Considerations for bribing and money laundering in collaboration businesses or partnerships
In the complex world of business, joint ventures (JVs) can present enhanced corruption risks due to potential criminal liability for the corrupt actions of partners or third parties engaged by the JV. This is a concern that businesses should be aware of, especially in light of recent enforcement actions taken against companies for bribery issues in joint ventures, such as Eni's settlement with the Securities and Exchange Commission under the Foreign Corrupt Practices Act (FCPA).
While there is no clear guidance in Germany on whether companies should conduct due diligence or impose specific compliance measures in relation to joint ventures, it is prudent to do so given the broader risks. Particular focus is required in relation to training employees, third-party due diligence and monitoring, and how issues are investigated in the JV.
In the UK, a JV or JV partner carrying on a business or part of a business may be subject to Section 7 of the UK Bribery Act. Under the Act, a commercial organization can be held liable if a person associated with it bribes another person, intending to obtain or retain business or business advantage for that commercial organization.
Under German law, a financial penalty of up to €10 million can be imposed on a company for failure to prevent bribery, under the German Administrative Offences Act. Careful due diligence on any assets and businesses to be transferred to a German JV is important to assess the risk of losing tainted assets, key contracts being terminated, and of future investigations or litigation.
Risk-based anti-bribery and corruption due diligence should be undertaken in relation to the proposed joint venture, partners, operating jurisdictions, and assets or business to be transferred to the joint venture. Understanding the JV partner's approach to anti-bribery and corruption (ABC) risk and any previous ABC issues is fundamental to assessing the risks of an ongoing relationship.
The joint venture should adopt and follow effective ABC compliance procedures throughout its life. The governance framework of the joint venture should be structured before formation to ensure that disputes amongst shareholders as to the robustness of such procedures can be resolved so that they reflect the risk tolerance of the respective shareholders. Ensuring the JV implements effective ABC procedures is essential, and the procedures should be designed to manage the risks identified in due diligence and be informed by an ongoing risk assessment.
It is important to consider how compliance obligations should be recorded in the agreement between the joint venture participants. The ABC provisions of the joint venture or shareholders' agreement and associated documents are important, and it is crucial to ensure that the other JV partner is obliged to notify the participants of any ABC allegations or investigations, provide all relevant information, and allow an audit if issues arise.
Dealing with proceeds of suspected bribery may give rise to offences under the UK Proceeds of Crime Act 2002 (POCA), regardless of whether the joint venture partner would be liable for the underlying bribery. For public companies, the FCPA's accounting provisions extend to ensuring that subsidiaries or affiliates under its control, including foreign subsidiaries and joint ventures, comply with the accounting provisions of the FCPA.
The Department of Justice (DOJ) recognizes that companies may not be able to exercise the same level of control over a minority-owned subsidiary or affiliate as they do over a majority or wholly owned entity. However, 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 shown in the Eni/Saipem matter.
Bribery issues can lead to reputational and financial risks, including significant risks to value, criminal or regulatory investigations, and civil disputes. Therefore, it is crucial for businesses to be vigilant and proactive in managing ABC risks in their joint ventures.
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