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Digest The Nigerian Lawyers’ Journal

Spring 2013

Fight for Control of the Central Bank of Nigeria

Placement Of Oil And Gas Insurance Risk Locally – Is The Industry Ready? Sanctions and Remedies Under Nigeria’s Merger Control Regime An Insight into Islamic Finance

LAWYER IN THE NEWSUNIMAID Alumni Makes Mark in America

Beatrice Bassey Hamza – Partner Hughes Hubbard & Reed LLP. NY. 1

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EDITOR Seyi Clement


Lulu Sianga

CORRESPONDENTS North America Ifeoma Uche

Middle East John Adetiba

Nigeria Yinka Olojede-James Ranti Thomas Adijat Ayobami


LEGAL LIABILITIES All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Any submissions or contribution from readers shall be subject to and governed by XL Nominees Limited’s Terms and Conditions, which are available upon request. The publishers regret that they cannot accept liability for errors or omissions contained in this publication, however caused. The opinions and views contained in this publication are not necessarily those of the publishers. Readers are advised to seek specialist advice before acting on information contained in this publication which is provided for general use and may not be appropriate for the reader’s particular circumstances.



Femi Clement Tel: +234 7052105294 / 8098111237

Bisi Iyaniwura & Co 3rd Floor, Arinkandi House 1 Raimi Adedokun Drive Lagos


COVER STORY 20. An exclusive Interview: Beatrice Bassey Hamza – Partner – Hughes Hubbard & Reed LLP, NY. Editor’s Letter Letters New/Jobs Case Review/Case Watch

INSURANCE 15. Placement of oil and gas risk locally- Is the industry ready?

Tonia Eziolisa Tel: +234 8033205754

Augustine Clement 1st Floor, 3 Market Place, DA6 7DU, UK

The fight for control of the Central Bank of Nigeria has moved to the floor of the National Assembly. This article looks at the potential implications of the changes proposed by the Senate for the governance of the Bank

4. 5. 6. 7.

Ruby Sehra



*Cover picture by Peter Vidor

CORPORATE FINANCE 17. An insight into Islamic finance PUBLIC LAW 26. Separation of the role of the Attorney General from the political office of the Ministry of Justice.

CORPORATE LAW 29. Sanctions and Remedies under Nigeria’s merger control regime. TAXATION LAW 32. FATCA: The new face of international taxation – Effect on Nigeria’s financial institutions. LITIGATION 36. State immunity: Enforcement measures against State properties abroad – The “commercial activity” exception. CORPORATE GOVERNANCE 40. Beyond “Independent Director” to Board Independence. COMMERCIAL LAW 43. Nigeria is open for business – The FDI perspective. BUSINESS DEVELOPMENT 45. Social media for lawyers.

Re-Root Designs


Dear Colleagues,


e cannot thank you enough for making the inaugural issue of the Law Digest and its launch in London a resounding success. Again, thank you! We have been inundated with letters and comments on the journal, some of which are printed in this issue. One of the issues that have elicited most responses is the interview with Okey Wali SAN, the Honourable President of the NBA. Please keep your letters and comments coming. We will do our utmost best to print and respond to as many of your letters and comments as possible. In addition, we have been encouraged by your nominations for the Lawyer in the News for this Spring issue. We are humbled by the accounts of public contributions that have been made by Nigerian lawyers not just in Nigeria, but across the world. From obscure places like Sudan, to well trodden paths such as London and New York, Nigerian lawyers are quietly making selfless public contributions in their communities. Thanks to all for highlighting this army of unsung heroes. Please keep bringing their deeds to our attention, so that we can honour them. The nominee, who stood out for us, and also received the most nominations, was Beatrice Hamza Bassey, a partner at one of the biggest law firms in New York. The Editorial Board had no hesitation in selecting Ms Bassey for her pro-bono works in New York and her charity works in Africa, generally, and Nigeria in particular. Nomination for the Lawyer in the News for the summer issue is now open. You can nominate your Lawyer in the News by writing to me at or by visiting our website, to make your nominations. In this issue, we examine the issues raised by the Bills to amend the composition of the Board of the Central Bank of Nigeria and their potential effect on the governance of the bank, among other things. Further, as we advised in our yuletide message to you, we will be spotlighting emerging practice areas this year. First out the blocks is Islamic Finance. With US$1.8 trillion in managed Islamic funds, plus another US$2.5 trillion in none interest bearing bank accounts, which is forecast to grow at the rate of 15% year on year, this area can no longer

Law Digest - Expanding Minds


FROM THE EDITOR be ignored by lawyers and advisers, regardless of faith. We will feature contributions from international jurists looking at Islamic Finance from the contentious and noncontentious perspectives. We will continue to keep an eye on this developing practice area throughout the year. Lastly, we would like to remind of our “International Litigation and International Litigation and Asset Recovery Forum” taking place in Lagos in October 2013. We are bring together local and international jurists to discuss issues such as, trends and developments in cross-border litigation, choosing forums, overcoming pitfalls in obtain evidence in UK and the U.S, legal and practical issues in obtaining injunctions in the UK and US in aid of local proceedings, international enforcement options, asset hiding & tracing, role of arbitration in asset recovery actions, how to tackle arbitration clauses which hinder fraud recovery actions, strategies for enforcement of Liquidator’s powers in asset recovery actions, to mention but a few. Who should attend? Lawyers specialising in fraud, banking litigation, debt recovery and insolvency litigation. Forensic accountants and Insolvency practitioners. In-house lawyers, risk analysts and heads of financial crime from banks and other financial institutions and other recovery specialists. To find out more visit our event dedicated website at To contribute articles or commentaries to the Law Digest, please write to me at We hope that you will enjoy this issue and we continue to welcome your contributions, comments, criticisms and support.

Seyi Clement Publisher/Editor

Law Digest Spring 2013



Highly Relevant Topics The articles are well researched and the topics are highly relevant. We hope this will help to fill the vacuum caused by dearth of contemporary legal works on topical issues. My greatest prayer is that this awesome publication will be sustained.

The Nigerian Lawyers’ Journal

Oke Omezi Ogbemudje, Omezi & Co. Lagos.

Winter 2012


Outdated and Unnecessary? The court’s jurisdiction to enforce awards annulled at seat The Petroleum Industry Bill - An Overview Accessing declaration of assets of public office holders - Legal Obstacles


Okey Wali SAN-President NBA speaks exclusively to the Law Digest

Intellectually Stimulating My initial intention on obtaining a copy of the journal was to read one or two articles in my areas of interests, but I ended up reading all for the following reasons: All the articles are written in plain, simple and easily understandable English, devoid of legal jargons. The articles are not only intellectually stimulating but also provide in - depth analysis of the various substantive law covered in them. Most of the writers adopted a comparative analysis approach which is a very invaluable method of exposing Nigerian based lawyers to the law or case law in other jurisdictions and how it impacts on Nigeria law. One other notable feature is that all the writers are seasoned and experienced lawyers who all exhibited sound knowledge of law and issues in their respective article. If the quality of your maiden edition is taken as an indication of what to expect in subsequent editions, then we are about to witness a major contribution to the development of law and legal education in Nigeria. Yinka Soyombo Yinka Soyombo & Co, Lagos

UK: £3.50 US: $5.50 Nigeria: ₦1,000


Quite Captivating and Educative Academic Commitment to Sources I received the digest yesterday through my secretary and I write to express my deep gratitude for it. Through the rather punishing schedule of my recent weeks, the short, apposite and illuminating articles have managed to grab and retain my attention every chance I get for a breather from work. Perhaps as a bias from my peculiar transitions from and between litigation and academics, I have particularly enjoyed the academic commitment to sources at the same time as the articles reflect the pithy aptness of practitioners. Congratulations for a splendid presentation! Prof. RACE Achara, Millenial Chairman, Nigerian Bar Association, Enugu; Past Dean of Law, Enugu State University of Science and Technology

Very Impressed I was very impressed with the writings, design and overall contents of the Law Digest. I look forward to reading and contributing to future publications. Debo O. Adesina, Esq. Akin Gump Strauss Hauer & Feld, Texas, USA

Indisputably, Law Digest has emerged in our jurisdiction to salvage our contemporary and complex legal issues with a view to providing a world class legal system in comparison to British and American legal jurisdictions. Holding a copy of Law Digest winter 2012 and perusing the contents has raised much hope to me and of course the lawyers in Nigeria. Quite captivating and educative, deeply planted with facts not readily available to legal technicians as well as the entire populace due to the dearth of adequate legislations and materials on novel areas such as Insolvency, Cyber Security and Cashless Payment System. To my mind, the editorial team and erudite contributors have proffered the panacea for these mindboggling areas, insufficient legislations! Specifically on the article of the Learned Silk, Anthony Idigbe SAN, encapsulated from pages 35 through 37 of the Law Digest, it is obvious that the legal masquerade of who is an insolvency practitioner has been the bane or acid scare of the insolvency practice in Nigeria. Having invested over twenty five years in that sector of law, I wish to further submit in the words of the Learned Silk “The IP occupies a crucial position in a company during its hour of distress and this underscores the need for an effective legislative regime Kudos! Olasupo Ati-John Supo Ati-John & Co. Lagos (Council member of Business Recovery & Insolvency Practitioners Association of Nigeria (BRIPAN))


Law Digest 2013 Law DigestSpring Spring 2013


A Beautiful Amalgam of Law and Journalism The Law Digest is an idea whose time has come. It is a beautiful amalgam of law and journalism. It is also the first ambassador of the Nigerian Legal System in print, the external signature of our Legal System. Law Digest and the Editorial Team should be commended for capturing the robust growth of our Legal System especially in highlighting the work of Nigerian trained lawyers practicing in other jurisdictions. These missionaries of the Nigerian Legal System are excellent billboards attesting to the best of our Giant in the Sun. We expect the next edition, and the next and the next...... Enefaa Korubo Enefaa Korubo LLC, Birmingham, USA

Inspirational Interview I have read the interview with Okey Wali SAN and the write up on the SAN whether it is outdated and unnecessary, both of which in my view were well written and quite interesting. The idea of interviewing such interesting personalities like Okey Wali and finding out more about their journey to the pinnacle of the profession is quite inspiring. I look forward to more interviews with other interesting personalities in future editions. From what I can see here is a good mix of articles from lawyers in Nigeria and the UK, however in future editions it would be great to have articles from lawyers of Nigerian origin who are based in other jurisdictions, for instance, the United States and Canada. I would also be quite interested in having future editions case note on recent landmark decisions in different jurisdictions. Dr. Edwin Egbede Senior Lecturer, Politics Programme Director Cardiff University. Cardiff

Essential Reading I have had the pleasure of reading the Law Digest. The quality of the print work of the magazine is excellent compared to some magazines I have read. I like the fact that we now have a magazine that addresses topics of interest to lawyers both abroad and in Nigeria. As a lawyer based in the UK the magazine enlightens me on issues pertinent to the legal profession in Nigeria. I commend the editors of the magazine and urge colleagues here and abroad to make this magazine part of their essential reading. Abimbola Badejo Barrister 5 Pump Court Chambers, UK

APPOINTMENTS ADAEZE IBEKIE, has been appointed the Nigerian Bar Association Director of Services. A role in which she will head various units within the Association including Business Development, Database Project, Disciplinary and Petitions Unit, Communication, Adaeze Ibekie Library Services, Welfare Scheme, Practising License Unit and Branch liaison services. She will be responsible for spearheading the task of ensuring the effectiveness of the Association’s services and raising the profile of the profession.

TINU ADESHILE, general counsel at Islam Channel TV, joins Japanese gaming company and makers of Pro Evolution Soccer, Konami, as general counsel. The role will have a particular focus on licensing law, especially IP and commercial rights on games and content. Ms Adeshile is also the vice-chair of the Plumstead Law Centre.

JOBS Vacancies exist for Solicitors with 6-12 years post call experience in Corporate/Commercial Law for placement as In-house Solicitors to Corporate organisations. Applicants must posses a minimum of Second class lower (2.2) at first-degree and the Nigerian Law School. A postgraduate degree will be an added advantage. Interested applicants to please forward their CV (in pdf format) within two weeks of this publication to:

Letters for this column should be sent online to: To be considered for publication, letters must bear the name and address of the sender and because of limited space, letters may be edited to meet space, clarity and style requirements.


Press Releases for this column should be sent online to To be considered for publication Press Releases must be on company’s letterhead, with details of the contact within the organisation. Press Releases may be edited to meet space, clarity, style and legal requirements.

Law Digest Spring 2013

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Case Review & Case Watch

Case Review Negligence Damages Jurisdiction Conflict of Laws Liability Nuisance Trespass

F. A. Akpan; B.M.T. Dooh; F.A. Oguru, A. Efanga; and Vereniging Milieudefensie v Royal Dutch Shell PLC (“RDS”) and Shell Petroleum Development Company of Nigeria Ltd (“SPDC”) – under three case citations for Akpan: Rb.’s-Gravenhage (vzr.) 30 January 2013, LJN BY9854.; Dooh: Rb. ’s-Gravenhage (vzr.) 30 January 2013, LJN BY9845; Oguru and Efanga Rb. ’s-Gravenhage (vzr.) 30 January 2013, LJN BY9850. In these cases, four Nigerian farmers/fishermen and Milieudefensie (the Dutch branch of Friends of the Earth) jointly brought claims against Shell Nigeria and its parent company Royal Dutch Shell in May 2008 for damages resulting from oil spills in the delta region of Nigeria. The farmers/ fishermen were from the areas of Goi, Ikot Ada Udo and Oruma which due to leaks in the oil pipeline became polluted and thus largely inhabitable. The Plaintiffs alleged that RDS and SPDC were responsible for specified oil spills that occurred in: October 2004 near the village of Goi in Ogoniland; 2005 near the village of Oruma; and in 2006 and 2007 near Ikot Ada Udo in Akwa Ibom State of Nigeria; and accordingly, jointly and severally liable for the damage suffered (and that to be suffered in future) by the Plaintiffs. Specific tortious claims included negligence, nuisance and trespass against the Plaintiffs. Jurisdiction: The court upheld its interlocutory judgement allowing it 8

jurisdiction not only over RDS (being based in The Hague) but also SPDC notwithstanding that the claims arose out of events and resulting damages that occurred in Nigeria. The court noted that “the forum non conveniens restriction no longer plays any role in today’s international private law” and that: as the claims against RDS and SPDC related to the same events (oil spills) and were on the same legal basis (i.e. tort of negligence under Nigerian law) and therefore sufficiently connected, in the absence of abuse of procedural law, the Dutch court had jurisdiction over SPDC as a joint defendant by virtue of Book 1: Article 7 of the Dutch Civil Code (“DCC”) and the circumstances justified a joint hearing for reasons of efficiency. The court dismissed the argument by the Defendants that procedural law had been abused by the Plaintiffs who sought to invoke the jurisdiction of the Dutch court by initiating claims against RDS and SPDC jointly when clearly the claims against RDS were certain to fail. The court stated that the claims against RDS could not be designated as ‘clearly certain to fail’ beforehand, because beforehand it could be argued that under certain circumstances, based on Nigerian law, the parent company of a subsidiary may be liable in tort for damage suffered as a result of the activities of that subsidiary as demonstrated in the English case of Chandler v Cape plc [2012] EWCA Civ 525, where a parent company was held as owing a direct duty of care to an employee of one of its subsidiaries. The court further opined that its jurisdiction did not cease to exist in the event that claims against the Dutch Defendant were dismissed and even if subsequently, in fact, no connection or hardly any connection would remain with the Dutch jurisdiction. Applicable law: As the alleged torts were committed in and with the resultant effects in Nigeria, the court ruled that the claims in the main action were to be substantively assessed under Nigerian law subject to the exceptions based on Dutch confl ict of law rules under Book 10: Articles 6 and 7 of the DCC i.e. where such laws would be manifestly incompatible

with Dutch public policy or special mandatory laws of The Netherlands. Decision: Regarding claims against RDS as the parent company, the court held that the special circumstances basis on which the parent company was held liable in the Chandler case were not so similar to those in this case and therefore did not apply. It held further that a sufficient duty of care by RDS in respect of the people living in the vicinity of the oil pipelines and oil facilities of SPDC had not been established so that RDS could not be held to have committed any tort of negligence against the plaintiffs. The District Court therefore, dismissed all the claims against RDS. The court further held that under Nigerian law, SPDC committed a specific tort of negligence against Akpan by insufficiently securing the wellhead in issue prior to the two oil spills in 2006 and 2007 near Ikot Ada Udo against sabotage (as the spills resulted from the opening of valves which were easily accessed). Therefore SPDC was required to compensate Akpan for the damage he suffered. The court dismissed all other claims. The court held that the claims of the other Plaintiffs against SPDC for oil spills in 2004 and 2005 could not be sustained. Applying the general rule of Nigerian law, it held that in the event of sabotage, an operator such as SPDC is not liable for damages caused by oil leak caused by sabotage which was not preventable. The cause of the October 2004 oil spill near Goi village was held to have been from a cut in the pipeline by a jagged hacksaw, while that in 2005 near Oruma village, was from a circular hole made by a drilling device; that in those instances SPDC could not have prevented the sabotage and given their adequate response to the spills, SPDC could not therefore be held to be tortuously liable.

State Immunity Company Law Liabilities Arbitration

Law Digest Spring 2013 La Générale des Carrieres et des Mines v F.G. Hemisphere Associates LLC [2012] UKPC 27 (the “La Générale-Hemisphere case”) the Privy Council considered whether La Générale des Carrieres et des Mines Sarl (“Gécamines”), a corporation owned by the Democratic Republic of Congo (DRC), was directly liable for debts which the DRC owed to F.G Hemisphere Associates LLC (“Hemisphere”). Hemisphere, a Delaware incorporated ‘vulture fund’, purchased the assignment of two very substantial ICC arbitration awards against the DRC which initially arose from supply and financing contracts entered into by the DRC with a Yugoslavian hydroelectric company. Hemisphere sought to enforce these awards against Gécamines assets which consisted of shares in a Jersey joint venture company referred to as GTL (Groupement pour le traitment du Terril de Lumumbashi) and, the income flow due from GTL to Gécamines under a ‘Slag Sales Contract.’ To be liable under the UK Immunity Act 1978 (the “1978 Act”) which provisions extended to Jersey, Gécamines would need to be held as an organ/department of the State of DRC with assets currently in use or intended for use for commercial purposes (see section 14 of the 1978 Act). If considered a separate legal entity, distinct from government and capable of suing and being sued, Gécamines should not be held accountable for the debts of the DRC State. The lower court and Court of Appeal held that Gécamines was at all material times assimilated into and therefore an organ of the DRC, notwithstanding being incorporated as a separate legal entity, by reason of the extensive power accorded to the State over its affairs and given the fact that the DRC had on several occasions taken or used its assets without compensation; thereby enabling a third party to hold it responsible for the DRC’s debts and to enforce against its assets, under the “commercial activity” exception rule. This case builds on the common law test derived largely from Lord Denning MR’s judgement in Trendtex Trading Corporation v Central Bank of Nigeria [1977] 2 WLR 356B (“Trendtex”) in determining whether a state-owned corporation and its assets may be equated with that of the state and its assets and therefore also protected by state immunity. In Trendtex, it was held that the CBN, which had been created as a separate legal entity with no clear expression of intent that it should have governmental status, could not be considered an emanation, arm, alter ego or department of the State of Nigeria and was therefore not entitled to immunity from suit nor could it be answerable for the Nigerian Government’s liabilities.

The court pointed out that Trendtex offered a simple dual test based on the existence of governmental control and the exercise of government functions which today alone could not suffice. The court opined that since Trendtex, both international and national law have further developed principles governing immunity, expressing the need for full and appropriate recognition of the existence of separate juridical entities established by states, particularly for trading purposes, so that even where such entities exercise certain sovereign authority jure imperii, - and are given special functional immunity, if and so far as they do exercise such sovereign authority – due recognition of their existence and separateness should be given for purposes of liability and enforcement (para 28). The court provided the following guidelines: (a) Is the entity an organ of the State or a separate legal entity? Separate juridical status is not conclusive; an entity’s constitution, control and functions remain relevant, but constitutional and factual control and the exercise of sovereign functions do not without more convert a separate entity into an organ of the State; (b) The strong presumption is that where a separate juridical entity is formed by the State, its separate corporate status should be respected and that it and the State forming it, should not have to bear each other’s liabilities, especially where it is formed for what are on the face of it, commercial or industrial purposes. It will take quite extreme circumstances to displace this presumption such as where the entity has, despite its juridical personality, no effective separate existence; (c) For an entity, despite its juridical personality, to be assimilated generally, an examination of the relevant constitutional arrangements, as applied in practice, as well as of the State’s control exercised over the entity and of the entity’s activities and functions would have to justify the conclusion that the affairs of the entity and the State were so closely intertwined and confused that the entity could not properly be regarded for any significant purpose as distinct from the State and vice versa; (d) The assets which are (subject to waiver and to the commercial use exception) protected by State immunity should be the same as those against which the States’ liabilities can be enforced; (e) There may be particular circumstances in which the State has so interfered with or behaved towards a state-owned entity that it would be appropriate to look through or past the entity to the State, lifting

the veil of incorporation – but any remedy should in that event be tailored to meet the particular circumstances and need; (f) A separate juridical entity does not become an organ of the State or lose its legal separateness from the State merely because it acquires governmental functions, or has its assets taken or used for State purposes, or as in Trendtex, has it independence eroded or becomes the government’s agent in a variety of activities. The court held that Gécamines was in all respects clearly established and acting as an ordinary mining corporate entity, having substantial assets with substantial business, having its own budget, accounting, borrowings, debt, tax, etc. As such, it could not be held to be an organ of the DRC and therefore not so liable nor its assets answerable, for the DRC’s debts consisting of the two arbitration awards, the benefit of which Hemisphere had acquired.

Case Watch Jurisdiction Conflict of Law Trespass to Person Dr. Barinem Kiobel, and others – v- Royal Dutch Petroleum Co. and another (U.S. Oct. 1, 2012) (No. 101491) This is a lawsuit brought against Royal Dutch Petroleum Co., Shell Transport & Trading Co., Plc, and its wholly owned subsidiary Shell Petroleum Development Company of Nigeria Ltd (SPDC) in the US. The suit was brought on behalf of the late Dr. Barinem Kiobel – an outspoken Ogoni leader and eleven other Nigerians from the Ogoni area of the Niger Delta. The plaintiffs accuse the defendants of complicity in the arrest, torture and killing of protestors by government forces in Nigeria’s oil-rich Ogoni region, include the late Dr. Kiobel. The putative class action sought damages and other relief for crimes against humanity, including torture and extrajudicial executions, and other international law violations committed with defendants’ assistance and complicity between 1992 and 1995 against the Ogoni people. Kiobel puts two crucial issues before the Supreme Court: (1) whether corporations may be held liable for violations of international human rights norms under the US Alien Tort Statue (the “ATS”), and (2) whether the ATS allows U.S. federal courts to hear claims based on activity in a foreign country. On October 1, 2012, the case was argued before the US Supreme Court and decision is expected in the first half of 2013.


Law Digest Spring 2013


The Fight for control of the Central Bank of Nigeria By Kaluba Sianga - Deputy Editor


he Central Bank of Nigeria (the “CBN” or “Bank”) faces a review of its governance structure, a move that could adversely affect its present autonomy and independence. During 2012, the National Assembly saw the introduction of two bills intended to amend the management and powers of the CBN. On 22nd October 2012, following its second reading and subsequent referral to the House of Representatives Joint Committee on Banking and Currency and Justice, stakeholders and the general public were invited to a public hearing on,


“A Bill for an Act to Amend the Central Bank of Nigeria Act, 2007 No. 7 (the “Act”) To Appoint a Person other than the Governor as the Chairman of the Bank, Exclude Deputy Governors and Directors as Members of the Board, Divest the Board of the Power of Consideration and Approval of the Annual Budget of the Bank: And for Related Matters, 2012 (HB.12.03.276)” (the “Bill”).1 The Bill, through the use of external governance mechanisms, ostensibly aims to reinforce accountability and transparency in the governance of the CBN. It does so by, inter alia,

appointing to the Board of Directors (the “Board”), representatives from outside the CBN and mainly from the various government departments, removing the Deputy Governors and directors from the Board, and requiring the appointment of a person other than the Governor as its chairman. It also divests the Board of its powers of consideration and approval of matters relating to the bank’s funds (remuneration and budget) and allocates those powers to external institutions. This article seeks to examine the ramifications of the Bill insofar as it changes the governance structure of the CBN. Central Bank Independence & Autonomy In any democratic society, the idea of placing the power to determine monetary policy, regulate local banks and use (and possibly place at risk) taxpayers’ funds in an institution of unelected officials, might not sit well. It becomes even less acceptable where the internal processes within the institution are considered less than democratic, or where mandates allow for increased (possibly overarching) powers and measures. Further, given the unprecedented extent to which taxpayers’ funds were used and strained by the ‘bailouts’ of several financial institutions during the recent financial crisis and the failures by central banks in adequately dealing with the ensuing systemic collapses, we understand the persistency of the question: “should governments (legislature) play a greater role as the elected custodians of public interest in supervising central banks?” While we would not advocate for a greater government role in central bank operations, we are not unsympathetic to the need for suitable governance structures that provide for checks and balances in any institution, even those that provide supervisory functions. In fact, reviews of central bank governance

Law Digest Spring 2013

and mandate are now common place especially following the crisis. Given the fact that there is usually a long time lag between policy, actions and outcomes, mechanisms may be required for more frequent monitoring of central banks’ operations and processes. However, it is still generally accepted that the operational independence of a central bank is crucial to its function. Many issues relating to monetary policy and financial stability requires more objective and technical considerations and in some cases swift actions that should not be influenced, distorted or delayed by political ideals, pressures or processes.2 Central bank roles such as printing money, control and/ or influence over monetary policy, supervisory control and access to confidential information of local banks and other institutions relevant to their function, make them desirable tools of political control. Central Bank Governance Governance problems facing central banks may be more complex than those encountered by ordinary corporations (public or private) because of their multiple and interactive roles and characteristics. They operate as a bank and adviser to government and private customers, an insurer (lender-of-last-resort) and regulator, and thus face governance problems linked to the intrinsic opaqueness of the banking business and competing/conflicting interests.3 Further still, central bank mandates and measures are not always clearly defined or carried out in a definitive or predictable manner as, for example, with regards to the issue of financial stability. The broader focus on ensuring financial stability naturally entails wider, more extensive measures and responsibilities that may overlap with those of government and attract political attention and debate. While many of its decisions should ideally

be made with the requisite technical expertise of the central bank, decisions to commit public resources to a failing institution would seem, legitimately, to require a much more direct involvement of governments and legislatures.4 As such, there is a greater need for changes in central bank governance arrangements, with clear rules and processes of interaction with government.5 Advocates of central bank autonomy would simply argue for a review of the governance arrangements within the bank with greater emphasis on measures that induce greater transparency and accountability while still maintaining the bank’s autonomy. They argue that the risk is that ‘outside’ interference in central bank decision-making will not stop at those aspects where there is a legitimate role for governments, but will extend to areas in which independence is desirable and justified.6

the Federation’s Accountant-General. Under sections 8 and 10 of Act, the Governor, Deputy Governors and directors of the Bank are appointed by the President subject to confirmation by the Senate. The five directors are appointed

This article seeks to examine the ramifications of the Bill insofar as it changes the governance structure of the CBN

CBN Governance and the Bill The analysis of the Bill first calls into question its relevance. Is the current governance structure of the CBN adequate in providing for the necessary accountability, transparency and prevention of the abuse of power? Unfortunately, although the Act is commended for meeting ‘international’ standards, we argue that it does not go far enough in achieving these principles and more can be done but without encroaching on the autonomy of the CBN. Salient governance measures and shortcomings under the current Act: Under section 6 of the Act, the Board is constituted by the Governor (who is its chairman), four Deputy Governors, five directors, the Permanent Secretary of the Federal Ministry of Finance and

from outside the Bank not only to provide for the fair representation of the various sectors and stakeholders in the economy, but also to lend their skills in the functioning of the Bank, given that they must be persons that are recognised for their reputation, experience and expertise in matters such as law, economics, finance, etc. Hence both the Executive (through the President) and the National Assembly (through the Senate) have an opportunity to deliberate on, appoint or reject persons nominated for positions on the Board. The President may also remove any of them from office provided that he has the support of two-thirds majority of the Senate (section 11 (2)(f)). Further, Board members will be disqualified if found guilty of serious misconduct in relation to their duties under the Act (s.11 (2) (c)). Aside from the threat of removal or disqualification, the Board is kept in check through its interactions with the National Assembly and the Executive (through the President), by the submission of the auditors’ reports, the Bank’s annual accounts and reports and by attending hearings before the National Assembly and its committees. The official publication of the Bank’s annual accounts in the Gazette and other public domain


Law Digest Spring 2013

allow for transparency and scrutiny by stakeholders and the general public including the international community. However, as principles of corporate governance would require, the Act does not provide for internal governance arrangements that can offer independent scrutiny and oversight of the Bank’s activities and management (including the Governors) on a more regular basis. These would allow for interim

the President), will be determined by the Revenue Mobilization Allocation and Fiscal Commission (the “RMAFC”) and subject to the President’s approval; and the Board will prepare the CBN annual budget and submit it through the President, to the National Assembly.

(a) Chairperson of the Board Although several countries assign the role of chairperson to the Governor, p r i n c i p l e s of corporate governance tend to favour the separation of roles of the chairperson of the board and the CEO and, the exclusion of the CEO and directors from meetings involving decisions as to their remuneration in order to avoid conflicts of interest.7 In a central bank there are basically two dimensions to Board responsibilities – that relating to policy (formulation and implementation) and secondly, that relating to the management (general administration and business) of the bank. It is generally the case that the Governor will ultimately bear the responsibility for outcome of the policies and therefore it would make sense if he is the chairperson of the Board in its functions relating to policy. However, even though the Governor is responsible for the dayto-day management of the Bank, accountability requires that he ideally should not chair the Board in its functions relating to the management of the Bank. The Board in its management function would, as in the case of a company’s board of directors, be representing the interests of its principals to ensure that the Bank is effectively discharging its functions, making efficient use of its resources

With this in view, the proposed amendments to the Board will jeopardise the value of ‘external’ members given the higher representation of government adjustments or immediate actions to be taken or reviewed ensuring compliance with the Bank’s objectives or policies. Salient amendments under the Bill In reconstituting the Board, the Bill requires the appointment of a person other than the Governor as its Chairman, and excludes Deputy Governors and directors from the Board. The Chairman will be a former Governor of CBN or a former chairman or managing director of a bank. Other Board members will include the Governor, the Permanent Secretary Ministry of Finance, the Accountant General of the Federation, the Permanent Secretary National Planning Commission, a representative of the Federal Inland Revenue Service, and a representative of the Nigeria Deposit Insurance Corporation. In terms of remuneration and budgeting of the Board, the Bill provides that: • the remuneration of the Governor and Deputy Governors (where once determined by the Board and subject only to the approval of


and, that its processes (such as those relating to decision-making) are fair, transparent, reduce risks and allow for optimal outcomes. The problem arises where there is only one board and it is responsible for all the Bank’s functions. How can the Bank truly contend that its management (including the Governor and other Board members involved in management) is accountable to the Board? To address this problem, many central banks have internal supervisory boards or committees whose main function is to hold management to account. In fact, about half of the central banks that are members of the Bank for International Settlements, have at least one board whose prime purpose is to supervise the central bank in whole or part.8 It is common practice for these separate committees/ boards, especially when dealing with issues (such as remuneration) that may present a conflict of interest for the Governor and/or other board members who are also involved in management, to be chaired by a nonexecutive director and, again in line with standard corporate governance practice, have a majority of external members representing the various interests and sectors of the economy and the wider community, including government. This is the kind of governance structure in the Bank of England. However, many other countries do not have such supervisory boards/ committees within their central bank governance. These use other means of oversight such as specialised parliamentary/congressional committees as in Finland and the US. The appropriate governance structure will depend on not only the available resources and personnel, but other issues peculiar to the environment within which the central bank operates. Therefore, the proposed amendment requiring the

Law Digest Spring 2013

appointment of a persons other than the Governor as Chairman of the Board may have its value in ensuring fair representation and due consideration of all issues relevant to the Board and the Bank at the Board’s meetings and, even ensure accountability of the Governor to the Board by requiring him to respond to questions relating to his performance or duties to the Board and the Bank of the CBN. (b) Constitution of the Board Given the autonomous, non-elective nature of central banks, an important

as the Minister of Finance to have a seat on the board or specialised committees of the board. However, the value of external members is eroded where any one particular group’s interests (such as the banking industry or government, or senior management within the bank) has majority representation on the board. With this in view, the proposed amendments to the Board will jeopardise the value of ‘external’ members given the higher representation of government. Good governance requires that the board and its committees should always

the removal of the key senior heads of the Bank’s departments i.e. the Deputy Governors, from the Board would make it difficult for the Board to make informed decisions on such issues as policy and strategy and carry out activities in order to fulfil its obligations under the Act. Many agree that one of the most important lessons to be learnt from the recent financial crisis is that supervisory and regulatory institutions should seek optimal coordination, co-operation and information flows between the different departments and institutions. Hence,

The key pugilists in the fight for control of the CBN (L-R) David Mark (Senate President), President Goodluck Jonathan and Sanusi Lamido Sanusi (Gov. CBN)

means of enhancing the legitimacy of the Board is by the inclusion of ‘external’ members on the board, who by representing the various interests and sectors in society can introduce different perspectives and skills and offer impartiality and hence, oversight, in issues of personal/direct interest to the Governor/s and directors. In some cases the number of external or non-executive members of a central bank board will exceed those directly involved in management/business of the bank. For the purposes of policy formulation, it is not uncommon for government representatives such

have the appropriate balance of skills, experience, independence and knowledge of the Bank to enable them to discharge their respective duties and responsibilities effectively. In matters of policy, good management requires that those cardinal in the implementation of policy should also be involved in its formulation and/or decisions regarding implementation. It therefore follows that the Board should not only constitute those who bear ultimate responsibility for policy outcome (the Governor), but also those ultimately responsible for execution. Against this background,

having the heads of the main units or departments of the Bank on the Board is of crucial importance in managing the affairs of the Bank. (c) Remuneration and Budgeting The workability of the plans under the Bill to have the remuneration of the Governors set by the RMAFC is doubtful given that not only does this institution already seem overburdened with the responsibility of, inter alia, determining the appropriate remuneration for all political/public office holders, but the determination process is based on a ‘revenue sharing formula’ and other socio-economic and political variables


Law Digest Spring 2013

that may not be able to secure competitive remuneration packages that take into account remuneration in the private sector and which will attract, retain and motivate the highly skilled professionals required in central banking. Although tradition dictates that central bank remuneration will remain within a certain distance from remuneration at other public sector agencies, it is not uncommon to have

overall view and understanding of the economy. It would be of course a different matter if a more specialised committee or body, whether within the Bank or under the Ministry of Finance or the National Assembly was set up for such a purpose as is the case in some jurisdictions (see Issues in the Governance, chapter six). What must be appreciated is that, like its policies and strategies, the central bank budget must be flexible enough and the Bank must be able to control its balance sheets if it is expected to inject funds into the financial system or take similar immediate action to ensure financial stability and act as the lender of last resort. It must be trusted to make decisions and take actions without the bureaucratic and political pressure and processes that will ensue with the intervention and need for National Assembly approval of its budget. Nevertheless, the National Assembly has legitimate rights and concerns insofar as the Bank’s actions puts taxpayers’ funds at risk and at some point, it will be necessary to involve and seek the approval of the National Assembly as custodian of the public interest, especially with regard to those stability or monetary measures that greatly increase that risk. However, clear guidelines and procedures must be laid down for such intervention by the National Assembly. There is no single or generally preferred governance structure for central banks. However, it is generally agreed that central bank autonomy must not be compromised. To do so may reduce the credibility of the financial market and consequently reduce investor confidence in the economy. Other options that introduce independent, impartial and competent governance bodies,

Finally, transparency or accountability of the Bank’s financial affairs cannot be best achieved by subjecting its budget to the scrutiny and approval of the National Assembly an ‘outside body’ usually an ‘oversight board’ and in a few instances a government committee, determine the salary of those at board level (see Issues of Governance, chapter nine). Finally, transparency or accountability of the Bank’s financial affairs cannot be best achieved by subjecting its budget to the scrutiny and approval of the National Assembly. Firstly, it cannot be ignored that the CBN is a corporate body, a legal entity in its own right as so created under the Act and as such, should be allowed to operate as an independent body or institution. The budget of a central bank cannot be constrained or scrutinised in the same way as ordinary government ministries – as the Fiscal Responsibility Act No. 31, 2007 presumes to do. It would make no sense either for the Bank’s budget to be formulated and approved by persons who have no working knowledge and expertise in the activities, strategies, policies and decisions of the Bank and no


whether internal or external, for the scrutiny and oversight of CBN activities, functions and management should be explored. 1 An initial bill was for an “Act to amend the Central Bank of Nigeria Act Cap C4, Laws of the Federation of Nigeria, 2004 to compel the Central Bank of Nigeria to submit its annual budget to the National Assembly and for matters connected thereto.” National Assembly Journal 8(54), April 13, 2012; registered as Senate Bill 75. 2 Basel Committee on Banking Supervision Core Principles for Effective Banking Supervision BIS, September 2012; Bank for International Settlements Issues in the Governance of Central Banks – A Report from the Central Bank Governance Group BIS, May 2009. 3 Frisell, Roszbach and Spagnolo ‘Governing the Governors: A Clinical Study of Central Banks’ Sveriges Riksbank Working Paper Series No. 221, March, 2008; Caprio, Gerard et al ‘Governance and Bank Valuation’, NBER Working Paper No. 10158 2004. 4 Central Bank Governance and Financial Stability – A Report by a Study Group BIS, May, 2011. 5 Lucas Papademos ‘Central Bank Mandates and Governance Arrangements’ in BIS Papers No. 55 The Future of Central Banking under Post-crisis Mandates Ninth BIS Annual Conference 24-25 June 2010. 6

Ibid at 19.


BIS Issues in the Governance.. (n2).


Ibid at 82.

INSURANCE Aaron Agada, Associate, Gbenga Biobaku & Co. (Nigeria)

Placement Of Oil And Gas Insurance Risk Locally – Is The Industry Ready?


Aaron Agada Associate, Gbenga Biobaku & Co. (Nigeria)

“The requirement for exhausting local capacity before placing of insurance or reinsurance offshore is intended to boost local retention”

nsurance business is arguably the most risk prone business in the market place. In the oil and gas insurance business, the stakes as well as the rewards are much higher; considering that a single loss in the oil and gas industry is capable of crippling the entire insurance industry in Nigeria, the need for greater regulation and skill/capacity development cannot be over emphasized. Since the enactment of the Nigerian Oil & Gas Industry Content Development Act, 2010 (the “Local Content Act”), operators have been making efforts to adjust their administrative and operational models in order to remain within the regulatory limits, while regulators have had to issue fresh or revised regulations and guidelines towards giving effect to the Local Content Act. The Local Content Act is generally targeted at encouraging retention of value within the oil and gas industry supply chain by creating an enabling environment for indigenous companies to benefit from the enormous value exchange within the industry. The National Insurance Commission (“NAICOM”) has seized the opportunity created by the enabling provisions in the Local Content Act to issue the 2010 Guidelines for Oil and Gas Insurance Business (the “Guidelines”). The Guidelines are made pursuant to section 50 of the Local Content Act, the Insurance Act, 2003 and the National Insurance

Law Digest Spring 2013

Commission Act, 1997. The Local Content Act broadly categorizes insurance into life, non-life and marine insurance. It further provides that all life risks in the Nigerian oil and gas industry must be insured with an insurance company registered under the Insurance Act 2003. Furthermore, operators are required to insure a minimum of 40% value of the insurable risk for marine insurance and a minimum of 70% value for non-life insurance policies with such companies. Section 50 of the Local Content Act provides that “No insurance risk in the oil and gas industry is to be placed offshore without the written approval of the National Insurance Commission which shall ensure that Nigerian local capacity has been fully exhausted”. The Guidelines reiterate this provision in paragraph 2.5 by stipulating that “no insurance risk in the Nigerian Oil and Gas industry shall be placed overseas without the written approval of the Commission which shall ensure that Nigerian local capacity has been fully exhausted.” Furthermore, the Guidelines provide that no person or organisation in Nigeria shall transact an insurance or reinsurance business with a foreign insurer or reinsurer in respect of any life, asset, interest or other properties classified as domestic insurance unless with a company registered under the Insurance Act, 2003. The requirement for exhausting local capacity before placing of insurance or reinsurance offshore is intended to boost local retention, thereby increasing skill and capacity within the industry while reducing the rate of capital flight. NAICOM also intends to pursue aggressively, the rate of skill transfer to local insurance professionals by requiring that where reinsurance capacity is provided by a foreign reinsurer, it shall be with a company having


Law Digest Spring 2013

a minimum Financial Strength the risk has attached and cover and brokers still lean on foreign Rating (“FSR”) of either “A-” of provided by an acceptable security.” reinsurance capital. Standards & Poor’s or “A” A.M. Capacity is at the heart of the In practice, very few insurers Best. Guidelines and it determines accept risk against their own capital The Guidelines also require whether the Nigerian insurance alone. There is always the need to that any insurance company or industry will soon become self- have recourse to available foreign reinsurance broker intending sustaining or whether it will reinsurance. A.M. Best Company to reinsure or place any oil and continue to rely on foreign reported in 2012 that Nigerian gas risks abroad must apply for reinsurance arrangements. Figures insurance companies still act as Approval-In-Principle (AIP) and released by Leadway Assurance fronts to international insurers in subsequently, a letter of attestation internal risk profile show that in underwriting of oil and gas risks. and certificate to re-insure abroad. Nigeria, industry estimates show The Guidelines also stipulate One of the factors to be taken gross premium income (“GPI”) was prudential standards which require into consideration by NAICOM in at N37.8billion (excluding life, an insurer to retain, whether on its granting approval is the “value marine cargo, motor and workers net account or with reinsurance added”, which is the technical compensation) against overall backing, not more than 5% of the knowledge of risks that the insurer portfolio sum assured value of insurer’s shareholders funds for may gain from the prospective N27trillion, which translates to an operational risks and 2.5% for foreign reinsurer. The insurer is increase in gross premium income project construction. also required to submit a copy of of about 25% in 2010 against prior Another concern created by the the reinsurance treaty arrangement year 2009, whilst sum insured restriction on foreign reinsurance between the insurer and the arrangement under the foreign reinsurer. While the intentions of the Local Local Content Act and the While the intentions of Guidelines is the lack of Content Act and NAICOM may the Local Content Act and expertise in the underwriting be laudable, the question that NAICOM may be laudable, of oil and gas insurance remains is whether or not there risk. Foreign insurers and the question that remains is whether or not there brokers who possess the is sufficient capacity in Nigeria is sufficient capacity in technical underwriting skills to underwrite all or a significant still largely determine the Nigeria to underwrite all portion of the portfolio of risk in direction of the Nigerian oil or a significant portion of the portfolio of risk in the Nigerian oil and gas industry and gas insurance business. the Nigerian oil and gas Stakeholders have industry. Local capacity is defined value increased by 71% in 2010 welcomed this new wave of by the Guidelines as “the aggregate against prior year of 2009. This development while bracing for the capacity of all Nigeria-registered wide gap between GPI and the inherent challenges. It is hoped insurers and re-insurers, which insured value underscores the that the Nigerian industry will shall be fully exhausted prior to volatile nature of the insurance take on the opportunity created any application for approval to re- market, as a single loss like that by the Local Content Act and the insure any Nigerian oil and gas which occurred during the BP Gulf Guidelines to expand its capacity risks overseas.” Capacity for oil of Mexico deep horizon explosion and develop the requisite technical and gas policies is stated to be “the in 2010, which insured value skills needed to provide robust net retention of that insurer plus is estimated at US$401million, cover for the oil and gas industry its reinsurance treaty capacity. is capable of creating serious in Nigeria. Mr. Fola Daniel, The reinsurance treaty capacity instability in the industry and by NAICOM CEO, has noted that the of a consortium of insurers is also extension, other sectors of the success of the guidelines hinges acceptable. Any other reinsurance economy. Recognising the fact that on the attitude of the operators, facility, other than treaty is local capacity cannot conveniently as adherence to them would help acceptable as an insurer’s capacity, cover the potential losses in the reposition the industry. industry, insurers provided there is evidence that insurance



Venue: LAGOS, NIGERIA - Date: OCTOBER 2013 Hosted by:

& 16

CORPORATE FINANCE Sohail Ali, Solicitor, DLA Piper UK LLP

An Insight into Islamic Finance

Sohail Ali Solicitor, DLA Piper UK LLP

“The framework for Islamic banking in Nigeria is effectively in place and ready for it to grow”


slamic Finance is a method of financing that complies with the principles of Shariah or Islamic law. In recent years, Islamic Finance has grown exponentially and many leading experts in the finance sector envisage its growth to continue rapidly throughout the global economy. At the recently held Third Annual World Islamic Banking Conference in Singapore, it was noted that notwithstanding the most challenging economic environment in the post-war era, Islamic Finance has, in many respects, been immune from the global financial crisis. Instead, it has grown by an estimated 20% annually in the last five years and by 2011 had in excess of one trillion US dollars in total assets. Notwithstanding the recent global turmoil, the last couple of years alone have seen a number of very significant and high profile Islamic Finance transactions. In 2011, the Government of Malaysia issued a sovereign Sukuk1 which was almost five times oversubscribed and attracted interest in excess of over US$9 billion and was fully distributed to over 320 global investors. The remarkable feature of the Sukuk was that over 20% of the allocation was distributed to investors in Europe and the United States and it came at the height of the Greek sovereign debt crisis. Remarkably, the second largest IPO globally in 2012 was completed by Felda Global Ventures Berhad for US$5.43 billion and was again done through Shariah compliant Islamic Financing. This transaction again made it abundantly clear that in contrast to some of the other stagnant global markets in conventional financing, Islamic Finance has remained a buoyant and thriving sector. The offering was listed in a number of jurisdictions and attracted investors from around the globe. The appetite for Islamic Finance seems to show no sign of diminishing. The Turkish Treasury announced in late 2012 that it had mandated a number of leading financial institutions to advise and structure on a multi-billion dollar sovereign Sukuk for the country. This is particularly noteworthy given that Turkey, a country keen to be viewed as a staunchly secular country, has recognised and conceded the merits of raising funds through a Shariah compliant

Law Digest Spring 2013

Sukuk. It is widely anticipated that over the next few years the appeal of Islamic Finance, which to date has been heavily focussed in the Middle East and Asia, will continue to grow and expand. Most experts believe that Islamic Finance is expected to spread and grow rapidly into African countries particularly considering the number of Muslims/Islamic institutions based in those countries. Remarkably, however, despite it being such a burgeoning and versatile sector, there remain basic misconceptions over some of the key fundamental principles and tenets of Islamic Finance. Our aim over the forthcoming issues is to demystify and tackle some of these common misconceptions by explaining how Islamic Finance differs from conventional forms of financing. Specifically, we shall aim to explain the potential for growth in Africa and the importance for Nigerian lawyers; financial institutions and businesses to be alert to the very significant benefits to be gained from this form of financing. In this the first part of our series of articles on Islamic Finance, we clarify below the answers to six of the key questions/misconceptions that people commonly have in relation to Islamic Finance. 1. Is Islamic finance only available to Muslims? No. Islamic finance has the potential to benefit everybody and can provide an alternative source of liquidity and/or means of investment to all consumers and investors. Islamic finance may be based upon Islamic principles (or Shariah), but its application is not limited to Muslims alone. Islamic finance structures and products are often described as being assetbased (and derived from ethical and social values), but they do still share very similar economic objectives to conventional financing products and can therefore appeal to Muslims and non-Muslims alike. 2. What is the difference between Islamic finance and conventional finance? The principal difference between Islamic and conventional finance is in the approach, and not necessarily on the financial impact. Otherwise there are many similarities between


Law Digest Spring 2013

the two modes of financing. The key difference is that in Islamic financing, “interest” (riba) is not permissible. The approach is therefore asset-based, not currencybased. As such, the rate of return is based on an underlying asset or investment as opposed to “interest” on money loaned. If interest is involved, then the transaction is considered to be haram (unlawful) and not compliant with Islamic principles. The rationale behind this is that money is only a means of exchange, and should not have its own intrinsic time, cost or value. However, those Islamic principles do not prevent the funder in an Islamic finance transaction from making a “profit” or “return” on its asset or investment. Financiers have developed a number of contemporary structuring techniques (or Islamic contracts) which allow Islamic bankers to structure transactions and products in a way that closely replicate the economics of conventional loans and products. Another key difference is that Islamic finance is often said to promote a risk-reward approach to certain aspects of a transaction. In other words, in order to justify a return or reward, an Islamic investor must invest and assume certain risks inherent in that investment. However, these risks tend to be heavily mitigated in practice (we discuss this further below). 3. Is Islamic financing more risky than conventional financing? No, not necessarily. As with conventional financing, different financial strategies and risk management tools are applied to accommodate the risk appetites of users of Islamic finance. Where Islamic finance requires an underlying asset or investment, the risks which may be associated with that asset or investment tend to be heavily mitigated in practice, either by combining structuring techniques in a way that ‘neutralises’ or insures against those risks, or otherwise by ensuring that the risk ends up being broadly the same as you would have with a comparable conventional financing product. By avoiding uncertainty (gharar) and speculation (maisir), Islamic finance products and transactions restrict the availability of certain products or investments and therefore prevent consumers and


Riyadh has played a significant role in the expansion of Islamic finance

investors from being exposed to risks that are inherent in certain complex conventional financing products (such as CDOs2 and CDSs3). This is viewed by many as the primary reason why Islamic Finance has fared significantly better during the global financial crisis in comparison to customers and financial institutions reliant on conventional financing. 4. Is Islamic finance more expensive than conventional finance? No, not necessarily. The cost of financing is typically linked to the risk exposure or ‘credit’ involved. Where a financier considers that it is taking a greater risk, a higher rate of return would be charged. This is no different for the financier on an Islamic finance transaction. Historically, because Islamic finance has been operating in a largely niche market, the limited competition has meant pricing could be marginally higher. However, as competition has increased (particularly with international banks operating through “Islamic windows”) and as Islamic product ranges have improved, the Islamic

finance industry is now very much a global phenomenon - more able to compete with conventional financing. In the Middle East for example, where the Islamic finance sector is well developed, products are extremely competitive. Similarly, as financial institutions and customers become more familiar with Islamic finance product structures and documents becomes more standardised, the cost of Islamic finance products is likely to reduce further. 5. Islamic finance is based upon Shari’a or Islamic law - will it therefore fall outside of the jurisdiction of designated courts, e.g. UK/US/Nigerian courts? No, an Islamic finance contract will usually contain exactly the same kind of choice of law and jurisdiction clause that you see in conventional loan documentation. Indeed, it is open for the parties to agree in an Islamic finance contract that any disputes shall be resolved under English/US/Nigerian law and for the English/US/Nigerian courts to have jurisdiction. In practice, only a few cases involving Islamic finance contracts

Law Digest Spring 2013

have actually come before the courts. But where they have, the English courts for example, have traditionally been reluctant to examine issues of Shari’a compliance when looking at the enforceability of an English law contract. In Shamil Bank of Bahrain v Beximco Pharmaceuticals Ltd and others (2004) EWCA Civ 19, the Court of Appeal in England was asked to consider whether on a true construction of the governing law clause, the finance agreement that was entered into between the parties was valid and enforceable only if it complied with the principles of Shariah. The relevant governing law provision stated that, “[s]ubject to the principles of the Glorious Shariah, this Agreement shall be governed by and construed in accordance with the laws of England.” The case therefore potentially required an English court to consider and opine on the very difficult and controversial question as to whether Murabaha4 agreements were in fact disguised loans which charged interest. The Court however refused to enter into any such debate stating instead that it was “improbable in the extreme, that the parties were truly asking [the Court] to get into matters of Islamic religion and orthodoxy.” The Court dismissed the borrower’s argument and made it clear that it was never the intention of the parties for Shariah law to oust the application of English law as the governing law. The reference to Shariah law was instead simply a reference to the fact that the bank purported to do business in a manner compliant with the Islamic doctrine. The decision has therefore provided confidence to both financiers and jurists that the English courts will enforce Islamic Finance documents governed by English law in accordance with their terms. In many ways, Shari’a can be considered to play a role only at the outset of an Islamic finance

transaction through ensuring that the structure and the documentation comply with Shari’a principles. A Shari’a supervisory board or committee (comprising of scholars) will normally carry out a review and make recommendations before approving that structure and documentation. This may result in a formal approval (or fatwa) being issued. Thereafter, the signed documentation will govern the contractual relationship between the parties and any disputes will be resolved in the manner agreed between the parties. This is often exactly the same as you would see in a conventional loan document with lawyers preferring to avoid any reference to Shari’a for the reasons discussed above.

is likely to grow rapidly over the forthcoming years.

6. Why Islamic finance? Simply put, because of demand. Islamic finance is potentially a huge market. The ratings agency Standard & Poor’s has forecast that the industry could potentially control up to US$4 trillion of assets. Muslims account for over a fifth of the global population. In Nigeria alone, around half of the population are Muslims. And as explained above, if the price is right, there is no reason why nonMuslims wouldn’t also choose Islamic finance products. The framework for Islamic banking in Nigeria is effectively in place and ready for it to grow. As far back as 1991, the Nigerian government enacted the Banks and Other Financial Institutions Decrees. The Decree recognised “specialised” banks and Islamic banks being “non-interest” banks are considered to fall within this definition. Furthermore, in recent years, the Central Bank of Nigeria has become a full council member of the Islamic Financial Services Board as well as being a signatory to the International Islamic Liquidity Management Corporation based in Malaysia. Given the increased focus on Islamic Finance in recent times, it is widely expected that this sector

2 CDO A collateralised debt obligation, CDO, is a tradeable derivative whose income payments and principal repayments are dependent on a pool of different financial instruments which themselves are loans and are due to pay interest and ultimately be repaid.

Next issue: In the next article the author will explore the different types of Islamic Finance products and structures that are available and offered by financial institutions. The author will purport to explain the increasing attractiveness and popularity of these products and structures in the current economic climate.

1 Sukuk An Islamic financial certificate, similar to a bond in conventional finance, that complies with Sharia law

3 CDS These offer protection against the non-payment of unsecured corporate or sovereign debt. A typical CDS contract features one counterparty agreeing to “sell” protection to another. The “protected” party pays a fee each year in exchange for a guarantee that if a bond goes into default, the seller of protection will provide compensation 4 Murabaha In Islamic finance, a sales contract where the bank buys a product on behalf of a client and resells the product to the same client by clearly mentioning the cost incurred in buying the product and the margin or the mark-up when reselling the product to the client


Lawyer in the News UNIMAID ALUMNI


Picture by Peter Vidor


eatrice Hamza Bassey is a partner at Hughes Hubbard & Reed LLP in New York, one of the most prestigious law firms in the United States. The firm is ranked #1 on The American Lawyer’s A-List, which profiles “the profession’s top tier.” Hailing from Borno State, Hamza Bassey graduated as valedictorian from the University of Maiduguri before earning her advanced law degrees from the Nigerian Law School and Harvard Law School. Last year, Forbes Africa named her among the “Top 10 Most Powerful Africans in Business in New York City.” Hamza Bassey litigates multibillion-dollar cases in U.S. courts and travels the world advising leading corporations on compliance and anti-bribery issues. She was named in the 2012 edition of “New York Metro Super Lawyers”, which honours those lawyers who exhibit excellence in practice. She was also named among “The Top Women Attorneys in the New York Metro Area” by Super Lawyers. For three years in a row, Hamza Bassey was recognized as a “Future Star” by Benchmark Litigation, a publication regarded as the definitive guide to America’s leading litigation firms and attorneys. At a celebration commemorating the 50th Anniversary of Nigeria in 2010, Empowered Newswire awarded her the prize for “Most Outstanding Nigerian Lawyer in the Diaspora.” In 2011, The Network Journal profiled her, along with three other partners, in a cover story “Attorneys at the Top.” Hamza Bassey has also received notable publicity in the United States for her pro bono work on behalf of low-income New York tenants and was honoured with the Legal Aid Society’s Pro-bono Publico Award in 2010. When she made Partner at Hughes Hubbard, she was the first Nigerian-trained woman lawyer to do so at a major U.S. law firm. In addition to Chairing Hughes Hubbard’s Africa Practice, she is chair of Hughes Hubbard’s Diversity Committee. Under her leadership, The American Lawyer has consistently ranked Hughes Hubbard among the top 10 firms for diversity. In Vault’s 2011 Best Law Firms for Diversity rankings, the firm placed second for overall charitable causes focused on excellence in education and economic empowerment of women on Nigeria and across Africa. Against this exceptional background, Beatrice Hamza Bassey is this issue’s “Lawyer in the News”.




Beatrice Hamza Bassey Maiduguri alumni makes mark in America By Yinka Olojede-James

When did you really know you wanted to pursue a career as a Lawyer? My fate to become a lawyer was sealed from about age four when my great aunt came to visit our home. I spent the night in her room and, the next morning she charged into my mother’s room and exclaimed, “That daughter of yours is going to be a lawyer. She interrogated me through the night!” My plan to become a lawyer was later firmed up when I was in high school and decided that I wanted to become a lawyer to pursue issues of social justice and human rights, advocating for women and children. My experiences as a young girl growing up in Northern Nigeria shaped my resolve in many ways. For example, I felt very badly about the fact that young girls could be married off by their parents and be deprived of the benefits of education. A number of my own personal friends had their education abruptly interrupted when they were married off at very tender ages, and their husbands would say

they couldn’t go to school. I was also affected by the various forms of cultural and legal discrimination against women, as well as the barriers that hold women back just because of their gender. I felt at that time that by going into law I could do something about it. You studied at the University of Maiduguri and then the Nigerian Law School before going to Harvard for your LL.M, how did you end up at Hughes Hubbard & Reed? After I completed my law programs at the University of Maiduguri and later the Nigeria Law School, I did my national service at the law firm of Babalakin & Co. During my time at Babalakin & Co I decided that maybe I would pursue a masters and possibly a PhD in environmental law. I applied to a number of schools in the United Kingdom and U.S., which all accepted me, but I chose to go to Harvard. At Harvard, there was a campus interview matching process

where law firms would identify specific candidates they were interested in seeing and candidates would identify law firms they were interested in getting interviews with. Sometimes there was a match; sometimes there wasn’t. In my case a couple of firms identified me and I thought to myself, “Why would they want to hire someone like me?” Harvard’s then-career adviser encouraged me to go for the interviews and, as I reflected further, I thought to myself, “Maybe this might even work out better. I would get some experience in American-style litigation and take it back home to Nigeria with me; and where better to learn than New York!” So I went through the process with an open mind and interviewed with a couple of firms. Hughes Hubbard stood out for me because it was a known for litigation and arbitration, and I thought that it was a firm at which I could learn a lot. It was also a firm where I loved the people I met during the interviews. They offered me a job and, although I had some call back interviews


PUBLIC LAW Lekan Oladapo, Lekan Oladapo & Co, Abuja

Law Digest Spring 2013

and it becomes tougher to succeed.

Picture by Peter Vidor

What is it like as an African working in such a large firm?

scheduled with other firms, I told my career advisor, “I think this [Hughes Hubbard] is the firm for me.” I called and cancelled the other call backs. You are the Chair of the Diversity Committee at Hughes Hubbard and under your leadership the firm has won lots of awards for diversity; was this reputation for diversity the case when you initially started at the firm? Hughes Hubbard has always had a history of embracing diversity. The firm’s founder, Charles Evans Hughes, who was the Chief Justice of the U.S. Supreme Court, a former governor of New York and a Presidential candidate against Woodrow Wilson, embraced civil rights and campaigned vigorously for women’s suffrage during his campaign. Hughes Hubbard was one of the first, if not the first, to make a woman partner in the 60s at a time when other firms would not even hire a woman. That woman was also an African American who now sits on the Court of Appeals here in the U.S. When I started at Hughes Hubbard, I was mentored by many people who didn’t look like me. The work that I’ve done over the years has built on these foundations and helped us to increase our diversity. As the Chair of the Diversity Committee what are the ways the firm improves on diversity? It’s easy when you’re at a firm that already has diversity as one of its core


values. In addition, our Chair, Candace Beinecke, herself a pioneer as the first woman to chair a major Wall Street firm, set the tone from the very top in appreciating the value that people from diverse perspectives brought to the table. It made my job easier. Before other firms were celebrating diversity or before clients were asking about diversity, this was something that we were already at the forefront of. We also implemented several initiatives, such as, for example, mentorships, aimed at hiring and retaining diverse lawyers. You’ve mentioned mentorship, what do you think is the importance in having mentors today? I think it is critically important for people to have mentors. Having book smarts, legal skills and being a hard worker are fundamentals but that’s just part of the equation. You go into an environment and frankly you’re green and have no idea how to navigate the environment. I believe one of the reasons why women and minorities lag behind in corporate America is because they lack someone who will take them under their wing and help them succeed. For example, looking at the legal profession in the U.S., many African Americans and other minorities in the U.S. are firstgeneration lawyers and many are even the first to go to college. As such, they don’t have the network of people who are already established in law firms helping them to learn the ropes and who will say “when you get there this is what you need to do to succeed,”

As an African, getting assimilated into the U.S. system was not hitch free. In the initial years, there was the constant tension between my life here and my life back home in Nigeria, wanting to go back home and then finding year by year that I was getting the kinds of experiences that I could not get in Nigeria. I pushed myself to keep learning and thought: the more experience I get, the better; but the longer I stayed in the U.S., the further removed I became from wanting to return. I was also making wonderful friends and becoming part of a community here. There’s also the tension of not having the network that you grew up with around you – this network is extremely important. The most successful people are people with a network who give them business, send them clients and provide friendship and support. In the beginning my entire network was back home in Nigeria. I had to build my network here from scratch and it’s not very easy to develop a network at a later stage in life, certainly not the kind of network that would have the same depth as the ones which occur organically when you’re growing up through elementary school, high school and college with certain people who all become part of your network as you transition to adulthood and business. That was something that was initially challenging to overcome. However, gradually and surely, I’ve developed a great network here. What are the experiences you felt were lacking in Nigeria that you found so easily at Hughes Hubbard? It has to do with the level of sophistication, the issues, the scope and scale of the types of cases I deal with here. Here, I have had the opportunity to work on multibilliondollar cases, deal with cutting-edge issues, and work on precedentsetting cases. Obviously the U.S. legal system is much more advanced but, understandably, they’ve been doing it for centuries before Nigeria. It presented many more opportunities for me to learn in terms of working on matters that required intricate,

Law Digest Spring 2013

in-depth analysis and that had a multidimensional analysis of the issues. To name a few examples, early on, I worked on licensing of music by a major organisation that licences the music of and distributes royalties to, songwriters and music publishers. For me it was very intriguing to learn about that subject matter, going backstage and seeing how the rights to these kinds of works were negotiated with the television, radio and other industries. I also worked on what was one of the largest ever litigations in U.S. history, a product liability case which involved hundreds and thousands of plaintiffs. I am working on the liquidation of Lehman Brothers Inc., the largest broker-dealer liquidation in U.S. history, dealing with complex financial instruments and setting precedent in the process. Today, I criss-cross the globe counselling clients on a broad range of anti-corruption issues. Having the opportunity to work on these types of cases, well, I wouldn’t get if I had been back home in Nigeria. You said you initially had every intention of returning to Nigeria after your LL.M, and do you still think you will return home? I think it’s rather unfortunate that many of us who left the country to study do not go back immediately. Going back is something that is often on my mind. In any event, I’ve remained very close to Nigeria and found ways to remain involved. I’m involved in projects that have Nigeria at its core – a lot of the work I’m doing especially in compliance involves travel, so I get to go back home often. I often think about going back but I’ve found a home in America too and want to do things that would allow me to contribute in both places. I absolutely do think about it and do want to go back home but every time you make that step towards returning, new things are happening at home that may discourage you. On the point of issues which may discourage your return home, let’s discuss corruption. You are a Member of the Anti-Corruption Committee. How would you assess the current state of corruption we have in Nigeria today? My work in the area of compliance

and anticorruption has been a real eye opener; virtually all of the clients that we work for have issues which implicate Nigeria. You look at the anti-corruption cases that the U.S. Department of Justice has brought and a majority involve activities that occurred in Nigeria. We have to wake up to the reality of how insidious corruption is in the country. It is discouraging when you don’t see any prosecution or people being brought to justice for the corrupt activities that continue to hold Nigeria back. On the Transparency International corruption index Nigeria ranks very, very, poorly and that’s sad and discouraging for a country that seemed to be on the path to rehabilitation in terms of its image. Nigeria has to undertake some serious house cleaning and the government has to show that it is not a part of the corruption and is not enabling it. They must allow all the pending cases to proceed and people need to face their due punishment for their crimes. By and large, Nigerians are good people who abhor corruption. You find that there’s a small percentage that is running the government that have institutionalised this issue and essentially given the country a bad name and it is making the majority suffer. There’s no excuse whatsoever for a country like Nigeria that is so rich in natural resources to have the majority of its citizens living in abject poverty because a few people continue to plunder its wealth. It is disgraceful that our health and educational systems are in disrepair, and you basically have to be wealthy to have access to good health care and education. There is no excuse for having a country that is so rich in oil resources that cannot boast of constant power supply. You made partner within 9 years which is pretty fast. What would be your advice for people who want to follow suit? First of all the fundamentals have to be there - you have to be smart, develop the skills of a good lawyer and you have to be willing to work very hard because your reputation gets you noticed in the first place and then puts you on a career path to partnership. Work on a broad range of matters that help you develop the basic skills, and then work on how to brand yourself. You have to have a skill that clients will be willing to pay for. You should also strive for

consistency in your work. It takes years to build a reputation and it takes one misstep to completely destroy it. It is extremely important to remain consistent in terms of the quality of work that you provide. It is also important to be perceived as someone who is liked by clients. Law firms look for those who not only have legal skills and bring in business but those who can also maintain relationships with clients. It’s really important to have that trait to maintain and keep clients happy. I also advise the associates and young lawyers that I mentor to focus on being the best lawyer they can be. Subject matter expertise will come later but in your earlier years focus on being well rounded and acquiring the skills that make you a great lawyer. Over the years, I’ve worked in various areas and in the course of that, I developed a range of skills which allowed me to jump into virtually any case. The subject matter you can quickly learn but the skills and the fundamentals, if they are not there, you’re not going to be able to deliver. Now that you’ve hit that sortafter goal of making Partner, what inspires you to keep working? What’s next? You get to one goal and then you set other goals for yourself. What keeps me going? First, my biggest inspiration, are my two children. I want to be the best mother that I can be and make them proud. The kind of cases that I’ve been working on also inspire me. It helps when you’re at a firm like Hughes Hubbard where we enjoy relative success with the kinds of cases that we get and for me, the opportunity to work on those cases keeps me going. In addition, I want to constantly improve and make myself better, so I look for learning opportunities in virtually every interaction. All of these things keep me going. You’ve gotten a lot of publicity and awards for your pro bono work. Why is pro bono so important to you? I think it is critically important to give back. Working on pro bono matters keeps me involved in the kinds of issues that I am passionate about. Hughes Hubbard has a strong commitment to pro bono so it’s easy


PUBLIC LAW Lekan Oladapo, Lekan Oladapo & Co, Abuja

cooperatives of farmers because beyond just being able to tend your land and raise the crops, you have to be able to sell the excess crops that you make. A number of big-name organisations have agreed to buy from these co-ops. It has been a remarkably successful program in that regard and many of the beneficiaries of the programme are women. When you arm a woman, you are essentially arming the entire family, and a village. The third is the Ron Brown Centre LSAT programme at St. Johns University, which targets college kids from underrepresented backgrounds in the U.S. to prepare them for a career in the law. The programme helps with the LSAT exam and with admission process into law school: assisting the kids with law school application essays, tutoring for the exam, and demystifying the whole process. The programme also provides mentoring. I mentor some of the kids in the programme and I’m constantly recruiting people and friends to also do the same. For many of these students they would never have had a chance to go to law school but for this

enough to find cases because there are so many organisations that Hughes Hubbard is involved with. For those who might say I don’t have time for pro bono work, my response is: you can absolutely find the time! Aside from the benefit of helping those who are not as fortunate as we are and thinking beyond your pocketbook, pro bono offers many opportunities to learn for young lawyers. I believe that as citizens of the world, we have an overarching responsibility to give back to those who are less fortunate and help the many folks for whom justice would otherwise be denied.

I am involved in a number of causes but I will highlight three. There is the Nigerian Higher Education Foundation, which was established by the McArthur Foundation to promote excellence in higher education in Nigeria. I was one of the founding directors of the organisation. We’re working with five universities currently and hoping eventually to expand and cover the whole nation. Essentially, our goal is to help these institutions to become self-sustaining. As part of that, we help with alumni development, applying U.S.-style commitment to giving back to your alma matter so that the school will have a constant sustainable supply of funds to essentially support their programmes. We also help with grant writing and have helped the universities that we work with set up development offices and fund raising campaigns. We have also established a database of experts to assist the institutions with capacity building and the likes. Another organisation that I am passionate about is Self Help Africa, which works primarily to empower women economically. The organization is currently in several countries in Africa. Part of what the organisation is doing is, rather than the style of aid to Africans, the organization teaches skills and equips women in the programme with the tools for a more sustainable way of living. For example, in addition to microfinance, it helps people to achieve economic independence. In some of the countries, the organisation helps people to set up


Picture by Peter Vidor

You are involved with various charities and organisations that have Nigeria or Africa as the focus. Which causes are you currently most passionate about?

Law Digest Spring 2013

programme. Many of the students in the programme are first-generation college students. As a result of having undergone the program, the students get accepted into some of the top law schools in the U.S. Those are the three I wish to highlight for now. You are married with 2 children. Have you found the balance between family and career aspirations? My son is about to turn eight and my daughter just turned five. Finding that balance is a constant struggle for me – I mean it sincerely. On the one hand, my responsibility should be first to my kids but then as a partner, you owe a responsibility to the clients that you serve. There are days that balance means my children are first; other days where balance means work will come first. It’s a constant struggle. I think it’s a myth when we talk about achieving balance. The reality is that perfect balance cannot be achieved but you can work towards an acceptable balance where not too many people are suffering. Today

Law Digest Spring 2013

family will be the priority and work will have to understand; other days work will be the priority and family will have to understand. Technology of course helps; it allows you to do things that you couldn’t do before outside the office. What do you do to relax and unwind? That’s something I don’t do enough of and it’s a sore spot for me. In all that I do, in trying to keep the wheels turning and keeping all the balls in the air, sometimes you forget yourself in the process. This is something that I’ve decided to address this year, just rethinking the way I approach things. For example, I love to go to the theatre but I haven’t done that in ages. I love travelling to places on vacation. Even though I enjoy going to the beach with my kids, my idea of a vacation isn’t lounging on the beach; it’s going to a new place and getting immersed in the culture, going to the local market, meeting people. I travel a lot for work but I cannot tell you the last time I took time to go out and enjoy. For now, my idea of relaxation is hanging out with my kids. I will push myself to do things that I enjoy some more.

What are your career highs and lows so far? I would say making partner certainly stands out in my mind because for anyone generally to attain partnership is not easy whether you’re a Caucasian man, a woman, whatever. In addition, in my case, given the overlay of being a woman and Nigerian, one would generally think that would make it even more challenging. When I look at the legal profession generally worldwide and see the abysmal number of attorneys of colour that are making partner, it can be very, very, discouraging but I encourage others because I believe it is attainable. So, the import of my being a woman and African American partner isn’t lost on me. It represents to me that hard work pays off and other people coming after me will have hope that they can do it too. My career low, well, it’s got to be when, as the junior lawyer on a case, we lost a case that in my mind I thought was a sure win. The facts alone were on our side but the judge disagreed and after a long and intense trial we lost the case. We felt very strongly that it was absolutely the wrong outcome and we fought hard on appeal and the

appeal court agreed with us. It was a learning experience and a teachable moment for me as a young lawyer. Just because you lost doesn’t mean that should be the end of it. If you believe strongly in your position you should advocate very strongly for your client. I am sure there are other career lows but that is the one that stands out at this time. What’s next for Beatrice? I myself am constantly trying to figure that out. I think there’s much more to do, much more to be achieved. What’s definitely on my horizon is growing my current practice and finding more ways to give back – not just to my local community in the U.S. but in Nigeria, and Africa generally. I don’t know what platform I will do that on, but I do know I’ll be more and more involved in Africa. Whether it’s getting more and more clients that have issues that implicate Africa or through the platform of these organisations that I work with.


PUBLIC LAW Lekan Oladapo, Lekan Oladapo & Co, Abuja

Separation of the Role of Attorney General From the Political Office of the Minister of Justice

General also enjoys the same under the Constitution of the Federal Republic of Nigeria 1999 (the “1999 Constitution”). Section 174(1) of the 1999 Constitution provides as follows: The Attorney-General of Federation shall have power – (a) to institute and undertake criminal proceedings against any person before any court of law in Nigeria, other than a court-martial, in respect of any offence created by or under any Act of National Assembly; (b) to take over and continue any such criminal proceedings that may have been instituted or undertaken by him or any other authority or person; and (c) to discontinue at any stage before judgement is delivered any such criminal proceedings instituted or

Attorney-General and Minister of Justice Mr. Bello Mohammed Adoke and J.B Daudu SAN (A critic of the duality of the role)


here is a need to separate the office of the Attorney-General from the political office of the Minister of Justice and to create a separate, secure and autonomous status under the Constitution where the AttorneyGeneral can exercise his power free of political considerations. Stemming from the 1963 Constitution and to the present times, the office of the public prosecutor has been vested in the Attorney-General of Federation. The position of the State Attorney-


undertaken by him or any other authority or person. Similar provisions are found under section 211 (1) (a) – (c) of the 1999 Constitution but in respect of the State Attorney-General. Limitations on the Independence of the Attorney-Generals’ Office In effect, the 1999 Constitution radically departed from Nigeria’s 1960 Constitution which gave the office of Director of Public Prosecutions the power to initiate criminal proceedings in Nigeria.

Law Digest Spring 2013

This departure was criticised in a paper titled ‘The Imperative of a Reformed Prosecutorial System in Nigeria’s Criminal Justice Machinery’, presented by Joseph Bodurin Daodu, SAN, and published in The Guardian, Tuesday, June 19, 2012 in which he stated at page 74 paragraph 1 that: “The provisions of the 1960 Constitution was radically altered by the 1963 Republican Constitution (due predominantly to the politics of the day then). The powers of the DPP as it relates to public prosecution was taken away and vested in a political appointee i.e. the AttorneyGeneral. This transfer of power occasioned incalculable damage to the professionalism of law officers and their ability to prosecute crimes especially, the ones with political flavour.” The opinion of JB Daodu SAN cited above was in tandem with the remark of Hon. Justice Salihu Moddibo Alfa Belgore, JSC, (as the then was), in the case of FRN v Osahon (2006) 24 WRN (“Osahon case”) at pg50, when he stated that: “… The confusion that this matter has caused is rather unfortunate for trial of criminal cases; it has caused a disturbingly long delay. Previous Constitutions before 1979 provided for the post of Director of Public Prosecutions an independent officer, with power in a statute. The absence of this vital office from subsequent Constitutions has created a dilemma.” Moreover, subject to the supervisory roles in the Attorney-Generals, the 1999 Constitution equally recognises statutory bodies, or persons to initiate criminal proceedings in any court in the land without necessarily seeking the approval of the AttorneyGenerals. For example, the Nigeria Police, Nigeria Custom Services, and numerous governmental agencies are empowered by law to initiate criminal proceedings. See section 23 the Police Act CAP 359 LFN, 2004 (“Police Act”) which provides as follows: “Subject to the provisions of sections 174 and 211 of the Constitution of the Federal Republic of Nigeria 1999 (which relates to the power of Attorney-General of the Federation and of a State to institute and

Law Digest Spring 2013

undertake, take over, and continue State Attorney-General to initiate, political pressures. or discontinue criminal proceedings discontinue, takeover prosecution The appointment and tenure of against any person before any cannot be challenged in a court of office of the Attorney-General is not court of law in Nigeria), any police law. secured under the Constitution; officer may conduct in person all It is desirable for the purpose of this might make it difficult for the prosecutions before any court, well-coordinated public prosecutions holder of this office to exercise the whether or not the information or for the Constitution to strengthen degree of autonomy expected of this complaint is laid in his name”. the power of Attorney-General over office. Section 147 (1) of the 1999 The Supreme Court in the Osahon all prosecuting agencies. However Constitution provides as follows: case ruled that section 23 of Police where the post holder also occupies “There shall be such offices of Act is not in conflict with the the political office of Minister (or Ministers of the Government of the Constitution. Hon. Justice Belgore Commissioner) of Justice, it raises Federation as may be established by relying on the opinion of Kalgo JCA in the possibility of undue political the President”. Olusemo v Commissioner of Police consideration in the exercise of his A similar provision is in section (1988)1 NWLR (Pt.575) 574, 558, as duties as the Attorney-General. 192 of the 1999 Constitution for the reproduced in pages 49 and 50 in the appointment of State Commissioner. Osahon case, stated that: The Attorney-General as Minister Since the Attorney-General is either “By these provisions the Attorney- or Commissioner of Justice a Minister or Commissioner in charge General of the Federation and of The Attorney-General of the of Justice, his appointment is guided the State as the case may be are Federation and that of State by the cited provisions. It is equally themselves empowered to institute have additional roles as Minister observed that there are no special and undertake any criminal provisions for the tenure of proceedings in any court the office of the AttorneyThe Attorney-General, by virtue of in Nigeria and if any other General under the 1999 his appointment and position in person or authority instituted Constitution. Therefore, the or undertook any such office, in spite of the special Government, enjoys little autonomy constitutional roles imposed criminal proceedings in any court in Nigeria, within their on it, is subject to the in making decisions on sensitive respective jurisdictions, they whims and caprices of the have the power to take it President or the Governor criminal matters or prosecutions over, continue or discontinue as sole appointing officer for of Justice and Commissioner this enviable office. at any stage of the proceedings. In this instance, the power to of Justice respectively by virtue The Attorney-General, by virtue prosecute or undertake criminal of sections 150(1) and 195(1) of of his appointment and position in prosecution is vested in the police 1999 Constitution. Section 150(1) Government, enjoys little autonomy officer under section 23 Police Act provides for the Attorney-General in making decisions on sensitive subject to the exercise of powers of Federation, while section 195(1) criminal matters or prosecutions. conferred by the provisions of section relates to that for the State. Section For example, in 2010, Mr. Michael 150(1) 1999 Constitution provides that: Aondoakaa, the then Attorney160 of the Constitution.” In this circumstance, the Attorney- “There shall be an Attorney-General General, discontinued a criminal General of the Federation and that of the Federation who shall be the trial against the then Governor of the State have overriding powers Chief Law Officer of the Federation of Abia State, Orji Uzor Kalu and over all the prosecuting agencies by and a Minister of the Government of Jimoh Lawal, under inexplicable virtue of the powers conferred on him the Federation”. circumstances. The 1999 Constitution has similar and can exercise the powers without Further, in 2012, there were questions or checks by any person(s). provisions including that relating to serious allegations against some oil The power as exercised by the professional requirements for the marketers relating to management Attorney-General over prosecution of Attorney-General of the State as well. of oil subsidies. Some of these criminal cases can be traced from the Therefore, the Attorney-Generals are marketers are known influential 13th century, under the English Law, members of the Executive Council of members of the society with close when he acted as King’s Attorney. their respective government, both at connections within the Government. The prerogative power of the king the state and at the federal levels. It has been suggested in some The additional roles of Minister/ quarters that owing to these close over prosecution was exercised by Commissioner of Justice have placed relations, the Attorney-General has him. The absolutism of this power was enormous responsibilities on the failed to initiate any prosecution emphasized in the case of The State office of the Attorney-General and against them. Whilst there is no v Ilori (1983) 1 SCNLR 94, where has made the holder responsible evidence to support this suggestion, the Court held that the discretionary to the appointing authority and to the duality of the role of the Attorneypower of the Attorney-General the government of the day thereby General raises suspicion that the of the Federation and that of the potentially subjecting him/her to lack of prosecution could have been


Law Digest Spring 2013

politically motivated. and 3(1) and (2) of the Economic difficult to insulate these statutory Even if it were to be assumed and Financial Crimes Commission bodies i.e. EFCC, ICPC, Police; etc that the Attorney-General’s decision (Establishment Act) 2004 provide from the influence of the government of the day, for ‘he who pays the piper, not to prosecute or to discontinue as follows: prosecution in the instances Section 2(3): The Chairman and dictates the tune’. discussed above or any similar members of the Commission other than sensitive matters, were made in the ex-officio members shall be appointed CONCLUSION We believe that the constitutional public interest, suspicion of political by the President and the appointment influence and pressures will always shall be subject to confirmation of the role of the Attorney-General as the Chief Law Officer is proper as mar such decisions by virtue of Senate. the aforementioned dual roles and Section 3(1): The Chairman and obtained under the 1999 Federal insecure tenure. The editorial in The members of the Commission other Constitution. However, there is need to provide for greater Guardian on 2nd October security of tenure such 2012, made a succinct Finally and more importantly, the as that akin to officers observation of this, office of the Attorney-General should under the relevant laws opining that: establishing EFCC and “…Unfortunately, as be separated from the office of ICPC. This will allow for long as the positions and duties of Attorney-General Minister or Commissioner of Justice, continuity, confidence and on the job. and Minister of Justice to avoid interference and delay in the concentration There is also need for are vested in one and the the office of the Attorneysame person, the AGF may quick dispensation of justice. General to be autonomous; not be able to do much to save the bar. In advanced countries, than ex-officio members shall hold therefore, the appointment should be the two offices are separated to office for a period of four years and by recommendation by the Federal enable freedom of thought and action. may be re-appointed for a further Judicial Service Commission or the State Judicial Service Commission Nigerians have witnessed instances term of four years and no more. of the AGF wilfully misadvising the Section 3(2): A member of the or the Judicial Committee of Federal government or blatantly interfering Commission may at any time be Capital Territory to the National with judicial process…” removed by the President for inability Judicial Council for appointment Having appraised this, it follows to discharge the functions of his office and, for confirmation of such by the therefore that all prosecuting (whether arising from infirmity of National Assembly. Finally and more importantly, statutory bodies under the mind or body or any other cause) or supervision of Attorney-General for misconduct or if the President is the office of the Attorney-General of the Federation, e.g. The Nigeria satisfied that it is not in the interest should be separated from the office of Police, Nigeria Custom Services, of the Constitution or the interest of Minister or Commissioner of Justice, Economic and Financial Crime the public that the member should to avoid interference and delay in the quick dispensation of justice. Commission (EFCC), Independent continue. It is of importance, that the office Corrupt Practices and other related See also similar provisions in offences Commission (ICPC) etc. are sections 6, 7 8 of the Corrupt of the Attorney-General should bear also potentially exposed and subject Practices and other related resemblance to the Director of the to political control and pressures/ Offences Act, 2000. However, while Public Prosecution as obtained under influences from the government of all the agencies mentioned above the 1960 Constitution. the day. For example, sections 2(3) enjoy some security of tenure, it is



Venue: LAGOS, NIGERIA - Date: OCTOBER 2013 Hosted by:

& 28

CORPORATE LAW Dr. Nnamdi Dimgba, Olaniwun Ajayi LP, Nigeria

Sanctions and Remedies Under Nigeria’s Merger Control Regime Dr. Nnamdi Dimgba - Partner


igerian law provides for a mandatory pre-notification to and the prior approval of every qualifying merger and acquisition (M&A) transaction by the Securities and Exchange Commission (SEC), which in the absence of a competition authority is vested with merger control powers in Nigeria. This M&A mandatory prenotification and pre-approval provision (hereinafter referred to as the “mandatory provision”) is provided for in the Investment and Securities Act 2007 (the “ISA”), and applies to all M&A parties regardless

(L-R) Sanusi Lamido Sanusi (Gov. CBN) and Arunma Oteh (D.G. SEC) at the Project 50 Launch

“This paper is concerned with the broad question of the legal effect and consequences when M&A transaction parties choose to ignore the ‘mandatory provision’, and proceed with their transaction”

of their legal character or sector of the economy in which they operate, even where the transaction has been endorsed by relevant government agencies or sector regulators. However, in practice, this M&A mandatory provision is often ignored and there exists legal uncertainty and confusion regarding its enforcement. Two major reasons aid the sustenance of this state of confusion. First, is the somewhat lack of clarity in the law itself as to what precise sanctions will be applied to parties who proceed with an M&A transaction without giving and obtaining the necessary notification and approval to/from the SEC. For

Law Digest Spring 2013

instance, the mandatory provision itself does not contain any explicit or implicit language automatically nullifying M&A transactions pursued in defiance or disregard of the provision. Hence, at the very least such non-compliant transactions may be argued to be valid until the SEC discovers them and imposes sanctions and remedial measures still a vexed issue. The second reason for the confusion is anecdotal. For the uninformed, there is some disconnection between the concept of sanctions on one hand and the phenomena of mergers and acquisitions on the other. While the beneficial character of mergers is apparent and not to be probed, the fact that mergers can also have very pernicious effects is not so clear. Therefore, the fact that such apparently innocuous transactions can be the subject of regulatory sanctions is not that which is easily accepted, except by those schooled in competition law. This paper is concerned with the broad question of the legal effect and consequences when M&A transaction parties choose to ignore the mandatory provision, and proceed with their transaction. Mergers and Competition Law Mergers produce a number of positive outcomes favourable to an economy which include providing business owners with an opportunity to sell/exit their business; allowing for continuity which will protect productive assets to the benefit of creditors, owners, employees and/ or; allowing for enhanced efficiencies in areas such as production, research and development and, in management. For these reasons, competition laws the world over do not make mergers unlawful per se, as they do price-fixing and other violations of antitrust laws. However, mergers also create potential problems for competition by increasing the level of concentration in a given industry hence the need for merger control through such provisions as the mandatory provision.


Law Digest Spring 2013

Can there be sanctions for nonnotified M&A transactions and if so, what? In relation to this question, it is important to recognise at the outset that the ISA has under section 13(p) invested the SEC with the foundational power “to review, regulate and approve mergers, acquisitions, takeovers and all forms of business combinations and affected transactions of all companies in Nigeria.” This foundational power is reinforced by the specific provisions in Part XII, ss. 118 – 128 of the ISA, the most fundamental being the M&A mandatory provision under section 118(1) of the ISA. However, as mentioned earlier, there is an apparent lacuna or gap in the law under Part XII as it does not prescribe the penalties for noncompliance. This lacuna therefore creates some confusion as to whether non-compliance is punishable or whether what we have is really a legal exhortation rather than an obligation. This writer is of the view, for reasons proffered hereunder, that the absence of a specific penalty clause backing up the merger notification obligation, does not support the conclusion that failure to notify is not punishable or attracts no consequence. The ISA has invested the SEC with a swathe of sanction powers, from the criminal to the civil and administrative, including the power to impose behavioural and reputational sanctions (see e.g. section 305(3(c) ISA). Therefore where a violation occurs in the context of a merger transaction, there is no reason in principle or law preventing the SEC from using any of the sanction powers under the ISA. Further, although Part XII of the ISA is silent on the consequence of nonnotification of M&A transactions, the SEC may invoke the general sanction under section 303 of the ISA, which provides a default sanction power for violation of any provision of the ISA or any rule or regulation made

thereunder. Section 303(1) of the ISA provides: “Except as otherwise specifically provided under the provisions of this Act, any person who violates or contributes in the violation of the provisions of this Act or of any rule and regulations made thereunder is liable to a penalty of not less than ₦100,000 (about $600) and a further sum of ₦5000 ($30) per day for every day that the violation continues.” However, given the paltry sums provided for under section 303 of the ISA, the attraction not to comply is real and parties may conceive that it makes commercial sense to avoid the delays of getting SEC approval and proceed with the transaction.

their merger transactions. The problem with the Nigerian system remains the fact that merger control is not really viewed, as it should, from the prism of antitrust or competition protection, but more from the prism of securities regulation. SEC is not an antitrust body but a securities regulator. Can the SEC effectively be both a securities regulator and a guardian of competition (the role usually played by separate competition authorities)? Beyond imposing fines on the parties involved in the non-notified M&A transaction, the SEC can also impose administrative sanctions on their officials and advisers. The basis for the later is section 151(6) of the ISA which gives to SEC the power to “impose administrative sanctions on any person or persons contravening any of the provisions of this part of the Act”.

the mandatory provision itself does not contain any explicit or implicit language automatically nullifying M&A transactions pursued in defiance or disregard of the provision


In contrast, Article 14 of Council Regulation 139/2004 of 20th of January 2004 (the European Merger Regulation) imposes fines on M&A parties of up to 10% of the annual turnover of the enterprises for failure to notify and get pre-approved their M&A transactions to the European Commission, and fines of up to 1% of the annual turnover for supply of incorrect information or generally for failure of merger parties to cooperate with the European Commission in investigating a merger. Similar financial penalty provision exists in several merger control regimes around the world, including of recent the supra-national merger control regime of the Common Market of Eastern and Southern Africa (COMESA) which came into force on 14 January 2013. The COMESA supra-national merger control regime provides for a fine of up to 10% of the combined annual turnover in the COMESA Common Market of parties who fail to notify

Can the Non-notified M&A Transaction be Annulled? A different question relates to whether the SEC is empowered to annul or reverse a non-notified M&A transaction. Although the answer to this question is not explicitly provided for, it is submitted that the power of the SEC to annul a non-notified M&A transaction is implied within the provisions of sections 13(p) of the ISA already cited. Section 118 itself (the mandatory provision), and section 127 of the ISA by which the SEC can revoke a merger approval for various reasons, such as where procured by deceit or incorrect information. Noteworthy is section 127(2) which provides that the Commission may prohibit the merger over which it has revoked its approving decision, even if a time limit prescribed in the Act for the Commission to take a decision may have elapsed. Section 128 further empowers the Commission to order the break-up of a company whose business practices undermine competition. It may be argued that section 128 applies to an abuse of dominance scenario and not directed at a merger scenario.

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However, the counter-argument should be that if the Act recognises that in deserving circumstances the SEC can impose radical structural remedies in a market by requiring the dissolution of companies whose commercial practices undermine competition, there is no reason why the Commission cannot also inversely require parties to an M&A to dissolve the transaction where it is in breach of the mandatory provision particularly where such an M&A would have serious negative consequences on the competitive structure of the market and on consumers. Whether or not the SEC should annul an M&A transaction should be dependent on the circumstances of each transaction, and considered against the factors listed in section 121 of the ISA for consideration of mergers as if it were one notified to it. If such a review reveals that the transaction is one that would not have been approved had it been notified to the SEC, then the Commission would be right to require a dissolution or reversal of the transaction, in addition to financial penalties imposed. If on the other hand the review reveals that the transaction is one which would have been approved by the Commission had it been notified to it, the Commission should limit its intervention to financial penalties and allow the M&A transaction to stand. The approach suggested here is consistent with best practice as encapsulated under Article 8(4)(a) of the European Merger Regulation, where the remedy of dissolution is not automatically imposed, but only imposed if the non-notified M&A is assessed to be anti-competitive. The said Article 8(4)(a) provides:, “Where the [European] Commission finds that a concentration… has already been implemented

and that concentration has been declared incompatible with the common market…require the undertakings concerned to dissolve the concentration, in particular through the dissolution of the merger or the disposal of all the shares or assets acquired, so as to restore the situation prevailing prior to the implementation of the concentration..” The SEC as part of its merger control powers can impose various other remedies in order to resolve whatever competition concerns that may arise from an M&A transaction. These remedies could be either behavioural such as price freeze to

Nigeria and get remedies. Section 123(2) of the ISA provides a legal basis for employee intervention, imposing on the M&A parties an obligation to serve a copy of their merger notice to their registered employee unions or their employees generally. Although the provision in question does not specify what the employees are to do with this notification, it is arguable that this provision supplies a basis for intervention in a merger process by employees; otherwise the right to be notified becomes a hollow one. Intervention by other third parties other than employees (such as consumer groups and competitors) will find basis under section 124(3) of the ISA which provides that “any person may voluntarily file any document, affidavit, statement or other relevant information in respect of a merger.”

M&A transaction parties would be reluctant to disregard the mandatory provision if chances of detection by the SEC were high; which is not the case especially given that evidence of SEC approval is at no stage of the transaction actually required to transfer rights and benefits address consumers concerns, or a requirement to grant competitors access to infrastructure, Intellectual Property assets, research and development (R&D) facilities, production facilities, and key technology. The basis for this is section 122(5) (b)(ii) of the ISA by which the SEC can approve a merger “subject to any conditions” and also section 123(3) of the ISA which contemplates that a merger may be approved by the SEC “with or without conditions”. The remedy could also be structural by way of requiring a divestiture by the enterprise of a part of the enterprise to enable new entry or to strengthen some other competitors. Third Party Intervention in the merger process Another issue is the extent to which third parties may intervene in or influence an M&A transaction in

Can the Corporate Affairs Commission come to the rescue? M&A transaction parties would be reluctant to disregard the mandatory provision if chances of detection by the SEC were high; which is not the case especially given that evidence of SEC approval is at no stage of the transaction actually required to transfer rights and benefits. Parties can proceed to effect the necessary share transfer and change of directorship by registration/ filings with the Corporate Affairs Commission (“CAC”), Nigeria’s companies registry without showing evidence of such approval. In practice, the CAC does usually accept filings without any reference to SEC. Therefore, an inter-agency arrangement between the SEC and the CAC, whereby filings of any significant change in shareholdings of companies and their directorships at the CAC are subject to submission or confirmation of SEC approval, would be ideal to ensure compliance with the mandatory provision.


TAXATION LAW Lulu Tembo and Ibrahim Baba Muhammed

FATCA: The New Face of International Taxation – Effect on Nigerian Financial Institutions


Lulu Tembo Consultant, Augustine Clement (UK)

Ibrahim Baba Muhammed Head of Regulatory Compliance, Jaiz Bank Plc (Nigeria)

“FATCA requires the ‘compulsory’ participation of FFIs in identifying U.S clients and U.S source income, collecting and providing information to the IRS with regard to those clients/such income”


he U.S has enacted the Foreign Account Tax Compliance Act (“FATCA”) principally with the aim of curbing tax evasion thereby maximising tax revenue. More specifically, it is designed to address the “deliberate and illegal hiding of assets and income from the U.S Inland Revenue Service (“IRS”) by U.S. citizens and residents.”1 FATCA came into force on 1st January 2013. FATCA requires foreign financial institutions (“FFIs”) to provide information on a regular basis directly to the IRS regarding: (1) financial accounts held for U.S taxpayers and (2) U.S shareholders in non-financial foreign entities (“NFFEs”) in which U.S persons have a ‘substantial ownership’ that is, where 10% or more of the shareholders are U.S. tax payers FATCA requires the ‘compulsory’ participation of FFIs in identifying U.S clients and U.S source income, collecting and providing information to the IRS with regard to those clients/such income. FFIs are non-US financial entities that accept deposits in the ordinary course of a banking or similar business, are substantially engaged in holding financial assets or, are primarily engaged in investment business and so include banks, investment banks, brokerage firms, (re)insurance companies, investment funds, etc. FFIs are expected to enter into an agreement with the IRS (“FFI Agreement”) by June 2013, which will set out their reporting and compliance obligations including aspects of due diligence that FFIs must undertake to identify U.S. accounts; those that do so will be referred to as ‘Participating FFIs’. Under the FFI Agreement,

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Participating FFIs will be expected to identify and report on U.S individual’s client accounts with a minimum of US$50,000 or an aggregate minimum balance of US$50,000 where the accountholder has several accounts in several different branches or affiliates of the FFI, and with a minimum of US$250,000 where the accountholder is an entity.2 FFIs that do not enter into an FFI Agreement (referred to as “Non-Participating FFI”), would be subject to a 30% gross withholding tax on it’s income generated in the U.S. unless they are deemed FATCAcompliant or, otherwise exempt from the FATCA regime. The entities that can fall into these categories are set out in the regulations governing FATCA application. In some cases, FFIs will be required to withhold and pay over to the IRS 30% of any payments of U.S. source income as well as gross proceeds from the sale of securities that generate U.S. source income; such as in the case of a ‘Recalcitrant Accountholder’ (i.e. an account holder who/that fails to comply with reasonable requests for information required to identify U.S accounts/source income). This would, most controversially, make FFIs tax conduits or intermediaries for the IRS. FFIs that do not comply with FATCA face a penalty of a 30% withholding tax on their income generated in the U.S. FATCA is an unprecedented form of direct extraterritorial legislation, a revolutionary measure of international taxation which may be seen by some as an attack on sovereignty of other nations.3 The implications are enormous and far reaching not only for regulators and businesses, but also for the entrenched laws and principles relating to privacy and confidentiality that regulate the bank-customer relationship. In an effort to address some of these issues, countries like the UK, Germany, France, Italy and Spain have been involved in joint discussions with the U.S to agree on fundamental issues/concerns and the mode of implementation. The FATCA UK and U.S intergovernmental agreement (“IGA”) signed 12th September 2012,

addresses the UK legal barriers to complying with FATCA, ensures that the burdens imposed on UK financial institutions are proportionate to the goal of combating tax evasion and establish a reciprocal approach to FATCA implementation.4 There seems to be a very real sense of conviction that the ‘endgame’ is some sort of global multilateral FATCA regime. It’s an attractive prospect for any economy to be able to tap into the millions moved and hidden around the world through complex transactions and arrangements created for tax evasion purposes. If indeed FATCA does effectively result in a global multilateral FATCA-like regime, it will prove less costly down the line, if financial institutions make the necessary changes now.

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behind nominal shareholders. Technology Update: Many institutions will need to update their computer systems not only to hold the immense information that will be required, but also to be able to sort, set out and report that information in accordance with U.S requirements, to enable efficient interpretation of data (including readily identifying where income is earned and sourced on a quarterly basis). FFIs will need to centralise their systems to be able to readily make the required determinations with respect to account holders. KYC Requirements: Identification and due diligence procedures with respect to its accountholders will need to be developed/reviewed to U.S standard and may entail a complete

banking relationships and educate relationship managers; adjust service level agreements with service providers and business partners accordingly to ensure compliance with FATCA; adjust bank-customer agreements and communication accordingly to make them aware of FATCA reporting obligations and future withholding arrangements.

FATCA – Legal Implications There are currently no specific laws relating to the protection and disclosure of confidential information in Nigeria.6 However, by virtue of its ties with the English legal system, the general, common law duty of confidentiality will apply. Based on the decision in Tournier v National Provincial and Union Bank of England [1924] 1KB 461 (“Tournier”), it is an implied FATCA – Implications for FFIs are expected to enter in an term of the contract between Businesses agreement with the IRS (“FFI a banker and a customer Some of the biggest fund that the banker will keep managers and banks, estimate Agreement”) by June 2013 which the customer’s information that it will cost billions will set out their reporting and confidential. This duty is to implement FATCA and compliance obligations including not absolute but subject to financial firms may be forced into radical restructuring aspects of due diligence that FFIs a number of qualifications For classified by Bankes LJ (at of their businesses.5 must undertake to identify U.S. financial institutions that 472) under four headings: accounts have not had any prior U.S “(a) where disclosure is reporting obligations, FATCA under compulsion of law; (b) reporting would seem a daunting and where there is a duty to the public and complex overhaul of knowexpensive task. to disclose; (c) where the interests your-client systems, procedures and The issues therefore for foreign of the bank require disclosure; and requirements. states and businesses are whether (d) where the disclosure is made by Reorganisation: FFIs may have the cost justifies the means, possible the express or implied consent of the to allocate a specific segment of effects on competition and ultimately, customer.” their staff who will be specifically whether the U.S will reciprocate by Tournier’s qualifications are trained and responsible for FATCA requiring its local businesses to accord applied verbatim under section 7 of compliance and be the contact point the same courtesies (information Nigeria’s Code of Banking Practice. for IRS enquiries and correspondence. reporting and withholding tax) to Tournier’s third qualification and Methods and procedures for reporting the revenue authorities of those section 7.1.3 of the Code are most to the IRS as well as for withholding jurisdictions that implement/comply relevant for our purposes. In the of U.S sourced income and sales with FATCA. case of X AG v A Bank [1983] 2 All proceeds will also have to be put in For financial institutions, the ER 464, three foreign corporations place. most significant areas for action and which had London branch accounts Education: In addition to staff focus are: with a U.S bank who’s head office being trained on FATCA awareness Screening and identification: was in New York, obtained interim and compliance, they will need to Financial institutions will need to injunctions to restrain the bank from be trained on the additional level of determine their status and those complying with subpoenas issued responsibility and governance in of their corporate clients for FATCA by the U.S Department of Justice. respect of their access to increased purposes. This has been revered as It was argued by the bank that the private/confidential customer challenging in some quarters given duty of secrecy should be overridden information and dealings with a the complexity of some organisations in the circumstances, as it was in the foreign authority. and the fact that in some cases bank’s interest to comply with the Adjustment of business relations: beneficiaries of shareholdings hide subpoenas since they were issued FFIs will need to identify private


pursuant to the law of a country to which the bank was subject and could consequently face criminal sanction for non-compliance. The court rejected the argument saying the Tournier case did not apply where the circumstances before the court were totally different. The court “did not consider that the bank would truly suffer any detriment if it did not produce the documents in question.”7 Nigerian banks are not subject to the laws of the U.S and cannot deal directly with any other (foreign) tax authority because under section 2 of the Federal Inland Revenue Service (Establishment) Act 2007, Nigeria’s IRS is the only institution in Nigeria that has the power to control and administer the different taxes and any legislation imposing taxes or levies within the Federation. Non-compliance with FATCA would therefore lead to U.S sanctions against Nigerian financial institutions and NFFEs, and yet compliance may lead to sanctions/litigation against these institutions by the Nigerian IRS and U.S customers for breach of confidentiality. Without government action/ agreement on the application of FATCA, Nigerian financial institutions may have to rely on the third principle in Tournier to be able to disclose confidential information regarding their U.S customer accounts and in some cases, withhold and remit tax on U.S sourced income from such accounts to a third party, a foreign authority (the IRS), on the basis that it would be in their interests to do so. In view of past cases regarding banks’ duty of confidentiality which see the more rigid application of the Tournier qualifications,8 it is highly unlikely that English or Nigerian law courts would set aside the duty on such basis and it is perhaps why the UK government sought to negotiate on the application and effects of FATCA. Whether it can be argued that the duty be set aside as a matter of public interest would rest on the value of importance attached by the government to compliance with FATCA and, if such compliance can be seen to significantly benefit the wider public, such as where there is reciprocity with the U.S in that


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U.S financial firms also disclose Bill 2011, which would be helpful in information on Nigerian source addressing some of these issues.9 income and enable the Nigerian FATCA will require customers IRS collect revenue on such income to disclose private/confidential remains to be seen. Such a burden information that they currently cannot be rightfully placed on the are not required to disclose. Of courts and Tournier certainly cannot an initial particular concern will be sufficiently relied on, on what is be the disclosure of information seen as a complex, politically charged such as customer’s place of birth, and possibly, new international tax issues of dual nationality and such system. relevant information that could Further, it is not only the disclosure potentially connect them to the U.S of confidential information and remittance of tax to foreign third parties that is of legal concern, FATCA will essentially revolutionise the data systems in financial institutions, giving them access to and requiring them to hold more confidential information than is the current situation. This will not only expose customers to higher risks of bank account and identity fraud/ theft, breach of confidentiality, etc but also possibly encroach on their rights to privacy guaranteed under Article 37 of the Constitution of the Federal FATCA is perhaps the most significant extra-territorial legislation by the Obama government Republic 1999, but for tax purposes. Depending on the it will also increase the exposure of consequences of customers disclosing financial institutions to litigation. such personal information, financial It is pertinent that legislation institutions may face uncertainty exists to provide adequate protection in litigation for breach of contract - to ensure that customer’s personal (regarding implied terms of the bankdata is processed both fairly and customer relationship), for the tort lawfully, stored securely for no of misuse of private information or longer than necessary and lawfully breach of confidence.10 used/disclosed under well-defined FATCA rules also require the FFI to criteria to authorised persons for close a Recalcitrant Accountholder’s legitimately purposes. As discussed account. This may be difficult to in the Law Digest Winter 2012, there comply with especially where the are many pending bills before the FFI is exposed to the customer Nigerian National Assembly such as through mortgage(s), loan(s), credit the Harmonised Cyber Security

card(s) and other banking facilities. In such situations, FFIs would have the difficulty in both complying with FATCA and maintaining it’s ability to recover its exposure to the customer. Essentially therefore, national laws and legal principles will have to be reconciled with the application of FATCA not only to legalise compliance with FATCA but also to address possible conflicts and reduce the legal

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• •

There is a wider scope for institutions and products to be effectively exempt from FATCA; There will be reciprocity in providing information between the tax authorities.

FMA II follows a business-togovernment approach in which: • FFIs are required to register with the IRS, and agree to comply with the requirements of an FFI Agreement with the In some cases, FFIs will be IRS; • FFIs will be required required to withhold and pay to request consent from account holders (if over to the IRS 30% of any required under local law) payments of U.S. source income to report information U.S accounts as well as gross proceeds from regarding to the IRS in accordance with their respective the sale of securities that FFI Agreements. In the generate U.S. source income absence of customer consent, FFIs will and compliance risks for financial provide general information to institutions that may ensue from the IRS and the IRS may make such compliance. Currently, the best a group request to the FATCA way to achieve this would be through Partner government who will an IGA. then have 6 months to respond Regarding IGAs, the U.S Treasury to such an information request. has released two FATCA Model Failure to provide the requested Agreements referred to herein as information may require the FFI “FMA I” and “FMA II”. FMA I upon to close the account(s) of those which the UK-U.S IGA is based, sets customers who will be deemed as out a framework within which there is recalcitrant in the circumstances; government-to-government sharing • Notwithstanding an FMA II, of information and provides that: countries may enter into further • The legal barriers to compliance, negotiations with the U.S to such as those related to data upgrade to an FMA I on either protection, have been addressed; a reciprocal or non-reciprocal • The FATCA Partner government basis. Reciprocity requires is tasked with collecting the partner countries to have robust information from resident FFIs protections and practices to and reporting it to the IRS; ensure that the information • Withholding tax penalty will not remains confidential and that it be imposed on income received is used solely for tax purposes. by the FFIs of a FATCA Partner generated in the host “FATCA Conclusion Partner territory; Given the aforementioned, it is • Partner FFIs will not be required astounding the global silence on to withhold tax on payments FATCA and its possible implications they make and will generally not – worse still, the lack of enquiry and need to close the accounts of consultation among stakeholders Recalcitrant Account holders; in the various states given the tight • The due diligence requirements schedule for its implementation. will be more closely aligned to For developing countries, a FATCAthe already existing requirements like regime which requires automatic under the laws in the FACTA exchange of information could prove Partner; beneficial in the sense that if done

on reciprocal basis among countries, it can require tax authorities to exchange information automatically (rather than the current failing system based on formal requests) with their counterparts in other countries.11

1 Joanna Heiberg ‘FATCA: Toward a Multilateral Automatic Information Reporting Regime’ 69 WASH. & LEE L. REV. 1685 (2012) Washington and Lee University School of Law; Foreign Bank Account Reporting and Tax Compliance: Hearing before the Subcommittee on Select Revenue Measures of the H. Comm. on Ways and Means, 111th Cong. 7 (2009) (statement of Stephen E. Shay, Deputy Assistant Secretary of the Treasury, at 13) 2 These de minimus thresholds do not apply to some types of FFIs. 3 Harvey, J. Richard (Dick), ‘FATCA - A Report from the Front Lines’ (August 1, 2012). Tax Notes, p. 713, August 6, 2012; Villanova Law/Public Policy Research Paper No. 2013-3001. Available at SSRN: 4 See “Joint Statement regarding an Intergovernmental Approach to Improving International Tax Compliance and Implementing FATCA”, 5 See Kate Burgess ‘US legislation: Industry concerned at extraterritorial tax clampdown’ in the Financial Times, 8 May 2012). 6

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7 See Richard Spearman QC ‘Disclosure of confidential information: Tournier and “disclosure in the interests of the bank” reappraised’ JIBFL Feb 2012 (Butterworth’s) pp 78 - 82, at 79. 8


9 C Okpaleke ‘Cyber Security and Crime – Adequacy of Regulatory Framework’ Law Digest, Winter 2012, 38

Developed in the UK by combining elements of breach of confidence with the Human Rights Act 1998 and defined in Campbell v MGN Ltd [2004] UKHL 22 and Murry v Big Pictures (UK) Ltd [2008] EWCA Civ 446. It may be relied upon in Nigerian courts by virtue of Article 37 of the Constitution guaranteeing the right to privacy.


House of Commons, International Development Committee Tax in Developing Countries: Increasing Resources for Development – Fourth Report of Session 2012-13 (Volume 1) HC 130, 23 August 2012 at pp 3, 15 – 17.



LITIGATION Jonathan Choo – Partner, Olswang Asia LLP (Singapore)

State Immunity: Enforcement Measures Against State Property Abroad – The “Commercial Activity” Exception


Jonathan Choo – Partner, Olswang Asia LLP (Singapore)

“Although international law entitles States and their entities to some immunity from the jurisdiction of the courts of other countries, State immunity is not absolute”


n most cases, some of the largest international commercial transactions in terms of size and value relate to those to which State governments/ entities are a party. An important issue for any business engaged in international transactions is the ability to obtain effective relief if they become involved in legal proceedings. However, where such transactions involve a State or its affiliates, issues arise relating to State immunity and enforceability is not always guaranteed or easy. Matters are complicated even further where judgement and enforcement measures against the State concerned are sought before a foreign court. Although international law entitles States and their entities to some immunities from the jurisdiction of the courts of other countries, State immunity is not absolute. A distinction is made between governmental acts and commercial acts and it is internationally accepted that States are only granted immunity with regards to their governmental acts, but not in relation to the commercial acts – the so-called ‘commercial activity exception.’ Pursuant to article 19(c) of the UN Convention on Jurisdictional Immunities of States and their Property of 2004 (the “UN Convention”)1, No post-judgment measures of constraint, such as attachment, arrest or execution, against property of a State may be taken in

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connection with a proceeding before a court of another State unless and except to the extent that: (a) the State has expressly consented to the taking of such measures as indicated: (i) by international agreement; (ii) by an arbitration agreement or in a written contract; or (iii) by a declaration before the court or by a written communication after a dispute between the parties has arisen; or (b) the State has allocated or earmarked property for the satisfaction of the claim which is the object of that proceeding; or (c) it has been established that the property is specifically in use or intended for use by the State for other than government noncommercial purposes and is in the territory of the State of the forum, provided that post-judgment measures of constraint may only be taken against property that has a connection with the entity against which the proceeding was directed. The ‘commercial activity’ exception in the UN Convention reflects the position and wording in national legislation in many states. For instance, the UK’s State Immunity Act 1978, Australian Foreign States Immunities Act 1985, the U.S. Foreign Sovereign Immunities Act of 1976, Singapore State Immunity Act, Canadian State Immunity Act all provide that a state is not immune in proceedings relating to a commercial transaction, normally defined as a contract for the supply of goods or services, a financial loan and any other transaction into which a state enters otherwise than in the exercise of sovereign authority. A recent decision of the UK Supreme Court on the construction of the expression “property which is for the time being in use or intended for use for commercial purposes” per s. 13(4) of the UK State Immunity Act 1978 is helpful in determining the approach of

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the English courts in determining and obtained an assignment of the immunity and, in particular, whether state property is or is not debts of the creditors of Rafidain that the sums to be paid to Iraq intended for use for commercial and became entitled to the Rafidain by Rafidain were not to be used, purposes. In particular, this case Bank’s assets in London. There or intended to be used, for a helpfully illustrates the English followed a scheme of arrangement commercial purpose. courts’ approach of giving deference for the distribution of assets held Significantly, the Chargé to the stated intended use of such by the Provisional Liquidators to d’Affaires and Head of Mission property by the state in question Rafidain’s creditors as approved of the Embassy of Iraq in and discounting the relevance of by the English court. A scheme of London signed a certificate (“the arrangement is basically a court Certificate”) in the following terms the origins of such property. Where a state’s legislation sanctioned scheme between the (see paragraph [7]). on sovereign immunity borrows debtor company and its creditors “1. The Admitted Scheme Claims its language from the UK State under which the creditors’ claims of Iraq under the Scheme [of Immunity Act and where the against the debtor company are arrangement in respect of Rafidain] courts of that State regard English discharged subject to the terms have never been used, are not in law or English court decisions as of the scheme. One of the benefits use, and are not intended for use, persuasive, then the UK Supreme of the scheme of arrangement is by or on behalf of the State of Iraq Court decision is likely to be given that no proceedings may be taken for any commercial purpose. much credence should the issue out against the debtor company 2. Any assets or distributions arise before that state’s court and without leave of the court. received in respect of any Admitted Under this scheme of Scheme Claim of Iraq under the those of other similar states where enforcement measures are Scheme are not intended sought. use by or on behalf of the Supreme Court held that for In SerVaas Incorporated the State of Iraq for any “the expression ‘in use for commercial purpose. v Rafidain Bank & Ors [2012] UKSC 40, the The State of Iraq has commercial purposes’ should be 3. appellant/claimant, SerVaas directed the Scheme given its ordinary and natural Administrators, and intends Inc, had sought enforcement of a Third Party Debt Order continue to so direct the meaning having regard to its to against the debts payable Scheme Administrators, context by the respondent, Rafidain to transfer any assets or Bank, to the state of Iraq. distributions in respect The Third Party Debt Order arose arrangement, it was intended and of any Admitted Scheme Claim out of a 1988 contract under which accepted by all parties that the of Iraq under the Scheme to the SerVaas had agreed to supply sums to be paid out to Iraq were Development Fund for Iraq.” the Iraqi Ministry of Industry to be transferred to the so-called The English High Court agreed with equipment, machinery and Development Fund for Iraq (“DFI”), that immunity applied and its related services for the purposes a UN established fund following decision was upheld by a split of commissioning a state owned the fall of Saddam Hussein (see decision of the English Court of copper and brass processing paragraph [10] and [30]). Appeal. The appeal to the UK SerVaas proceeded to register its Supreme Court was dismissed factory in Iraq. However, as a result of the Iraqi judgment with the English courts unanimously. invasion, SerVaas terminated the for the amounts that was still The Supreme Court considered contract and obtained default unsatisfied. It then successfully that the sole issue was “the scope judgment from the Paris Commercial applied for a lifting of the stay of [Iraq’s] immunity from execution Courts for the remaining amounts of proceedings against Rafidain of judgment given against it, which due to it under the contract. At Bank and enjoined Rafidain, the is governed by section 13(2)(b) and the same time, pursuant to a UN Provisional Liquidators and the 13(4) [of the UK State Immunity resolution arising out of the Iraqi Scheme Administrators, inter alia, Act]” (see paragraph [9]). Critically, invasion (and unrelated to the from making any payment to Iraq section 13(5) provides that, SerVaas judgment), the assets of pursuant to the scheme. “(5) The head of a State’s However, when it applied Rafidain Bank in London were diplomatic mission in the United frozen and the bank was placed summarily for a Third Party Debt Kingdom, or the person for under provisional liquidation Order against Rafidain and for the the time being performing his pursuant to a petition by the Bank continuation of the injunctions, functions, shall be deemed to Iraq opposed the application and of England. have authority to give on behalf Eventually, it came to pass that argued that the application ought of the State any such consent the new Iraqi regime purchased to be dismissed because of state as is mentioned in subsection


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(3) above and, for the purposes SerVaas’ arguments. It held that mission. In that case, the House of of subsection (4) above, his the origins of the property were Lords considered that the monies certificate to the effect that any not relevant to the consideration did not fall within the commercial property is not in use or intended of whether property was “in use for exception. for use by or on behalf of the commercial purpose” on the basis The Supreme Court considered State for commercial purposes of the language of section 13(4) that the crucial proposition is the shall be accepted as sufficient as well as case law (see paragraph necessity to show that the monies evidence of that fact unless the [15]). had been specified for commercial contrary is proved.” purposes i.e. “the judgment creditor The Supreme Court noted that the Language of the UK State must show that the bank account proceedings before it were summary Immunity Act was earmarked by the state solely proceedings and therefore the In respect of the former, the for being drawn down to settle issue that needed to be addressed Supreme Court held that “the liability incurred in commercial was “whether there [was] any expression ‘in use for commercial transactions” (see paragraph [19]). real prospect of SerVaas rebutting purposes’ should be given its The Supreme Court agreed with the presumption created by the ordinary and natural meaning the High Court judge that this case Certificate [that the property in having regard to its context”. The did not suggest that “if the moneys question] was not for the time being Supreme Court reasoned that “it in the bank account resulted from in use for commercial purposes would not be an ordinary use of commercial transactions, that might within the meaning of section 13(4) language to say that a debt arising be relevant to the question whether of [the UK State Immunity] Act]” from a transaction is ‘in use’ for the account was used or intended for (see paragraph [10]). use for commercial purposes”. The dispute between the The Supreme Court also The Supreme Court considered parties (and in the Court of noted three English High that the crucial proposition is Court cases which took a Appeal below) was whether the origins of the payout the necessity to show that the similar approach and focused by Rafidain to Iraq were on present or future use of monies had been specified for the property (including a debt relevant to the consideration of section 13(4). SerVaas owed to the judgment debtor) commercial purposes argued that the nature of (see paragraph [22]). the transaction which gave rise that transaction. Parliament did not The Supreme Court specifically to Rafidain’s liability was entirely intend a retrospective analysis of rejected any attempted distinction commercial. In other words, the all the circumstances which gave between the current use of a origins of the debts which gave rise rise to property, but an assessment debt and the current use of a to Iraq’s payout were commercial of the use to which the state had bank account and held that “[i] and not sovereign in nature. chosen to put the property” (see n each case the question is the Furthermore, SerVaas argued paragraph [16]). same, namely whether the relevant that the debts owed by Rafidain In this regard, the Supreme property is in use or is intended for bank to Iraq and the right to a Court pointed out that in line with use for commercial purposes” (see payout thereon were properly provisions in other parts of the UK paragraph [22]). described as in use, in order either State Immunity Act, if the UK to obtain payment or to complete parliament had wanted to, it could US Case Law the underlying commercial have expanded the scope of the The Supreme Court also considered transactions giving rise to the ‘commercial activity’ exception. For US case law on the basis that state claim or alternatively as part of the example, the UK State Immunity immunity is governed by the Foreign transaction pursuant to which Iraq Act could have provided for Sovereign Immunities Act 1976, acquired the debts, the nature of execution against “property which was “a leading precursor of which was not a sovereign act (see that ‘related to’ a commercial the [UK State Immunity] Act” and paragraph [12]). transaction, or arose ‘in connection in particular §1610(a) which allows There was also an issue as to the with’ a commercial transaction” as courts to execute against “property reason behind Iraq’s purchase of opposed to property that was “in in the United States…used for a the debts. SerVaas argued that Iraq use”. (see paragraph [17]). commercial activity in the United did so in order to make a profit and English Case Law States” (see paragraph [23]). as part of a commercial venture. The Supreme Court cited The Supreme Court held that On the other hand, Iraq stated extensively from Alcom Ltd v the US decisions are “strong that it purchased the debts in the Republic of Columbia [1984] AC persuasive authority” for the exercise of sovereign authority 580, a case in which the applicants proposition that the language in as part of a huge restructuring had sought to execute against the relevant provisions under the of debts incurred by the previous monies held in a bank account UK and US statutes should be regime. used to meet the daily operational construed narrowly. The phrase The Supreme Court dismissed expenses of Colombia’s diplomatic “used for” or “use in” are not to


be construed more broadly in the sense of “related to” or “in connection with” or “connected with” as in the other parts of the relevant acts (see paragraphs [24] to [28] and [17]). Hong Kong Case Law Finally, the Supreme Court referred to the Hong Kong Court of Appeal’s decision in FG Hemisphere Associates LLC v Democratic Republic of Congo [2010] HKCA 19, where the majority two judges applying the doctrine of restrictive state immunity (as opposed to the minority which applied the doctrine of absolute state immunity which did not have a commercial activity exception) came to a similar position. The majority of the Hong Kong Court of Appeal held that “the question was whether the property was to be put to use for a private or commercial purpose” (see paragraph [29]). Decision of the Supreme Court On the basis of the foregoing,

Law Digest Spring 2013

the Supreme Court decided that SerVaas’ application could not succeed. There was nothing put before the court by SerVaas to rebut the presumption of the Certificate (see paragraph [30]). SerVaas could not show that “the debt is or was earmarked (or in use) for being drawn down in order to satisfy commercial liabilities” (see paragraph [31]). It was accepted by SerVaas that the payout on the debt was to be transmitted to the DFI “which is manifestly not a commercial purpose” (see paragraph [32]). The Supreme Court also held that drawing a distinction between the debts (the source of the payout) and the payout itself was “artificial and highly technical” and that the debts were “simply the means to the ends of the [payout]. They [were] nothing more than a legal mechanism by which Iraq’s entitlement to receive the [payout] [was] secured and given effect to”. Furthermore, neither the debts nor the payout were “connected to, or

Barrister’s Wig

destined for use in, any mercantile or profit-making activity by Iraq” (see paragraph [32]). Conclusion There are special considerations that apply when parties deal with a state or state owned enterprise because of issues of state/ sovereign immunity. When dealing with a state party or state owned enterprise, parties should take into account the jurisdictions where enforcement of any arbitral award is likely. It would therefore be prudent for parties to take legal advice on the enforceability of awards against state parties or state owned enterprises in those likely jurisdictions for enforcement. United Nations General Assembly United Nations Convention on Jurisdictional Immunities of States and Their Property, 2 December 2004, Annex, UN-Doc, A/RES/59/38 available at: refworld/docid/4280737b4.html [accessed 16 February 2013]


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Beyond “Independent Directors” to Board Independence (Part 1)


Nechi Ezeako, FCIS

“Corporate Governance came increasingly to the fore following the failures of companies such as World Com, Parmalat, Enron, etc”


uch has been written about “independent directors” and the roles they should play in achieving effective corporate governance. However, there is still intensive debate about whether the presence of those fitting the description of having “no significant financial or familial ties to executive officers of the firm or to the firm itself”, actually enhance governance and firm performance (Frederick Tung, “The Puzzle of Independent Directors: New Learning” (2011)). It has been suggested that results of research in this regard differ from one culture to another (Ronald Chibuike Iwu-Egwuonwu, “Some empirical literature evidence on the effects of independent directors on firm performance” (2010)). This article discusses ‘board independence’ and seeks to demonstrate that while the presence of some directors whose role is to ensure that the board acts independently is welcome, the responsibility for board independence is more farreaching and encompassing than having ‘independent directors’ in the boardroom.

Corporate Governance Corporate Governance came increasingly to the fore following the failures of companies such as World Com, Parmalat, Enron, etc. The 2001 Enron scandal which resulted in the fraud trials of some of the firm’s key officers was of particular significance. The passage of the Sarbanes Oxley Act (2002) (“SOX”) by the US legislature followed in response. Subsequently, the Dodd-Frank Act (2010) sought to address the problems highlighted by the 2008 scandals in the financial services industry (Bear Stearns, Lehman Brothers, AIG) following the global financial crisis in 2007- 2008.

Law Digest Spring 2013

Having allowed Lehman to fail citing ‘moral hazard’, the US government applied tax-payers’ funds to rescue AIG on the premise that the collapse of that insurance giant posed significant systemic risk (Andrew Ross Sorkin, “Too Big To Fail” (2010)). Suspecting self-interest and even fraud on the part of some of the executives running the collapsed firms, regulators were determined to tighten the internal controls for companies. Consequently, an increasing role for independent non-executive directors, who are expected to monitor the insiders, was entrenched (Nicola Faith Sharpe, “The Cosmetic Independence of Corporate Boards” (2011); Sharpe, “Rethinking Board Function in the Wake of the 2008 Financial Crisis” (2010)). Thus, SOX, Dodd-Frank and other US regulations notably NYSE and NASDAQ rules, assume that: “stricter definitions of director independence necessarily lead to boards more effectively monitoring corporate management”. They contain provisions intended to “enhance board performance by changing the composition and structure of the board through increasing the number of directors that meet a superficial definition of independence and creating a more detailed and independent committee structure” (Sharpe, 2011, supra). The ‘Agency Theory’ or the ‘Agency Problem’ as raised by Berle and Means in their 1932 classic, ‘The Modern Corporation and Private Property’, and discussed in some economics literature such as Fama & Jensen, “Agency Problems and Residual Claims” (1983) and Jensen & Meckling, “Theory of the Firm: Managerial Behaviour, Agency Costs, and Ownership Structure (1976)”, recognise the possibility of conflicts of interest arising in governance. It raises concerns that the

Law Digest Spring 2013

directors/managers appointed by the shareholders to run their companies may not necessarily act in line with the preferences of the shareholders who appoint them, but in their own interests. Corporate governance therefore seeks to institutionalise checks and balances to address this concern by setting up of effective systems that: • ensure directors act in the best interest of and recognise their fiduciary responsibility to the company; • prevent/avoid conflicts of interest; and • require directors to exercise care/skill, be accountable, act transparently, independently and without influence in their governance roles.

common feature in the determination of who is an “Independent Director” seems to be his/her lack of material/ significant financial, contractual or family links with the company or its executives (Tung, supra). However, this writer prefers and supports the definition of independence which focuses on character (Iwu-Egwuonwu (2010) supra; King III (Article 66)). According to Iwu-Egwuonwu,

be independent in character and judgement and there should be no relationships or circumstances which are likely to affect, or could appear to affect this independence. Independence is the absence of undue influence and bias which can be affected by the intensity of the relationship between the director and the company rather than any particular fact such as length of service or age” (emphasis mine).

“a director who is independent in character and judgment and not having any material relationship with the company beyond his/ her directorship” is independent (emphasis mine).

Although the definition of ‘independent director’ favoured by the Nigerian SEC Code views the independent director from the perspective of his/her relationships with the company, the Code recognises the need for the board to In his view, character is “very be so composed as not to compromise members’ independence (Article 4.1). While Following corporate Following corporate failures, the role of stating that at least one failures, the role of independent directors in ensuring proper out of the minimum of independent directors five board members it in ensuring proper monitoring/oversight of executives’ recommends should oversight of executives’ implementation of the corporate be an “Independent implementation of the Director” (Articles corporate objectives objectives/controls as set by the Board 4.2/4.3), the Code also as set by the Board and evaluation/assessment of their states that “the Board and evaluation of should be independent their performance has performance has become critical. of Management to enable become critical. important in defining who an it carry out its oversight function in an independent director truly should objective and efficient manner” (Article ‘Independent Directors’ and be because character is the set of 4.5). Independence qualities that make (sic) somebody Thus there is general consensus Most regulatory definitions of or something distinctive, especially that independence breeds, or should independence favour descriptions of somebody’s qualities of the mind breed, objectivity and efficiency. the absence of certain relationships. and feeling”. To Andre Covre, CFO and Investor Thus, the 2011 Securities and Relations Officer for Ultrapar, Brazil, Exchange Commission Code of argued that a however, the term ‘independent Corporate Governance for Public Iwu-Egwuonwu Companies in Nigeria (“SEC Code”) minimum criteria for adjudging a director’ can be “misleading”. While defines the “Independent Director” director as independent is that he summarising the discussions on as a director without any significant “must be rightly known to have an board independence at the 2011 Latin material, contractual or familial acknowledged reputation of being of American Companies Circle, he stated relationships with the company or sound character and of independent that a director may act independently and objectively over one issue and any of its key officers (Articles 5.5(a) judgments.” Similarly, King III, one of the most not another. Thus, in relation to i-viii; (b)). It is essentially a replica of that in the King Code on Governance robust and well-thought-through executive remuneration for example, for South Africa (2009) (“King III”) codes of corporate governance, in an ‘independent director’ may be (Principle 2.18, Article 67) definition. this writer’s view, also defines board assessed as having no conflicts and The same definition or variants of it independence from the character therefore independent. However, another director who has are used in codes across jurisdictions perspective. Article 66: also met the criteria of ‘independent “An independent director should including the UK, US, etc. Thus, a


Law Digest Spring 2013

director’, with social links to the CEO (such as same alma mater, club, etc.), may with respect to the determination of the CEO’s compensation not be objective/ independent (Tung, 2011), though he may be an asset to the board in strategy setting. On the other hand, while some directors may feel so obligated towards a CEO who supported their appointment to the board that it affects their monitoring ability, others may not feel any such pressure (Tung, supra). In Covre’s view, determining independence ahead of the matter may be difficult and not foolproof. Independence must entail making decisions “in an informed way that benefits the company without a conflict of interest”. The Organisation for Economic Cooperation and Development (OECD) Principles of Corporate Governance (which are globally accepted) state in this regard, that the board should be able to exercise objective independent judgement on corporate affairs. (OECD Principle VI.E). The explanatory note indicates that in order to effectively monitor management performance, prevent conflicts of interest, and balance


competing stakeholder interests: a. There’s a requirement on the part of the board to exercise independence and objectivity with regard to management; b. The composition and structure of the board is important; and c. A sufficient number of board members should be independent of management. While there has been significant focus on (b) and (c) above, not so with item (a). It is this writer’s respectful view, that item (a) speaks to the independence and objectivity not only of all the players on the board, but also of the board as a whole. Thus, the responsibility for independence and objective judgement is not for only those board members tagged as ‘independent directors’. Contrarily, and increasingly, independence of the board of directors is interpreted as the number of independent directors or those with an absence of material interest in the company that could influence their role in decisionmaking. Such absence of influence or potential influence, it is believed, helps the board and individual directors avoid conflicts of interest. There is no doubt that avoidance

of conflicts of interest is critical to governance. However, while one is mindful of the possibility of undue influence based on the intensity of relationships, it is this writer’s view that “independence of mind” (King III) is more an attribute than a position. In this context, independence relates to people of integrity and repute, who highly price their names and are unwilling to place their hard-won reputation at risk. Such directors are likely to possess certain other attributes required of board members by various codes and included by the OECD, notably; accountability, transparency (openness) ethical standards (honesty, morality), responsibility and fairness. King III Article 65 requires that independence is both factual and perceivable by “a reasonably informed outsider”. Next Issue: In the next issue of Law Digest, the author will discuss empirical research into the value of independent director and outline practical issues affecting objectivity in the boardroom.

COMMERCIAL LAW Morolake Ogunnusi, Nigeria

Nigeria Is Open For Business - The FDI Perspective


Morolake Ogunnusi Nigeria

The Nigerian Government has allowed for the participation of foreign investors in various areas such as Communication, Cabotage, Oil and Gas etc in a bid to encourage foreign direct investment

ince economic liberalisation in 1995, Nigeria has had one of the most open regimes for foreign investors. The new liberalised business regime is making it easier to do business in the country, and efforts to reform practise and regulation are ongoing ( The Nigerian Investment Promotions Commissions Act 1995, (the “1995 Act”) which repealed the Industrial Development Coordination Committee Act 1989 is considered a driver of foreign investment in Nigeria. Sec 4(b) of the 1995 Act, at the Commission shall encourage, promote and co-ordinate investment in the Nigerian economy, and accordingly shall initiate and support measures which shall enhance the investment climate in Nigeria for both Nigerians and Non-Nigerian Investors. The Nigerian Government has allowed for the participation of foreign investors in various areas such of the economy as Communication, Cabotage, Oil and Gas etc, in a bid to encourage foreign direct investment (“FDI”). Telecom Policies in this sector have moved from “hostility” to “conscious encouragement”. Investors have been attracted into the economy with the help of the Nigerian Communications Commission (NCC). With the establishment of the NCC in 1992, mandate was given to private companies wishing to operate in the industry which paved the way for foreign companies to participate in the sector. The government’s withdrawal from direct conduct of commercial activity in the sector encouraged expansion in the private sector, leading to growth in the sector. Sec 1(d) of the Nigerian Communications Act 2003 states that “foreign investment shall be encouraged in the Nigerian

Law Digest Spring 2013

Communications Industry and innovative services and practices shall be introduced in the industry in accordance with international best practices and trends”. Encouragement of FDI by the NCC has been applauded and the Commission has promised continued provision of a transparent, predictable and favourable environment to attract investment in the telecommunication sector. It is the intention of the Commission to continue to protect existing operators with proven track record of performance and good corporate governance and to support them to ensure that their rights and obligations are maintained, even when new entrants are being licensed. ( Cabotage Also, strict cabotage laws have been relaxed and liberalised. In a “strict”maritime cabotage legal regime, the elements of restriction are that domestic ship trading relates to ships built, owned and operated solely by citizens of the country applying the cabotage policy to the exclusion of foreign built, foreign crewed operated vessels. Where those elements are not in force, there is said to be relaxation and liberalisation ( The relaxation of the ownership of vessel is contained in sec 9 to 14 of the Coastal and Inland shipping Act 2003. The section provides that “The Minister may on the receipt of an application grant a waiver to a duly registered vessel on the requirement for a vessel under the Act to be wholly owned by a Nigerian citizen where he is satisfied that there is no wholly Nigerian owned vessel that is suitable and available to provide the services or perform the activities described in the application”. These activities would also include bringing in of FDI through foreign investors who own vessels. Oil & Gas Foreign Investment participation in the petroleum section is encouraged by the Petroleum Act 2004 (the “2004 Act”). Sec 2(1) of the 2004 Act provides that subject to this act, the Minister may grant(a) a license to be known as oil exploration license to explore for petroleum;(b) a license to be known as an oil prospecting license, to prospect for petroleum, and (c) a license to be known as an oil-mining license to search for, win,


Law Digest Spring 2013

work, carry away and dispose of exchange (Journal of Economics and other documents, as matters petroleum for which a license may be and Sustainable development preliminary to incorporation under granted to a company incorporated 2222-2855(Online) Vol 3, No 8 this Decree. We submit that this should be in Nigeria under the Companies and 2012 at pg 195). Furthermore, it is Allied Matters Act –Sec 2(b) the 2004 important to note that the investment read subject to section 60(b) of Act. infrastructure in Nigeria has greatly CAMA 1990. Non compliance with A company incorporated in Nigeria evolved, in addition to becoming the provision of sec 54(1) would only may not be a wholly owned by friendlier to investors. Nigeria attract an inconsequential fine as Nigerians, hence encouraging foreign removed restrictions as a result of provided for in sec 55 of the CAMA investors to take part in exploration, paper work burdens which caused 1990 which states that “if any oil prospecting and oil mining. obstacles for foreign investors. This foreign company fails to comply with Furthermore, with regards to foreign removal allowed foreigners to invest, the requirement of section 54..., the investment participation in Oil & transfer and sell stocks unlike sec 7 company shall be guilty of an offence gas in Nigeria under the Bilateral of the 1962 Act. The Investment and and liable on conviction to a fine of not Investment Treaties (“BITs”), an Securities Tribunal was established less than ₦2,500 and every officer or investor that is discriminated to enhance speedier resolution of agent of the company who knowingly against by the Nigerian Industry disputes that arise from investment permits the default ......shall whether Oil and Gas Content Development transactions or not the company is also convicted Act 2010 will have a right of direct ( of any offence,be liable on conviction enforcement and may refer a dispute Furthermore, in a bid to attracting to a fine of not less than ₦250, and for resolution under the relevant FDI, the requirement of incorporation where the offence is a continuing one arbitration regime. in Nigeria as a precursor to accruing to a further fine of ₦25 for every day The holder of such a right is a locus standi was removed. In the which the default continues’’. person who suffers a negative effect case of Ediscoma International The intention to encourage foreign from the discrimination. Foreign Inc. and Associates -v- Citec investment participation in Nigeria is operating companies would also International Estates (2005) also evident in the number of BITs have a right to claim in relation to LPELR-CA/A/175/2003) the learned Nigeria has entered into with various ”first consideration” granted to the trial judge did not avert his mind countries in order to facilitate and Nigerian operators in protect FDI (Adeoye relation to the award Adefulu supra). The The intention to encourage foreign investment standards of oil blocks. The includes suppliers of foreign MFN (United Nations participation in Nigeria is also evident in goods & services will Conference on Trade have a right to claim and Development the number of Bilateral Investment Treaties for a breach of the (“UNCTAD”), Mostnational treatment Favoured-Nation (BITs) Nigeria has entered into with various obligation under Treatment, UNCTAD countries in order to facilitate and protect FDI Series the various BITs on Issues in relation to these in International local content instruments (“Nigeria: to the provision of sec 60(b) of the Investment Agreements, (New York National Treatment & Nigeria’s New Company and Allied Matters Act & Geneva: United Nations, 1999 Local Content Legislation” by Adeoye 1990 (the “CAMA 1990”) which FET (UNCTAD, Fair and Equitable Adefulu 9th June 2010). states that “nothing in this chapter Treatment, UNCTAD Series on shall be construed as affecting the Issues in International Investment Foreign Portfolio Investment (FPI) rights or liability of a foreign company Agreements, (New York & Geneva: FPI is a recent phenomenon in Nigeria to sue or be sued in its name or the United Nations, 1999) and NT compared to FDI. The deregulation of name of the agent”. The learned trial standard. Some of these treaties the capital market in 1993, preceded judge was in grave error to hold that which specifically contain the NT the internationalisation of the market since the plaintiff/appellant failed standard includes the treaties with in 1995. Sec 15(1) of The Nigerian to comply with the provisions of sec the United Kingdom, The Republic Foreign Exchange Monitoring and 54(1) of CAMA, it cannot sue. of Korea, Spain, Finland, Germany, Miscellaneous Provisions Act 1995, We submit that non compliance Turkey & Spain to mention a few allows for any person, (including with the provision of this section (Adeoye Adefulu supra). foreigners), to invest in any enterprise is not a bar to suits by a foreign From the foregoing, it is not or security with foreign currency or company or against it. Whilst sec to be disputed that the Nigerian capital imported into Nigeria through 54(1) of the CAMA 1990 states that government has greatly encouraged an authorised dealer either by every foreign company which before business participation by foreign telegraphic transfer, cheques or other or after the commencement of this investors in Nigeria. The Nigerian negotiable instruments which must Decree was incorporated outside government is also working on be converted into Naira in the market Nigeria, and having the intention of putting an infrastructure master in accordance with the provisions of carrying on business in Nigeria shall plan in place that will drive new the Act. The laws that constrained take all steps necessary to obtain investments in projects across all foreign investment participation incorporation as a separate entity in sectors of the Nigerian economy. The were also abrogated. The abrogation Nigeria for that purpose, but until so Minister for Trade and Investment, of the Foreign Exchange Control incorporated, the foreign company Mr Olusegun Aganga stated after the Act 1962, (the 1962 Act) allowed shall not carry on business in visit of Brazilian investors in Nigeria for the participation of foreigners as Nigeria or exercise any of the powers that “our marketing efforts are investors and operators. of a registered company and shall working and people actually believe There was increased inflow of not have a place of business or an in the investment opportunities in portfolio investment through the address for service of documents or Nigeria”. capital market because of the processes in Nigeria for any purpose ( internationalisation of foreign other than the receipt of notices 44

BUSINESS DEVELOPMENT Andrea Opoku, GreenBean Marketing

Social B Media for Lawyers

Andrea Opoku GreenBean Marketing

“The emergence of social media channels has had a dramatic effect on the commercial environment in many countries and has provided a new opportunity to develop brand visibility”

eing able to advertise and market your business to gain new clients for the vast majority of businesses is a given. To those not in the legal profession, and quite possibly to some within the legal profession, the contents of Rule 33 of the Rules of Professional Conduct governing Nigerian lawyers restricting these activities would seem astounding. Rule 33 is almost word for word the same as Canon 27 of the American Bar Associations (ABA) Code of Professional Ethics last amended in 1963 – This has now been replaced by the ABAs Model Rules for Professional Conduct, which does allow law firms to advertise in the US. But surprisingly in Nigeria, and a few other countries, this restriction still applies. The emergence of social media channels has had a dramatic effect on the commercial environment in many countries and has provided a new opportunity to develop brand visibility. Before Social Media and the Web 2.0 era, advertising and marketing messages put out by businesses were very one-sided – communicating what they wanted their audience to hear. Social media very much relies on usergenerated content, allowing audiences to post their own opinions about products or services. This has shifted the balance of power from businesses to consumers. This ‘loss of power’ paradoxically benefits many businesses that employ social media strategies well, allowing them to gain much more favour with audiences than before. Word of mouth referrals, positive comments and reviews posted online by consumer audiences are deemed so much more credible than paid for adverts. For lawyers, social media offers the opportunity of access to huge audiences whilst, quite possibly, keeping within the Code. There are hundreds of social media channels with varying purposes, the 3 most popular being Facebook, Twitter and LinkedIn. Overall social media offers law firms a number of benefits: Build Relationships and Trust Social media is not a sales tool, it should be seen more as a networking tool where you meet new people, establish relationships, and build trust which in turn could lead to business. Increase Brand & Service Visibility Facebook, Twitter & LinkedIn have a combined total of 1.7 billion users.

Law Digest Spring 2013

Having a social media presence and being consistently active on these channels means your business has the potential to be seen by millions of people outside of your current network. Humanise Your Law Firm As the name indicates, social media is a social platform. Lawyers have a reputation of being removed from the public. It is not often you can call a lawyer just to chat about your morning coffee. Social media however allows people to interact more freely. Potential clients can read posts and get a feel for the character of the firm and put a face and personality to the firm or individual. Showcase your expertise – Become the go-to person One of the largest ways social media is affecting law firms is through content marketing. Writing and publishing articles, blogs, newsletters on topical legal issues and disseminating them via social media enables lawyers to demonstrate their expertise to a broader pool of potential clients. Speed of Response The immediacy of social media means that response to events can be within seconds. Having the ability to respond to events swiftly and with good advice can work wonders for a firm’s reputation. One thing we would say is that despite social media being, as they say ‘the best thing since sliced bread’, when it comes to promoting yourself and your business, we would advise, as with all promotional activities, that firms look at it strategically with the bigger picture in mind. How does social media fit into the overall aims of your company? Starting out To anyone just starting out on their social media journey we would advise the following: 1. Have a long-term view: Don’t go into this expecting an immediate result. Social media is all about making contact and developing relationships. When people know you and trust you they are more likely to buy from you. 2. Be helpful: Post information your audience will find useful: a blog post on a topical legal matter, presentation slides from a recent


Law Digest Spring 2013

seminar etc, and respond to comments. In doing so, you show your expertise in your subject area and also that you’re a nice, helpful person to do business with. 3. Be careful what you say and where you say it. Aside from the legal implications of what you post online, which is evolving day by day, you need to be aware of social media etiquette. Take the 3 most popular channels for example. It’s possible to link all your twitter posts to your LinkedIn status updates as well as your Facebook Page, but this is not always advisable. LinkedIn is a very professional network, your response to a comment on Twitter or Facebook may not always be suitable as a LinkedIn status update. 4. Be consistent: Regular updates and interaction on your social media networks are key to achieving and maintaining visibility. If you disappear for too long, people forget that you were there. Set aside time everyday if you can (it need only be 15 mins or so to start with) to update your status and ‘listen’ to ‘conversations’. 5. Choose the one(s) that work best for you. It can be confusing, daunting and time consuming to keep on top of all the networks, so choose the one(s) which your customers use the most and which work best for your business and focus your resources there. Using LinkedIn as a platform Out of all the social networks, LinkedIn is the most popular professional network with now over 200 million members. LinkedIn should be treated like a regular networking event or conference – somewhere you go to connect with people, exchange knowledge, ideas and opportunities. Whatever your objective in using LinkedIn, whether that be looking for new career opportunities; increasing your own profile, expanding your network, getting more clients, these tips on setting up and maintaining your LinkedIn presence are invaluable. Your Individual Profile Make a good impression. Your personal profile on LinkedIn is essentially your shop window. • Upload a good professional


• •

headshot of yourself Add a compelling headline, how you would describe yourself at a networking event Complete the rest of you profile. A 100% complete profile increases the number of times you come up in a search on LinkedIn and other search engines such as Google. Use popular keywords in your profile summary that relate to what you do.

Leverage your existing network Just connecting with those in your existing network will open the door to thousands of other potential connections. • As you would at a business event connect with people who are of interest to you and your business. Increase your connections naturally. Connect LinkedIn to your email system and send invitations to existing contacts. Look for past and existing work/business colleagues; find classmates; use LinkedIn’s connection suggestions. • Too few connections on LinkedIn would mean you not getting found. Recommendations are at the heart of LinkedIn • People buy from people not faceless companies, so personal recommendations on your profile mean everything. • Recommendations provide instant credibility. • Recommend others and don’t be afraid to request recommendations. • According to some experts, not having a minimum of 3 recommendations is equal to not having a photo on your page! Regular interaction. Like regular networking, keeping in touch with your contacts is key to building relationships • Consistently posting timely and relevant status updates will let your connections know you are still active and looking for opportunities. • LinkedIn Groups cover many industries and professions. Joining relevant groups and regularly participating in discussions increases your visibility and can demonstrate your expertise. • LinkedIn has many other features and applications you can use to

interact with people and showcase your expertise. Choose the ones that are relevant to you and work the best. Company Pages LinkedIn Company Pages can essentially act as your company’s website, a place to showcase and promote your products and services. Setting up and completing your company page Write a Compelling Summary The home page on a LinkedIn Company Page includes a cover photo, company updates, links to products and services, links to careers, and more. A brief description of the company is included near the bottom of the page. If someone makes the effort to scroll down and find your description, they’ve already demonstrated that they’re interested in your business. Don’t disappoint them by not providing the information they want. Add Products & Services Include images and descriptions of products and service and links to how to purchase them. Make sure you list the most important product/ service first as that will be featured on the home page. Also get contacts to recommend your products & services. Post Status Updates Regularly Meaningful and interesting updates about what happening in your business to your target audience would be useful. The special thing about LinkedIn Company Page status updates is that you can target specific audiences. Encourage Employees to Follow the Page Also following the company pages of competitors, industry peers, suppliers, partners, current and prospective clients, will increase followers as – many of them will reciprocate the gesture. *Andrea Opoku is an Independent Marketing Consultant and Director of GreenBean Marketing Ltd.

Law Digest Spring 2013

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Choosing forums Blocking Provisions – pitfalls in obtaining evidence and injunctions in UK and the U.S in aid of proceedings in Nigeria Enforcement options and how to block them Asset Tracing Asset-hiding structures and how to overcome them Role of arbitration in asset recovery actions Tackling arbitration clauses which hinder fraud recovery actions. Strategies for enforcement of Liquidator’s powers in asset recovery actions





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