Financial and monetary manipulations to be mindful of in collaborative business partnerships
In the complex world of business, joint ventures (JVs) can present enhanced corruption risks. These risks, if left unchecked, can lead to criminal liability, money laundering offenses, reputational damage, and financial risks.
One of the key areas to address in mitigating these risks is the ABC provisions of the joint venture or shareholders' agreement and associated documents. These provisions are crucial in obliging the other JV partner to notify the participants of any ABC allegations or investigations, provide all relevant information, and allow audits if issues arise.
Understanding the JV partner's approach to ABC risk and any previous ABC issues is fundamental to assessing the risks of an ongoing relationship. This understanding is particularly important given that 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 demonstrated in the Eni/Saipem matter.
Regulators and enforcement agencies, such as the Securities and Exchange Commission (SEC) in the US, are taking action against companies for bribery-related offenses in joint ventures. In the UK, the Serious Fraud Office may investigate a joint venture regardless of the technicalities of the application of the Bribery Act. Under German law, financial penalties of up to €10 million may be imposed on a company for bribery offenses under the German Administrative Offences Act.
Moreover, JV partners must be mindful of money laundering risks resulting from bribery issues under the UK Proceeds of Crime Act 2002 (POCA). In Germany, dealing with the proceeds of bribery may be considered a money laundering offense.
For public companies, the Foreign Corrupt Practices Act (FCPA) in the US extends responsibility to ensuring that subsidiaries or affiliates under its control, including joint ventures, comply with the accounting provisions of the FCPA.
Effective due diligence, comprehensive compliance procedures, and well-structured documentary provisions are key to addressing and mitigating the risks associated with joint ventures. 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 of future investigations or litigation.
Ensuring the JV implements effective ABC procedures is essential, with a focus on training employees, third-party due diligence and monitoring, and periodic assessments of the effectiveness of ABC procedures.
In recent years, several companies and joint ventures in Germany have faced corruption allegations, resulting in investigations, fines, or reputational damage. However, specific company names and case details vary, and consequences often include internal restructuring, compliance improvements, and legal penalties.
In conclusion, managing corruption risks in joint ventures is a critical aspect of doing business. By understanding the ABC provisions, conducting thorough due diligence, implementing effective compliance procedures, and staying vigilant to money laundering risks, businesses can mitigate these risks and protect their reputation and financial stability.
