Financial considerations involving bribery and money laundering in collaboration ventures

In the dynamic world of business, joint ventures (JVs) offer a unique opportunity for collaboration and growth. However, these partnerships can also present enhanced corruption risks, potentially making a company liable for corrupt actions of its partners, the JV itself, or third parties.

When embarking on a JV, it is crucial to assess the legal framework at the inception of the venture. This includes considering the countries of incorporation of the participants and the proposed jurisdictions to which the activities of the JV will extend. For instance, 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.

Careful due diligence on any assets and businesses to be transferred to a JV is essential to assess the risk of losing tainted assets, key contracts being terminated, and of future investigations or litigation. 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.

Ensuring the JV implements effective ABC procedures is also vital. This focus should be on training employees, third-party due diligence and monitoring, and periodic assessments of the effectiveness of ABC procedures. The ABC provisions of the joint venture or shareholders' agreement and associated documents are important, including the obligation for the other JV partner to notify the participants of any ABC allegations or investigations, provide all relevant information, and allow audits if issues arise.

International companies, such as Leonardo S.p.A., an Italian aerospace and defense conglomerate, and companies connected to Oleg Deripaska, a Russian oligarch, have faced corruption allegations in their joint ventures. Such cases underscore the importance of managing corruption risks in JVs.

The 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, under the UK Bribery Act 2010, a commercial organization can be liable to prosecution if a person associated with it bribes another person, intending to obtain or retain business or business advantage for that commercial organization.

In the US, public companies have a responsibility to ensure that subsidiaries or affiliates under their control, including foreign subsidiaries and joint ventures, comply with the accounting provisions of the Foreign Corrupt Practices Act (FCPA). In some cases, even a non-majority interest can render an entity purportedly subject to US jurisdiction liable for the acts committed by a joint venture in which it owns less than a 50% interest.

The risks of bribery can lead to reputational and financial risks, including significant risk to value, criminal or regulatory investigations, and civil disputes. In the UK, the Serious Fraud Office may seek to investigate regardless of technicalities of the application of the Bribery Act.

Lastly, it's important to be mindful of money laundering risks resulting from bribery issues. Dealing with proceeds of suspected bribery may give rise to offences under the UK Proceeds of Crime Act 2002.

In Germany, while there is no clear guidance on whether companies should conduct due diligence or impose specific compliance measures in relation to joint ventures, it is prudent given the broader risks. Under German law, a financial penalty of up to €10 million can be imposed on a company if a member of senior management has committed a bribery offense or the company has failed to implement appropriate measures to prevent bribery.

In conclusion, managing corruption risks in joint ventures is a critical aspect of doing business in today's global economy. With careful due diligence, effective compliance procedures, and well-structured agreements, companies can mitigate these risks and protect their reputation and financial stability.

Financial considerations involving bribery and money laundering in collaboration ventures