Commission targets foreign companies ‘fronting’ as Ghanaian operations

IMPACT – MEDIUM

What is the change? Ghana’s Petroleum Commission has said it will crack down on foreign companies “fronting” as “indigenous Ghanaian companies” to take advantage of government benefits in the upstream petroleum sector.

What does the change mean? Executives for companies in the upstream petroleum sector that are found culpable of fronting face up to two years’ imprisonment and fines of up to 3 million cedis (about US$757,000). Companies found culpable will be declared noncompliant with Ghanaian law and may have serious difficulty operating in the upstream petroleum sector.
• Implementation time frame: Immediate and ongoing.
• Who is affected: Companies operating in Ghana’s upstream (exploration and production) petroleum sector.
• Business impact: Foreign companies and executives found to have fronted as Ghanaian companies in the upstream petroleum sector will face serious consequences and will have significant difficulty continuing to operate in the country.
Background: Ghana’s Petroleum (Local Content and Local Participation) Regulations, 2013 (LI 2204) provide certain benefits to indigenous Ghanaian companies, which are defined as companies that have at least 51 percent of their equity owned by Ghanaian nationals and have Ghanaian nationals in 80 percent of executive and senior executive positions and 100 percent of nonmanagerial positions. The Petroleum Commission said it has observed a pattern of companies making false representations to the commission in order to take advantage of government benefits. The commission said this month that regulations on fronting – defined as acting in a “particular manner to conceal the fact that a company is not an indigenous Ghanaian company” – will be strictly enforced.

BAL Analysis: The commission has signaled that it is serious about cracking down on foreign companies fronting as Ghanaian operations. Companies that take advantage of government benefits for indigenous Ghanaian companies should make sure they are in compliance with all regulations in order to avoid disciplinary action.

This alert has been provided by the BAL Global Practice group and our network provider located in Ghana. For additional information, please contact your BAL attorney.

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