An international hotel chain decided to partner with a hotel developer in the Democratic Republic of the Congo. What would have been a chance to gain entry into a previously unexplored market, turned out to be a due diligence nightmare.
A promising hotel management contract
Our client, an international hotel chain had come upon a promising opportunity: a Congolese businessman and real estate developer was in the process of constructing a major hotel property and wanted our client to be their hotel management partner.
For the hotel chain, it was an opportunity for market entry into a resource-rich African country with a potential for growth. However the business of reputational due diligence had to be conducted before deal closure.
A web of complexity and intrigue
A casual look at the property development company behind the hotel seemed to raise no red flags. The major shareholder behind the company had a rather plausible story to support his recent rise to wealth, his early participation in the growth of the mining sector in the country.
We nonetheless decided to make extensive in-country enquiries and conduct field interviews to determine if all was truly as it seemed.
Our efforts soon paid off. It turned out the key partner behind the property development company was the relative of a well-known lawyer and in-law to one of Congo’s wealthiest former warlords. Several sources and public media reports equally informed us that the lawyer was one of the warlord’s proxies in various business interests.
Closer checks revealed that the hotel property had a lien on it, in the name of a third-party entity associated with this lawyer and several other directors that were immediate family members of the warlord. Furthermore the hotel management contract featured this new company discretely inserted as one of the beneficiaries of the revenue from the hotel establishment.
Further investigations drew us to the conclusion that the property development company’s activities were a front for business interests of the warlord and his associates as most of its assets were curiously secured by liens in favour of third-party entities associated with this individual and in certain cases the revenue accruing from these properties was directed to such third-party entities and not the property development company.