The recent turmoil surrounding Bento Africa, a Nigerian HR technology startup, has reignited a critical debate across the fast-growing African tech startup ecosystem: as businesses grapple with complex regulatory environments, should they rely on RegTech platforms or traditional law firms to manage compliance? The question has become increasingly pressing as startups seek to balance cost efficiency with accountability, particularly in regions where regulatory frameworks are intricate and enforcement is often inconsistent.
Bento Africa, founded in 2019, offered payroll, compliance, and employee management services to businesses across the continent. However, the company is now under investigation by Nigeria’s Lagos Inland Revenue Service (LIRS) and the Economic and Financial Crimes Commission (EFCC) over allegations of failing to remit taxes and pension contributions on behalf of its clients. The fallout has been severe, with high-profile clients such as Moniepoint, Paystack, Kobo360, and Bamboo reportedly cutting ties with the startup this year.
Ebun Okubanjo, Bento Africa’s now-former CEO, resigned amid the mounting scrutiny. In a confidential email to investors, he cited the challenges of operating in Nigeria’s complex regulatory environment, suggesting that Africa’s tax and remittance systems lag behind Western standards. “If Africa adopts the Western style of taxation and remittances, these companies are gold mines,” he wrote. “Until that happens, scale will be a challenge.”
The allegations against Bento Africa have exposed the risks of relying on RegTech platforms for compliance in the African tech startup ecosystem. Clients have accused the startup of negligence, delayed payments, and even forging tax receipts. Rotimi Olawale, founder of YouthHubAfrica.org, claimed that Bento’s failure to remit taxes resulted in a ₦1 million fine for his organization. Similarly, Fuelmetrics, a fuel station inventory management company, alleges it incurred ₦50 million in unpaid taxes and pension contributions due to Bento’s mismanagement. Akintunde Sultan, co-founder of edtech startup AltSchool, accused Bento of remitting minimal sums to tax authorities despite collecting larger amounts from clients.
While Mr. Okubanjo acknowledged some issues, he downplayed their scale, attributing them to the complexities of Nigeria’s tax and pension systems. He described affected clients as “a very small percentage… who happen to be very vocal” and claimed discrepancies accounted for “less than 1%” of processed transactions. However, the damage to Bento’s reputation has been significant, raising broader questions about the reliability of RegTech platforms in Africa’s compliance landscape.
The Case for Lawyers
In contrast to RegTech platforms, law firms offer a more traditional approach to compliance, with several inherent advantages. Lawyers are bound by strict ethical codes and face severe consequences, including disbarment, for breaches of client trust. In Nigeria, for instance, the Legal Practitioners Disciplinary Committee is known for its stringent enforcement of professional standards. This accountability is a significant draw for businesses seeking reliable compliance partners.
Lawyers also excel in documentation and relationship-building with regulators. In Africa’s often opaque and corrupt regulatory environments, having a legal professional who understands the intricacies of local systems can be invaluable. Law firms often have specialized practitioners who can navigate cross-border regulatory challenges, making them particularly suited to startups operating in multiple jurisdictions.
Moreover, lawyers are obligated to protect client confidentiality, a critical consideration in an era where trade secrets and intellectual property are increasingly valuable. RegTech platforms, which often prioritize volume and scalability, may pose greater risks of data breaches or misuse of sensitive information. For startups, the potential fallout from such breaches could be catastrophic.
The Appeal of RegTech Platforms
Despite these advantages, RegTech platforms remain attractive to many startups, primarily due to their cost-effectiveness and scalability. For cash-strapped businesses, outsourcing compliance to a tech-driven solution can be significantly cheaper than hiring a law firm. RegTech platforms also offer automation and real-time monitoring, which can streamline compliance processes and reduce the risk of human error. Countries such as Kenya and South Africa have even introduced digital tax reporting frameworks, creating demand for compliance automation tools.
However, the Bento Africa case highlights the potential pitfalls of this approach. When RegTech platforms fail, the consequences can be severe, both financially and reputationally. Unlike law firms, which are held to strict professional standards, RegTech platforms often operate in a regulatory gray area, with limited oversight and accountability mechanisms.
The Bottom Line
The debate between lawyers and RegTech platforms is unlikely to be resolved soon. For many startups, the ideal solution may lie in a hybrid approach, combining the efficiency of technology with the expertise and accountability of legal professionals. Some law firms are already embracing RegTech tools to enhance their services, offering clients the best of both worlds.
As the African tech startup ecosystem continues to grow, the need for robust compliance solutions will only intensify. The Bento Africa saga serves as a major warning, casting a spotlight on the importance of due diligence when choosing a compliance partner. Whether startups opt for lawyers, RegTech platforms, or a combination of the two, the stakes are too high to cut corners.
In the end, the choice between lawyers and RegTech platforms may come down to a simple question: is it better to pay more for peace of mind, or risk saving money at the expense of accountability? For Africa’s startups, the answer could determine their long-term success — or failure.
