Concerns over alleged corruption in CDC-backed companies in Nigeria
Memorandum to Secretary of State for International Development

first published 28 June 2010

The CDC Group (formerly the Commonwealth Development Corporation) is a public limited company wholly owned by the UK’s Department for International Development (DfID). CDC provides capital to private equity funds that invest in companies in the poorer countries of the world. At the end of 2009, CDC had assets of £2.5 billion (US$4.0 billion) and investments in 65 funds, which had invested in 794 companies in 71 countries, particularly in Asia and sub-Saharan Africa.

CDC’s use of government-backed funds (ultimately UK taxpayers’ money) to invest in the private sector, and its sharing of any profits that arise from such investments, place it at a nexus of public and private sector obligations to combat corruption. The private equity funds in which CDC puts its money are expected to invest only in accordance with CDC’s Investment Code. This requires all businesses using CDC’s capital to comply with all applicable laws and international standards to prevent bribery and financial crime.

This Memorandum details serious concerns over whether or not two CDC-backed private equity funds – Emerging Capital Partners Africa Fund II PCC and Ethos Fund V – complied with CDC’s Investment Code. Both these funds have invested in Nigerian companies reported to be “fronts” for the alleged laundering of money said to have been obtained corruptly by the former Governor of Nigeria’s oil rich Delta State, James Ibori.

The Economic and Financial Crimes Commission (EFCC), Nigeria’s prime anti-corruption enforcement agency, has exposed many of the networks of corruption through which public assets are amassed and subsequently “laundered” for private gain. Both the EFCC and law enforcement agencies in the UK have alleged that there are links between the ECP- or Ethos-backed companies and Ibori and/or his associates. The EFCC has brought charges following the collapse of several Nigerian banks in 2009, including those in which the CDC funds were invested, and has brought charges against Ibori for alleged corruption.

These alleged links raise many questions about the due diligence performed by both the private equity firms and by CDC. CDC’s anti-corruption due diligence should have included an enhanced review of investments involving “Politically Exposed Persons” (PEPs) -- individuals entrusted with prominent public functions. This is particularly relevant in the context of CDC-supported investments involving current or former government enterprises, banks and government decision-makers.

An Annex to the Memorandum is a compilation of US court documents dating from July 1997 to June 2009 ordering James Ibori to forfeit over US$1 million held in a bank account in the US state of Maryland.

The UK Secretary of State for International Development, Andrew Mitchell, replied on 27 July 2010, stating that Department officials and CDC would examine and respond to the points made in the Memorandum as soon as possible.