riskmap report 2011

8/8/2019 Riskmap Report 2011

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M g g R | M x m g O or

Ris Map2011


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Pu lished y C tr l Ris s, C tt s Ce tre, C tt s La e, L d SE1 2QG. C tr l Ris s Gr up Limi ted (the C mpa y) e dea urs t e sure the accuracy all i rmati supplied. Aa d pi i s gi e represe t the est judgeme t the C mpa y, ut su ject t Secti 2 (1) U air C tract Terms Act 1977, the C mpa y shall i case e lia le r a y claims, r special,i cide tal r c seque tial damages, whether caused y the C mpa ys eglige ce ( r that a y mem er its sta ) r i a y ther way.C pyright: C tr l Ris s Gr up Limited 2010. All rights reser ed. Repr ducti i wh le r i part pr hi ited with ut the pri r c se t the C mpa y.


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TAbLE of ConTEnTS

WelcOMe tO RiskMap 2011 1

the GeOpOlitics Of Business 3

an uRBan WORld: the secuRity and OpeRatiOnal challenGes Of cities 10

the GROWinG cOMpliance BuRden fOR Business 16

ReGiOnal OveRvieWs 22

A rica: Election ever 22

Americas : The drugs trade 26

Asia: Competitive neighbours 30

Europe: Geopolitics revived 34

Middle East: In the balance 39

cOntROl Risks statistics 43

Kidnap 43

Piracy 44

Risk ratings 46

Risk RatinG fORecast 2011 47


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cOntROl Risksriskmap 2011 1

I we c uld see the uture, it w uld e Asia a d ur a . Si ce2008, the maj rity the w rlds p pulati has ee li i g i acity, a d y 2050 ly a quarter us will e cli gi g t li e i thec u tryside. The rise the mega-city, particularly i I dia a dChi a, is e the m st e citi g ut challe gi g s cialtra s rmati s ur age. by 2025 there will e 11 cities i Asiawith p pulati s er 20m pe ple.

The ris c seque ces are sig i ica t. Crime, c rrupti , chr icp erty a d e tremism all pr sper whe rapid ur a isati is tmatched y well-pla ed i rastructure a d g d g er a ce. Thep pulati the w rlds slums is gr wi g y 25m each year. D i g

usi ess success ully i these ew e ir me ts will dema dre-thi i g all aspects ur usi ess pr cesses; e m re stha the ma ageme t ris . This years Ris Map e pl res thec seque ces l g-term shi ts i ur a isati . These are y mea s c i ed t Asia, ut i e ita ly I dia a d particularly Chi aseem t ha e a ear m p ly jaw-dr ppi g statistics.

A d it is Chi a that igures m st pr mi e tly i ur e pl rati h w the gl al ge p litical map is ei g redraw . The ec micresilie ce the risi g p wers s ey i a erti g a gl al

catastr phe duri g the i a cial crisis is w re lected i thec duct i ter ati al a airs. Chi a, I dia, Russia, brazil a d Tur ey are all, t aryi g degrees, shapi g the way the w rld is rua d wa t t i lue ce h w we i its pr lems. Much has eewritte a ut the perils this ew multi-p lar w rld where ewlysel -c ide t p wers j stle r strategic ad a tage er scarceres urces. but a etter ala ced distri uti p wer, m reaccurately re lecti g gl al ec mic gra ity, might ri g a ewperspecti e a d determi ati t rea p litical l gjams. I 54% the w rlds ur a p pulati will li e i e rm us Asia cities y2050, the i i g car emissi s, r i sta ce, st ps ei g amultilateral pr lem a d ec mes a ati al imperati e r thec u tries c cer ed. S there is s me r m r l g-term ptimism.

but t yet. 2011 will see ew i a y success ul res luti s tthe m st pressi g p litical a d security pr lems. I the MiddleEast, the u easy te si stemmi g r m a decade war, p liticaldisl cati , uclear am iti s a d Islamist milita cy will c ti ue,a d Ira will remai the pre ccupati US reig p licy i the

WELCoME ToRISkMAP 2011 RICHARD fEnnInG,CHIEf ExECUTIvE offICER


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cOntROl Risksriskmap 20112

regi . Military acti agai st Ira remai s u li ely i 2011, ut thesta es are high a d we sh uld remai igila t. Iraq still aces p liticala d security challe ges, ut its l ger-term traject ry is p siti e.

A rica is gripped y electi e er. nati al electi s i 20 c u triesare scheduled r 2011. While i s me cases this might rightly e acause r cele rati , i thers it will i crease te si a d thep ssi ility u rest. I nigeria, G dluc J atha s rmal

assumpti the preside cy i the wa e Umaru Yaraduasdeath upset the u writte agreeme t where y the preside cyr tated etwee rth a d s uth, s the 2011 electi s will ee e m re highly charged tha usual. but nigerias resilie ce a da ility t i d imper ect sh rt-term i es t seemi gly i tracta lepr lems are li ely t e sure that a maj r crisis is a erted.

I Lati America, Me ic will remai i the grip its drug wars. The rutality the i le ce a d its pr imity t the US mea thatthis issue will d mi ate the headli es. The curse c cai e a ects

t just Me ic ut the wider Ce tral America a d rtherS uth America regi , scuri g etter ews ur ther s uth. butMe ic remai s a sta le state a d is t a ut t ail, despite these erity its pr lems a d the predicti s ma y a alysts.

Much Eur pe will e gripped y de icit reducti , e c uragi gati al i tr specti . There will e little sc pe r i tra-EU

h mie: it will e t tempti g r c mme tat rs t t p rtraye t year as the prude t Germa s imp si g s me m ral rectitude

the pr ligacy their s uther eigh urs a d allies. Russiasimpr ed relati s with the US sh uld c ti ue, a d y the e d the year we sh uld w the e t twist i the Puti -Med edepsych -drama a d wh will e the e t preside t. While c diti s

r d i g usi ess i Russia ha e u d u tedly impr ed i certaisect rs, a d the c u try c ti ues t prese t s me impressi e

pp rtu ities r ad e tur us a d resilie t i est rs, c mpa ieswill still e rced t c te d with c rrupti , wea i rastructure

a d lum eri g ureaucracy.Chi as r le i the w rld is the st ry ehi d early all the maj rthemes r e t year a d it d mi ates the thi i g her ear

eigh urs. That Chi a is the regi al p wer is ey d dispute,ut relati s remai c rdial at est a d are m re te

characterised y a persiste t pric li ess. Chi as hist ricrelucta ce t ta e a acti e reig p licy sta ce ey dpr tecti g its immediate ati al a d ec mic i terests will startt shi t. Chi a will e less passi e a d am igu us, a d m ree plicit a d asserti e i its deali gs with us all.

C rrupti will e the m st per asi e perati al ris i 2011. Theew e a gelism with which the f reig C rrupt Practices Act

(fCPA) is ei g e rced i the US is li ely t i te si y. Withstri ge t laws ei g e acted elsewhere (the Uk bri ery Act, whichwill c me i t rce i 2011, is the fCPA ster ids), c rruptish uld e em laz ed acr ss all c rp rate ris registers. G di te ti s are t e ugh; the ew gl al e rceme t regime

requires ards t acti ely dem strate real c mplia ce thr ughthe ta gled we j i t e tures, age cy agreeme ts a ddistri ut rs that is the e eryday reality tra s ati al usi ess.

It all s u ds rather grim. As e er it is imp rta t t emphasise thatthe w rld is m re pe r usi ess, m re preg a t with

pp rtu ity tha e er e re. Hardly a ywhere is ey d thereach am iti us c mpa ies. kim J g-u s er us

appeara ce al gside his aili g ather at n rth k reas rece tmilitary parade might e e mar a glimmer h pe that e thelast utp sts t talitaria seclusi c uld cha ge, perhaps rthe etter.

Li e m st p litical leaders, US Preside t barac o ama is i di gthat d mestic p litics ca e a t ugh trade. With i creasedc strai ts his a ility t push thr ugh legislati at h me, hewill see t regai m me tum y chal i g up reig p licysuccesses. The great ad a tage i ter ati al dipl macy er

ati al issues r pressurised leaders is that alm st e ery dy ispleased whe y u sh w up a d dy really e pects y u tsucceed. S we sh uld a ticipate seei g m re o ama thegl al stage i the year ahead. There will e ple ty r him t d .

I h pe C tr l Ris s Ris Map 2011 pr ides y u with a ra ge i sights i t the c mple i terplay usi ess a d p litics r theyear ahead. The rep rt dem strates the c sidera le academicrig ur we apply t shi i g a light the w rld r ur clie ts, whichis c mpleme ted y ur e perie ce w r i g the r tli e im st the eatured c u tries.


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intROductiOn

The w rlds risi g p wers are i creasi gly usi g their ec micstre gth a d resilie ce, star ly re ealed duri g the gl al i a cialcrisis a d recessi , t pr ject gl al p wer. Their cl ut isre lected i maj r rec igurati s gl al g er a cei stituti s, r m the G20 t the IMf. They ha e ec mei dispe sa le t tac li g maj r strategic security pr lems. Yet itis thr ugh their i te si yi g ec mic relati ships i particularthat these ey states are uildi g a d c s lidati g ge p liticali lue ce, creati g a ew status qu ey d the i lue ce Wester p wers.

Chi a is well- w as a strategic i est r, ut regi alp werh uses brazil, Tur ey, Russia a d I dia are als le eragi gc mmercial dipl macy i pursuit their ge p litical age das.With c mmercial a d strategic i terests c ergi g, it isi creasi gly imp rta t r usi esses t u dersta d a d a ticipatethe impacts ge p litical c mpetiti a d c - perati .

chanGinG tiMes

The rapid re u d a d str g gr wth emergi g c u tries i thelast year is u dame tally alteri g the gl al ala ce p wer. Thisis largely ut t e clusi ely a u cti the rise Chi a,sh w i its emerge ce as the w rlds sec d-largest ec mya d the gl al leader i ma u acturi g, e p rts, caremissi s, e ergy c sumpti a d ehicle purchases. WithChi a a d the ther G20 maj r emergi g mar ets stripped ut,the rest the de el pi g w rlds share GDP has arely udgedi 30 years. A ther sig i ica t act r is shi ti g gl al tradedirecti s: the rise S uth-S uth trade a d i estme t is

steri g a emerge t p litical rder utside the i stituti al a dge p litical ramew r s d mi ated y the West.

Predicta ly, u dame tal d, e ergy, mi eral a d water securityc cer s are irm eatures the ew ala ce p wer. Emergi gmar ets are smartly a aili g themsel es pp rtu ities ires urce-rich c u tries that mature ec mies ha e ig red rmargi alised. The ew p wers are a ls egi i g t c test

THE GEoPoLITICSof bUSInESS JonATHAn WooD,SEnIoR GLobAL ISSUES AnALYST


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199 2wo rld GDP

$24. 27t r

SHARE of WoRLD PPP GDP, 1992 s 2011

S urce: IMf W rld Ec mic outl

i lue ce i esta lished a d r tier pr ducti z es ali e. Thetra s rmati maj r emergi g c u tries i t ur a ised,i dustrial p werh uses p ses sig i ica t s cial, e ir me tala d p litical challe ges, t p the pressi g ec mic eed t

uel gr wth with a ample supply atural res urces.

H w esta lished p wers resp d t the rise emergi g c u trieswill shape the gl al usi ess e ir me t, th e t year a d

er the l g term. The US u der Preside t barac o ama hasset a e c uragi g e ample, pri ilegi g pragmatic e gageme twith risi g p wers er ide l gical, u ilateral acti . Its reigp licy has ee dictated y the eed t e list risi g p wers iresp di g t the i a cial crisis, ma agi g the de ueme t wars i Iraq a d s A gha ista , a d c tai i g uclearpr li erati . Yet the c se sus ehi d c - perati e e gageme ta r ad is u der se ere strai r m ec mic malaise at h me.It c uld crac u der the weight a ther d w tur , li geri gu empl yme t a d a cal p litical c stitue cy c i ced thatgl alisati is a zer -sum game.

The c - perati a d c - rdi ati that characterised the crisisage da c uld t last. A G20 that warded trade pr tecti ismhas ee less success ul at pre e ti g c mpetiti e curre cyde aluati s. Well-mea i g e rts t address gl al systemicris s such as large US de ic its, Chi as huge surpluses a d the

ailures tra s ati al a i g regulati ha e i e ita lyu dered d mestic p litical a d ec mic pri rities. I stead,

we ha e see a retur t the days whe sig i ica t decisi s, r mGreeces ail ut t sa cti s Ira s uclear pr gramme, are

ei g made late at ight ehi d cl sed d rs, y leadi g p wersrutally assessi g their ati al i terests.

stRateGic diplOMacy and GlOBal secuRitycO-OpeRatiOn

The est e amples strategic dipl macy i acti c me r m theare a gl al security c - perati . The ilateral, regi al a dgl al dipl matic ma eu res the last ew years are sig alli g ashi t i emphasis away r m the dece tralised -state threats,such as terr rism, that ha e d mi ated si ce the Septem er 2001attac s. The cus is ac state-ce tred threats: uclear weap s,cy er-war, regime c llapse a d territ rial disputes. I the war terr r was largely dri e y the s le superp wer caj li g c u triest get with the pr gramme, the emergi g, ad-h c securityarchitecture re lects the gr wi g rele a ce ew sta eh lders.

I 2011, r the irst time e er, all the bRICS (i cludi g S uth A rica) a d m st the w rlds leadi g military p wers (see chart

el w) will e the Un Security C u cil at the same time. Thiswill pr ide a atural e perime t t gauge h w leadi g p wersappr ach gl al security ma ageme t a d, i particular, h w the

i e perma e t mem ers will adapt t the critical mass brazil,Germa y a d I dia, all which are see i g perma e t seats.

The retur t strategic dipl macy is clearest i the US, which hassee its reed m gl al acti curtailed y a c m i ati theall ut the Iraq war, dire ec mic a d iscal pressures at h me,

a d emergi g states with i depe de t age das. U paralleled UShard p wer has ee se erely cur ed y the er si itsi ter ati al prestige a d m ral auth rity a ra ge issues,

r m huma -rights i lati s duri g the war terr r t thetraumatic impl si A gl -America i a ce. H we er, theo ama admi istrati s e gageme t e si e has achie edsig i ica t dipl matic success a ra ge issues, r m gl alg er a ce re rm t arms reducti a d uclear -pr li erati . With partisa ship i the e t C gress li ely tparalyse US d mestic p litics, there is a g d cha ce that o amawill ec me much m re a reig -p licy preside t r theremai der his irst term.

Hard-w ict ries will e c urage c ti ued pragmatism i USreig p licy, ut s me uts may pr e t t ugh t crac .

C cer s that the pla ed US a d nATo drawd w i

ToP TEn MILITARY SPEnDERS 1989-2009

S urce: SIPRI


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A gha ista will em lde the Tale a a d ther Islamist milita tsi the regi appear i creasi gly well- u ded. outside Pa istaa d Ira , ew regi al r gl al sta eh lders appear i terested ie gagi g (th ugh Chi as massi e mi i g i estme t i L garpr i ce is a p te tial eachhead). The drum eat tra s ati alterr rist pl ts rigi ati g i the A gha ista -Pa ista rderregi , a ecti g the US, Eur pe, Ce tral Asia a d elsewhere,will certai ly rce the US a d nATo t remai e gaged ryears t c me. The dds are a ls l g that the relau chedIsraeli-Palesti ia peace pr cess will succeed y the sel -imp sed

August 2011 deadli e. E e s , o ama has i ested sig i ica tp litical a d dipl matic capital i the tal s, a d ca e e pectedt eep dri i g them, th ugh recali rati g e pectati s will

ec me a eature the pr cess as the deadli e ears.Ira , mea while, remai s de ia t i the ace i creasi gly harshi ter ati al sa cti s. While crimpi g its erall ec micper rma ce, the sa cti s are li ely t e c s lidati g thec tr l the Ira ia Re luti ary Guards C rp ( IRGC) er eyi dustrial sect rs. Start-up delays at the c tr ersial bushehr

uclear pla t, ari usly attri uted t i dustrial sa tage rc tai me t pr lems, are li ely t e erc me y early 2011.

Acc rdi g t the I ter ati al At mic E ergy Age cy (IAEA),e richme t-related acti ities c ti ue apace at ther l cati s.While the e dgame timeli e remai s luid a d a e le e th-h urdte te is p ssi le, $120 i pla ed US military assista ce tGul Ara c u tries a d i creasi gly ert discussi the military

pti si g a di ere t tu e. We c ti ue t elie e that a US rIsraeli stri e is u li ely i 2011 ris s utweigh rewards i thea se ce c irmed i te t t weap ise ut the situati isc duci e t a rupt reappraisals.

The w rlds ther maj r uclear threat n rth k rea prese tsa e tirely di ere t set issues. The a i tme t i late 2010 kim J g-u as pr a le success r t Dear Leader kim J g-ilhas cast the c u trys upc mi g p litical tra siti i t sharprelie . The si i g a S uth k rea rigate i March 2010,attri uted t a n rth k rea mi i-su t rped , has ratcheted uppe i sular te si s t their highest le el si ce the n rths 2009

uclear test. C seque t j i t US-S uth k rea a al e ercises

ha e ed i t the s l w- ur i g c r tati etwee Chi a a dthe US er regi al maritime security a d reed m a igati .While n rth k rea ca e e pected t muddle thr ugh regimec llapse is u li ely it will c ti ue t rattle regi al sta ility a d

ecessitate r ust e gageme t y the si -party p wers (n rtha d S uth k rea plus the US, Chi a, Russia a d Japa ).

o e the rightest sp ts the gl al security h riz is thephased withdrawal US military rces r m Iraq, which ise pected t c clude with the c mpleti operati new Daw

y the e d 2011. While Iraq is still rac ed y peri dic l dsheda d e er ati g p litical u certai ty, the ici us cycle i le cehas ee c diti ally replaced y a i stituti al p litical pr cess

ac ed y massi e il a d gas i estme t. few will t ut missiacc mplished i 2011, ut Iraq l ger c sumes thege p litical la dscape as it did a ew years ag .

C ersely, cy er-security has leapt up the ati al securityage da a d wil l ec me e e m re s ig i ica t i 2011. While

cy er rga ised crimi al gr ups a d malici us hac ers c ti uet p se a maj r a d gr wi g threat t usi ess, g er me ts arei creasi gly hypi g cy er-war are a d cy er-espi age threats

r m state r state-sp s red act rs. Se eral states ta lythe US, Chi a, Russia, fra ce a d Israel are widely elie ed tp ssess s phisticated cy er a d electr ic war are capa ilities,

uilt i part thr ugh liais with patri tic hac er u dergr u ds.While state capa ilities ha e ee de el ped c ertly er ma yyears, the US has led the way i pe ly militarisi g ati alcy er-security with the lau ch a dedicated Cy er C mma d(CYbERCoM) i 2010, re lecti g th r uti e attac s de e cesystems a d the gr wi g relia ce military plat rms a d criticali rastructure digital etw r s. b th the US a d the Uk ha e

rece tly made cy er-security a ce tral eleme t re isedati al security strategies.

The large-scale cy er attac s Est ia (2006), Ge rgia (2008)a d Wester tech l gy c mpa ies (2009) raised th r y questi sa ut h w t ide ti y a attac er, determi e the le el statei l eme t a d cra t a appr priate resp se. The asymmetricalad a tages cy er-attac s were acutely dem strated i 2009whe milita ts i Iraq used a $26 pr gramme t hac theu e crypted ide eeds US sur eilla ce dr es. fi ally, thediscl sure i 2010 s phisticated, military grade malwaretargeti g the c tr l systems critical i rastructure stillu attri uted suggested that cy er-attac s c uld cause real-w rlddamage t uclear pla ts, il a d gas re i eries, a d water a dsewage systems. As these cases suggest, the l w c st, gl alreach a d a e all a ymity cy er attac s sig i ica tlyc mplicate the traditi al ge p litical la dscape.

the Rise Of cOMMeRcial diplOMacy

While the US de tes its e rts t gl al security, risi g p wersare rapidly rec iguri g the asis gl al ec mic p wer. It isi creasi gly rare t see emergi g-c u try leaders such as Tur eysPreside t A dullah Gul with ut a e y i est rs a d c rp ratee ecuti es i t w, r retur i g r m a dipl matic missi with ut

illi s i trade deals. The i crease i trade a d i a cial ties

etwee emergi g ec mies has clear strategic implicati s:brazil demurred i late 2010 whe as ed t e part a G20campaig t pressure Chi a its curre cy, t wa ti g t je pardise relati s with its ew um er e trade part er.

I the last te years the directi trade am g maj r emergi gec mies has star ly re ersed. Where the US a d Eur pe were

ce ce tres gra ity, w Chi a, the UAE, Russia a d theremergi g p wers are the ey hu s i the gl al tradi g system(see map erlea ). E e where the US, Germa y r Japaremai s the maj r trade part er as i Egypt, Tur ey a d I d esiarespecti ely Chi a, Russia r a ther ast-gr wi g ec my isi e ra ly ippi g at their heels. Such urge i g S uth-S uthec mic relati s are the uildi g l c s a ew ge p liticalage da, i e ra ly i c mpetiti with Wester -d mi atedi stituti alism, u ded c mmerce, s ereig ty a d

ati al i terest.


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ToP TRADInG PARTnERS of MAJoR EMERGInG MARkETS, 2001 s 2009

L i g at ur ey e amples:

Brazil

Arge ti a a d brazil may th represe t S uth America i theG20, ut the c ti e ts m st p pul us c u try a d largestec my clearly desires the starri g r le a d wa ts t lead theregi ut the USs shad w. outg i g Preside t Luiz I aci Lulada Sil a has ee the architect brazils e tr erted reig p licy,c spicu usly c urti g a ti-US regimes th i the regi (ve ezuela,Cu a) a d ey d (Ira ). Such m es are i part a ut c mmercialties: the c u try has ec me e Ira s m st sig i ica t tradepart ers, e p rti g m re tha $1 i dstu s i 2009.

brazil acc u ted r m st Lati America utward fDI er thelast i e years a d its c mpa ies, especially i c structi a dreal-estate i dustries, are maj r players thr ugh ut the regi .flagship il c mpa y Petr ras is i esti g illi s d llars i

Arge ti a, am g ther c u tries. Ec mic ties with Chi a areals i te si yi g. A Chi ese- i a ced $2.5 p rt c mple a d$5 steel u dry at the p rt Au ear Ri de Ja eir ll weda $10 il-supply agreeme t i 2009. Such mega-deals are atri ute t brazils ec mic gr wth a d ge p litical am iti s, a dwill help ceme t relati s with ther risi g states.

Turkey

The crisis a d recessi ha e ee pi tal ac t rs i Tur eysemerge ce. Gul is rep rtedly d ti g that his c u tryhas g e r m e i g the sic ma Eur pe t e itshealthiest ec mies, with ds i late 2010 rated a eth se Spai , Italy a d P rtugal. This ew u d ec mic

p wer is a plat rm r uildi g c mmercial ties t the MiddleEast especially i Syria, Ira a d Iraq while eepi g a ti Wester pr jec ts li e nATo a d the EU. Tur ish c mpa iesha e piled i t the kurdish regi rther Iraq, d mi ati g

th c structi , a d il a d gas pr ducti , a d ma i g theregi e Iraqs m st pr sper us. I e cha ge, A aragai s i creased le i ility i deali g with kurdish separatisti surge ts i e aster Tur ey.

Mea while, Tur ey a d Ira ha e u d c mm gr u d kurdish separatism, a d are stre gthe i g c mmercial ties. The US has raised c cer s that Tur ish a s may e illi gthe id r Ira ia tra sacti s as sa cti s curtail traditi al

i a cial ce tres. Tur ey has als s ught t i crease itsstrategic imp rta ce y stre gthe i g its r le as a atural gase ergy ridge t the EU thr ugh pr jects such as na ucc , amulti-c u try pipeli e c ecti g Ce tral Asia gas t WesterEur pe, which is e pected t reach a i al i estme t decisii ea rly 2011.

Russia

Russia asserti e ess has mell wed a ter th thwarti g a USmissile shield a d de e di g its c mmercial i terests i Ira . Itsi asi Ge rgia i 2008 the ly i terstate c lict si ce thestart the Iraq war i 2003 aced ly rhet rical Wester resista ce. The discl sure i August 2010 a a ti-aircra t missile attery iGe rgias rea away A hazia regi has ee met with studi us

las. Relati s are tighte i g with Ce tral Asia especiallykyrgyzsta while a pr -Russia g er me t is agai i stalled iU rai e. The e ige cies irmi g up the e ergy-securityrelati ship with Eur pe ha e e c uraged s ter rhet ric th

S urce: I ter ati al Trade Ce tre


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sides a d pr gress maj r pipeli e pr jects such as n rdStream. Russia has started t e c urage reig participati i its

il a d gas sect r a ter years h stility, which c uld urtherstre gthe ties with the US a d Eur pe.

India

bu yed y years rapid ec mic gr wth, I dia a lter atesetwee c ide ce that it will gai greater represe tati

i ter ati al security a d i a cial rga isati s, a d rustratithat pr gress is t ast e ugh. I dia has success ully culti atedits i dige us tech l gy a d ac - ice supp rt i dustries.C gl merates such as Tata Gr up, Relia ce, bharti E terprises

a d Arcel rMittal are rapidly i ter ati alisi g, capitalisi g successes at h me t e pa d a d acquire i terests ar u d the w rld th ugh they still lag ehi d their state- ac ed Chi ese c u terparts.Similarly, reig multi ati als are eyei g I dia as e thelargest upwardly-m ile c sumer mar ets i the w rld.

H we er, pr lems cl ser t h me might u dermi e I dias gl alam iti s. Tr u led relati s with its eigh urs, i cludi g ut te clusi ely Pa ista , are a persiste t pr lem r Delhi, pre e ti git r m tac li g seri us challe ges such as c limate cha ge,terr rism a d rga ised crime. I dias quarrels ha e als all wedChi a t c mpete m re e ecti ely i its ac yard, i Pa ista , SriLa a a d elsewhere. Equally, I dia is eyei g e ery m e theUS, wh se relati s with Pa ista a d p sture i A gha istac ti ue t e Delhi. Sustai i g warmer US relati s remai s at p pri rity peri dically ad a ced y ilateral e r ts such as

uclear c - perati a d a al trai i g e ercises ut I dia wille a i us t retai its i depe de ce. old rie ds li e Russia will

t e cast aside, as illustrated y the wea e ed ut still deeplye tre ched de e ce relati ship.

eMeRGent ResOuRce cOMpetitiOn

natural-res urce c mpetiti is the esse tial i gredie t classical ge p litics. but e i teresti g aspect t days chie res urce c tests is that they arely e isted 20 years ag .

C cer s a ut access t rare earth mi erals are dri e y ew a dgr wi g mar ets r iP ds, c mputer hard dri es a d electric caratteries a d the e pectati that gree tech l gies will ge erateuture ec mic gr wth a d j s. L gsta di g maritime territ rial

disputes i the S uth Chi a Sea are sudde ly m re pressi g, i partecause Chi as gr wi g a al p wer is rci g the issue, ut alsecause i ati s i deepwater sh re drilli g a d mi i g

tech l gy might pe up c mmercial il, gas a d mi eraldep sits. fi ally, gr wi g i terest i the Arctic is a u cti thdeepwater tech l gy a d the ery rece t a d c ti ui g e ects

a warmi g climate. I all these cases, c mpa ies are am g theirst t e a ected y ge p litical c r tati , te ec mi g

pr ies strategic i terests.

Rare earth

The c mmercial a d strategic alue rare-earth mi erals, used ia ariety high-tech l gy applicati s, has surged with Chi asm es t cur e p rts. The c u try is the largest gl al supplier the

Middle East rare earths, i De g xia pi gs phrase. A i creasi gum er c u tries are c cer ed a ut securi g supplies tuel d mestic i dustry: Germa y sees rare-ear th scarcity as a

l g-term ul era ility r ati al champi s li e Sieme s a db sch; Japa a d Chi a clashed i late 2010 er disrupti thatthreate ed the supply chai s T y tas a d H das hy rid-electric

ehicle ma u acturi g. The US G er me t Acc u ta ility o ice(GAo) has assessed that Chi as d mi a ce rare earths gi es itmar et p wer er maj r US de e ce c tract rs, i cludi gL c heed a d Ge eral Dy amics.

As these e amples suggest, access t rare earths is ec mi g age p litical issue i its w right: a y e p rt restricti s, price hi es

r ther disrupti s threate t ec me s urces ilateral rmultilateral te si a d uel simmeri g trade c licts. Yet thestrategic ele ati rare-earth eleme ts as well as scarce a dc ce trated mi erals such as lithium, c alt a d c lta will alsdri e ew e pl rati w rldwide as c u tries l t di ersi y a dsta ilise supply. Germa y, r e ample, has called r Eur pe te pl re a d de el p pr specti e res urces i Easter Eur pe a dCe tral Asia, partly t pip Chi a t the p st. Higher prices ha e alse c uraged Australia, viet am, Malaysia, Ca ada, brazil a d I dia tde el p pr jects. Gree la d e e ertur ed a l gsta di g a ura ium mi i g i 2010 t permit access t a rare-earth dep sit. Ithe c mi g year, we a ticipate ew pp rtu ities r mi ers rareearths a d ther u ique mi erals, which c uld pr ide a tse eral mi eral-rich c u tries a d help tame ge p litical c cer s.

South China struggles

natural res urces are als at the ce tre l gsta di g territ rialdisputes i the S uth Chi a Sea. I additi t rich isheries, there may

e su sta tial e ergy dep sits. Estimates ary widely the US pegs itat 28 arrels il, while Chi a elie es as ma y as 213 arrelsmay e rec era le ut pr spects appear pr misi g. bru ei a dMalaysia ha e ee success ully e pl iti g sh re il a d atural-gas

ields i the adjace t bru ei-Sa ah asi r m re tha 30 years.

Claims these p te tial su sea res urces, i cludi g th se madeu der the Un C e ti the Law the Sea (UnCLoS), te

i clude disputed territ ry, such as the Spratly a d Paracel isla dgr ups. f r years, pr cati e ishi g a d sh re e pl ratiacti ities ha e tested eigh urly t lera ce i e rts t create ew

acts the gr u d, th ugh the erall stalemate has arely udged.With Chi a ad pti g a m re muscular a al p sture, h we er, thesta es are risi g. The Ass ciati S uth-East Asia nati s(ASEAn) has te tati ely welc med US i tercessi ehal multilateral s luti s t territ rial disputes, le eragi g its c re strategici terests i Taiwa a d reed m a igati i the S uth Chi a Sea. The e tra-regi al dime si c mplicates thi gs: c ler heads areli ely t pre e t a y maj r a al escalati , ut c sidera leu certai ty will c ti ue t plague e pl itati the seas res urces.

Cash in the Arctic

Accessi g Arctic res urces prese ts a r sier picture. o e them st pr misi g r tiers r e ergy, mi erals, isheries, water a dtrade r utes, it is sl wly a d c tr ersially ei g prised pe

y climate cha ge a d ge p litics. The melti g the Arctic


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the L m s Ridge is ei g decided thr ugh Un ar itrati . The US a d Ca ada, mea while, are i esti g i r ticsu mersi les, seapla es, ice-harde ed carg ships a d ice

rea ers, a d ldi g the pr specti e n rth-West Passage i tl g-term military pla i g.

These ma eu res suggest c lict, ut Arctic issues pr ide e the m st dura le patter s ge p litical c - perati thr ugh

icecap c uld u l c hist ric e ergy a d mi eral e pl ratipp rtu ities: u disc ered res urces are estimated at 90arrels il a d 47 cu ic metres ( cm) atural gas.

C u tries are already j stli g r the day whe weather c diti spermit l g-term pr jects. Russia pr cati ely claimed hal the

Arctic i 2001 a d pla ted a lag the sea ed usi g a r ticsu mersi le i 2007. Its dispute with Ca ada a d De mar er

ARCTIC: MARITIME CLAIMS AnD boUnDARIES, AnD UnDISCovERED oIL

S urce: Durham U i ersity I ter ati al b u daries Research U it; US Gi l gical Sur ey


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the semi- rmal Arctic C u cil a d ther multilateral dies.Russia a d n rway rece tly reached a acc mm dati shari gthe bare ts Sea, which sh uld acilitate uture atural gas pr jectsi the m uld S h it a d Sht ma . furtherm re, n rdic c u triesha e l g c - perated thr ugh the n rdic C u cil, settli g ma yterrit rial disputes i the 1990s. Ca ada has ec me m re e pliciti its Arctic s ereig ty claims, ut is ma i g pr gress res l i ga l gsta di g territ rial dispute i the beau rt Sea with the US.While the Arctic will i e ita ly ec me a area sig i ica tc mpetiti , the pr gressi e res luti disputes will help reducege p litical ris i the uture.

accOuntinG fOR GeOpOlitical Business Risk

busi ess is at the heart the curre t ge p litical tra s rmati .key emergi g c u tries are uildi g p litical capital with their

eigh urs a d ar u d the w rld thr ugh strategic i estme tsa d i creasi gly de se c mmercial part erships. State- ac ed

a s, i estme t ehicles a d res urce c mpa ies arei usly i tegral t this strategy, a d ha e ge erally recei ed a

warmer welc me i ther emergi g a d de el pi g ec miestha i Wester c u tries. The pri ate sect r has lazed trails

ati al i terest: emergi g-mar et p siti s trade p licy,climate cha ge a d i a cial re rm ha e ee str gly i rmed

y i dustry imperati es. furtherm re, i ma y c te ts there maye little di ere tiati etwee pri ate-sect r a d ati al

i terests gi e the cl se relati ship etwee p litical a dec mic elites. Wester i est rs are supplyi g much thecapital, s ills a d tech l gy p weri g emergi g-ec myde el pme t, i creasi gly j i i g their emergi g-c u try peers,i cludi g state- w ed e terprises, t rge w rld-class part erships.

The i terl c i g state a d usi ess aturally createspp rtu ities a d ris s r usi ess: e ha d, state i terest

ca secure high-le el dipl matic c er, shield c mpa ies r mad erse regulati , er rec urse t i ter ati al ar itrati a dpr ide access t l w-c st i a ci g. Mutual usi ess i terestsha e ee a catalyst r ge p litical c - perati , helpi g treduce ris s r i est rs acr ss the ard i s me regi s.

o the ther ha d, c mpa ies i e ita ly ec me ta gled i a we ge p litical ma eu ri g. This ra ges r m relucta ce t all w

i estme t i strategic assets t utright sa cti s a dpr hi iti s d i g usi ess i certai c u tries. D i g

usi ess i ma y emergi g c u tries te mea s w r i g directlywith the g er me t i e rm r a ther, e p si g c mpa iest a ra ge p litical, reputati al a d legal ris s. With statesi creasi gly i terested i pushi g their age das thr ughc mmercial cha els, it is esse tial that c mpa ies u dersta dthe relati ships etwee states a d assess their e p sure tge p litical ris .

na igati g the cha gi g ge p litical ris la dscape egi s with aclear assessme t tra s ati al security, p litical a d perati ale p sure. first- rder security ris s, i cludi g war a d tra s ati alterr rism, are i us ut t always param u t. U auth rised

rder i cursi s r ther territ rial i lati s remai p i ts te si that ca result i rder cl sures, s cial u rest r

retaliat ry attac s. H we er, ew ilateral disputes curre tly ha ethe p te tial t lead t a ull-scale c lict. Despite i creasedge p litical asserti e ess, risi g p wers are acutely se siti e tthe se time ts the gl al mar etplace a d are u li ely t all wa ythi g t escalate that may damage i est r percepti s.

The same calculus d es t ecessar ily apply t situati s li eIra a d n rth k rea, which are rele a t primarily thr ugh theimpact that a y i sta ility r c lict w uld ha e usi ess

perati s i eigh uri g c u tries. I the case Ira , a c lictw uld pr e a sharp i crease i regi al ris premiums a dha e a dramatic impact gl al il, curre cy a d equity mar ets,with sig i ica t ad erse e ects r usi esses w rldwide.

M it ri g security relati s etwee c u tries is als rele a t ithe c te t tra s- rder security issues: the str g p litical a dtreaty ties etwee the US a d Me ic , r e ample, arei strume tal i reduci g the ris harm ul rder cl sures the

ac c ti ui g i le ce.

High-le el p litical ris s are equally sig i ica t. Gr wi gasserti e ess a r ad te ds t g ha d i ha d with i dige isati

the usi ess e ir me t at h me, th t sh re up supp rti ep litical c stitue cies a d pr ide a irm u dati r pr jecti gstate p wer. Such m es are t always erly harm ul t the

usi ess climate r i est r se time t brazils m e r m ac cessi ary t pr ducti -shari g il a d gas regime is a g de ample ut are always w rth m it ri g r implicati s thatmight a ect c tractual security r lead t creepi g r erte pr priati . Such p litical ris s ca als e tra s ati al, aswhe g er me t p licies hit i ter ati al supply-chai i tegritya d c ti uity (e p rt a s, restricti s r tari s) r su jecti estme ts t ad erse scruti y r strict c diti s (such asma dat ry part erships with state- w ed c mpa ies). This isparticularly the case whe i esti g i se siti e sect rs such as ila d gas, mi i g, aer space, i rastructure, IT a dtelec mmu icati s, a iati a d a ha d ul thers su ject tg er me t re iew i ma y c u tries.

Tra s ati al perati al ris s are te less ert e cept i thecase legal sa cti s ut als sig i ica t. G er me ts te

e ert pressure eigh urs a d trade part ers y sl wi gcust ms pr cessi g, re usi g isas, delayi g letters credit a ds . Ma y such p licies remai u icial a d are rarelyarticulated, ma i g it esse tial t get irst-ha d i rmati a utthe situati . E e i such acti ities are t state-directed, age p litical dispute may a ect usi ess relati s: Chi a hasac wledged, r e ample, that traders i ce sed at Japa sdetai me t a Chi ese isherma i late 2010 may ha ei depe de tly sl wed r delayed e p rts. The threat rimpleme tati rmal sa cti s a d e traterrit rial legislati ,mea while, ca sig i ica tly raise the c sts d i g usi ess ia ected c u tries, th i terms access t i a ci g a dc mplyi g with c tr ls. U dersta di g h w th the pu lic a dpri ate sect rs will react t ge p litical e e ts ca pr ide criticalearly war i g t pre e t usi ess disrupti s.


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An URbAn WoRLD: THE SECURITY AnD oPERATIonAL CHALLEnGES of CITIESJAMES SMITHER,DIRECToR, ConSULTInG PRoJECTS

M re tha hal the w rlds p pulati li es i cities; y 2050, theigure will reach 75%. f r m st usi esses, the ris la dscape the

21st ce tury will e ur a . but the rapid gr wth ew a d ld citieshas t ee rderly. G er me ts ar u d the w rld are struggli gt pr ide su icie t security, sa ety, i rastructure a d ec mic

pp rtu ity r citize s a d c mpa ies ali e. T ully capitalise the c l ssal pp rtu ities that cities er, c mpa ies eed tu dersta d the ris s that m der a d rapidly e pa di g cities p set pers el, assets a d i estme ts: r m c rrupti a d crime, t

atural disasters a d p wer cuts, t terr rism a d s cial u rest.

tijuana

Semi-arid a d ra ged etwee steep hills a d ca y s, the city Tijua a i rth-wester Me ic highlights ma y the challe gesa d c tradicti s the 21st-ce tury city. Its p pulati ar u d 1.5m rises t m re tha 5m whe c m i ed with themetr p lita area Sa Dieg , its US twi t the rth.

Ur a settleme t i Tijua a ly really ega i 1889. Its irst ce turyhad a str g c sm p lita la ur, with e the c ti e ts largest

Asia p pulati s a d a hea y relia ce t urism r m a d tradewith the US state Cali r ia (at its pea , the city sees 300,000rder cr ssi gs per day). Gr wth accelerated e p e tially whe

ree-trade agreeme ts sig ed y the US a d Me ic i 1994catalysed the pe i g m re tha 800 maquilad ras ( act ries)pr duci g cheap ma u actured g ds r US c sumpti ,attracti g a a erage 80,000 ew immigra ts per year.

M re rece tly, the city has ec me sy ym us with the dar erside gl alisati a d m der ur a li i g. It is t ri us r thelawless ess, i le t crime a d m ey-lau deri g ass ciated withthe illegal drugs trade. It is su eri g u empl yme t as ma u acturi grel cates t cheaper mar ets i Asia, a d aces gr wi g ul era ilityt risi g sea le els a d earthqua es as l w-i c me districts sprawli t i creasi gly margi al a d u pr tected areas.

Tijua as st ry i which gl alisati s attracti s (cheap la ur,l wer ta es, pr imity t maj r mar ets) c llide with its draw ac s(i security, rga ised crime, tai ted m ey) spea s t a wider

JonATHAn WooD,

SEnIoR GLobAL ISSUES AnALYST


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GOveRnance challenGes

The s eri g reality ehi d the statistics is a m ume talg er a ce challe ge. U c strai ed ur a gr wth typically

utstrips the pace rmal h usi g supply, creati g astp pulati s u registered ew i ha ita ts with rmalpr perty rights, te li i g i margi al areas. Struggli g t c pewith the iscal, l gistical a d architectural pr lems rapidgr wth, city g er me ts a d l cal usi ess elites i d themsel esdraw i t c r tati . This ca e see i the use securityage cies as age ts s cial c tr l, rather tha citize pr tecti :

r e ample thr ugh slum cleara ces r a quasi-military appr acht law e rceme t. M re su tly, ut equally da ger us t thereputati i est rs, l cal p litical- usi ess elites a d

rga ised crime gr ups use p litical p wer t c tr l tes,ma ipulate real-estate prices r streamli e drug-distri utietw r s. ki gst (Jamaica) a d Mum ai pr ide multiple

e amples such c llusi i ari us rms.

Mega-cities te acc u t r a sizea le r e e maj rity share their c u trys GDP, ut the scale their rmal ec mies is

te dwar ed y their i rmal mar ets. M st ew ec micacti ity i emergi g mar ets c mes r m ur a empl yme t that ismai ly r e tirely utside the rmal ec my. Estimates r thepr p rti ur a i ha ita ts perati g i this u regulatedsphere i clude m re tha 50% i Ja arta; 60%-75% i Dha a,khart um a d cities acr ss Ce tral America; a d 75% r m re ikarachi. ki shasa, where ewer tha 5% reside ts areestimated t ear a rmal salary, is a e treme case.

This i rmal sect r ge erates umer us threats t usi ess. These i clude rampa t c u ter eiti g a d ther i tellectualpr perty i racti s, while p r w r i g c diti s r child la ur

Much this ur a p pulati is p r. The Un estimates that y2035 at the latest, the maj rity the w rlds p r pe ple will li ei cities. The p pulati the w rlds slums is gr wi g y 25mpe ple e ery year; there c uld e 2 slum dwellers y 2040. by2020, the p r c uld c mprise 45% r e e 50% the w rldsur a p pulati . I the p rest areas Calcutta, the a erage

um er i ha ita ts per r m is 13.4; Mum ais Dhara i slum,p ssi ly the w rlds m st de sely p pulated l cati , is estimated

t c tai 18,000 reside ts per square acre.

DISTRIbUTIon of WoRLD URbAn PoPULATIon 1950-2050

S urce: Un Departme t Ec mic a d S cial A airs

patter ris a d pp rtu ity that is mirr red thr ugh ut thecities the emergi g w rld. Cities are the mai mar ets, the m st

i us headquarter l cati s, the primary s urces la ur a dthe ey dri ers gr wth r m st c rp rati s. They alsreprese t the primary threat e ir me t r usi esses tu dersta d a d address i they are t pr tect their assets a dreputati , a d ma imise their re e ues i the decades ahead.

a Rapidly uRBanisinG WORld

The w rlds ur a p pulati gr ws y 1m pe ple a m th. Alth ughtempered y deaths a d utward migrati , ar u d 70m pe plem e r m rural t ur a areas e ery year equi ale t t 1.4m e erywee , 200,000 per day r 130 e ery mi ute. L d s p pulatigr ws y si pe ple per h ur, new Y r s y 12, Dha as y 50 a dLag ss y 58. Acc rdi g t the L d Sch l Ec mics, 86%

m re de el ped a d 67% less de el ped c u triesp pulati s will li e i cities y 2050. That year, 40% the w rldsp pulati will li e i cities with m re tha 1m i ha ita ts, 10% icities 10m r m re. I 1950, there were 86 cities i the w rld witha p pulati a e 1m; y 2015 there will e at least 550.

With p pulati gr wth i oECD c u tries largely stag a t,ur a isati will ec me a i creasi gly emergi g-mar etphe me . betwee 2010 a d 2050, the ur a p pulati i A ricawill tre le, a d i Asia it will m re tha d u le. by 2050, 54% allcity-dwellers will li e i Asia a d 19% i A rica. I 2025, 13 thew rlds 15 iggest cities will e i Asia, A rica r Lati America; Asiamay ha e te hypercities (with p pulati s m re tha 20mi ha ita ts). Dha a, ki shasa a d Lag s are all appr imately 40 timeslarger i 2010 tha they were i 1950. The e pa di g aggl merati

mergi g cities ar u d Me ic City c uld reach ar u d 50m y2050 equi ale t t 40% the c u trys e tire p pulati .

S Paul is already e the w rlds largest cities


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ca p se acute reputati al threats t supply chai s. Citiesi rmal sect rs are ertile reedi g gr u ds r seri us rga isedcrime ga gs; ser e as c e ie t ehicles r m ey-lau deri g;a d pr ide ample uel r ep tism, tri alism a d c rrupti ,which als impi ge hea ily rmal usi ess perati s.

The c m usti le ju tap siti wealth a d p erty, a s lutep wer a d a ject p werless ess helps cities t ec me ertilegr u ds r p litical uprisi gs. This is t ew: the 1979 Ira iare luti is the m st dramatic e ample. but the um ersi l ed a d the g er me ts lac c tr l er large areas

the ur a space is ew. Madagascars preside t was ustedi 2009 y a leader ma ipulati g a margi alised, y uth ulur a c stitue cy i l w-i c me districts the sprawli gcapital. M der c mmu icati s a d s cial etw r i g all wu rest t spread quic ly acr ss multiple cities, creati gda ger us dy amics r th se i p wer. out ursts i le t

pp siti are m re a threat i cities where dem cracy isimper ect a d rmal chec s the e ercise p litical p wer,a d a i ra t ci il s ciety t questi its e cesses a d e p seits laws, are lac i g.

OveRBuRdened infRastRuctuRe

Rapidly gr wi g cities i d their physical a d s cial i rastructureplaced u der e treme stress. This prese ts a massi e pp rtu ity

r c structi , ut the sh rt all ca imp se seri us c strai ts day-t -day perati s. The t p graphy the typical m der

city c m i i g slum p pulati s dista t r m pu lic tra sp rt

systems a d the lu tary separati implicit i su ur amiddle-class li i g ha e uelled largely u c strai ed gr wth ir ad c structi a d tra ic. This is ta i g place just as cities

eed ewer cars a d m re use mass tra sit t alle iate p llutia d c gesti a d t c tri ute t pu lic sa ety.

Me ic Citys rate car w ership is d u le that new Y r ,with predicta le results r tra ic l w a d air quality. AsiaDe el pme t ba studies estimate that Ja arta the largest cityi the w rld with su way l ses m re tha $3 a year ipr ducti ity t tra ic delays.

M der ur a dem graphics place treme d us strai s p wer,water a d sa itati . I adequate sewerage a d re use-c llectisystems are a u pleasa t ut alm st u iquit us eature emergi g-mar et cities. Ru ish c llecti rates i Ja arta arear u d 60%, i karachi 40% a d i Dar es Salaam as l w as25%. E perts estimate that 90% Lati Americas sewage utputis dumped u treated i t streams, ri ers r the sea. fewer tha10% Ma ila h useh lds are c ected t the citys sewerage

etw r , while ki shasa (with a p pulati cl se t 10m) has water r e sewage system at all.

Illegal tappi g i t electricity a d p ta le water supplies i p rareas escalates prices paid y registered usi esses a dreside ts, disrupts relia ility a d quality supply, a d dramaticallyi creases disease ris s. The W rld Health orga isati calculatesthat 30,000 deaths per day w rldwide ccur as a direct result diseases stemmi g r m p r sa itati 75% all humadisease i cide ce. Ar u d 40% m rtality i emergi g mar ets

MEGA-CITIES In 2025

S urce: Un Departme t Ec mic a d S cial A airs


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Cair e empli ies the perati al c mple ity the m der mega-city

is attri uta le t such c diti s, with clear implicati s r thehealth w r rces i such l cati s.

Less dramatic i rastructure i terrupti s ca ha e a seri usimpact c mmerce: i terrupti s t i creasi gly er-stretcheda d u der-i ested electrical p wer a d telec ms i rastructure iur a ce tres is a ey usi ess c ti uity ris , as i a cialser ices c mpa ies i new Y r i 2003 a d mi i g c mpa ies iS uth A rica i early 2009 lear t whe th se l cati se perie ced massi e p wer cuts (l adsheddi g).

natuRal and unnatuRal disasteRs

Peripheral settleme ts c m i e lac ame ities with teperil us ( r w - ield) l cati s a d may i l e de restati rreclamati margi al la d. They ec me t ly a reedi ggr u d r disease a d i estati s, ut ca als ser e ascatalysts r (a d primary ictims ) atural disasters such as

ires, la dslides r seri us l di g. betwee 1974 a d 2003,6,367 atural disasters ccurred w rldwide, illi g m re tha2m pe ple a d disrupti g the li elih ds 5.1 thers at aestimated c st $1.38 trilli .

The c ce trati huma , physical a d i a cial capital i c itiesre ders them especially ul era le t th immediate de astatia d li geri g disrupti t tra sp rt, c mmerce a dc mmu icati s i the a termath maj r disasters. fl ds

r ught Mum ai t a sta dstill i July 2005, their e ect

e acer ated y a tiquated drai age systems a d u pla edde el pme t. Lima, Tehra a d Ista ul are just three maj rde el pi g-ec my cities where earthqua es are e pected twrea maj r ha c i the e t decade. f r usi ess, it is esse tialt c sider resilie ce as well as ris : smaller r p rer cities arege erally less a le t c pe with such i cide ts a d sl wer trec er. The a termath t Hurrica e katri as destructi largeparts new orlea s i August 2005 illustrated the ass ciatedsecurity c cer s, e e i de el ped c u tries.

The s ci -ec mic impacts cities als create ul era ilities tma -made hazards. A ecd tal i sta ces i clude a Mum ai slumthat e te ds s ar i t a desig ated ati al par that its reside tsare eate y le pards (Quit a d Ista ul ha e als spilled i t

ati al par s). fa elas (slums) i S Paul ha e c mpletelysurr u ded a d th r ughly c tami ated a reser ir that pr ides21% the citys water supply, a d w requires 17,000 truc -l ads

chemicals a year t eep its c te ts dri a le. outlyi g districtsare als i creasi gly ul era le t bh pal-style ma -made disasters,

such as t ic waste dumpi g, uildi g c llapses, systematic arsa d e pl si s ass ciated with the u sa e ma ageme t chemicals. betwee 1976 a d 2000, the i cide ce ma -madedisasters i creased te ld.

Alth ugh the precise scie ce climate cha ge remai s c testedterrit ry, i creases i temperatures a d especially sea le els mayha e se ere e ects ma y ur a regi s. o the 33 citiese pected t ha e p pulati s er 8m y 2015, 21 are l cated i

ul era le c astal regi s. Cl se t 100m pe ple ar u d the w rldli e less tha e metre a e sea le el, with c astal cities such asCair , Dha a, Lag s, Mum ai, Ri de Ja eir , new Y r a d T ysee as especially ul era le. As the last tw these cities illustrate,

this is t just a pr lem i p r c u tries: i the Uk, ar u d 15% ur a , uilt- la d (c tai i g 1.85m h mes a d 185,000c mmercial pr perties) is w t e at ris repeated l di g.

Re lecti g a tre d that ru s e tirely c u ter t th se the 18tha d 19th ce turies, ma y the w rlds mega-cities i A rica a dLati America i particular are dei dustrialisi g rather thai dustrialisi g as they gr w: ur a gr wth ccurs despite egati eGDP per rma ce, rather tha ecause p siti e gr wth. Theass ciated destructi pr ducti e agricultural la d cities

uts irts, t e replaced with u pr ducti e slum h usi g, isc tri uti g t m u ti g gl al d security c cer s (50,000hectares la d per year are rem ed r m d pr ducti iI dia al e), as well as ass ciated s cial a d security ris s whe

d i security tra slates i t i le t ur a u rest.

Rei rci g the pr lem, peripheral la d ar u d cities ri ges thatis a aila le r agricultural pr ducti is i creasi gly c tami ated

y ur a t ic waste. Mea while, squatters c mmercial rg er me t- w ed la d i usi ess a d reside tial areas citieswill e a gr wi g pr lem r pr perty de el pme t a d premisessecurity. Slum cleara ces (such as th se carried ut i Harare,burma, Ja arta a d beiji g i rece t years) create their ws cial, security a d reputati al pr lems r a ected usi esses particularly where there is a u derlyi g p litical / s cial-c tr lage da, as well as the m re c mm ly iced eauti icati a dcrime pre e ti justi icati .

the viciOus ciRcle Of uRBan insecuRity

Crime regularly eatures at, r c l se t , the t p sur eys citydwellers a d c mpa ies primary c cer s, a d with g dreas . Acc rdi g t Un data, 60% all ur a reside ts ar u dthe w rld were ictims crime s me s rt etwee 2001 a d2006; the igure was 70% i th A rica a d Lati America. A eydri er this tre d uelli g i security percepti s is the i lu illegal irearms. The brazilia press estimates that Ri s rga isedcrime ga gs w 1,500 ri les a d machi e gu s, as well asgre ades a d la dmi es; the crimi al irearms mar et i the citywas i 2000 estimated t e w rth $88.4m per year.

Pitti g such hea ily armed crimi als agai st city p lice rces thatare te u der-res urced a d alm st always u derpaid createshuge p te tial r e demic c rrupti a d the crimi al su ersi law a d rder structures. This leads t p lice rces li e th se i the


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prese t a ideal reedi g gr u d r arc tics-li ed rga isedcrime a d i le ce, a d ass ciated pe etrati i t wider l calp litical a d usi ess structures. orga ised crime ssesh usi g a d s cial pr isi i C l m ias cities amplydem strates h w state u cti s ca e readily, i imper ectly,replaced y p wer ul crimi al e terprises.

As well as crime a d c rrupti , the systemic law a d rderacuums created y rapid ur a isati ca shelter e tremism.

There is a str g c rrelati etwee p erty a d ur a terr rism:85% ke yas p pulati gr wth i 1989-99 was a s r ed ithe slums nair i a d M m asa th which ha ee perie ced terr rist attac s. Media rep rts ll wi g the May

2003 Casa la ca terr rist attac s rep rted that the slum-dwelli gperpetrat rs had e er ee d w t w e re their suicidemissi . Mea while, city ce tres with highly c ce tratedp pulati s, ul era le mass tra sit systems a d ic ic uildi gs are the a ured targets such e tremists.

A rm s cial Islamism is spreadi g i ma y par ts the MiddleEast, tacitly appr ed y g er me ts a d simulta e usly as urce e tremist acti ity at its ri ges. It ca te e see asstemmi g r m the ailures pre i us ur a resp ses tp erty s ci -ec mic u rest, trade u i ism a d grass-r tsc mmu ity rga isati (all te repressed y the statesi l ed). I stead purely s cial upli t age das, theseu g er ed areas are lia le i stead t de el p alter ati e a dhighly i rmal p wer a d justice structures, a d e e e tire s cia lsystem c u ter-cultures t lerated r e e e plicitly e c uraged

y ur a g er me ts i capa le r u willi g t pr ide suchame ities themsel es. E amples i clude Wahha i madrassahseducati g th usa ds childre acr ss East A rica a d Pa ista ,Hamas s cial systems i Gaza a d Hiz ullahs i Le a .Despite the rhet ric their i rmal g er rs, such districts arerarely pure, ut are i stead ri e with c rrupti a d ep tism, aswell as the persecuti mi rities wh pt t remai utside thesystems er.

Wea r p r states te ch se c ha itati r the de acta a d me t these grey areas; thers ch se t i ade them

quasi-militarily, usually with mi ed results (as see i brazil a dSyria). Either way, g er me t resp ses that cus ly thesympt ms such u g er ed spaces i their maj r cities( i le ce, crime, terr rism) rather tha the causes (i equality, lac

s cial pr isi , s cial e clusi ) will ly e er ha e partial a dsh rt-term utc mes. The ur a security pr lems that c r t

usi esses a daily asis will remai e tre ched a d c uldw rse er time, as well as catalysi g rga ic resp ses such asly chi gs a d igila tism, which c mplicate the erall securitya d g er a ce e ir me t.

uRBan Risk ManaGeMent

few usi esses will e a le t ig re the cities the emergi gw rld as target mar ets, ma u acturi g l cati s, R&D hu s r

ac - ice desti ati s ( r all the a e). operati g i thesec mple a d ast-e l i g l cati s will e a ecessity rather thaa lu ury r m st c mpa ies. The threats they ace als a ect theirSlums i cities such as nair i create c mple s cial a d security challe ges

cities ke ya r Me ic , which te eature as perpetrat rs rpr tect rs crimi al acti ity, rather tha its pp e ts.

I the ace persiste t crime a d ther security c cer s, citiesha e strati ied a d segregated a pr cess that ge erates te si sa d ris s r usi ess. The e treme e d the spectrum i cludescities that are hist rically di ided r p litical, eth -religi us r

ther reas s, such as nic sia, beirut a d Jerusalem. others arelu tarily di idi g: S uth A ricas c mmercial capital

J ha es urg is perhaps the m st t ri us m der sym l partiti , with e clusi e su ur s d tted with gated c mmu itiesa d street arricades, a d arm ured sp rts-utility ehiclescruisi g the r ads. Its apartheid past a d struggle with high le els

crime are e treme, ut the tre d sel -de e ce am g richeri ha ita ts is isi le i ther, less crime-ridde c ur ati sar u d the w rld, i cludi g Paris, new Y r a d L s A geles.

o e sig this tre d is the pr li ic gr wth the pri ate securitymar et. A study i S uth A rica suggests that the sect rsw r rce i creased 150% r m 1997 t 2006, duri g which timep lice um ers decli ed 2.2%. A ther study estimates that thereare m re tha 35,000 pri ately w ed arm ured cars i brazil, ac u try where e pe diture the pri ate security i dustry isestimated t e w rth 10% GDP.

unGOveRned spaces

The m st w rryi g tre d has ee the pr gressi e retreat g er me t r m u der-ser iced eigh urh ds a d itsreplaceme t y i rmal systems auth rity. I 2005, the w rlds

i e largest mega-slums (areas c ti u us l w-i c me h usi g)were all i Lati America (i Me ic City, Caracas, b g t a d twi Lima). L cal s ci l gists estimate that up t 25% thege graphical area cities such as Ri de Ja eir , S Paul ,bue s Aires, b g t a d Me ic City c stitute z es wherec tr l is c tested etwee state a d crimi al rces. busi essescaught i such disputed grey areas ace clear perati al a dsecurity challe ges.

H we er, e e c mpa ies irmly e sc ced withi the sa e z e such cities ca t ig re pr lems that arise i ge graphicallyr ec mically dista t margi s: such u g er ed spaces


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w r rce: quality- -li e c cer s will ha e a gr wi g impact m rale a d rete ti r gl alisi g c mpa ies.

The i itial c rp rate decisi s relati g t these l cati s arecritical. key steps are:

C ducti g a detailed, city-speci ic assessme t p te tialthreats a d ris s.E e while the usi ess pla is ei g

rmulated, the teams i l ed eed t e aluate a d u dersta dcities as ris la dscapes as well as mar ets with their w highly

ua ced p litical/i stituti al, perati al, disaster-pr pe sity a dsecurity dy amics. o tai i g jecti e, i depe de t a alysis a drelia le data, di ere tiated d w t eigh urh d r e e streetle el, is ar etter tha relyi g su jecti e, media-i lue cedpercepti s a d ge eralisati s. Equally imp rta t is rig r usthreat a alysis a d e chmar i g the perati al a d securityc te t whe ma i g decisi s l cati premises a ddeali g with sta dema ds r h usi g.

Per rmi g rig r us due dilige ce p te tial usi ess par t ers,age ts a d p wer r ers i ew cities.This is esse tial t a idu witti g i l eme t i illegal r u ethical practices li ed tcities p litical/ usi ess a d crimi al/cr y elites. Alth ugh theright c ecti s ca e ad a tage us i such l cati s, p litical

allies ca rapidly m e r m appare t assets t hea y lia ilities. The m st i us r l west-c st l cal ser ice pr ider c uld ea r t r rga ised crime a d ehicle r m ey-lau deri g, thes urce i tellectual pr perty the t, r a wea li r u ethical

eha i ur i the supply chai a d related nGo c dem ati .

buildi g security a d resilie ce i t ur a perati s thr ughg d desig a d pla i g. Tail red security desig a d h listicsecurity pla i g ased a th r ugh, rward-l i gassessme t the l cal ris e ir me t are als critical t

usi ess pr tecti a d success i the ur a la dscape. Architectural r eha i ural ame dme ts resulti g r m such apr cess are i alua le, t just t guard agai st targeted rc llateral terr rism r crime threats, ut als t uild i resilie cea d a crisis ma ageme t capa ility i the e e t m re ge eralur a threats that are li ely t ec me i creasi gly c mm place:p litical a d s ci -ec mic u rest, disease ut rea s, atural rma -made disasters a d the i rastructure rea d w s thatacc mpa y them.

Asias mega-cities are a mag et r a y usi ess

The c pi g strategies the i ha ita ts a d architecture thew rlds teemi g, gr wi g, e er-cha gi g cities whether tr u ledsites li e Tijua a r m re success ul e amples pr ide perhapsthe m st appr priate message r usi ess pla ers: there is su stitute r detailed l cal u dersta di g, adaptati , e lutia d i ge uity i y u are t sur i e a d pr sper i the ace a

te h stile a d always c mple e ir me t.


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THE GRoWInG CoMPLIAnCEbURDEn foR bUSInESSkEITH MARTIn,

vICE PRESIDEnT, GLobAL SERvICES

I ter ati al c mpa ies ace a dau ti g array a ti-c rruptiregimes. The urde is gr wi g: 2010 has see passage the Ukbri ery Act a d s me sig i ica t measures tuc ed away i theUSs D dd-fra Wall Street Re rm Act. I additi , USregulat rs ha e sh w a gr wi g willi g ess t use all the t ls attheir disp sal t attac c rrupti . They ha e u a ashedlyempl yed tech iques ce reser ed r rga ised crimi als a dstated their clear i te t t pr secute i di iduals.

Traditi al a ti-c rrupti pr grammes d t address thee pa di g ris s r m aggressi e e rceme t a d a cha gi gregulat ry la dscape. C mpa ies will eed t re iew a d lsterc mplia ce measures. but maj r ati al a d e traterrit rialregulati s are te e ul us i their strictures, at timesc licti g a d u e e ly e rced, while c mpa ies see i gdetailed prescripti s r m regulat rs will c ti ue t edisapp i ted. All this mea s that a simple legalistic appr ach tc rrupti c mplia ce will e er e ully success ul.

We elie e that i ter ati al c mpa ies ca c ti ue t peratesuccess ully, e e thr ugh this peri d dy amic cha ge, ut td s requires a pri ciples- ased appr ach. Re i i g c mplia ce

pr grammes i this ma er will help c mpa ies t pr tect theirra d a d reputati , while still hewi g t the tt m li e.

the us Gets tOuGheR

A ti-c rrupti nGo Tra spare cy I ter ati al i July 2010 issuedits si th a ual pr gress rep rt e rceme t the oECDs A ti-bri ery C e ti . The um er ati s practisi g acti ee rceme t r se r m ur t se e the 38 sig at ries:De mar , Germa y, Italy, n rway, Switzerla d, the Uk a d the US. T gether they represe t 30% w rld e p rts, a d usi essesd u tless eel the deterre t e ect this shi t. H we er, thereremai s sig i ica t r m r i creased e rceme t. C mpa iesmust e igila t e e i jurisdicti s with ut a hist ry aggressi ee rceme t, i cludi g -oECD ati s.

The US has set the sta dard r e rci g its d mestic lawse traterrit rially agai st ri ery c mmitted a r ad er much the


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past 30 years. Acc rdi g t the oECD pr gress rep rt, at the e d 2009 the US had c cluded r had pe di g 168 e rceme t

acti s u der the f reig C rrupt Practices Act (fCPA). A ther100 i estigati s were i pr gress a d 25 seri us allegati su der re iew. Duri g a i ter iew with media utlet C rp rateCrime Rep rter, Mar Me dels h , the rmer se i r US

Departme t Justice (D J) icial widely iewed as the architect m der a ti-c rrupti e rceme t i the US, said there werem re tha 150 acti e i estigati s at the time his departure i

April 2010.

The uture US a ti-c rrupti e rceme t l s set t i l ee er m re aggressi e a d sweepi g i terpretati e isti gstatutes. Assista t Att r ey-Ge eral La y breuer, head theCrimi al Di isi , t uted 2009 as the D Js m st dy amic year i

fCPA e rceme t si ce the statute came i t rce i 1977, utregulat rs wasted little time setti g a e e quic er pace i 2010.

The D J made a ld stateme t i mid-Ja uary. It rchestratedthe ear-simulta e us arrest 22 i di idual empl yees a de ecuti es se eral c mpa ies i the military a d law-e rceme t pr ducts i dustry i the US a d a r ad charges

c spiri g t ri e reig g er me t icials t tai a d

retai usi ess. It was the depar tme ts largest si glei estigati a d pr secuti i the hist ry fCPA e rceme t. The perati i l ed up t 150 fbI age ts, wh e ecuted 14search warra ts i multiple l cati s i the US. I a display cr ss- rder c - perati , the Uks City L d P licee ecuted a urther se e search warra ts i c ecti with its

w i estigati i t the i dicted c mpa ies.

This traditi al sti g i estigati was the irst use i this ield u derc er law-e rceme t tech iques, hist rically reser ed r

rga ised crime. It represe ts a paradigm shi t i the e pa si fCPA e rceme t. H we er, empl yi g such ma p wer aregular asis w uld e li ely t ta the limited res urces the D Ja d fbI. As a result, such large-scale perati s may pr e thee cepti , t the rule. ne ertheless, the case se t a clear messagethat the D J i te ds t aggressi ely cus the pr secuti i di iduals t deter fCPA i lati s. I breuers w rds, prisse te ces r i di iduals sh uld ma e clear t e ery c rp ratee ecuti e, e ery ard mem er a d e ery sales age t that we willsee t h ld y u pers ally acc u ta le r fCPA i lati s.

sectORs in the spOtliGht

The sti g epis de ll wed Me dels h s appeara ce at theGl al Ethics Summit i new Y r , where he stated that the USw uld pr secute c rrupti i i creasi gly rig r us ways. He

added that this appr ach u dersc red a p licy shi t re lecti g aelie that c rrupti is a ati al security issue a d aimpedime t t security i c m at areas li e Iraq a d A gha ista .He urther claimed that ma y i the D J see a clear c ecti

etwee illicit u ds a d terr rism.

These were t idle stateme ts ut a clear war i g a ew ta e a e isti g tre d: t push rward aggressi e e rceme t

usi g i dustry-wide i estigati s. I early 2010, the Securitiesa d E cha ge C mmissi (SEC) re ealed that it was c ducti ga r ad i estigati i t acc u ti g a d discl sure c mplia ceat pharmaceutical a d ther c mpa ies d i g usi ess withc u tries desig ated as state sp s rs terr r. The purp sewas t determi e whether a y the target c mpa ies perati swere ei g used t i a ce terr rist acti ities supp rted y theg er me ts Cu a, Ira , Suda r Syria. The i estigati isalig ed with the D Js e rts t see i rmati r m c mpa iesi this sect r a d is r adly c siste t with Treasury Depar tme taims t tighte e rceme t ederal e p rt c tr l laws.

neW cOnsideRatiOns fOR 2011

UK Bribery Act:

No exemption for facilitation payments

Covers bribery of private-sector recipients as well aspu lic icials

New offence of corporate failure to prevent bribery

Defence through implementation of adequate procedures

Dodd-Frank Wall Street Re orm Act includes:

Strengthened protection and greatly increased potentialrewards r whistle l wers

Disclosure of payments to governments by resourcee tracti c mpa ies

Changes to US Federal Sentencing Guidelines includecommentary on:

Compliance function access to board of directors

Compliance programme ability to detect criminal activity

Expeditious voluntary disclosure to government

Post-discovery assessment and modification of ethicsa d c mplia ce pr gramme

THE fUTURE of U.S. AnTI-CoRRUPTIonEnfoRCEMEnT LookS SET ToInvoLvE EvER MoRE AGGRESSIvE AnD SWEEPInG InTERPRETATIon ofExISTInG STATUTES.


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panalpina: the catalyst fOR industRy-WideinvestiGatiOn in the eneRGy sectOR

The D J i fe ruary 2007 ted i c ecti with afCPA settleme t that Uks vetc Grey had paid ri es inigeria thr ugh a maj r i ter ati al reight rwardi ga d cust ms cleara ce c mpa y t empl yees thenigeria Cust ms Ser ice . . .

Su seque tly, m re tha te c mpa ies i the il a d gassect r recei ed letters i quiry r m the D J a d theSEC as i g them t detail their relati ship with

Pa alpi a. Settleme t acti s related t the Swissl gistics ehem th ega i late 2010, whe rep rtsi dicated that it was e pected t pay $85m i i es.

Pa alpi a perates thr ugh 500 ra ches i 80 c u tries,ut withdrew r m nigeria ecause c mplia ce

c cer s. While i estigati i t the c mpa y a d itsclie ts i the il a d gas i dustry i itially cused nigeria, i estigati s quic ly e pa ded t ther paque jurisdicti s ar u d the w rld.

Just as the Pa alpi a cases (see erlea ) ig ited a r aderl i t e ergy-sect r practices, there is d u t that thepharmaceutical sect r is squarely i the cr sshairs the D J a dSEC. Media acc u ts si ce April i dicate that at least se e maj rmulti ati als i the sect r ha e recei ed i quiries r m thregulat ry dies a ut usi ess practices i a ra t paque

jurisdicti s ar u d the w rld.

I a ther sect r- cused i itiati e, the SECs dedicated fCPA u ita u ced i July that it w uld target Silic valley- asedc mpa ies with perati s i Chi a, a area particularc rrupti ris . The a u ceme t came s a ter a $300,000settleme t reached with veraz netw r s, I c., a Sa J se- ased

v ice er I ter et Pr t c l c mpa y that made impr perpayme ts t empl yees g er me t-c tr lled c mpa ies i

Chi a a d viet am t secure usi ess. I a i teresti g twist, theSEC discl sed that the i estigati was aided y i rmatipr ided y the US Departme t H mela d Security.

Rece t tre ds suggest that the D J a d SEC will use all thet ls at their disp sal t c m at c rrupti , i cludi g applyi glegal pri ciples t pre i usly empl yed i fCPA cases. I 2009,the SEC used a pr isi the Securities a d E cha ge Act1934 t ri g ri ery charges agai st i di idual e ecuti es

e c mpa y, a irst u der the fCPA. n t t e utd e, theD J has used the Tra el Act as a pr secut rial t l. This is a

ederal crimi al statute that pr hi its i terstate r i ter ati altra el, r use a i terstate acility i the aid r c mmissi a y crime. The act was used t pr secute ri ery pri atei di iduals a d e terprise, wr gd i g t c ered y thefCPA. fi ally, US regulat rs are egi i g t attac the dema dside ri ery agai t c ered u der the fCPA y g i ga ter g er me t icials wh see ri es thr ugh chargessuch as m ey-lau deri g.

inteRnatiOnal cO-OpeRatiOn

US regulat rs i 2009 issued at least 45 Mutual Legal Assista ce Treaty letters requesti g e traterrit rial assista ce, u dersc ri g arise i cr ss- rder c - perati i a ti-c rrupti matters irece t years. US-Germa c - perati i a i estigati i tGerma e gi eeri g c gl merate Sieme s set a ew sta dard. Itwas ll wed y a US-Uk j i t e rt i 2010 c cer i gi estigati s i t a d e e tual settleme ts c rrupti casesi l i g gl al de e ce c tract r bAE Systems a d specialitychemicals ma u acturer I spec.

Mea while, IT c mpa y Hewlett Pac ard discl sed i a

Septem er 10-Q ili g that the SEC had e pa ded its i estigatii t p ssi le ri e payme ts i c ecti with c tracts thec mpa y had w i Russia. The i estigati ega as ac lla rati e e rt etwee Russia a d Germa pr secut rs tre iew tra sacti s i Russia etwee 2002 a d 2006. H we er,the SECs i l eme t triggered a e pa si the pr e ti clude re iew the c mpa ys acti ities i the C mm wealth I depe de t States dati g ac t 2000.

E rceme t i the Uk y the Seri us fraud o ice (Sfo) l s sett mirr r the aggressi e US appr ach. I March 2010, 109 Sfo sta a d 44 p lice icers e ecuted ear-simulta e us search warra tsat i e Uk acilities fre ch e gi eeri g c mpa y Alst m a darrested three mem ers the ard direct rs suspici

ri ery a d c rrupti , c spiracy t pay ri es, m ey-lau deri ga d alse acc u ti g. The raids appeared t rm part a largerc - perati e e rt that has see cr ss- rder c lla rati

etwee Swiss, P lish, british a d p ssi ly US auth rities.

leGislative chanGes

As well as str ger e rceme t, 2010 has see ta leadditi s t a ti-c rrupti legislati . The passage the Uksbri ery Act, which recei ed R yal Asse t i April, was awatershed. The legislati erhauled a s lete a ti-c rrupti statute dati g t 1889 a d r ught the Uk i t ull

c mplia ce with the oECD A ti-bri ery C e ti . The bri ery Act p te tially has e e m re teeth tha the fCPA: it c uld ethe m st r ust a ti-c rrupti sta dard i e iste ce. Thelegislati will ly e ter rce i April 2011, t all w g er me tc sultati s with i terested parties t rmulate guida ce

ey pr isi s the law. These will i clude c mme ts therequireme t that c mpa ies ha e adequate pr cedures tpre e t c rp rate ri ery.

The D dd-fra Wall Street Re rm Act, sig ed i t law iJuly 2010, adds a ther l ayer c mple ity t the patchw r

legislati c rrupti . Am g ther tew rthypr isi s, it i tr duces sig i ica t i a cial i ce ti es rc rp rate whistle l wers. I a id t i crease discl sure

i lati s securities law (i cludi g the fCPA), i di idualswh pr ide rigi al i rmati leadi g t success ulpr secuti s are e titl ed t etwee 10% a d 30% m etary pe alties w rth m re tha $1m, i cludi g i es,disg rgeme t, restituti a d i terest.


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The e plicit pr isi s e isti g a d ew a ti-c rruptilegislati are su icie tly pu iti e t gi e c mpa ies perati g ithe US a d Wester Eur pe g d reas t c sider recali rati gtheir appr ach t c mplia ce. but cl ser i specti the maj rregulat ry sta dards re eals much that is le t am igu us a du stated r simply u w . This thwarts a straight rwardlegalistic appr ach t satis yi g a ti-c rrupti requireme ts.I sight i t this wledge gap sh uld help t i rm a re iew p te tial est practice i c mplia ce.

the knOWledGe Gap

o e the ey pr lems r c mpa ies see i g t de el p a dimpleme t a c mplia ce pr gramme ased s lely the fCPA,Uk bri ery Act a d ther legislati e sta dards is that there is clear deli eati h w t adhere t the rules. Judicial scruti y

te de i es the speci ic c t urs legislati i the US a dther c mm -law jurisdicti s, ut t date this has ee lac i g.

US federal Se te ci g Guideli es a d the D Js opi i Releasepr gramme ha e, r e ample, emphasised the eed rc mpa ies t u derta e due dilige ce p te tial c u terparties:acquisiti targets, part ers, age ts, suppliers, distri ut rs a dc sulta ts. but there is de i iti due dilige ce whether irequisite acti s, sc pe r depth.

There are clues t p ssi le li es statut ry i terpretati ic rrupti e rceme t. I the matter fre ch ser ices c mpa y

Tech ip S.A.s settleme t c cer i g the b y Isla d (nigeria) j i t e ture i l i g kbR/Halli ur t , S ampr getti a d Japa sJGC, the SEC c mplai t charged that:

Tech ip did t ad pt due dilige ce pr cedures as tage ts that were adequate t detect, deter r pre e tthe payme t ri es y age ts. The due dilige cepr cedures ad pted y Tech ip ly required thatp te tial age ts resp d t a writte questi aire,see i g mi imal ac gr u d i rmati a ut theage t. n additi al due dilige ce was required, suchas a i ter iew the age t, r a ac gr u d chec ,

r tai i g i rmati ey d that pr ided y thea swers t the questi aire.

Clearly, li d relia ce resp ses pr ided y c u terparties isi su icie t. but e e this i sight lac s clarity what might ee pected a ac gr u d chec . W uld re iew pu lic rec rds

e su icie t r the tas ? or d es the paque ature a jurisdicti li e nigeria require g i g urther, i cludi g i quirieswith c ide tial s urces t ascer tai the su jects reputati ?

The requireme t t esta lish adequate pr cedures t pre e tc rp rate ri ery i the bri ery Act is als li ely t lac aprecise de i iti . T date, the g er me t has pu lished the

ll wi g guida ce:

Clear corporate policy on integrity/anti-corruption

Endorsement by the board/leadership from the top

Training

Helplines (whistleblower hotlines) Risk assessment

Remedial action where necessary

As u der the fCPA, c mpa ies will e le t t e d r themsel esi de i i g speci ic requireme ts withi these e tremely r adparameters. They will gai ew i sights ly thr ugh themis rtu e r disc ered misdeeds ther rga isati ssu ject t pr secut rial scruti y.

C mplicati g c mplia ce with the elusi e sta dards the fCPAa d bri ery Act are pr isi s that either c lict r are u ique t

e regime r the ther. facilitati payme ts a y i d are

pr hi ited u der the bri ery Act, ut the fCPA pr ides ae cepti (th ugh c rp rati s te ail t pr perly rec rd suchpayme ts u der its s a d rec rds requireme t). The la guage

the oECD c e ti all ws rec ciliati with respect t thefCPA e cepti (with ca eats), ut the bri ery Act ers e.Ma y US- ased c mpa ies are struggli g t ma e se se this. As e clie t put it, tryi g t harm ise i ter al pr cedures tsatis y th sta dards is a Catch-22. Similar rustrati s aree ide t am g c mpa ies grappli g with pr isi s the bri ery Act that crimi alise pri ate-t -pri ate ri ery a d esta lish a ew

e ce ailure t pre e t c rp rate ri ery.

RepORtinG RequiReMents

Addi g i sult t p ssi le i jury is the u determi ed imp rt D dd-fra . The e act impact the s -called whistle l wer

u ty pr isi fCPA e rceme t remai s u clear, ut itc uld ha e a su sta tial e ect the um er securities lawcases triggered y whistle l wers. C mpa ies are alreadyre iewi g their helpli e pr t c ls t e sure that structures are iplace t escalate credi le allegati s a d e sure appr priatea alysis a d timely acti . C mpa ies w uld als d well tre amp i ter al messagi g t empl yees c cer i g this pr isithr ugh c mmu icati s a d trai i g.

Tw ther secti s tuc ed u der Miscella e us Pr isi s at

the e d the 850-page act will ha e a ar-reachi g impact US-listed c mpa ies i the e tracti e sect rs. Secti 1504(Discl sure Payme ts y Res urce E tracti Issuers) willrequire il, atural gas a d mi i g c mpa ies (i cludi g ser icepr iders) t rep rt a ually t the SEC a y payme ts made ta reig g er me t, i cludi g y su sidiaries r c tr llede tities. As de i ed i the law, reig g er me t i cludesdepartme ts, age ts a d state- w ed c mpa ies, as well asthe ce tral g er me t itsel .

Tur i g t huma rights, a d a ecti g c mpa ies acr ss thee tracti es a d electr ics sect rs, Secti 1502 (C lictMi erals) requires c mpa ies t rep rt a ually whether r ta y ta talum, tu gste (w l ramite), ti (cassiterite) r g ld used itheir pr ducti pr cesses r pr ducts ha e rigi ated i C g(DRC) r a y i e eigh uri g c u tries (A g la, buru di,Ce tral A rica Repu lic, Repu lic C g , Rwa da, Suda , Ta za ia, Uga da a d Zam ia).


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C mpa ies aci g either these discl sure requireme ts will ei here tly m re ul era le t ris s that typically all utside the ield

usi ess i tegrity a d which c mplia ce pr essi als are tspeci ically prepared t treat. The law may create a steady supply i rmati all wi g acti ists t target speci ic c mpa ies, particularlyi c u tries where huma rights, c rrupti a d g er a ce c cer sare widespread. C seque tly, reputati al, s cial a d perati alris s r rep rti g c mpa ies will i crease a d c uld materially a ect

usi ess decisi s t remai i e isti g mar ets r e ter ew es.

fillinG in the Blanks

I creasi gly aggressi e e rceme t a d the tighte i g we ati al a d i ter ati al legislati g er i g c rp rate acti itiesha e raised a ti-c rrupti c mplia ce t a acute r is . We ha esee a ra ge appr aches t harm isi g i ter al pr cedures tsatis y the e er-stricter regulati s, ut these are te tied t a

ery arr w, legal iew c mplia ce. Certai i stituti s ha eratcheted up i ter al c mplia ce t the strictest sta dards theymust satis y. others impleme t a tiered appr ach, attempti galter ately t satis y jurisdicti -speci ic r tra sacti - cused

urde s with ut a c here t appr ach thr ugh ut the e tirerga isati . Still thers are e perime ti g with dual-trac

pr grammes i a e rt t satis y the requireme ts th thefCPA a d bri ery Act with ut erhauli g e isti g pr t c ls.

I the curre t e ir me t, these appr aches raise a um er challe ges. With ut urther detail the regulat ry r t, they may

all sh rt. I stead, c mpa ies ca ma e a immediate impact ym i g ey d a arr w iew c mplia ce a d em raci g apri ciples- ased, ethical appr ach t impr ed c rp rateg er a ce. Drawi g three the Si Pri ciples r bri eryPre e ti as de i ed u der the british Mi istry JusticesC sultati guida ce a ut c mmercial rga isati spre e ti g ri ery (secti 9 the bri ery Act 2010), we e pl rep te tial impr eme ts t e isti g pr grammes.

Risk assessment

I rmed ris assessme t helps c mpa ies t u dersta d theri ery ris s rele a t t their sect r a d mar ets. M strga isati s already empl y ma y the t ls t ide ti y a d

assess th i ter al a d e ter al c rrupti ris s. H we er, theseare te used i is lati , t e aluate jurisdicti al, tra sacti ala d relati ship ris s. They are te empl yed i a e rt t ma e

act- ased determi ati s ris , t the e clusi i rmedalue- ased judgeme ts. facts are esse tial i the ris assessme t

pr cess, ut the le i ility alue- ased judgeme t humai teracti a d reacti i sce ari s is ital i tail ri gc mplia ce e rts t a rga isati s tpri t, culture a d i te t,particularly i c mple a d paque mar ets ar u d the w rld.

A m re h listic yet c st-e ecti e appr ach t ris assessme tw uld i clude a alysis a d e aluati the impact a d li elih d

a series speci ic r is sce ari s that a c mpa y may ace at

ari us stages a pr ject r pr cess. The pr cess de el pi gsce ari s cust mises the assessme t t speci ic sect ral a dc mpa y ul era ilities i particular perati s. This meth d l gyals e a les a rga isati t mea i g ully a alyse the li elih d

a sce ari ccurri g i the c te t jurisdicti , tra sacti ala d relati ship ris , a d the p te tial impact the rga isatii the c te t its e isti g c mplia ce pr gramme.

new rep rti g requireme ts esta lished u der D dd-fra willr ade e p sure t pu lic scruti y that c uld e acer ate

c mpa ies perati al, p litical a d security ris s. E ecuti esa d ma agers wh w these ris s r m acr ss the spectrum legal,huma res urces, security, ris ma ageme t, i a ce, audit sh uld

e i tegral t the de el pme t, impleme tati a d mai te a ce ris assessme t meth d l gies.

Due diligence

The ecessity per rmi g dilige ce i meeti g a ti-c rruptijecti es is well esta lished acr ss m st mature c mmercial

e terprises i the de el ped w rld. The ast maj rity c rrupti pr lems e c u tered u der the fCPA t date ha e

rigi ated with r i l ed a i termediary r ther c u terparty.H we er, the thresh ld r achie i g th ught ul due dilige ce is

pe t wide i terpretati regulat rs t date ha e set ut ewdetailed requireme ts.

The british Mi istry Justices c sultati guida ce ers clues.It u equi cally i dicates that a rga isati sh uld ha e duedilige ce p licies a d pr cedures i place that c er all parties ta usi ess relati ship. The guida ce urther pr ides thatc mpa ies c sider i quiries i t the reputati usi esse tities a d pri cipals with wh m a rga isati has ac mmercial relati ship. The la guage i the guida ce isimp rta t. Ma y i ter ati al usi esses c duct due dilige ce

a ad h c r as deemed ecessary asis. They d t ha ermal p licies r pr cedures t esta lish the thresh lds r due

dilige ce r the requireme ts what it sh uld e tail. De el pme ta d impleme tati such pr t c ls are a immediate c cer .

The guida ce tes the imp rta ce u derta i g i quiries testa lish whether i di iduals r ther rga isati s i l ed i eydecisi s, such as i termediaries, c s rtium r j i t- e turepart ers, c tract rs r suppliers ha e a reputati r ri ery a dwhether a y e ass ciated with them is e i g i estigated rpr secuted. I paque jurisdicti s, i rmati c rp rate r

THE AbILITY To IMPLEMEnT ACoMPREHEnSIvE, SYSTEMATIC APPRoACH To EvALUATInG AnDMITIGATInG RISk ACRoSS THEEnTIRE oRGAnISATIon MAY SERvE AS THE fAULT LInE bETWEEnoPERATInG SUCCESSfULLY InCoMPLEx JURISDICTIonS AnDbECoMInG EnTAnGLED In A CRISIS THAT THREATEnS boTH REPUTATIon AnD PRofITAbILITY.


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i di idual reputati , r p te tial matters i estigati yg er me tal dies, is u li ely t e u d i the pu lic d mai .It may e tai ed ly thr ugh discreet i quiries with c ide tials urces, which may e required t e sure satis act ry c mpleti

e e the m st asic due dilige ce e rts.

Hist rically, the arr w legal iew i s me circles has ee thatc llecti i rmati that may e deemed hearsay rspeculati i a c urt law is u help ul a d detrime tal t

usi ess practice. The reality is that a r ust capa ility t carryut usi ess i tellige ce t tai reas ed judgme ts

reputati is ital t u dersta d true c u terparty ris i c mplee ir me ts. It has ec me est practice i ma y jurisdicti s.

failure t empl y such i quiries i select ge graphies will de yc rp rati s the a ility t detect crimi al acti ity, a a s luterequireme t u der ame ded federal Se te ci g Guideli es tmerit le ie cy i e rceme t settleme ts.

Clear, practical and accessible policies and procedures

The starti g p i t i c mplia ce pr gramme de el pme t hasee , a d will remai the c de c duct, usi ess i tegrity

p licy a d/ r c de ethics. I eepi g with a t p-d w appr acht c mplia ce, ma y rga isati s ha e ee c m rta le withthis appr ach; it pr ides a writte u dersta di g at the c rp ratele el what will a d will t e t lerated. These requireme ts aree p rted t usi ess perati s, te i the rm p licies,pr cedures a d pr t c ls i eepi g with the c rp rate ma datea d eth s rmulated at the c rp rate headquarters.

De el pme t p licies that c rm t legal requireme ts ismerely the irst step i the c structi a ramew r . While this is

t the wr g appr ach, it ails t acc u t r a c rp rate eth s tguide the speci ic applicati i ter al c mplia ce pr grammes ithe c te t ua ced issues jurisdicti al a d c rp rateculture, l cal p litical a d legal dy amics, la guage issues a d

ther act rs. The a ility t articulate a d e rce c mplia ce, tde el p uy-i at all le els the rga isati , requires i clusi these act rs. As a result, the pr gramme de el pme t a d re iewpr cess sh uld i clude ma y sta eh lders: c rp rate leadership

a d ma ageme t, c mplia ce pr essi als, usi ess pr cess a du cti al su ject matter e perts. This appr ach helps t ri gc mplia ce t li e i the w r place.

new a ti-c rrupti legislati , e ha ced discl sure requireme ts rUS-listed c mpa ies a d c ti ued ig r us e rceme t u derli ethe eed r c mpa ies t c ti u usly appraise their i ter alc mplia ce architecture. The a ility t impleme t a c mprehe si e,systematic appr ach t e aluati g a d mitigati g ris acr ss thee tire rga isati may ser e as the ault li e etwee perati gsuccess ully i c mple jurisdicti s a d ec mi g e ta gled i acrisis that threate s th reputati a d pr ita ility.


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REGIonALovERvIEW

AfRICA: ELECTIon fEvER

A rica g es t the p lls i 2011: ati al electi s are scheduled i20 c u tries. Maj r states i cludi g C g (DRC) a d nigeria willset their medium-term traject ries; Zim a we will h pe r relie r mthe paralysi g all ut its last p lls; a d Cte dI ire may i allysh wcase the utc me its p st-c lict tra siti . The sheer

lume electi s the c ti e t als ers the pp rtu ity tassess r ader tre ds i g er a ce a d the tra s er p wer.

Rece t years ha e gi e cause r pessimism a ut the ge eraldirecti dem cratisati a d g er a ce re rm i A rica.C tr ersial p wer-shari g arra geme ts were put i place ike ya a d Zim a we ecause i cum e ts re used t acceptelect ral de eat; they persist despite ma i est dys u cti a dc cer s a ut their ragility. Success ul c ups i Madagascar,Maurita ia a d Gui ea i 2008; Gui ea-bissau i 2009; a dniger i 2010 ha e re cused atte t

riskmap report 2011

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