CEEC Meeting, Brussels

CURRENT AND EMERGING THREATS TO INTERNATIONAL CONSTRUCTION PROJECTS

Mr Maxim Worcester

Managing Director, Control Risks Deutschland GmbH 21 September 2006

Fail to plan and plan to fail

There is an understandable reluctance to confront an issue which may never happen.

However, there is evidence that the worst time to learn how to manage a crisis is during a crisis itself.

“”-Financial Times

Control Risks’ Background

The international business risk consultancyFounded in 1975130 countries

Diverse backgroundsGlobal network and local contactsComplete client support

5,300 clients86 of the Fortune 100600 full-time staff

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Control Risks’ offices

Control Risks enables its clients to succeed in hostile and complex environments

Pre-entry due diligence

Country, regional and industry analysis

Contingency planning and business continuity

Security Design and Solutions

Imbedded security consultancy

Robust travel planning

Incident response

Litigation support, fraud and forensic capability

Control Risks services: a live example

PlanRisk analysesSecurity analysesDue diligenceInformation security

ActRisk monitoringAsset protectionBackground checksC&SM

ImproveRisk auditsTraining & coachingMedia trainingLessons learnt

ReactCrisis responseCrisis communicationEmergencyCR24

Types of Crises

High level of publicity

Manifest/eruptive

Low level of publicity

Latent/structural

Management scandal

Office shutdown

Rumours

Unfriendlytake-over

NIMBY

Loss of product lines

Environmental accident

Strike / lay-offs

Bad media coverage

Explosion

Productrecall

Assassination

Productextortion

Legal restraintsProvisional injunction, e.g. product contamination, sabotage

Lethal accident MD/CEO/Board

Boycott

War and Instability

Other conflicts and civil wars will continueLess prospect of international interventionProgress and investment in certain countries

War will remain a major political risk in 2006The war in Iraq will continueCoalition partners cannot withdraw troops

Only the hardiest companies operate in IraqCoalition troops cannot be committed elsewhereOther ‘Axis of Evil’ states will be unthreatened

Terrorism

Opened borders and liberalised communitiesDirect costs to global businesses manageableIndirect costs a major unknown

Global extremism a priority for governmentsNo easy solutions in 2006The threat is manageable for businesses

Loose al-Qa’ida networkLess sophisticated imitators Post-9/11 counterterrorism actions successful?

Terrorism will remain a threat across the world

North & South AmericaUS homeland a priority target, but post-9/11 vigilance makes it harder to operate. South America a possible venue for anti-US attacks?

Middle EastPersistent threat of large and small scale attacks across region – not just in Saudi Arabia. Government crackdowns having an impact

AfricaEast Africa and North Africa remain at high risk of further attacks, but are receiving increased CT assistance

South AsiaOngoing crackdown in Pakistan and Afghanistan will fuel continued attacks on foreign interests. Further attacks likely in Uzbekistan Far East

Persistent threat in Philippines and Indonesia, emerging troubles in Thailand

EuropeMadrid & London attacks and thwarted operations across continent underscore growing problem of radicalisation in migrant communities

Corruption

Corruption is the abuse of entrusted power for private gain. It hurts everyone whose life, livelihood or happiness depends on the integrity of people in a position of authority.

“”-Transparency International

theft . fictitious credit notes . counterfeit money . corruption. underestimation . fictitious advertisements

credit card fraud . commission fraud . unjustified price deductions . rerouting of customer payments

unofficial subcontractor agreements . money laundering . balance falsification . IT manipulation . kickbacks

bribery . fraud . competition limiting agreements . tender fraud . money laundering . insider trading

Corruption

The effects of corruption Damages reputationEndangers jobs and human livesThe long term damage always outweighsAny short term benefits of sharp practices

Measuring CorruptionExtremely difficultPolice Statistics (often unreliable)Studies of victims (often subjective)

Project-based ‘integrity pact’ approachExperience from governments, companies,and civil societyClear commitment through project lifecycle

Who has lost business to a competitor due to corruption?

0

10

20

30

40

50

60

Constr. Pharma Telecom O&G,Mining

Banking Retail Defence Power

Last 12 months

Last 5 years

White collar crime

W.C.CrimeTotal

W.C.Crime

Total

The proportion of total crimes

1.5-2% (80-100,000 cases)

The proportion of total economic

damage 50% (5 billion Euros)

Crime committed by a person of respectability and high social status

in the course of his occupation.

-Edwin Sutherland

“”

White collar crime

Asset Recovery in 44% of the cases

In over half of the detected cases, the criminal keeps the money:

Many cases never discovered

Many cases buried by companies

Discovery only after years of abuse

White collar crime is seen to be worth the risk

theft . fictitious credit notes . counterfeit money . corruption. underestimation . fictitious advertisements

credit card fraud . commission fraud . unjustified price deductions . rerouting of customer payments

unofficial subcontractor agreements . money laundering . balance falsification . IT manipulation . kickbacks

bribery . fraud . competition limiting agreements . tender fraud . money laundering . insider trading

Corporate Obligations: tiers of expectation

We must… We really should… It would be nice if we…

Obey all relevantLegislation

Conform to allRelevant norms andExpectations

Minimise adverseImpacts on communityWhere investing

Maximise profit andShareholder value

Act as positiveInfluence in communityWhere investing

Benefit the investmentLocation throughOur presence

Include social elementsIn business plan

Operate in a totallyEthical & transparentManner

Safeguard all assetsAnd personnel

Bare minimum Realistic Best practice

Corporate Obligations: competing expectations

Provide regular taxation revenueImprove local

infrastructure

Operate in physically secure environment

Maintain high share price while operating

ethically

International campaigningNGOs

International campaigningNGOs

Trans-national organisations

Trans-national organisations

Company HQ government

Company HQ government

Local activists / host community

Local activists / host community

Investment country security forces

Investment country security forces

Investment country government

Investment country government

Ethical investment funds

Ethical investment funds

ShareholdersShareholders

Protect local human rights

Prioritise local social development

Protect local environment

Produce high profits

Comply with international norms

and standards

Corporate Obligations: no hiding place

Baby Milk Protest Staged at Nestlé UK HeadquartersTenth university joins boycott over Coke

India practices

•Global corporations face attention in every country where they operate.

•Activists, investment funds and litigators respond to scrutiny overnight.

SHELL NIGERIA DECLARES FORCE MAJEURE ON PIPE BLASTLawsuit Alleges Slavery and Child Labor on Liberian

Firestone Plantation

RiskMap 2006

Risks in Africa

Security TravelTerrorismPolitical

Risks in detail: Angola

Organised crimeLow to mediumThreat of banditry in rural areas

Legal systemUnderdeveloped and weakContracts with foreign companies usually honoured

CorruptionLack of transparency among the world’s worstSolicitation of bribes

Risks in the Middle East

Security TravelTerrorismPolitical

Risks in detail: Saudi Arabia

Organised crimeInsignificant

Legal systemHighly discriminative of foreigners Underdeveloped commercial legal systemInadequate copyright protection

CorruptionWidespread general corruptionCorruption in awarding contracts

Risks in Russia and the C.I.S.

Security TravelTerrorismPolitical

Risks in detail: Russia

Organised crime Rampant

Legal systemPoor legal, regulatory environment and court systemLegislation poorly wordedJudges, lawyers and court officials poorly trained

CorruptionCentral to business lifeRussia 90th/146 on TI’s Corruption Perception IndexWorse today than during the Soviet period

Contact Control Risks

Control Risks Deutschland GmbH

An den Treptowers 1

12435 Berlin

Tel.: +49 (30) / 53 32 88 0

Fax: +49 (30) / 53 32 88 99

http://www.control-risks.com/

mailto:info@control-risks.de

Maxim Worcester

Managing Director

maxim.worcester@control-risks.com