Global Investigations Review - The law and practice of international investigations

The European, Middle Eastern and African Investigations Review 2018

Nigeria

Sofunde, Osakwe, Ogundipe & Belgore

While the engagement of lawyers in private practice to undertake investigations on behalf of private corporate clients in Nigeria remains an uncommon occurrence, there are indications that clients are beginning to appreciate the value of instructing lawyers to assist with some investigatory work. One area in which the engagement of lawyers appears to be increasing is in the provision of enhanced due diligence for clients seeking to learn more about proposed business partners in Nigeria.

There are numerous companies that offer due diligence services. Such services are increasingly performed through automated systems, involving databases and the use of artificial intelligence. For jurisdictions, such as Nigeria, that are considered to be high risk, reliance on the results of such automated processes can never be a substitute for the local knowledge and skill that providers of specialist investigation services are able to offer.

One major challenge that is encountered is that some clients requiring due diligence services tend to view such services as a commodity and, on occasion, are unwilling to incur the sort of expenditure that will be involved where a bespoke service is called for. Clients that do understand, and accept that a bespoke service will, of necessity, involve increased expenditure are those for whom the consequences of not having conducted thorough due diligence can be extremely grave. Such clients tend to be US-based or controlled, or have securities listed on a US exchange, primarily because the US authorities are the most aggressive and efficient in enforcement matters. Clients with potential exposure to US enforcement proceedings will, frequently, require inquiries to seek to obtain information beyond the type of material provided in internet-based reports obtained outside Nigeria. Essentially, what has been requested has tended to require more detailed knowledge of the subjects of the inquiry.

The types of investigations that clients have requested over the past year have included matters about which clients regularly have concerns, such as the review of internal investigations into instances of fraud revealed by internal audits, identifying process lapses and advising on ways of addressing them, as well as advising on whether there were grounds to take disciplinary action (up to and including dismissals) against identified individuals and advising on the procedural steps to be taken to effect decisions on the types of disciplinary action decided upon.

One unusual set of instructions required the firm to take a close look at the corporate structure of a client’s competitor so as to try to understand how the competitor was able to, while still adhering to applicable rules and regulations, outbid the client on contracts. This involved developing a profile of the directors of the competing company from numerous sources, identifying related companies and linking the information collected in an effort to understand how the competitor was able to offer such terms to customers.

Instructions from a client, who had been the victim of a securities fraud that resulted in the loss of the equivalent of several million dollars, required a considerable effort to identify assets held by the company that perpetrated the fraud. As it was clear that the value of assets held by the company itself was considerably less than the loss suffered by the client, investigations were conducted to identify assets held by the company’s chief executive and members of his immediate family.

The Asset Management Corporation of Nigeria (AMCON), a statutory corporation created in 2010 to enable banks to remove non-performing loan assets from their balance sheets, has continued to be a source of instructions to conduct investigations aimed at finding assets against which action could be taken to seek to recover value for the corporation. In one particular instance, a review of transactions between a defaulting customer and another company operating from the same premises resulted in the discovery that directors from the defaulting customer and from the second company had combined to form a third company, also operating from the same address, raising suspicions that the third company had been created to enable the defaulting customer to avoid its liabilities. In another instance, a review of the companies in which a particular individual was involved revealed a pattern in which the individual would create new companies, operating from premises he owned, charge the companies rent for the use of the premises, run up debts, then put the companies into liquidation. He would then register new companies and continue the process.

Other investigations that the firm has been called upon to conduct have been in response to reports by anonymous whistleblowers alleging fraud or other misdeeds on the part of senior officials, requiring the conduct by external counsel of internal investigations and the interviewing of staff in an effort to ascertain whether the allegations made had any validity.

The firm has continued to receive instructions to conduct independent investigations on behalf of individuals and corporations under investigation outside Nigeria on allegations of having been involved in some sort of misconduct that has taken place in Nigeria. A feature of most of these instructions has been that they have come either directly from a United States corporation or by a Nigerian company that was managed by a United States corporation, or in which a United States corporation either had a majority or controlling interest. Nigerian companies continue not to be inclined to use external counsel for such matters, and where the need for an external investigation is envisaged, as these are usually in circumstances where financial misconduct is a feature, audit firms tend to be the first port of call.

Nigeria, always regarded as a ‘difficult’ jurisdiction, does not appear to have featured as frequently in Foreign Corrupt Practices Act (FCPA) enforcement proceedings as it once did. As a result of this, the firm has not been involved in FCPA-related matters over the past year.

External counsel have, for some considerable time, had to do things such as conduct separate inquiries to validate, or otherwise, investigations previously conducted by both internal and external auditors, where non-Nigerian parent corporations have been concerned with establishing facts in instances where there are suspicions of bribery, fraud and other misdeeds in Nigerian subsidiaries and affiliates. Unlike the sort of thing that occurs today, such investigations tended to be yet another of a number of investigations that would be conducted. Typically, there would first be some sort of internal audit or inquiry. This would often be followed up by a separate inquiry conducted by external auditors and, finally, inquiries conducted by external counsel. The external counsel could be from outside Nigeria, who may or may not work with local Nigerian counsel, or could be Nigerian counsel working with in-house counsel from within and outside the country. These inquiries tended, in the past, to be totally uncoordinated and usually one inquiry would follow the other. Today, such investigations are more likely be coordinated, with external counsel working with in-house counsel, internal and external auditors. The focus of these exercises has usually been to establish facts and to determine what, if any, remedial action was required. In most of such cases, there were rarely, if ever, any major concerns about whether or not the corporations themselves had been engaged in any unlawful or improper conduct.

FCPA, Organisation for Economic Co-operation and Development anti-bribery and UK Bribery Act provisions have required corporations to have more and more elaborate internal compliance provisions and procedures. Many of these corporations have turned to external bodies to help them in the formulation of these procedures and to local external counsel for help in ensuring that these procedures are capable of working and in designing processes to test the procedures. Local external counsel will also be called in where the procedures appear to have failed so as to assist in evaluating what damage may have been caused, and in helping to remedy such problems as may be identified. The firm engaged, on a full-time basis, a certified fraud examiner to support its work in this area, and to assist in providing clients with advice on processes to reduce the scope for losses due to fraud, and to enable the speedy identification of circumstances that could occasion loss.

In addition to the types of activities set out above, external counsel in Nigeria are being called upon to advise on or participate in the conduct of internal investigations. Where these investigations are at the behest, or for the benefit, of non-Nigerian corporations with interests in Nigeria, the concern is frequently to ensure that local laws are complied with as well as give local Nigerian insights into applicable foreign laws that bind the non-Nigerian corporations. For example, Nigeria’s data protection and privacy laws are more or less non-existent, when compared to laws in the United States and many European countries. Certain actions may be perfectly legitimate in Nigeria but may run foul of data protection laws in these other jurisdictions and the help of local Nigerian counsel can be valuable in working out what actions may or may not be taken in such situations.

Other situations that have arisen have been where there has been some enforcement action outside Nigeria. Some corporations have addressed the problems solely from a non-Nigerian perspective only to be confronted, later, with Nigerian enforcement activity, and the prospects of having to address, and possibly meet, sanctions in Nigeria that are essentially a repetition of what had been faced elsewhere. There is, therefore, a need to be aware of this danger and to seek to obtain local advice at the earliest time. Given the somewhat poor performance of Nigerian enforcement agencies, many corporations may be tempted not to address such problems in as robust a manner as they might have in their home jurisdictions. What needs to be remembered is that such poor performance is unlikely to persist indefinitely. The performance of most local enforcement agencies is improving, and in spite of present difficulties, is likely to continue to improve. There are no limitation laws in Nigeria with regard to criminal conduct, so not paying attention to these matters is hardly a sound, or wise, choice.

Moving on from what was required to address anti-bribery enforcements and other requirements, growing mergers and acquisition activity, and the search for new markets in a global economy that has seen little growth in developed economies, has resulted in more and more enhanced due diligence being required to be conducted in relation to acquisitions in Nigeria. This development has extended the work that Nigerian practitioners are being called upon to perform. Nigerian legal practitioners are now being called upon, more and more, to provide background advice on Nigerian individuals and on their corporate and business interests. Going forward, it is likely that this will become an increasingly more significant area for Nigerian practitioners engaged in this area of work.

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