A private equity fund, the General Partner of which is a UK LLP, is in the final stages of an acquisition of a new portfolio company (the Target). The Target is currently owned by another private equity fund, domiciled in the Cayman Islands (the Cayman Fund). The Cayman Fund is 50% owned by a British national. Press reports indicate that the British national is under investigation by the Serious Fraud Office in respect of allegedly corrupt behavior relating to the award of contracts to a different company which he owns (and which is not owned by the Cayman Fund). It is understood that the British national invested dividends, which he received as a result of the various companies in which he had interests, in the Cayman Fund. The Cayman Fund in turn invested in its various portfolio companies, including the Target.
- Is there a suspicion that, by receiving dividends, the British national has benefited from criminal conduct? Have the ‘tainted’ dividends made their way into the Cayman Fund and, via the investments made by the Cayman Fund, into the Target? Do the dates of the alleged criminality make it a possibility that tainted funds made their way into the Target?
- Does the adequate consideration defense in the Proceeds of Crime Act apply? If the Target operated independently from the British national, and the Target provided shares in exchange for investments made by the Cayman Fund, any criminal property received by the Target may have been acquired for adequate consideration.
- Who is going to receive the proceeds of the purchase of the Target; will the proceeds end up in the hands of the British national? If so, could the purchase money assist the British national to convert the tainted interests he has in the company under investigation into “clean” purchase money from the Target? If so, this could be a prohibited arrangement and the adequate consideration defense may not be available.
- Consider filing a “consent” SAR.