Risk: Tales of the frontier

A new breed of lawyer is smoothing the path for companies entering emerging or unstable jurisdictions 

Risk is the commercial buzzword of our times. Health risk, reputational risk, data risk; the word means different things to different sectors, but even those with the healthiest appetite for risk will be looking for ways to mitigate it in business.

From a lawyer’s perspective risk was once a relatively closed concept. It was the job of lawyers to advise on the legal concerns of a given business venture, but with corporations now sometimes spread across multiple jurisdictions, their job has become far more holistic.

One of the greatest challenges is entry into a new jurisdiction – and even more so, a ‘frontier’ jurisdiction where government, law and the economy are in their infancy.

Many of these countries feature highly on risk indexes for political unrest, corruption and personal safety. As untapped economies they also present significant opportunities for commercial investment, particularly by infrastructure and natural resources companies.


Eversheds head of international Stephen Hopkins emphasises how risk depends on your perspective. 

“A jurisdiction might be new for some sectors and not for others,” he says, highlighting the distinction between a frontier jurisdiction and one that is simply unfamiliar to the organisation looking to enter it.

“Even before law, you need to think about personal safety, risk planning and insurance,” he adds, saying these are critical factors lawyers must take into account in taking a holistic approach to risk.

It’s a jungle out there…

In practice, this means general counsel and company board members first doing comprehensive due diligence on the opportunity they are pursuing in a jurisdiction to work out whether it is even commercially viable to operate there.

If the decision is made to proceed, the next concern is the safety of personnel on the ground. Staff will also have to be trained in the legal and regulatory system that governs their operations as well as the law of the country they are in. These will often conflict.

Stephen Hopkins

The legal implications of entering a frontier jurisdiction are many and complex. As Hopkins points out, you are rarely able to practise local law, so you must be partnered with reliable local counsel. In some regions the law is not even written down, so finding a lawyer you can trust is vital.

This may mean appointing an international firm with experience in multiple jurisdictions and a network of local lawyers. Firms such as Baker & McKenzie, DLA Piper and Eversheds operate such networks.

Corporations with a long history of operating in frontier jurisdictions that have been amalgamated from smaller regional operations, such as Royal Dutch Shell, will already have a network of local counsel, making their biggest concern maintaining due diligence of that network.

London Mining general counsel and company secretary Rohit Bhoothalingam(see also this week’s In-house Interview) agrees that having the right local counsel is important.

“I know a lot of big firms are looking to find out who’s who on the ground in Africa, for instance, because your local counsel is your eyes and ears,” he says. “Not only will they advise you of the law and regulations but they will also tell you what’s happening, what the networks are and what the geopolitical situation is – things a law firm in the UK does not usually advise on.”

A moving target

The risk level of any jurisdiction is subject to change. The crisis in Ukraine or the Arab Spring and its fallout are contemporary examples. Instigating a process by which networks of advisers and compliance standards are constantly checked is also critical.

When the UK Bribery Act came into force in July 2011, businesses were slow on the uptake, but in the context of a blossoming corporate compliance culture the legislation is now a risk assessment benchmark for entering unstable jurisdictions. 

The regulatory and reputational risks associated with entering undeveloped jurisdictions are many and varied, and despite the increased scrutiny of how businesses go about it, research reveals that corruption is still a concern worldwide.

According to Transparency International’s Global Corruption Barometer 2013, more than half the 114,000 people in 107 countries it surveyed thought corruption had worsened in the past two years. The survey showed that corruption is widespread, with 27 per cent of respondents saying they had paid a bribe when accessing public services and institutions in the previous 12 months, revealing no improvement on previous surveys.

Equus Petroleum general counsel Robin Storey has experience of updating compliance processes in two companies after the Bribery Act came into force and believes it is less about new standards and more about transparency.

“We put in place new forms of contract, new forms of tender process, new tender committees to take the decisions and new processes around all that to ensure there’s contemporaneous documentation and you can demonstrate the process and what you’re spending your money on,” he explains.

Storey does not believe compliance requirements represent anything particularly new. Any good oil and gas company will have had a compliance procedure and due diligence process in place for years. It is the ability to show what has been procured, from whom and for how much that matters.

Bhoothalingam agrees that it is proving compliance that is important, rather than being aware of any big change in the law. 

“A fair few emerging markets jurisdictions have zero tolerance to bribery in their legislation but many don’t practice what’s in the regulations,” he explains.

It is a defence under the Bribery Act if an organisation can show it has adequate procedures in place to prevent bribery, which is why transparency has been so critical since the legislation came into force.

One general counsel says that when the act was published people were scared by it. They were worried it would be unworkable and posed a risk to frontline staff. But it has become clear it was not designed to catch people making small facilitation payments – although that is against the rules – but rather to enforce existing laws against large-scale corruption.

Access to arbitration

Another concern when entering frontier jurisdictions is legal recourse via arbitration if something goes wrong. Many countries have bilateral investment treaties with the UK and EU to allow international arbitration.

For a corporation to ensure it has access to dispute resolution it must identify any treaties and reference them in agreements with the governments of host countries.

According to Bhoothalingam it is also important to tailor remedies in agreements to the treaty and ensure access to a neutral forum within which to conduct arbitrations.

“There’s no silver bullet,” he says. “You’re dealing with countries, not individuals, so you have to manage and mitigate risk through PR, corporate social responsibility, legal and regulatory compliance, and engagement with the local community, host government, donor governments, multilateral agencies and development agencies.”

Incorporating all these factors into a cohesive risk mitigation procedure is an increasing burden on general counsel. 

“It puts them in a difficult commercial position because you have to jump through all the compliance hoops and it can be difficult to compete with less tightly regulated nations,” says Eversheds’ Hopkins, although he concedes that from a regulatory and legal perspective the clarity offered by the Bribery Act is a good thing.

Lawyers dealing with frontier jurisdictions perhaps have the greatest insight into the rapidly broadening remit of legal professionals. Tackling the many strands of advice that have come to characterise modern legal practice in the toughest of climates is creating a new niche for frontier lawyers.

The least and most corrupted juristictions