Investing in high-risk jurisdictions—regions affected by conflict, political instability, or weak governance—can offer unique opportunities for growth and impact. But these markets also present complex challenges that demand careful planning, robust legal protections, and a deep understanding of local dynamics.
In our latest in a series on doing business in high-risk jurisdictions, we have written a briefing in which we outline a comprehensive framework for entering and operating in high-risk jurisdictions. The full briefing is available here[A1] . Below is a summary of the key takeaways.
1. Risk Assessment Is Non-Negotiable
Before entering any high-risk market, investors must conduct a thorough risk assessment. This includes:
- Evaluating political stability and institutional strength.
- Understanding counterparties, including their political affiliations, reputations, and potential sovereign immunity.
- Engaging with local stakeholders to grasp community dynamics, corruption risks, and judicial reliability.
Third-party assessments of supply chain security and local partnerships are essential to uncover hidden vulnerabilities.
2. Due Diligence and Deal Structuring
Investments in these regions require enhanced due diligence and tailored structuring:
- Transaction perimeter: Identify potential value leakage and ownership disputes.
- Bribery and corruption: Screen counterparties against sanctions lists and verify sources of wealth.
- Legal framework: Understand exchange controls, dividend restrictions, and data localization laws.
- Exit planning: Build exit strategies from day one, including break fees and pre-approved government consents.
Tax risks, including retrospective taxation and expropriation threats, must be anticipated and mitigated through careful structuring.
3. Contractual Protections in Acquisitions and JVs
Strong contractual safeguards are critical:
- Include force majeure and material adverse change clauses.
- Secure government and third-party approvals as conditions precedent.
- Use warranties, indemnities, and robust recourse measures such as escrow arrangements or third-party insurance to protect against compliance failures.
- In joint ventures, establish reserved matters and step-in rights to maintain control in crisis scenarios.
Local law requirements—especially in contracts with government entities—may override foreign law provisions, so understanding enforceability is key.
4. Operational Considerations
Operational planning should cover:
- Employee safety: Structure expatriate presence and evacuation plans.
- Intragroup services: Map dependencies to avoid disruption.
- Intellectual property: Protect global brands and data through local structures and restrictions.
Investment treaties can offer additional protection against state breaches, and political risk insurance should be considered to cover risks like expropriation, contract frustration, and license cancellation.
Conclusion
High-risk jurisdictions demand a strategic balance between opportunity and caution. With the right tools—rigorous due diligence, legal foresight, and stakeholder engagement—investors can not only protect their assets but also contribute to sustainable development in fragile regions.
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This blog post is part of an ongoing series exploring the legal, commercial, and strategic complexities of operating in conflict zones and high-risk jurisdictions. Contributors to this series include Freshfields attorneys Timothy Harkness, Kate Cooper, Joshua Kelly, Sylvia Noury, Alexandra van der Meulen, Carsten Wendler, Piusha Bose, Maria Slobodchikova, Paige von Meheren and Heather Cameron. Stay tuned for upcoming posts, and please reach out with topics, questions, or experiences you’d like us to cover as part of this ongoing conversation.
For a collection of related previous posts and webinars, please click this link.
[A1]Link to full briefing.
