Choosing profit or compliance
In an interesting turn of events, French cement giant Lafarge finds itself at the core of a rather unique, and quite embarrassing, compliance case. How it will untangle itself out of this mess will be an interesting one to watch.
Anti-corruption organisations in France hail it as a huge development – non-governmental groups ‘frog-marching’ a multinational firm before the courts to face serious allegations of financing terrorism.
Laëtitia Liebert of anti-corruption group Sherpa, which filed the charges, said: “This is the first time non-profit organisations have filed suit against a multinational corporation for financing terrorist activity and complicity in war crimes and crimes against humanity.”
In addition to being placed under formal investigation for terror funding, French judges have also ordered that Lafarge SA be investigated for endangering workers lives, war crimes and crimes against humanity and violating a European Union oil purchase embargo.
Meanwhile, eight former executives have been indicted on charges of financing terrorism.
So, what happened?
According to Paris-based Sherpa and ECCHR (the European Center for Constitutional and Human Rights), Lafarge subsidiary Lafarge Cement Syria (LCS) entered into deals with ISIS to protect the interests of its cement factory in the north of Syria.
Around 2012, as the conflict intensified, LCS repatriated its expatriate staff, but left Syrian employees to continue working at its Jalabiya plant.
In 2013, ISIS seized the north of Syria, increasing the checkpoints it controlled on the roads surrounding the Lafarge plant.
“LCS would have entered into arrangements with ISIS in order to maintain production, by paying for passes issued by the jihadist organization and buying raw materials necessary for cement production such as oil and pozzolana in areas under ISIS’s control,” Sherpa said in a statement.
“They (ISIS) delivered a specific document from ISIS that enabled cement trucks from Lafarge to cross their checkpoints. At the beginning in May 2014, it was a simple note from ISIS, written by hand, where they had put the stamps of the financial department of ISIS,” said an employee who was working at the plant at the time, and quoted by Sherpa.
The statement also quotes an employee present at the plant on the day of an ISIS attack stating: “Why did Lafarge not evacuate us? Even inhabitants from the nearby village fled the day before the attack. It seems like Lafarge used us as a human shield to protect the plant. They’ve put us too much in danger.”
Tackling its crisis
On its part Lafarge, which merged with Swiss cement giant Holcim in 2015, appears to have admitted wrong doing to a limited extent, blaming “a small group of individuals,” and said it will appeal against the charges.
In a statement, it said: “Whilst admitting that the system of supervision of its Syrian subsidiary did not allow the company to identify wrongdoings at the level of this subsidiary, which were the result of an unprecedented violation of internal regulations and compliance rules by a small group of individuals who have left the group, Lafarge SA will appeal against those charges which do not fairly represent the responsibilities of Lafarge SA.”
It added that in 2016, its board of directors commissioned an investigation, whose main findings were made public in April 2017 and “revealed that the local company provided funds to third parties to work out arrangements with a number of armed groups, which included sanctioned parties.”
It said it handed the report and documents from the investigation over to the French authorities, and that: “On several occasions, including today before the examining magistrates, the Company confirmed that unacceptable individual errors were made in Syria until the site was evacuated in September 2014, which it firmly regrets. The company will continue to fully cooperate with the legal authorities in this case.”
Compliance temptations …
The Lafarge case highlights a number of issues for compliance departments and the business community operating in complex situations.
That a well-known Western multinational brand could have been funding an organisation as notorious as ISIS in order to keep its factories running is not only scandalous, but it also highlights the challenges that firms suddenly caught up in a conflict zone face.
Do they stay put, deal dirty and continue to make millions, or do they choose to stick to the tough-sounding notes from their compliance departments, forgo the prospect of profits and pack up?
What discussions could have taken place in the LCS boardroom as bosses pondered whether to do or not to do compliance? Were phone calls made to head office and was the compliance department in Paris consulted?
And, despite governments issuing tighter regulation, stiffer penalties and threats of prosecution for non-compliance, some firms it seems will still take risks and engage in or turn a blind eye to bribery and corruption.
Of course, if guilty, Lafarge may not have been the only such ‘customer’ of ISIS, other big corporates may have struck deals with the terrorist group too in order to keep business going or paid it huge ransoms in order for it to release kidnapped employees.
ISIS is understood to have made millions from charging firms and individuals ‘taxes’ and demanding ransoms.
This case, however, is not just about a ‘general trend’ in a conflict zone.
A closer look at Lafarge’s back garden shows that, on the compliance aspect, its subsidiary had in place a loosely fitted compliance programme that failed to serve its purpose.
In its statement, Lafarge said that its system of supervision of its Syrian subsidiary “did not allow the company to identify wrongdoings at the level of this subsidiary, which were the result of an unprecedented violation of internal regulations and compliance rules by a small group of individuals who have left the group.”
However, blaming “a small group of individuals” in a distant Syrian town for the compliance failings involving a multi-million dollar scheme may raise questions about the quality of the overall compliance programme of the Group.
Also of importance, is that its eight former company officials, including two former chief executives, have been indicted – this highlights the increasingly important issue of corporate liability and top execs.
Regulatory standards such as Britain’s senior managers regime and the jailing of an HBOS manager shows that top European courts are prepared to jail bank bosses and company executives, who critics say have been largely spared imprisonment and have been regarded as ‘untouchables’ over the years.
– By Irene Madongo
Drawing on deep subject matter expertise and our many customer and partner relationships globally we deliver valuable insights through weekly KYC newsletters, white papers, podcasts and events.Explore the Knowledge Hub
KYC360 Weekly Roundup
KYC360 Weekly Roundup