Considerations for bribing and laundering funds in the context of joint business ventures

In the complex world of business, joint ventures (JVs) can offer numerous opportunities for growth and expansion. However, they also present unique risks, particularly when it comes to anti-bribery and corruption (ABC) compliance.

Under German law, there is no clear guidance on whether companies should conduct due diligence or impose specific ABC measures in relation to JVs. Nevertheless, given the broader risks, it is prudent for companies to do so. Similarly, in markets with local ownership requirements, it is crucial to drill down on the beneficial ownership of the local partner and their political/government connections, as the act of entering into the JV may itself give rise to bribery risks.

One of the key risks associated with JVs is the potential criminal liability for corrupt actions of partners or third parties engaged by the joint venture. This risk is heightened in markets where the regulatory landscape is less clear. For instance, the UK Serious Fraud Office may investigate regardless of the technicalities of the application of the Bribery Act, potentially causing negative impacts even if a prosecution is not successful.

Regulators and enforcement agencies, such as the Securities and Exchange Commission (SEC) in the US, have taken action against joint ventures for bribery-related offenses. In the US, public companies must ensure that their subsidiaries or affiliates comply with the accounting provisions of the Foreign Corrupt Practices Act (FCPA). 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.

To address and mitigate these risks, several measures should be considered. Due diligence, effective ABC compliance procedures, and documentary provisions should be considered to assess the risk of losing tainted assets, key contracts being terminated, and of future investigations or litigation. Careful due diligence on any assets and businesses to be transferred to a JV is essential.

Moreover, the ABC provisions of the joint venture or shareholders' agreement and associated documents are important. These should include the obligation for the other JV partner to notify the participants of any ABC allegations or investigations, provide all relevant information, and allow an audit if issues arise. 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.

Beyond the legal and financial risks, bribery issues can lead to reputational risks. These can include significant risk to value, criminal or regulatory investigations, and civil disputes. Dealing with the proceeds of bribery - even the mere receipt of such funds - may be considered a money laundering offence. In Germany, dealing in proceeds of suspected bribery gives rise to offenses under the UK Proceeds of Crime Act 2002 (POCA).

In Germany, a company can be penalized up to €10 million under the German Administrative Offences Act for bribery-related offenses committed by a member of senior management or for failing to implement appropriate measures to prevent bribery. However, it's worth noting that in 2021, no specific companies are publicly documented to have been fined up to 10 million euros under the German Criminal Code solely for inadequate measures to prevent bribery scandals.

In conclusion, navigating the risks of JVs requires a thorough understanding of the inherent risk in the relevant jurisdiction, particularly where you are entering a new market. By implementing robust ABC procedures and conducting thorough due diligence, companies can mitigate these risks and seize the opportunities that JVs offer.