Processed Foods in Nigeria

Processed Foods, Inc. (Processed) is a large Delaware corporation, included among the
Fortune 500 The company both purchases agricultural products and sells processed foods through out
the world. In many cases food grow in one country is brought to the US for processing and subsequent
distribution to third nations. The company also processes some food in the country in which it is
grown, selling part in the domestic market and exporting the balance. It has extensive experience in
doing business in nations of varying stages of development and of political and economic philosophies.

Processed has obtained cocoa from Nigeria for about 35 years. For years after independence in
1960, Processed purchased Nigerian cocoa for processing Europe and the United States. Some of the
final product was sent back to Nigeria for retail sale. In 2001, at the urging of the Nigerian
government, Processed agreed to establish a small cocoa processing plant in Nigeria. The government
wanted the company to offer a minority equity position to Nigerians. But Processed was able to
convince government officials that the enterprise should be wholly foreign owned subsidiary, even
though the then applicable Nigerian foreign investment law prohibited more than 49 percent foreign
equity. Processed's officials, at company expense, wined and dined member of the Nigerian
government over a three month period during the process of persuading officials to exempt the
company from begin a joint venture with Nigerian equity and to gran the necessary licenses. Processed
has made several campaign contributions to some key Nigerian legislators who faced re-election, and
who at first opposed the wholly foreign owned subsidiary.

In return for receiving a permit to construct the processing plant, and after considerable
negotiations, Processed agreed to establish employee housing, construct recreational facilities adjacent
to its plant and subsidize employee transportation from the center of Lagos, Nigeria, to the plant on the
outskirts of the city. The government had tried to convince Processed to locate the plant in a rural area,
far from Lagos, where unemployment was particularly high. Processed was able to convince the
government officials that the plant should be near Lagos.

The final contract with the government was signed in early 2002 at Processed's executive
offices in New York City. The company had flown the four most involved Nigerian officials, their
spouses, to New York for the ceremony. They were given a tour of the company's facilities and for
several days attended sports and cultural events in various parts of the United States. They enjoyed
unquestionably gracious living.

The company's plant in Nigeria functioned efficiently and profitably for only a year. There
were occasional difficulties with the importation of glass jars and metal cans. The normal processing
for clearing customs often took several months. On more than one occasion, when the company feared
the possibility of halting production and laying off Nigerian workers, cash payments of about $1,000
were given to several different Nigerian customs officials, who in return gave priority status to the
clearance of the containers.

In late 2003 several other African nations that were the principal markets for Processed's
prepared cocoa drinks shifted their purchases to other sources. There also was some decline in the
consumption of cocoa on the continent. Nigerian cocoa was becoming less competitive than that
grown in several nations close to the major markets of Processed. Furthermore, Nigerian law and
policy affecting foreign investment was of concern to the company because of its restrictive attitude
towards wholly foreign owned companies. Processed has been reluctant to participate in joint ventures
in developing nations. It has always preferred to have wholly owned subsidiaries. But it has agreed to
joint ventures in several developing nations.

The above factors led the board of directors to approve the sale of the processing plant. It
informed the government that it was seeking potential buyers and inquired whether the government
might like to purchase the plant. But an offer by the government was only 60 percent of what the
company believed was a fair price and the offer was courteously rejected. After further months of
searching, a French food processing company with extensive operations in Africa agreed to Processed's
price. For reasons not given to Processed, the Nigerian government continued to delay granting
required approval of the transfer. After months of frustration, Processed was approached by a
consulting firm in Lagos. Owned and staffed exclusively by Nigerians, the firm was known to
Processed as having excellent contacts with the Nigerian government. The senior staff members were
former high level government officials. It had a reputation for getting things done and suggested to
Processed that government delays often were occasioned by inefficient procedures, a maze of
bureaucratic regulations and other minor obstacles with which they had experience surmounting. The
fee of $500,000 for obtain approval of the sale at first appeared to Processed to be unusually large. But
it was not unreasonable in view of the company's desire to withdraw, and the serious reduction of
production efficiency in the plant since the news of its impending withdrawal had become known to the
employees. The company paid the fee, expressly telling the consultants that the company did not need
to have any accounting as to how the money was used. In 2005, within two weeks of Processed's
retaining the consulting firm, the proposed sale of the plant was approved by the government. Three
months later it was disclosed in newspapers in Lagos and aboard that some of the money that had been
paid to the consulting firm, in turn had been paid to several Nigerian government officials. The public
announcement created an outcry.

In late 2005, the company, the president, the vice-president of the international division, all the
members of the board of directors and the former managing director of the Nigerian plant were indicted
in federal court in the United States with having violated the US Foreign Corrupt Practices Act by
making improper payments in Nigeria. The only record of any of the payments are listed under
ordinary promotional expenses.

Copyright - Foreign Corrupt Practices Act; International Business Transactionss, Folsom, Ralph H et al.