In the US, a joint venture entity may be subject to the FCPA if it is an issuer or a domestic concern, or if it takes some action within the US in furtherance of a corrupt payment.1 In addition, a joint venture may be subject to the FCPA if it is an agent of an issuer or domestic concern. The DOJ and SEC take the position that under certain circumstances, a partner to a joint venture can be held liable for the actions of the joint venture or for the actions of a joint venture partner to benefit the joint venture.
If an issuer is a joint venture partner, the issuer bears some responsibility for ensuring the adequacy of the joint venture’s books and records and internal controls. The DOJ and SEC take the position that if the issuer is a majority owner of the foreign joint venture, the issuer is required to ensure that the joint venture implements a sufficient system of internal accounting controls. If the joint venture’s books and records roll up into the issuer’s, the issuer should monitor the joint venture’s books and records, as the issuer can be held liable for misstatements in the joint venture’s books and records.2
Under the FCPA, if the issuer owns 50% or less of the voting power of the joint venture, the issuer is required to “proceed in good faith to use its influence, to the extent reasonable under the . . . circumstances, to cause [the joint venture] to devise and maintain a system of internal accounting controls” consistent with those required of issuers.3
Under the Bribery Act, a member of a joint venture operating through a separate legal entity can be held liable for a bribe paid by its joint venture partner if that joint venture partner is performing services for the member, and the bribe was paid with the intention of benefiting the member. According to the Ministry of Justice Guidance, the degree of control that a participant has over a joint venture is one of the “relevant circumstances” to determine whether a person who paid a bribe in the conduct of the joint venture business was “performing services for or on behalf of” a participant in that arrangement.4 If the person who paid the bribe was an employee or agent of one participant, then unless there is evidence to show that the person was acting on behalf of the joint venture as a whole, (s)he may be deemed to be associated only with the participant that employs him or her.
Organizations should conduct due diligence on their joint venture partners prior to the formation of the joint venture. Such due diligence will be largely similar to the due diligence conducted during mergers and acquisitions. For more, see here. The company should consider obtaining ABC certifications from the joint venture partners, as well as including contractual provisions in the joint venture agreement relating to past compliance with ABC laws, audit and termination rights, and indemnification. Based on the due diligence, the company should determine whether it should require that the joint venture partners revise or update their ABC training, policies, and procedures. The company should retain all documents related to the due diligence.
1 15 USC §§ 78dd-1, 78dd-2, 78dd-3.
2 See 15 USC § 78m; DOJ & SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act Second Edition 43 (2020).
3 15 USC § 78m(b)(6).
4 Ministry of Justice, The Bribery Act 2010 Guidance, at 17 (2011).