Managing Compliance and National Security Risks When Doing Business in the DRC, Part 2

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Speaker B: everyone, this is Tom Fox. Welcome to the award winning FCPA Compliance Report, the oldest podcast in compliance. Last week we began a uh, two part series on doing business in the drc. I'm joined by David Simon and Jack Korba, both from Foley and Lardner and Oliveira Dustin from Pennsylvania. This is part two of the episode and it's a really great episode on what it means to look at a very high risk region or country and how you can go back into it and still stay within the confines and the requirements of the fcpa. It's a fascinating episode. If you haven't listened to part one, go back and check it out. I know you're going to enjoy part two, also an extraordinarily rare occasion where risks actually go down. And now Tom Fox hosts David Simon, Jack Korma and Oliveira Bustin. This is part two, Chuck. One of the things I got from the articles was it's not simply doing what you've just outlined for us in terms of assessing the risk, but it's almost an ongoing risk management through controls, through you mentioned audits. But what are some of the controls, uh, or at least other examples you could point to where a company could essentially monitor the risk throughout the relationship and then pivot with or put additional controls in place if needed.

Speaker D: So I think one of one thing that's really important to do when you're dealing with foreign investment is really staying on top of geopolitical issues is really staying on top of the actions that your, whoever your regulator is taking with regard to particular industry or area. So if you're looking at the drc, for instance, you can see you can use government action as really a uh, precursor or government announcements of where there's going to be more of an increased focus. And, and so you can tailor your, your audits, your approach based upon where you see more of the focus from a government perspective, whether that be in certain, like the critical minerals industry or if there's another more appropriate industry that the government is focusing on. So really being aware of the geopolitical risks and priorities, I think is an important tool to, or important uh, thing to incorporate into your risk based approach and into your audits, your reviews whenever necessary, such that you can really again focus and do the appropriate amount of due diligence where appropriate.

Speaker B: David, one of the themes I got from the series of articles was be pragmatic or using pragmatism in your analysis. Could you maybe say a few words about. Obviously there are two extremes here. Too risky or not risky and not risky at all. How does pragmatism work into your analysis for a client?

Speaker A: Yeah, look, and it's always important, but it's particularly important in these very high risk jurisdictions to just understand, like on the point Olivier was making about counterparties and business partners, there's a lot you need to at some point get comfortable with a level of ambiguity that you might not have doing the same deal in Norway. I think that's gotta be part of the process. But it doesn't mean you ignore the risk. Right? It means you to. The point you just made, Tom, is you, you build controls, you build monitoring, you build auditing around that and you just have to, I think in jurisdictions like drc, just laying over your basic compliance, due diligence framework and your basic structure is risky in and of itself because it doesn't take into account the very specific unique local dynamics that you're going to encounter in a market like this. So I think you have to be, you have to be pragmatic, you have to be practical, you have to understand that you may need to take on some risks. There may be some areas where, you know, you just don't have the clarity that you would normally get. But you can manage that risk through other mechanisms, right? So you can mitigate it, you can put controls around it. But gosh, the point you made before monitoring in a situation like this is so critically important. It's really where, where if you just overlay your sort of existing compliance procedures and let it go on autopilot, that's a recipe for disaster, right? Paying attention, being engaged. Don't just make the investment and never look at it again and assume it's operating appropriately. All of that is critically important. My experience too, and you guys all have had experience with different regulators, but in my experience, DOJ and SEC in particular sort of get this right. I mean, Jack, you've been on the other side of this, you can probably talk to it, but they get that different markets are different. And I think they will not say they'll necessarily agree with you if you're defending your process after the fact if something went wrong. But I think they'll listen to you if you're thoughtful, if you've documented a process, if your senior management is engaged. I think decisions like entering a market like this should be C suite board level engagement.

Speaker D: Right?

Speaker A: This is not the kind of thing to let your BD team and compliance team just go and take and run. But if you do all those things and you make reasonable decisions and you ask the right questions and you pay attention to the responses and you follow up and you do all the things that we all counsel our clients to do, think you're gonna be all right.

Speaker B: Jack, let me turn to you on a point that David raised. But I wanna read a paragraph from part three. I'll read a couple of sentences from a paragraph. The paragraph is entitled Diligence as a Narrative. Risk management. And the sentences are a useful discipline is to ask at the outset whether the diligence record would support a clear explanation to regulators, auditors or journalists if the relationship were scrutinized later in the DRC context. The question is whether management can demonstrate that it understood who it was dealing with and why it concluded the risks were manageable. As I noted, we haven't met before, so you don't know that every time I, uh, speak I end with what are the three most important things about compliance document? Because if someone like Jack Corbin is on sitting across the table from me, he's going to want to see your documented decision making process. But something the second sentence I read I wanted to put in as well, because it you would want to see, okay, you did this diligence. Now you made a decision based on this. Can you say a few words about exactly what David says? How important is it from someone who might sit across the table from a David or Olivier or myself, like you in your former job, and to review that process and to see there was a thoughtful process?

Speaker D: No, I think it's a, it's an excellent point. And to go off what David was saying having at least a well thought out process where you have identified certain risk areas and you have at least made a decision, an educated decision and a rational decision based upon your risk of, uh, your risk tolerance and based upon what your, your company's capabilities truly are, is much, much better than going to the DOJ later and saying, I just didn't have a plan, I just didn't have, I just didn't have, I didn't have an assessment built in. I didn't, I just didn't think that this would ever come up. That is so much better because reasonable minds can disagree or agree about what a correct approach was. But, uh, as long as you can demonstrate to, across the table, coming from someone who sat across the table, as long as you can demonstrate that you were aware of, you were aware of certain problems that existed, you were aware of certain potential issues or priorities of the government or of the regulator, you took those into account and, and you decided to conduct diligence in these areas. To institute a process like this and to have independent auditors or an internal team do your checks or to run those decisions off the chain and to do screening in xyz. As long as you can document that those procedures were actually implemented, not just a smokescreen, that they were actually implemented in place and there was a reason, a rational, pragmatic approach behind what you did, you're going to be in a much better position should you ever have to face any inquiries, should you ever have to produce any documents to the relevant regulator. So as long as you have that process in place and can justify it and explain it if needed, then that is. That's half the battle right there.

Speaker B: Gentlemen, as we move near the end of this episode, I'm going to ask a question and ask each one of you to opine on it. And the question I'm going to start with is what, what should companies avoid? And Olivier, I'm going to start with you. What would be the biggest mistakes you would say companies should avoid in this process?

Speaker C: I think first, uh, and foremost think about the size of the project you are ready to invest in. Because one project sized for one group of company because of the wealth they are ready to invest, while the same project for another company would be very reasonable. The same with someone go to casino. $100 mean a lot for someone, it means nothing for someone else. So my very first advice, and it comes back to pragmatism, is look what you are ready to invest in this country and be comfortable to live with it and sleep with it. That's the first thing. Because if you start to Put yourself in a big stress by thinking I'm not going to, you create the chaos in your mind that will definitely be reflected at some point in time in the decision you take or you don't take and it will go against the project. So that would be my very first advice. The project, you can make it without being too stressed about not seeing it going forward as fast as you would like to.

Speaker B: Jack, how about yourself? What are some of the biggest mistakes you would say a company should avoid?

Speaker D: Yeah, so I just think doing your homework, I think before you go into a transaction, know your customer, know your seller, know your distributor, just know the parties that you're dealing with and know the dynamic on the ground where you're thinking about investing or operating. If you're appropriately educated and you at least appreciate who you're dealing with, where you're dealing, the dynamics that are involved in a sit in a situation, you can at least appreciate what, what is going to, what your tolerance is for a risky transaction or anything of that nature. That is, that's a much better situation to be in rather than just going in blind or going in without really a true appreciation of what, what the situation is going to be once it's actually, once you actually enter it. So I would say just know as much as possible, educate yourself, know the surroundings and know what you're getting yourself into. That's the appropriate, most appropriate step I would say, before deciding whether to go ahead with such an investment opportunity.

Speaker B: David, how about you?

Speaker A: Yes, I'm going to be positive. Tom. I actually think the biggest mistake is to be paralyzed by the fear of the challenge and not explore really important and exciting opportunities. And I think probably more companies are making that mistake. More US companies are making that mistake saying oh my gosh, drc, scary, let's move on than are making. Not to say there aren't compliance mistakes to be made, but I think that's the bigger risk.

Speaker B: Let me pick up on that a little bit David, along the lines of the following. Many CCOs and compliance professionals or lawyers, perhaps not most anymore, but certainly many. And we tend to be a little bit conservative by our nature. And how would you counsel a CCO who is a client or comes to you to actually start thinking about yes, this is high risk, but yes, if the company will meet these steps after you've done an appropriate analysis, how can a CCO begin to change that thinking?

Speaker A: Yeah, it's a great sort of question for self reflection for all of us I think, I think obviously ccos have a role to play and part of that role is the brakes. And that's important and it shouldn't be avoided, shouldn't be neglected. But I do think, I do think taking a more proactive and commercial perspective on exploring and developing opportunities is really an important role for compliance professionals. And I think they can be more effective. I think part of the dynamic that I think we've all seen is CCOs and compliance gets brought in at the end or way into the process. Right. And then says what are we talking about here? How do we get this far? This seems like a crazy idea. Whereas a commercially minded proactive CCO who plays a role as part of that as a business strategist and advisor to the company, can shape the opportunity from the beginning and ask the right questions and make sure that the commercial and the compliance questions are in line and that the narrative is in line from the beginning. I think that's where that separates the truly outstanding CCO from, from someone who's just really layering on rules.

Speaker B: The next question is what is the starting point that you would advise if a new client. Yeah, let's just say a new client comes to you and say we'd like help and understanding where it should be begin. So Olivier, could I start with you? What's the practical starting point?

Speaker C: I would advise that client to make a list of all the company already in DSE that this client would like to have as a client I would say okay, look at the market as it is, which one would you like to work with then? Why? And let's reach out to them by emails and then let meet them. And I'm sure these people already being in DRC will have a significant list of issues they are looking at solution. And then you have your business case because you are going to bring them that solution. So that's what I would recommend as opposed to trying to look at DRC in a very macro level, trying to understand where are the biggest deal to be financed by DFIs or other kind of institutions. That's very important. I'm not saying it's not, but I would recommend to do a ah, different. To follow a different angle. The one that I'm not sure so many people are looking at looking at the private investors already in country struggling and willing to work with others.

Speaker B: Jack, what would you say from your perspective is the starting point?

Speaker D: Yeah, so I think I would go to something back to what David said like understanding what the goal is and what you're hoping to accomplish here and making that clear at the outset to your compliance staff, to whoever you're bringing into meeting that these are the appropriate goals and this is the amount of risk that we're willing to tolerate. I think if you go into having an expectation that you're going to have to. Every transaction is going to carry, uh, or every opportunity is going to carry some risk. As long as you can go in with set goals in place and say, hey, this is what we're willing, this is what we're willing, this is what we, where we want to go and this is how, this is what we're willing to risk and this is what we're willing to take a chance on. Then I think we're going to have a much easier time down the road convincing people of various things that you need to get across the goal line, various companies that various transactions that you need to approve, various what inquiries that you need to address from perhaps board level and management. Just having those goals at the outset clearly identified and how much you're willing to risk and how much you're willing to take a chance. I think those, that's the important, most important first step from my perspective.

Speaker B: And David, how about from your perspective?

Speaker A: Mine's easy. I agree with what those guys said. I'd say my first step would be let's get on a call with Jack and Olivia and figure it out.

Speaker B: Uh, let me, I'm going to ask you guys for each of your final takeaway. Other than picking up the phone and calling you all collectively, what would be the sort of final takeaway? And David, I'll start with you.

Speaker A: Yeah, so look, I'll go back to the sort of, the point I made at the beginning, which is this is a market that has so much opportunity and so much going for it and so much risk that goes with it. But it really just, it requires, it really kind of requires our attention and we should be paying more attention to it. American companies should be more engaged, engaged with it. They're great opportunities to do great business and to impact positively this part of the world. And we should be doing that. And I think, uh, there are resources and playbooks and approaches that allow American companies to do this in a way that's not excessively risky if they do it the right way. So to me that commercial message is front and center. Let's sort of face our fears and work through them. And there may be situations, right. Like, I don't want to suggest there aren't sort of no go opportunities in the drc. There undoubtedly are many, but there are many great opportunities that can be managed and we should be doing more of it.

Speaker B: Jack.

Speaker D: Yeah, again, Golf Dave said, I think most things can be managed, most issues can be managed. There's every again situation is going to have risk and there's not free of risk. But there's also very high reward potential here in this space. And the companies I think that are willing to make that jump, that are willing to take that chance, are the ones that are going to be the ones who ultimately succeed. Like Wayne Gretzky said, you miss 100% of the shots you don't take. I think that's maybe the ultimate takeaway from my perspective.

Speaker B: And Olivier, we will allow you to uphold the honor of France and give us the last word.

Speaker C: Thank you, Tom. Um, my sense is that you mentioned earlier that it's always quite a conservative approach when you talk about lawyers in our council. I think sometimes when we talk about business they're also very conservative, surprisingly. And they wait again, surprisingly to see one of their competitors making the first step. Where usually we don't do that. You don't wait to see your competitors doing something. So with regard to drc, I don't have a magistic, but if I have to say something to US company listening, I would say someone recently has done the first step for you. If you look at the Lobito railway corridor, uh, which link the port Angola and up uh, to the inner south of drc, it has been massively, hugely financed by a uh, US institution. So for those who think I would like to go there, but why others, uh, are not doing it already a few that have done it. I would also mention that you have a great US Embassy with a very strong historical involvement within the country. So I don't see any red flag from not looking at it. That said, of course it's a risky environment, a challenging environment, but I've seen US company investing massively in other jurisdictions that are not well known for being un risky. And as a French, I don't believe that there is a risk within the business, well known entrepreneurship of the US company. So the bottom line. Welcome to drc,

Speaker B: gentlemen. Very early on in my compliance career I was meeting with the CEO of a company and he said, I want to do X. And I told him, you can do X but you should get fitted for an orange jumpsuit because if you do X you're going to go to jail. And he looked at me and said, now wait a minute, you're the lawyer, you go figure it out. And I thought about it and he was right. It is our job as lawyers, as compliance professionals to figure it out. High risk does not mean you can't do it. It just means you have to risk. Excuse me, manage the risk at a higher level. And your series of papers and what you said in this podcast are as fine an example I have ever seen, read or heard of someone defining how you manage a high risk. I wrote an entire book on going into Venezuela. I could not have written what you all wrote about the DRC because I don't know anything about it and I don't pretend to be the smartest person, but I talk to the smartest people and you guys are the smartest people about looking at risk in the drc. So I just wanted to shout out to you all for your articles for this podcast and I hope you will, in educating the entire compliance community on what's high risk and how do you manage high risk. I hope you all will keep this dialogue going with our community, both in the United States and France and abroad on what you can really do. So I just wanted to applaud all of you all for what you've done and thank you so much.

Speaker A: Thanks, Tom. Appreciate it.

Speaker C: Thanks, Tom. Thanks all of you.

Speaker B: This is Tom Fox. Again, thank you so much for listening to this episode of the award winning FCPA Compliance Report, the oldest podcast in compliance. I hope you will check out Matt's book, Awakening the Advocate and determine what you can do to fight the international scourge of, uh, slavery and human trafficking. This will be our last podcast before July 4, 2026, which of course is the 250th birthday of America. I hope you will help all of us celebrate this great day and think about, if you're an American, what it means to be an American in 2026. Thanks so much for listening. We'll be back with you next week.

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