Associated persons, Financial Services, Your Questions: Answered - Written by on Tuesday, April 12, 2011 0:05 - 0 Comments

Ask Barry & Richard: Associated Persons, the guidance, the loophole & the chocolate teapot

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There is a carve out [Ed. is there? read on…] for subsidiaries and JV’s from the definition of “Associated Persons” in section 7 (para 40-42 of the Guidance) even if it is paying dividends to, or creating value for, a parent company.

Such value/dividends could be created by the payment of bribes by the subsidiary/JV.  Although clearly a “business advantage” for the parent company, is this a loophole?


This is a great question.

We’re fans of the guidance though it does have its limitations and this is one of them.  On a plain reading anyone might assume that this is a loophole.

This would be a mistake.

The so-called carve out for JV’s and subsidiaries in the context of the Bribery Act is of limited value.

Think of it, if you will, as about as much use as a chocolate tea pot.

We’ve reproduced the Joint Venture paragraphs mentioned below highlighting some of the huge caveats to the “carve out”.  Putting to one side the overriding caveat to the carve out that the courts will have to decide (thank you for that) a non charitable soul (we are very charitable) might say that the author of paragraphs 40 through 42 is responsible for some clever sophistry in the extreme on the drafting.

For those not familiar with paragraphs 40 through 42 here they are:

“40     As for joint ventures, these come in many different forms, sometimes operating through a separate legal entity, but at other times through contractual arrangements. In the case of a joint venture operating through a separate legal entity, a bribe paid by the joint venture entity may lead to liability for a member of the joint venture if the joint venture is performing services for the member and the bribe is paid with the intention of benefiting that member. However, the existence of a joint venture entity will not of itself mean that it is ‘associated’ with any of its members. A bribe paid on behalf of the joint venture entity by one of its employees or agents will therefore not trigger liability for members of the joint venture simply by virtue of them benefiting indirectly from the bribe through their investment in or ownership of the joint venture.”

So breaking it down, a joint venture “of itself” won’t mean its associated.  Okay. But in most cases a Joint Venture will bring with it a boat load of other stuff.  Think, nominees on the  Board, think, services agreements and shared personnel, Intellectual Property licences etc..  The list goes on. “of itself” = likely to be irrelevant.

Although it will probably be OK if a pension fund owns some shares in a company that gets involved in some skullduggery. We can all breathe a sigh of relief on that one…

As if to make the point Paragraph 41 starts to row back on the carve out (such as it is):

“41     The situation will be different where the joint venture is conducted through a contractual arrangement. The degree of control that a participant has over that arrangement is likely to be one of the ‘relevant circumstances’ that would be taken into account in deciding 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. It may be, for example, that an employee of such a participant who has paid a bribe in order to benefit his employer is not to be regarded as a person ‘associated’ with all the other participants in the joint venture. Ordinarily, the employee of a participant will be presumed to be a person performing services for and on behalf of his employer. Likewise, an agent engaged by a participant in a contractual joint venture is likely to be regarded as a person associated with that participant in the absence of evidence that the agent is acting on behalf of the contractual joint venture as a whole.”

“Relevant circumstances” – thanks for the illumination – we’re looking forward to arguing those.

But what about the situation where there is a Joint Venture but there is no Joint Venture or Shareholders agreement (contract) and you have no interest beyond a financial interest.

We know that there is at least one of these globally because we asked a room full of dozens of lawyers last week if they had ever seen an example of one of these and one person put their hand up.

Let’s take a look at Paragraph 42 of the Guidance and see what it says:

“42     Even if it can properly be said that an agent, a subsidiary, or another person acting for a member of a joint venture, was performing services for the organisation, an offence will be committed only if that agent, subsidiary or person intended to obtain or retain business or an advantage in the conduct of business for the organisation. The fact that an organisation benefits indirectly from a bribe is very unlikely, in itself, to amount to proof of the specific intention required by the offence. Without proof of the required intention, liability will not accrue through simple corporate ownership or investment, or through the payment of dividends or provision of loans by a subsidiary to its parent. So, for example, a bribe on behalf of a subsidiary by one of its employees or agents will not automatically involve liability on the part of its parent company, or any other subsidiaries of the parent company, if it cannot be shown the employee or agent intended to obtain or retain business or a business advantage for the parent company or other subsidiaries. This is so even though the parent company or subsidiaries may benefit indirectly from the bribe. By the same token, liability for a parent company could arise where a subsidiary is the ‘person’ which pays a bribe which it intends will result in the parent company obtaining or retaining business or vice versa.”

The carve out/loophole…Or may be not. Even in this bold paragraph note the use of “will not automatically involve liability” (so there could be some).

But as we said on Friday in our post dealing with Private Equity the Guidance when it comes to reliance on this exemption the trouble is that it is likely to completely miss the point.

Even in the event that the Joint Venture in question has nothing else which a prosecutor can use to bring it within the Associated Persons definition and create liability for the parent (and believe us if they want to they are going to look for anything to forge the Associated Persons link) – they’ll just have a go at using the Proceeds of Crime Act instead – arguing that business generated off the back of the bribe is criminal property and subject to confiscation.

Take care.


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