Dos and Don’ts’

Our interviewees summarised their experience of good social skills as follows:

• ‘Be politically savvy. Avoid comments on national issues, and respect the progress being

made in the country.’

• ‘The worst thing you can do is to be patronizing.’

• ‘What are the biggest mistakes? Failure to take on board to what extent things are different

here. … There are few other countries that prepare you for Nigeria. … I speak more

about the culture, the etiquette.’

• ‘It is not about shouting or fighting. The most effective way is subtle in approach, focused

and determined. If you come shouting, you are screwed.’

• ‘People are very interested in form. They can be very touchy if they don’t get the kind of

respect they feel entitled to.’


Among others, our interviewees took a favourable view of the Nigerian Central Bank, the ICPC

and – despite concerns about possible political interference – the EFCC. For example, a respondent

commented that ‘heads will roll’ once the EFCC gets involved in an investigation. In our own

interview with the EFCC, one of its investigators went so far as to invite new investors to consult

his agency: ‘The doors of EFCC are open’.

It is also important to note that there can be great differences even between departments within

the same agency. As a consultant explained, the extent to which a tender will be clean and transparent

is often very ‘personality-based’. One may be able to see whether a tender is likely to be rigged

or not by the way it is announced. The chances are that bids will not be fairly evaluated if deadlines

are short, evaluation criteria unclear and if the department running the tender has a bad reputation.

Consultants, commercial agents and advisers

Your advisors and assistants must be with reputable firms. Always use the best. When you are

working with big people and big contracts you cannot afford to make mistakes. When it’s international

money, we have international advisors and lawyers. For smaller indigenous contracts we go

through the same rigorous process with local banks.

One way of gaining access to special knowledge and connections is to employ a specialist, and

international companies in Nigeria commonly employ a range of specialist consultants, commercial

agents and specialist advisers. These consultants often play a valuable role as mediators and

problem-solvers. However, particularly when hiring individuals, it is essential to understand their

backgrounds, and the extent of their personal connections with senior officials and ‘politically

exposed’ persons. A senior manager in the oil and gas sector underlines this point as follows:

We employ the services of consultants who have worked with government agencies such as

the NNPC [Nigeria National Petroleum Corporation] for smooth business operations. To avoid

corruption facilitated by intermediaries, we hire only high-profile organizations or consultants

who have names to protect.

Well-chosen local advisers can use their specialist knowledge to help companies to avoid corruption,

for example by identifying honest officials in otherwise unhelpful government departments.

However, if companies choose the wrong intermediaries, or use them in the wrong way, they may

find themselves falling deeper into corruption rather than avoiding it.

Oil sector CEO


In the past, many international business people have regarded commercial intermediaries as a

‘buffer’ between themselves and corrupt officials. For example, they may hire specialist operators

such as freight-forwarding companies, accountancy firms or lawyers, and pay them an appropriate

fee. The specialists then deal with otherwise obstructive officials, for example customs or tax officers.

If they pass on the odd bribe to smooth the way that is their own responsibility, not the client’s, or

so it is thought. This approach is now open to question, but it remains commonplace. As a senior

banker argued:

The easiest way for a US company is to go to lawyers – so you kind of cover things especially

through lawyers. Americans are used to paying high fees for lawyers so auditors won’t get

suspicious.

Or the company will work with some professional firm of ex-auditors. So if you have a tax

problem, you go to such a company and you pay them a high fee. ...and get a reduced bill

[from the tax inspector].

The implication is that the firm of ex-auditors may make its own arrangements with the tax

inspectors, possibly including the payment of a bribe, and the client company does not need to

worry about this.

A similar logic has been applied to the practice of employing commercial agents to help to

acquire major contracts. All too often, international companies have paid such agents large fees

or commissions, a large proportion of which has been passed on as bribes.

Such practices are both morally and legally hazardous. The US FCPA makes clear that companies

are responsible for ensuring that intermediaries abide by anti-corruption laws. Similarly, the

OECD Anti-bribery Convention states that companies may not pay bribes ‘either directly or

through intermediaries’. As noted above, most of the international corruption cases involving

Nigeria have involved precisely such intermediaries.

Emerging best practice now applies to the management as well as the recruitment of agents and

consultants. It has now become standard practice for international companies to require consultants

and commercial agents to sign formal statements undertaking to abide by their clients’ anti-corruption

rules. Formal statements on their own are not sufficient: it is also essential for companies to be

able to demonstrate that they manage their consultants’ activities, and are fully aware of what

they are doing and not doing. They also need to be able to demonstrate that remuneration is

commensurate with the services actually performed by consultants and not – in the worst case – a

disguised conduit for bribes to be passed on to officials.

Case study: US authorities investigate companies for using intermediaries to bribe

customs officers

In a series of recent cases the US authorities have been cracking down on companies

paying bribes to the Nigerian Customs Service through commercial intermediaries.

One example concerns three wholly owned subsidiaries of the oil services company Vetco

International – Vetco Gray Controls Inc, Vetco Gray Controls Ltd and Vetco Gray UK Ltd.

According to the US DoJ, the three companies had authorised a ‘major international freight

forwarding and customs clearance company’ to make a series of corrupt payments to

Nigerian Customs Service officials between 2002 and 2005 in return for preferential treatment.

It had made at least 378 payments, averaging some $5,500 each, to make a total of

approximately $2.1m.

In February 2007, the three companies pleaded guilty to these FCPA charges and agreed

to pay criminal fines of $6m, $8m and $12m respectively, making a total penalty of $26m.

At the time this was the largest criminal fine to date in a DoJ FCPA prosecution.

It subsequently emerged that the international freight forwarding company was the

Swiss-based Panalpina. In the course of 2007 a dozen other international firms in the oil

and gas sector reported that they were under investigation from the US authorities in relation

to their own dealings with the company.

In July 2007, Panalpina announced that it was conducting its own internal investigation. It

subsequently withdrew from the Nigerian market, citing the difficulty of maintaining a

comprehensive service portfolio and at the same time maintaining the high ethical

standards espoused in its code of conduct. Panalpina’s Nigerian operations have now

been acquired by a local company, Premier Logistics Solutions, which has retained all the

existing staff.

Sources:

US Department of Justice Press release, 6 February, 2007.

www.usdoj.gov/opa/pr/2007/February/07_crm_075.html

Panalpina press announcement: 24 July 2007.

www.panalpina.com/www/global/en/media_news/news/news_archiv_2/07_07_24.html

Panalpina press announcement: 30 July 2008.

www.panalpina.com/www/global/en/media_news/news/news_archiv_2/08_07_30.html


http://www.panalpina.com/www/global/en/media_news/news/news_archiv_2/07_07_24.html

http://www.usdoj.gov/opa/pr/2007/February/07_crm_075.html

http://www.panalpina.com/www/global/en/media_news/news/news_archiv_2/08_07_30.html


Working with ‘Big Men’

Some companies appoint high-profile local individuals to their boards or choose to work with the

companies of former politicians or high-ranking military officers. The rationale is that these powerful

figures can tap into their personal networks and local knowledge when trying to resolve problems

or get past bureaucratic bottlenecks. One interview partner described how an international oil

company had engaged a small and previously unknown local company as a partner in its offshore

development programme. It seems that the local partner was owned by a very powerful local

politician with very good links to the army: it had no other significant assets. Making a similar

point, a prominent Lagos-based lawyer explained:

In some businesses, it is still the case that you don’t get very far if you don’t have a Big Man

on board. They provide deterrence from interference and can act as a ‘burglar alarm’ [by giving

advance warning of potential problems]. Thus they are often used by companies who need to

interact extensively with the government.

All over the world, high-profile companies recruit senior retired politicians to their boards and,

provided the process is transparent, their expertise may prove highly beneficial. However,

particularly in Nigeria, this strategy carries its own risks. As the Lagos lawyer puts it:

… some are greedy con-men and many are more trouble than they are worth. Retaining relevant

influence is how they survive – the most powerful people will take care not to appear in the

newspapers and to stay in the background.

There are also political risks. Working with powerful local figures may backfire if they are on the

‘wrong’ side. Decision-makers may discriminate against businesses that are felt to be close to a

political opponent. A consultant explained:

When advising clients and meeting with officials, they will surely be asked ‘who are you working

with?’ Even a name alone can already destroy an approach.

Moreover, today’s ‘Big Men’ may not retain the same weight of authority indefinitely. The lawyer

continues:

Around ten years ago there was a huge push by the young elite of Nigeria to take over from

the 30-year incumbents who had been dictating power and influence. At first, the younger

guys lost the battle, but the tension remains. The business sector is transforming and very

few people are untouchable and above the law these days.

Companies who work with senior power-brokers need to make sure that they are confident of

their honesty and ethical standards before recruiting them. In practice it is often difficult to manage

such people, or to restrain them within defined ethical boundaries. Working with them can incur

significant reputational risks.

In any case, Nigeria continues to evolve, and traditional power-brokers may have less influence

in the future. The best advice for companies selecting potential partners is to focus on technical

expertise, quality, reputation and professionalism.


The important thing to remember is that communities have been lied to and cheated for 50 years.

… Never, ever make promises you can’t keep, even to your driver. It is possible to play it by the

book and be successful. Trust and respect in community relations, and making sure everyone in

the community knows what you are doing, are key.

Several interviewees highlighted good relationships with local communities as a key success factor

in Nigeria, particularly – but not exclusively – in the natural resources sector. Good community

relations require an integrated strategy combining corporate social responsibility, security, political

risk management and public relations. Companies need to identify ways of fulfilling their social

responsibilities that complement rather than overlapping with – or taking over – the roles of

government. The tasks of choosing local partners and identifying contributions that bring lasting,

sustainable benefits require a high degree of social and diplomatic skill. Many of the qualities

required are the same as those needed to resist corruption: consistency, an ability to instil trust,

and alertness to detail. Equally, a strategy of using intermediaries or local ‘Big Men’ to solve

problems can – if badly managed – exacerbate difficulties rather than alleviating them.

Legal issues

Community problems are most prominent and long-running in the oil industry and the Niger delta

region. Land rights are a particularly sensitive issue with local communities. As a lawyer put it:

The fact of the matter is they were there before the federal government ever was. They live

there now and have never been consulted as to what happens on their land.

Evaluating the claims of local communities is further complicated by the co-existence of federal

law and local customary law across rural Nigeria, including the Niger delta. Both have legal standing

in Nigeria and so both must be navigated. In addition, job quotas and local content regulations

can theoretically benefit communities, but can be abused by community leaders for personal benefit.

Local intelligence

Good intelligence is particularly important in community relations. Communities have fragmented

greatly in recent years, and traditional leaders have lost power to more aggressive youth and militant

groups. The fragmentation is frequently a response to the award of cash and other benefits by

companies to community leaders – younger community members seek to challenge the dominance

of such leaders and accrue benefits to themselves.

Community relations

Expatriate security manager


It is therefore critically important to identify the de facto leaders and boundaries of communities

and to be aware of the presence of militants. Any projects or donations should be as transparent

as possible, and ideally made with the co-operation and knowledge of members of the community

beyond the leadership. This helps to reduce both corruption and security problems.

Community Liaison Officers

The majority of international companies operating in rural areas employ internal Community

Liaison Officers (CLOs) to manage the relationship with the local communities. These CLOs need

to be community members to give them the necessary credibility and influence. However, this

raises the question of divided loyalties and can also open up opportunities for corruption. Choosing

the right CLO is particularly difficult when communities are themselves fragmented: if one section

of the community is seen to benefit while others lose out this will exacerbate local tensions.

Interviewees indicate that one of the key determinants of success and failure in dealing with

communities is a robustly implemented company policy, combined with regular reviews and audits

of both the CLO function and external contractors. Clear codes of practice with consistent

enforcement are other key elements of community relations best practice.

Cash payments and possible alternatives

Our interviews indicate that cash payments to communities remain quite widespread, though all

respondents cited this as an undesirable practice that needed to be eliminated in the longer term.

According to one security manager of a services company:

We employ CLOs from the local communities, and they act as mediators with community

representatives. They were formerly members of the security department but the functions

have now been made into separate departments as it enables the security department to

conduct independent reviews and analysis.

We send a Nigerian manager to oversee many of the negotiations, since we believe that

many CLOs are taking corrupt payments. The big problem is that cash payments are made to

communities, but we can’t eliminate these entirely. We are trying to find ways around it, for

example by donating computers, cola nuts and brandy.

If cash payments are retained by the community leader, or distributed to his special friends, the

community as a whole will not benefit, and this can increase security problems rather than alleviating

them. The security manager at an international oil company highlighted some of the problems:

We have a dedicated public affairs department, responsible for community liaison and

sustainable development. There is an expatriate manager at head office level and Nigerian

CLOs at each of the company’s sites. We do make direct cash payments to community leaders

and this is in practice a big problem. Yes, we do have an anti-corruption policy but this is not

enforced systematically. Similarly, there is no systematic auditing or oversight of the CLO

function.

Respondents cited a number of ways in which their companies had avoided cash payments.

Some involved the development of education and services, and others the use of local

community-based companies to act as contractors, thus providing employment and jobs.

Providing other services, which are visible to the entire community, can be one way of avoiding

the need for cash payments. According to the manager of an international bank:

When the branch first opened, there were several instances of local youth and community

leaders approaching the branch manager to demand cash payments. We refused to make

such payments, citing international anti-corruption legislation. Initially, we were subject to a

number of threats from community leaders. We initiated a community partnership to provide

water, and the problems have now receded.


A partnership approach where local people share ownership of a project is often the best way forward.

However, it is important that such programmes are tightly managed and controlled because the

award of subcontracts to companies owned by community leaders can in the worst case amount

to another form of corruption. For example, the local manager of a service company said:

We have an empowerment scheme where we have selected local community leaders and

businessmen to provide contractors to supply services and goods to the company. We have

also sponsored potable water works and renovation of local schools. However, the provision

of contracts has caused problems because one youth leader has monopolised the supply of

cleaners, gardeners and other unskilled workers to the company, gaining huge financial benefit

in the process.

The most successful companies had policies that were strictly enforced, regularly audited and

well communicated. They also saw community relations as a key strategic priority, worthy of

significant management time and attention. According to one manager at an international oil company:

The community relations team reports directly to the country manager. The team also has a

direct reporting line to security and government relations departments at the company. The

company’s policy forbids cash payments to communities and this is strictly enforced. The

company has had a clear, long-term policy for engagement with local communities and cites

adherence to the Voluntary Principles* and other international commitments to justify this.

There is also heavy use of the local media to discuss the company’s activities and promote

transparency.

The fact that senior management is closely involved in the programme sends a powerful, positive

signal.

*Voluntary Principles on Security and Human Rights – see www.voluntaryprinciples.org

http://www.voluntaryprinciples.org


I will always follow due process as far as is possible. All I’m asking is that government does the

same. If they don’t pull their weight, then I fight them but, if that doesn’t work, ultimately I’ll go

around. I’m seen as a non-payer. I fight hard to do things the right way, and people know that,

but I’ll pay if I have to. I pay out of necessity, not out of desire.

The quotation above summarises the challenge of doing business in Nigeria. It is possible to

build up a good company with a strong culture of internal compliance. With the right mix of social

skills, determination and creative street wisdom, business people can often find a way around

bureaucratic obstacles. But still they sometimes encounter ‘brick walls’, where there seems to be

no way around. So what then? Should they pay after all?

Several of our interviewees felt that they sometimes had little choice. They did not like bribery or

informal payments, but they were practical people. Sometimes they just had to do what was

necessary. But is there really no alternative? The problem with the ‘pragmatic’ approach is that

news travels. The payer may think that he or she has made a one-off concession, but inevitably

it will be harder to refuse further demands, and the legal risks will multiply.

Every situation is different, and none of our interviewees could offer the perfect answer that

would apply in all circumstances. Equally, they all had examples of strategies and approaches

that had in their own experience made it possible to solve problems.

Polite refusal

Respondents also told us a number of stories where obstacles could be overcome by taking officials

seriously, not trying to cut corners, but explaining to them carefully and seriously why certain

demands were incompatible with modern business practice. In such circumstances, it is helpful to

be able to refer to a well-communicated and visible code of conduct: ‘I am sorry, but I would

immediately lose my job if I paid extra... My company is very strict on this.’

Demands for small payments

Demands from minor officials for small payments – sometimes characterised as ‘dash’ – are

commonplace throughout Nigeria. As one interviewee put it:

If we are talking about big-time corruption to get what is due or to push through something

that is legitimate, it is avoidable, but like I said it’s difficult. If we are talking about petty

corruption like paying the police, ‘welcome to Nigeria’. That’s just a fact of life.

Such demands are all the more difficult to resist because they are often backed by a form of

extortion. At a minimum, the penalty for refusal to pay is likely to be severe inconvenience. One

interviewee gave an example, which had eventually been resolved through an awkward compromise:

One member of a group of incoming company employees was held up at the international

airport because his inoculations booklet had not been stamped properly: the doctor had

signed for a set of inoculations, but had not put a stamp in the yellow fever ‘box’. The health

official offered to insert his own stamp, without requiring a further inoculation, but demanded

a fee of 4,000 naira (about $25).

It was impractical to hold up the whole party on this account, so he paid. My company was

reluctant to accept the payment on expenses, but eventually did so, treating the stamp as

a ‘receipt’.

Many Nigerians and long-time expatriates have much worse stories to tell, for example of demands

by hospital doctors before they will admit an emergency case into the casualty ward, or fire

brigades who demand money before responding to telephone calls. In emergency cases like

these, there is a general consensus: there is little choice but to pay.

CEO of a medium sized consumer-goods company

Problem-solving


Nevertheless, at a more routine level, interviewees argued that it was possible to resist demands

for small bribes, and many had developed their own ‘street wisdom’ tactics for doing so. For example:

• Ostentatiously get out your mobile phone, and start calling someone important (without necessarily

saying who).

• Claim that you have no cash, only a credit card.

• Refuse demands before outward flights at the international airport by pointing out that you have

already changed your naira in accordance with currency regulations.

At this level resistance is partly a matter of keeping one’s wits, and one’s sense of humour.

Determination is important: anger is rarely the best approach.

As discussed above, it is of course much easier to resist if the company has a well-publicised

policy of refusing to pay even small payments. If it does have such a policy, it is all the more

important not to compromise it – not least because of the likelihood of facing repeat demands.

Demands for small payments are indeed a fact of life in Nigeria, and there may be rare cases –

such as the emergency admissions into hospital – where there is little choice, but resistance is

still the best overall policy.

Be prepared to take losses

Several respondents emphasised that it may be necessary to accept some level of financial loss,

particularly when the company is in the early stages of establishing its reputation as a non-payer

of bribes. For example, these losses may arise through delays in obtaining approvals and

licences. The potential for such losses and delays needs to be built into financial planning and

formally acknowledged in advance. Otherwise, staff will feel greater pressure to succumb to

demands for bribes.

The senior manager of one company described to us in detail how his car had been impounded

by the police as a result of his refusal to pay a minimal fee. The cost and inconvenience to the

company was much larger than the fee, but the manager was confident that he had sufficient

internal support, and that this was the right approach. It was also notable that several other

respondents spontaneously mentioned this company, which works in the oil sector, as one that

had successfully created a reputation for ethical conduct.

Collective initiatives

Several interviewees mentioned formal or informal alliances as a way to build up additional clout

when dealing with problems. As an example, an oil company manager explained, oil company

alliances can pressure a government to have inefficient or troublesome officials removed. In spite

of the difficulties of forming and maintaining such alliances, they appear to offer a possibility for

medium-sized companies to gather more influence and thus to fight systemic extortion.

Escalation

Another strategy, when confronted with an obstructive official who appears to be seeking a bribe,

is to appeal to a more senior figure in the government hierarchy. As the CEO of a consumer

goods company put it:

If we begin to suspect that there is veiled extortion going on, we go to a higher authority. It’s

tricky to do it this way because no one ever makes direct demands. It’s all in body language

but that’s how we deal with it, and we keep climbing higher until we reach a solution.

I’ve never had people at the highest level ask me for a bribe. That just wouldn’t happen. We

tell the higher level that those below them are delaying unnecessarily and we need a faster

solution.


The CEO of a food processing company reports similar experiences:

[Escalation] works if you can reach high enough and then only sometimes. I’ve had to take

matters all the way to the president. I lobbied him for 16 months. But even then you don’t

always win. Why should I have to see the president to get things done? That’s ridiculous. It

hurts business and it hurts government efficiency…

So it might not be about a payment but then it’s influence. I’m lucky enough to have the

connections but not everyone has that.

If you are going to make representations to higher authority, it is important to be well-prepared,

including all necessary paperwork:

The most important advice… is to make sure you have a paper trail. Make sure you have

evidence. If you go to an office to complain about a bill, bring the initial bill, get a record of

anything discussed and any new amounts agreed on.

However, escalation to a higher level carries its own risks. Corrupt junior officials are often

backed by their superiors, who may even demand higher bribes. According to one respondent,

this is particularly the case with the police.

Legal confrontation

One possibility to fight unfair treatment is to legally challenge it. For obvious reasons, lawyers

were usually quick to suggest the legal challenge, but other business people also stated that they

were prepared to resort to this approach. They tended to recommend complaints to supervisory

bodies rather than direct challenges in court which are expensive and extremely inefficient. So,

for example, a senior lawyer recommended:

We tell our clients that they need to complain when they are asked directly or indirectly for a

bribe. They need to take these complaints to the EFCC/ICPC/Customs Management or

whoever is the proper supervisory authority. Customs has given out phone numbers of its top

management at drilling conferences as numbers to call if customs agents ask for bribes.

Similarly, the CEO of a power company comments:

We do what it takes even if this means a legal challenge. I put in a bid with the government of

22 million. A bid for 70 million won, when our bid was clearly superior. We wrote to the senate

about it and fought for the review of the bid.

The executive director of an international bank took a similar view:

Our prerogative is to resist anything that would compromise our integrity, product and/or

reputation. If it means going through legal means, so be it.

However, the managing director of a bank sounds a note of caution:

Now that I’ve learned, I try to avoid conflict. If you have to get into it, ensure that you have

someone on the case constantly to ensure it is resolved. And make sure people are persistent.

If complaining to supervisory bodies fails, there is still the possibility of taking the case to court. Most

companies, however, try to avoid such scenarios at all costs because of the length and cost of court

procedures and the inefficiency of courts. According to the owner of an import/export company:

When the amount is too much I take it to court but the problem with the judiciary is that they

delay, delay, delay and lawyers compromise your case for their own benefit at times. In a lot

of ways it isn’t worth it, so I only go when the cost is so high that the government is actually

threatening my livelihood, and I’ve had to go a few times.

In sum, legal recourse is possible and is in fact a key element of any committed anti-corruption

strategy, but it is costly both in time and lawyers’ fees, and is generally only a last resort.


Conclusion and outlook

Corruption is endemic in this country, and there is absolutely no way this nation can achieve its

potential until and unless this evil, this challenge, is confronted frontally by all Nigerians. We need

to declare a national war on corruption that involves everybody in this country.

Companies that don’t pay bribes have policies. They make it clear - on their websites, on the

wall, their code of conduct is known to every MP. They are known to be honest. They have

reputation.

The Nigerian government recognises at the highest level that controlling corruption is a strategic

imperative. Unless this happens, the best companies with the highest professional standards will

either stay away or restrict their investments in the country. Many of the Nigerian and international

companies that do operate will find themselves paying a ‘corruption tax’, either in the form of

bribes and informal payments, or in terms of extra managerial time and professionals’ fees trying

to find legitimate solutions to apparently intractable problems. At the same time, Nigerian companies

planning to expand their own international operations will be dogged – however unfairly – by their

country’s poor reputation abroad.

The declared intention to address the corruption problem is there, but implementation has far to

go. Meanwhile, in a cry of anguish from one of our interviewees, business people find themselves

‘battling’, squandering time and energy that should be used more constructively elsewhere:

Now we are two years behind project schedule… So we are battling: lawyers, PR companies,

huge expenses! It goes on top of project! … We are not doing what we should be doing! We

are wasting our time!

Escaping from the morass requires sustained, co-ordinated effort by three sets of actors:

• The first is government. Nigeria’s legal framework is relatively straightforward, on paper. The

current requirement is not so much for new or better laws as for fairer and more effective

implementation, and more efficient management.

As one of our interviewees observed, ‘corruption is the twin brother of inefficiency’. Malfunctioning

or non-functioning administrative procedures create incentives and opportunities for corruption.

Addressing these problems requires thorough-going administrative reforms to ensure that

government agencies and civil servants have the incentives to perform their tasks efficiently

and equitably.

• Nigeria’s citizens – including civil-society organisations and the media – together make up the

second set of actors. It is their responsibility to demand higher standards of public accountability,

both at election time and in between. There are now a number of civil society organisations

focusing on corruption, including a Nigerian chapter of Transparency International. There need

to be more such organisations, and they need to be more vocal.

• The third set of actors is made up of the Nigerian and international private sector – both individual

companies, and business organisations such as chambers of commerce and professional

organisations. At a minimum, individual companies have a responsibility to avoid making existing

corruption problems worse: this means resisting demands for bribes, rather than paying them

and reinforcing bad practice. International companies have a particular contribution to make by

modelling best practice abroad as well as at home.

No one has ever suggested that doing business in Nigeria is easy, and there are no blanket

solutions. Realistically, we must at best expect slow, incremental progress, and occasional

reverses, rather than sudden breakthroughs. Nevertheless, experience shows that – through a

combination of skill and high ethical standards – companies can face up to corruption and

achieve commercial success. Corruption remains endemic, but it is possible to avoid it.

Nigerian President Umaru Yaradua

Lagos-based lawyer


This paper draws broadly on Control Risks’ consultancy experience in Nigeria, and specifically on

interviews with a total of 25 individuals in Lagos and Port Harcourt between June and August

2008. Our interview partners came from a variety of backgrounds and sectors: from banking (four

people), oil, gas and power (three), service and catering (three), security (one), media (one), the

legal profession (five), and self-employed consultancies (five). We also interviewed two senior

members of the EFCC, and one expatriate journalist living in Lagos.

We conducted semi-structured interviews: open-ended questions within a set framework. The

advantage of this approach is that it makes it possible to explore sensitive and complex topics in

some depth. However, it is in practice difficult and time-consuming to conduct such interviews

with more than a select sample of respondents, and the loose structure makes it harder to draw

quantitative comparisons between large numbers of respondents. We may in future follow up this

research with a larger sample of respondents, using a questionnaire-based survey.

Control Risks has an outstanding track record in Nigeria. We have a permanent project office in

Lagos and more than 75 expert consultants deployed across all regions, backed up by our 24-

hour operations centre. Our clients benefit from round-the-clock access to an unparalleled network

of on-the-ground information, working with the leading provider of in-country risk solutions in

Nigeria. Control Risks’ experience in Nigeria includes pre-investment consultation on political and

investment risks, confidential due diligence on potential project partners, fraud investigation, roll-out

of security strategy development, crisis management and planning, and outsourced security

management.

Appendix 1. Interview methodology

Appendix 2: Control Risks in Nigeria

Control Risks’ offices

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Delhi

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Dubai

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Erbil

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Houston

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Jakarta

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Kabul

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Lagos

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London

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Los Angeles

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Mexico City

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Moscow

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New York

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Singapore

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facing up to corruption in nigeria

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