Considerations for bribery and money laundering in partnership business deals

In the complex world of business, joint ventures (JVs) can present enhanced corruption risks, potentially leading to criminal liability, money laundering offenses, and reputational and financial risks.

Recently, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) brought enforcement actions against a US company for violating the Foreign Corrupt Practices Act's (FCPA) accounting provisions. Two Chinese joint ventures allegedly paid bribes, highlighting the need for vigilance.

When embarking on a joint venture, it's crucial to ensure the JV implements effective anti-bribery and corruption (ABC) procedures that manage identified risks and are aligned with the policies of the participants. This diligence requires focus in three key areas: due diligence, processes and procedures, and documentary provisions.

Careful due diligence on assets and businesses to be transferred to a JV is important to assess the risk of losing tainted assets, key contracts being terminated, and future investigations or litigation. Understanding the JV partner's approach to ABC risk and any previous ABC issues is essential for assessing the risks of an ongoing relationship.

At the inception of a joint venture, it's important to assess the legal framework applying, considering relevant factors such as the countries of incorporation of the participants and proposed jurisdictions of activity. A JV or JV partner carrying on a business or part of a business in the UK may be subject to Section 7 of the UK Bribery Act.

The ABC provisions of the joint venture or shareholders' agreement and associated documents are important, including the obligation to notify participants of any ABC allegations or investigations, provide all relevant information, and allow an audit if issues arise.

For public companies, the FCPA's accounting provisions extend to ensuring that subsidiaries or affiliates, including foreign joint ventures, comply with the FCPA. Due diligence should include ABC due diligence on the proposed joint venture, partners, operating jurisdictions, and assets or business to be transferred.

In some cases, even a non-majority interest can render an entity liable for the acts committed by a joint venture in which it owns less than a 50% interest, as the Eni/Saipem matter shows. If a parent company owns 50% or less of a subsidiary or affiliate, the parent is only required to use good faith efforts to cause the minority-owned subsidiary or affiliate to devise and maintain an appropriate compliance program and system of internal accounting controls consistent with the company's own obligations.

Particular focus is required in relation to training employees, third-party due diligence and monitoring, and the investigation of ABC issues. Bribery issues can result in significant risks to a joint venture's key assets, investigations, disputes, and settlements, such as the $25m settlement by Eni under the Foreign Corrupt Practices Act (FCPA).

In addition to bribery-related offenses, money laundering risks should be considered, as dealing with proceeds of suspected bribery may give rise to offenses under the UK Proceeds of Crime Act 2002 (POCA). Under German law, a company can be penalized up to €10 million under the German Administrative Offences Act for bribery offenses committed by a member of senior management or for failing to implement appropriate measures to prevent bribery.

However, there is no clear guidance on whether companies should conduct due diligence or impose specific compliance measures for joint ventures in Germany, but it is prudent given the broader risks. The Serious Fraud Office in the UK may investigate regardless of technicalities of the application of the Bribery Act, potentially causing negative impacts even if a prosecution is not successful.

Johnson & Johnson, Walmart, and Siemens have incurred sanctions in recent years for violations against anti-corruption laws in connection with their joint ventures in the US and the UK.

Addressing and mitigating these risks requires diligence and compliance monitoring throughout the life of the joint venture. The governance framework of the joint venture should be structured before formation to ensure disputes can be resolved so that procedures reflect the risk tolerance of the respective shareholders. The joint venture should adopt and follow effective ABC compliance procedures throughout its life, which may be influenced by or draw heavily from the compliance procedures of corporate shareholders.

In conclusion, navigating the complexities of anti-bribery and corruption in joint ventures requires a comprehensive approach, encompassing due diligence, effective procedures, and ongoing monitoring. Understanding the legal landscape, the risks involved, and the obligations of all parties is essential for a successful and compliant joint venture.