Expert Commentary

Rising Risks for Expatriates

While international business assignments seldom confer diplomatic benefits, by definition, they can have political connotations, and many international assignees often find their freedom held in the balance by kidnappings, unlawful detention, and passport seizures pending charges.


Political Risk
March 2012

In many of these examples, nationality, mission, and the implied backing of "hard currency" exacerbate the hardships borne by assignees, making statecraft and the pursuit of growth abroad inextricably connected. In most cases, the opportunity for a quick profit sees expatriates or travelers routinely shaken down at traffic stops or perhaps at the airport. In more extreme examples, there is little hope of a quick or easy release from detention, as Western nationals become unwitting soft targets in the battle against terrorism.

Humanitarians and journalists are especially vulnerable as they often carry out their work in remote and unstable regions. Their counterparts in business—especially at the upper echelons—manage to avoid many of these risks by traversing urban mazes in helicopters or armored convoys provided by private security firms.

Recent Examples

The latest example is the seizure of passports by the Brazilian government of several foreign executives of Chevron Brazil's top management team related to last year's oil spill. The seepage of 2,400 barrels of offshore oil last year—for which criminal charges are working their way through the Brazilian legal system—have struck a chord with the Brazilian government. This has as much to do with simply making a point (that foreign executives are not above the law in Brazil) as it does with establishing the boundaries for future operation in the oil sector by foreign firms and, of course, demonstrating how "tuned in" Brazil is to issues of environmental concern.

By contrast, BP's foreign executives were never barred from leaving the United States following the Macondo explosion and the calamity that followed. This highlights the increasing risk that even the most senior, well-protected expatriates can find themselves pawns on the chessboard of international business and politics.

Perhaps the most celebrated recent example of this was the detention and subsequent prosecution of a senior executive and three colleagues from Rio Tinto's mining operation in China in 2009, who found themselves front and center in a high-profile tussle between China and Australia. The employees were held on suspicion of espionage and stealing state secrets after Rio Tinto canceled a $19.2 billion investment transaction with Chinese state-owned Chinalco. The four subsequently pleaded guilty to bribery allegations, and relations between the countries and companies have continued, but this incident remains constantly in the background.

Expatriate Risk

This is really perhaps the most important point: In today's world, business transactions and relationships do not exist in a vacuum and often help define investment landscapes. The conduct of employees and governments can ultimately have a significant impact on local operations or overall corporate performance, and reputational risk can take a real toll on profitability. All these factors jointly determine how, or whether, a company invests successfully overseas.

The fact that there may be no immunity for expatriate employees stands in contrast to their otherwise generally privileged status overseas. The concept of firm neutrality is similarly at risk, when waving a white flag or wearing a blue helmet or an emblazoned red cross is no more a symbol of safety than wearing a target. Yet, the risk of retrenchment and disengagement from the world—or specific countries—seems far greater than the likelihood of suffering from unfortunate high-profile events abroad. This is especially true if firms and their international assignees take precautions throughout the entire expatriation process.

Conclusion

It is important to remember that, while many expats may get lulled into a false sense of security—commingling with ambassadors and dignitaries in their host countries—they are not afforded a guaranteed laissez-passer in the event of an upheaval. The fact is, there is no turning back on fast-growing emerging markets, developing countries, and even disaster and relief areas. Wanderlust has long tempted mankind to take flight, discover new horizons, and make home abroad. In the century of emerging markets and frontier economies, firms and assignees should take heed to manage risks along the entire international risk continuum.


*Dante Disparte is managing director of partner solutions with Clements Worldwide, based in Washington, DC. Daniel Wagner is chief executive officer of Country Risk Solutions, a cross-border risk advisory firm based in Connecticut, director of global strategy with the PRS Group, and author of the new book Managing Country Risk. Read his full IRMI.com bio.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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