Due Diligence To Prevent Touting

By David Elesinmogun, Obumneme Egwuatu, & Marcus R. Cohen

To the untrained eye, they often appear as scrubby derelict vagabonds, haunting the steps of administrative offices throughout the developing world. Yet, this unassuming guise belies their predatory importance as quasi-official intermediaries – serving as both roadblocks and essential intercessors. They are “touts” and if your company has ever obtained official documents in West Africa, touts have likely paid cash to government officials on your behalf. And with or without your knowledge, touts may have caused your company to violate the FCPA.

To date, the preponderance of FCPA prosecutions have been related to corrupt payments to Nigerian government officials. Most of these cases involved the classic suitcase of cash given to a high-ranking dignitary. However, garden variety bribes in violation of the FCPA are paid by U.S. companies on a daily basis to middling Nigerian civil servants, and almost always by touts.

In Nigeria, the vast majority of touts linger patiently outside the Corporate Affairs Commission, the Nigerian Ports Authority, Federal Airports Authority, Motor Vehicle Administration, police headquarters, courts, as well as federal and state tax offices, seeking out “customers” in need of operational licenses, government certificates, records, or any number of other bureaucratically-blessed documents crucial to conducting legitimate commercial transactions.

More sophisticated and influential touts are seen driving Italian sports cars and hobnobbing with the official elites in Abuja and Victoria Island. These three-piece-suit touts have honed their craft and cultivated relationships with authorities farther up the official food chain. But whether they don Prada or sandals, all touts serve as shadowy middle-men, circumventing official regulatory processes by paying cash to secure administrative actions while shielding government officials from direct interaction with the bribes’ beneficiaries.

When touts serve as an agents’ agent, they often pay bribes without a company’s actual knowledge. While piercing the local agent/tout veil can be difficult, ensuring that no bribes are paid on your company’s behalf is essential. While the FCPA is not a strict liability statute, there have been convictions based on conscious avoidance of knowledge of a “substantial probability” that money would be used by a third party to make bribes. Farther down the slippery slope, the UK Bribery Act imposes strict liability on corporations that fail to prevent bribes by those acting on their behalf.  Simply trusting agents not to employ touts is a business strategy fraught with peril.

As touts and corrupt agents thrive on corporate ignorance, non-native companies doing business in the Nigerian market should consider arming themselves with local counsel, who are well-versed in local law and required procedures. Although local agents often offer assistance with corporate registration, preparation of contract bids, as well as a host of other issues, Nigerian attorneys are considerably better suited to provide such assistance. Additionally, companies doing business in Nigeria are well advised to adopt heightened due diligence practices to prevent touts from infiltrating their operations. Often the best procedures to avoid the involvement of touts and the inevitable bribes associated with them are also the most straightforward.

The Nigerian government, for its part, has recognized the economic scourge that touts represent and have moved to eradicate touting at the federal, state, and local levels. The Nigerian government recently initiated laws, instituted policies, and revamped existing systems in an effort to curb the contrivances of touts. Notwithstanding these anti-touting initiatives, the problem persists. Touting presents a unique challenge for multinational corporations conducting business in Nigeria and companies should adopt proactive strategies to avoid violating the FCPA.

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Marcus Cohen is of Counsel to Sandler, Travis & Rosenberg in Washington DC, where he advises clients on compliance with U.S. and international anti-corruption measures and export controls and sanctions laws. He can be reached at [email protected]. 

David Elesinmogun and Obumneme Egwuatu are founding partners of Elesinmogun & Egwuatu, with offices in Lagos, Nigeria, and Washington DC. Elesinmogun’s practice focuses on advising both Nigerian and international corporations in cross-border commercial ventures, banking, criminal law, securities regulation, environmental law and immigration. Egwuatu concentrates his practice on advising multinational corporations on investing in Nigeria and Africa and compliance with both Nigerian and U.S. law. They can be reached, respectively, at [email protected] and [email protected].

A version of this post first appeared in the October 3, 2011 edition of Corporate Counsel at www.Law.com.  All rights reserved by © 2011 ALM Media Properties.