The Wall Street Journal reports that this is the latest story doing the rounds about the guidance.

Jumping on the bandwagon it is reported that the Private Equity industry complains that it simply does not know what to do following the guidance publication.

In essence the reported complaint goes: it is not 100% clear whether a Private Equity company is on the hook for the transgressions of a portfolio company under the Bribery Act and the liability for the acts of third parties who are Associated Persons under Section 7.

We’ve seen the arguments from different law firms going both ways.

Different strokes for different folks.  But, they all completely miss the point.

Whether or not the Bribery Act is activated may be a question for the courts to decide – the favourite cop out for the guidance.

But, Clean Partners LLC unwittingly invest in Bribe Co Limited.  Bribe Co is dirty. Really really dirty.

And, lets just say under Bribery Act failure to prevent bribery offence the Private Equity company is off the hook as a result of the investment “in itself” because the courts decide that as a result of the investment “in itself” it is not an Associated Person under Section 7.

Win?

Nope. The chances are the Clean Partners LLC will have a nominee director on the Board of Bribe Co who is probably also a senior officer of Clean Partners LLC and so Clean Partners LLC will be caught that way.  Hello Associated Person again.  Broadly speaking his or her knowledge from Bribe Co will, the SFO (or its successor) will try to argue, be transferred to Clean Partners LLC.  Bribery Act.  Game on.

What if Clean Partners are simply a financial investor, no director either…..Win?

Nope.

Bribe Co is unsaleable (or at least unsaleable at anything close to market value) and any proceeds of sale flowing from the sale of Bribe Co  (or any revenues earnt from it) are the proceeds of crime under the UK money laundering laws.  If they touch clean funds in the bank accounts of Clean Partners LLC, like a deadly cancer, they will infect all the clean money in the bank account. All infected money will subject to confiscation under the UK’s Proceeds of Crime legislation.

Now, it’s possible that in pre-Bribery Act times none of this would matter.  See no evil hear no evil could have been a strategy.  Trouble is that post Bribery Act everyone will be looking for Bribery, and when they find it…

So. Should PE firms guess about their liability under the Bribery Act or should they take a closer look, spot the elephant in the room, and take the prudent course to ensure that portfolio companies are running on an ethical basis?

Take a guess.