INVESTING IN AFRICA: 2019 SEMINAR SERIES #3 Investment Protection Structuring to protect your assets, government appropriation and asset recovery 30 October 2019
INTRODUCTION TODAY’S PRESENTERS Krista Bates Cem Ozturk William Witham Dr Sam Luttrell Partner and Head of Mining & Managing Director Australia - CEO Partner Resources Kroll - Duff & Phelps AAMEG Clifford Chance Lavan T +65 (66) 45 4534 T +61 (8) 9288 6920 T +61 (8) 9226 0175 T +61 (8) 9262 5564 E cozturk@kroll. E krista.bates@lavan.com.au E William.witham@aameg.org E sam.luttrell@cliffordchance.com INVESTING IN AFRICA: 2019 SEMINAR SERIES INVESTING IN AFRICA: 2018 SEMINAR SERIES
WELCOME AND OVERVIEW Topics to be covered today • INTRODUCTION Krista Bates CURRENT TRENDS AND DRIVERS • Bill Witham IN AFRICA • STRUCTURING YOUR BUSINESS Dr Sam Luttrell • Cem Ozturk ASSET RECOVERY • QUESTIONS Panel Q&A INVESTING IN AFRICA: 2019 SEMINAR SERIES
Resource Nationalism – Opportunities and Challenges for the Mining Industry Mr Bill Witham Overview - Rising resource nationalism(vis-a-vis) mechanisms for ensuring better wealth distribution • The continuing rise of resource nationalism tension between governments and mining companies is becoming increasingly critical. Tanzania, Zambia, Ghana, Burkina Faso, Argentina • Empowered Communities are expecting more commitments around socio- economic development and sustainability. • The Mining industry must improve its performance in this area in ways few other industries have to.
Why are we seeing an increase in resource nationalism • Rising commodity prices • Strong advocacy from and for Artisanal Mining • Support from NGOs and World Bank • When, and under what circumstances is resource nationalism justified? • How should we as an industry best respond to the threat of increased resource nationalism? • How can resource nationalism best be factored into investment decisions? • Identifying future hotspots for government and jurisdictional risk in Africa
How can the mining industry work better with governments and local communities? Better Stakeholder Transparency mapping Advocacy across all sectors Tell the Resist positive corruption stories
Investment treaties (BITs) • Investment treaties are sovereign risk mitigation instruments that: • oblige States to protect foreign investors in accordance with international standards; and • entitle investors to bring international arbitration claims directly against States that violate those standards. • Most investment treaties are bilateral (so- called “BITs”) – there are over 3,000 BITs worldwide today – but some are multilateral • Australia’s BIT program is very limited for Africa – for an Australian investor to obtain BIT protection for an African investment, specific corporate structures will normally be required
Investment treaties (BITs) • Investors often set up holding companies in England and Mauritius for this purpose (but not all BITs allow this approach) • The structuring exercise should be done as early as possible, ideally when the investment is first made (it is too late if a dispute with the host State has arisen or is foreseeable) • Do not assume this legal advice is prohibitively expensive INVESTING IN AFRICA: 2018 SEMINAR SERIES
Investment disputes: Arbitration • The international arbitration clause is the “teeth” of an investment treaty (if an investment treaty does not provide for arbitration, it is worthless). • Many treaties provide for arbitration at the International Centre for Settlement of Investment Disputes (ICSID), a World Bank body. • The arbitration process takes place before an international tribunal that is outside the host government’s control (unlike its courts, which may be corrupt or subject to undue influence from the executive). • There have been over 900 arbitration cases brought against foreign governments under investment treaties (13 by Australian investors).
Investment disputes: Arbitration Comply Unlawful Act Award Voluntarily States tend to Most cases The end product comply voluntarily involve claims for is an arbitral with awards because unlawful award that is if they do not comply, (uncompensated) enforceable that will impact their expropriation and against the host sovereign risk profile breach of the “Fair State in over 150 (which will drive up and Equitable countries their borrowing Treatment” costs); it may also affect their access to standard World Bank loans INVESTING IN AFRICA: 2018 SEMINAR SERIES
Investment treaties reduce finance costs • Investment treaties are intended to make it cheaper to invest in risky countries and it has now been empirically proven that they do. • In a 2017 study, a group of finance academics examined 45,255 syndicated cross-border loans initiated in the period 1980-2012 to determine the impact of investment treaties. • The researchers found that syndicated loans covered by investment treaties have an average loan spread of 159 basis points, whereas loans not covered by investment treaties have an average loan spread of 180 basis points.
Investment treaties reduce finance costs • The discount was even greater (an average loan spread of 140 basis points) where the investment treaty-backed loan was for an investment in a country with a record of expropriating foreign property in the past. • In other words, when a syndicated loan is covered by an investment treaty, borrowers have enjoyed an average discount of between 21 and 40 basis points depending on the host State. Costs Costs Costs
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Assets of states are similar to the assets of companies, and individuals Questions? Follow us on Twitter: @LavanTweets Follow us on LinkedIn: Lavan
There is an established asset searching methodology – that works • Kroll’s forensic accountants and investigators are experts in conducting forensic Forensic Investigations analysis to identify assets and further avenues of enquiry. Reviewing and analysing internal and external records can generate a multitude of leads, which we are then able to track to recover assets or counter efforts to avoid collection. Where available, a client’s internal records often provide a more detailed picture of a subject’s wider asset position than may at first be apparent. • Further, forensic analysis of bankruptcy, receivership and liquidation reports and records can enable the identification of assets not previously identified. In our experience, a successful outcome requires the application of forensic accounting techniques and on-the-ground research in the various jurisdictions where commercial interests may be located. • From experience, we know that this effort requires in-depth local knowledge and Investigative Research expertise focused on identifying, retrieving, and analysing all available information. We are adept at accessing relevant and useful information that is available in the public domain (corporate registries, real estate registries, recorded liens, regulatory filings, litigation histories, media reportage, etc.). • Initial profiling is conducted by thoroughly examining the public record in the relevant jurisdictions. Particular emphasis can be placed on identifying information within the subject state and developing an outward looking strategy to identify assets outside of the jurisdiction. Depending on your enforcement strategy, focus and priority will usually be given to the jurisdictions friendliest for recovery and with the highest-value assets.
There is an established methodology – that works • We utilise and deploy the latest technology to assist us in identifying information Deep Web Analysis contained in areas of the Internet that are not accessible through standard search engines. • This approach offers another dimension to traditional investigatory methods, allowing us to identify information that would otherwise remain undiscovered. By way of example, our ability to “scrape” the web for data that is archived or intentionally concealed can help identify links between subjects and assets which would otherwise appear entirely independent of one another. • The development of sources with knowledge of state activity can contribute valuable Source Intelligence intelligence, such as previously unidentified jurisdictions or greater clarity regarding asset holding structures, particularly with regard to offshore and limited-transparency jurisdictions. • This work is conducted in a discreet manner to preserve the confidentiality of the assignment, and suitable strategies for approaching individuals are developed in conjunction with the client.
There is an established methodology – that works
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