Not many safe harbors: corruption risk in the port sector

By Ton Van Den Bosch, Special to the AJOT 

All markets and industries are exposed to corruption risk, but some sectors are at greater risk than others. Due to the nature of the business, companies that require licenses or concessions from government institutions are more exposed to bribery and corruption risk. Examples include extractive industries (such as for example oil, gas and mining), casinos, pipelines, telecoms, airports and ports.     

The World Bank has identified four port management models, with different levels of responsibility of the public and private sectors. In a landlord port model, the local port authority retains ownership of the land and the terminal is leased to a private operator, usually under a concession agreement. A port concession is typically a long-term contract between a government body (for example a local port authority) and a private operator to operate a terminal. A port concession often includes obligations for the operator to construct or improve the infrastructure (such as for example the berths, access roads, cranes or warehousing space) or to enhance capacity and a port concession is essentially a public-private partnership (PPP).

Corruption is a threat to ports, terminal operators, shipping lines, investors, financiers and other stakeholders. Given the extraterritorial reach of the FCPA and the UK Bribery Act, problems originating in for example Africa or in Asia, expose companies and their officers to investigations in the US and in the UK, in addition to investigations in the markets where the violations may have occurred.

Bribery and corruption enforcement not only exposes companies and officers to criminal prosecution, but also constitutes massive commercial risks in the form of penalties (last year, a record US$2.6 billion in total fines and penalties was collected to settle FCPA cases), a collapsing share price, negative press, loss of container volumes, potential events of default in financings and even the risk of losing a concession. Furthermore, handling a bribery investigation is extremely expensive and disruptive.

When you overlap the Transparency International 2019 Corruption Perceptions Index map with the world map highlighting where ports may be developed, it becomes clear that many ports are developed in countries with high perceived levels of corruption. This corruption risk is not academic and recent examples include allegations of bribery on Belt and Road projects as well as for example the bribery scheme involving the US$ 84M port project in Mȏle St. Nicolas in Haiti.

The port business continues to provide good opportunities for brownfield and greenfield developments, particularly in gateways in emerging and frontier markets. Terminal development programs across Africa and Asia will boost efficiency and capacity and further development and construction is expected in for example Maspion in Gresik in East Java, the East Container Terminal in Colombo in Sri Lanka, Nouakchott in Mauritania and Iloilo and Dumangas in the Philippines. In order to protect against bribery and corruption risk, companies in the port industry continue to strengthen their compliance programs enabling them to navigate the current climate of intensified compliance and enforcement and allowing them to develop and operate efficient and profitable ports and terminals.