This has had an impact on how the due diligence process is undertaken as well as the documentation used when making any investment. Specific undertakings and warranties focusing on corruption are now included in standard investment documentation as best practice reflecting appropriate standards of good corporate governance whether or not the relevant legislation is actually applicable to the investment in question.

The question is often raised as to whether this increasing mountain of rules and regulation is having a positive impact for investors. Does it just increase the costs of investment or does it even put companies who adhere to these principles at a disadvantage when operating in emerging markets?

There have certainly been studies by a number of consultancy firms which argue that investing in ESG programmes can generate significant financial returns and improve shareholder value. When investing in companies in Africa, imposing such guidelines will not change behaviour and practice overnight but it is making a difference over the medium term where GPs can add real value to portfolio companies by driving such change.

However the dangers of not focusing on corruption issues are illustrated by the fact that there have also been examples from around the world of companies who have acquired other companies without undertaking proper anti-corruption due diligence which has dramatically impacted on the value of the investment. There is a particular example where a US company purchased a company in Latin America where certain corrupt practices were not picked up during due diligence and indeed were carried on by senior management following the acquisition. When this activity was discovered, it was reported to the FCPA. The end result was that virtually the whole purchase price was wiped out through a combination of the cost of the FCPA investigation (which was borne by the company under investigation), the resulting fines and penalties, the termination of the senior management and of course the loss of business.

But is this making a difference to the investment environment in Africa? Our experience with our clients is that this is an issue which more and more international investors are taking extremely seriously and they are putting in place compliance systems for their employees to provide clear rules as to how to deal with corruption when it arises in their business dealings as well as avenues for confidential reporting of illegal activities by other employees.

But there are also many practical steps to take to minimise the risk when investing particularly in a new country. Understand the environment in which you are operating in. It is important to follow the rules rigorously – some investors take the view that when investing in a developing market they can cut corners which they wouldn’t consider doing in developed markets, often to their detriment. Know with whom you are doing business – use risk consultancy advisors if necessary to carry out background checks. The key is to do your homework before you start.

Internal compliance programmes should also be put in place for all employees. Appropriate values and behaviour need to be driven and lived by the senior management. Clear policies need to be communicated to those employees and training programmes devised. Prepare employees for bribe requests and run them through particular scenarios. Much of the corruption in practice is often petty requests for cash, but there are ways to deal with these situations effectively. It is also extremely important to document everything from policies, reporting procedures to specific requests for bribes – even if it is discovered that a bribe is paid. This could be an important part of a defence under anti-corruption legislation – under the UK Act the only defence that a company has is to be able to demonstrate that it has adequate procedures in place to prevent bribes being paid.

Our sense is that there is a growing move by international investors and multinational corporations to take on corruption issues head on when looking at investments in Africa, to adopt a zero tolerance policy to corruption and to only deal with other companies who adhere to similar principles. There may soon be a time when if an African company wishes to operate globally or interact with an international player on the continent, they will have to have developed their own anti-corruption policies otherwise they may find themselves at a competitive disadvantage. There is still a long way to go but we have certainly been seeing a shift in approach over the last few years.