Financial Services - Written by on Sunday, February 6, 2011 14:14 - 0 Comments

The Bribery Act, marriage, in-laws & children: SFO guidance about Joint Ventures

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In a report published by Pinsent Masons* last year 39% of manufacturers said that a Joint Venture was their preferred method of entering into new markets.

Liability for third parties

When the Bribery Act enters into force (and it will enter into force in spite of the recent delay…) businesses must take care that Joint Ventures and local partners do not use unethical methods to smooth the process of establishing the new business.

The Bribery Act will create a new offence of failure to prevent bribery.  Under it business is liable for its own conduct as well as for bribery committed by anyone who provides services to it if the business was intended to benefit, or benefits from, the bribery.

You should choose your in-laws. Carefully.

If this sounds like a mouth full then the wedding analogy is a good one:  Under the new law you could be criminally responsible for your conduct as well as the conduct of your partner, children and in-laws plus the wedding planner…

Marry in haste repent at leisure

While the new offence has sparked controversy with some claiming that it will make it hard for UK PLC to expand into new markets importantly there is an absolute defence.

Organisations who put in place ‘Adequate Procedures’ to prevent bribery will have nothing to worry about.

To take advantage of the defence businesses will, among other protective measures, need to undertake due diligence on their new partners, monitor their Joint Venture and ensure that Joint Venture agreements and other commercial arrangements include auditing rights and the right to terminate (or get a divorce) in circumstances where wrongdoing is uncovered.

The SFO have received numerous questions about the new law and its application to their existing overseas operations and plans to move into new markets.

How will the SFO approach the question of liability for Joint Ventures? What about Joint Ventures that are already in operation?

Helpful guidance from the SFO

The SFO has said that its approach to dealing with Joint Ventures will differ depending on whether the Joint Venture already exists or not.

Broadly, and consistent with its approach throughout the Bribery Act debate, the SFO has said that it will take a practical and realistic approach being flexible when considering existing arrangements (provided that businesses can show that they have done the best they can to introduce ‘Adequate Procedures’ within the context of existing contractual frameworks) but expect full implementation of ‘Adequate Procedures’ to prevent bribery in respect of Joint Ventures entered into against the backdrop of the new law and its entry into force.

At a recent conference an SFO representative speaking on behalf of Richard Alderman said:

“Our approach on joint ventures depends on whether or not we are talking about current or future joint ventures. For current joint ventures we understand and recognise that corporates are locked into very detailed contractual arrangements. Some of these arrangements may give the corporates more influence over the joint venture than others. Some may contain detailed auditing rights – some may have very limited auditing rights and very limited transparency. We have to take these existing arrangements as they are. We expect the corporate to look at what it can reasonably do under the current arrangements. If the corporate is satisfied that it has done all that it reasonably can within the current detailed contractual arrangements, then this will go a long way to satisfying us.

It will be different when we are talking about new joint ventures. We would expect corporates entering into new joint ventures to want to put proper auditing rights into the agreement and for the agreement to reflect the anti corruption culture that we are expecting to see. This may give rise to complex and difficult contractual negotiations but we would expect the corporate to do all that it can in these negotiations to ensure that it would not be at risk under the Bribery Act.”

Contrary to some of the criticism which has surrounded the Bribery Act in recent weeks we do not consider that the Bribery Act will put a stop to UK PLC exports nor that the SFO will move to prosecute ethical corporates doing the best they can in the real world to comply with the new law.

Going forward organisations will simply need to know who they are getting into bed with, check out the relatives and enter into a good pre-nup agreement before getting married.

Is that really asking too much?

* declaration of interest!

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