As I conclude this section on joint ventures, I want to emphasize again the risk they pose under the FCPA. Mike Volkov has stated, “A joint venture requires the integration of disparate company cultures. It can be successful, and is usually one of the significant reason for the joint venture itself.” Both parties should assess each other and decide that the joint venture is a good fit, meaning that each side will benefit. Too much time is spent on looking at the joint venture partner’s compliance toolbox (e.g. policies, procedures, and controls), and not enough time is spent on identifying compliance strengths and weaknesses. You must bring it all together with one format.

While the 2012 FCPA Guidance only provided that “companies should undertake some form of ongoing monitoring of third-party relationships”. This means that you must have an experienced compliance and audit team, actively engaged in the corporate office and in the business units, to ensure that financial controls and compliance policies are followed and that remedial measures for violations or gaps are tracked, implemented and rechecked, as additional detection and prevention. Caldwell noted it is a more encompassing “sensitization” to anti-corruption compliance that is needed. There are several ways for you to do so in a joint venture relationship. 

The starting point for the both the compliance and business management of a joint venture, is a Relationship Manager for every joint venture with which your company does business. The Relationship Manager should be a business unit employee who is responsible for monitoring, maintaining and continuously evaluating the relationship between your company and the joint venture. Some of the duties of the Relationship Manager may include:

  • Point of contact with the joint venture for all compliance issues;
  • Maintaining periodic contact with the joint venture;
  • Meeting annually with the joint venture to review its satisfaction of all company compliance obligations;
  • Submitting annual reports to the company’s Compliance Oversight Committee summarizing services provided by the joint venture;
  • Assisting the company’s Compliance Oversight Committee with any issues with respect to the joint venture.

Just as a company needs a subject matter expert in compliance to be able to work with the business folks and answer the usual questions that come up in the day-to-day routine of doing business internationally, joint ventures also need such access to such a resource. A joint venture may not be large enough to have its own compliance staff so a company should provide such a dedicated resource to joint venture, if so required. I do not believe that this will create a conflict of interest or that there are other legal impediments to providing such services. The US partner can also include compliance training for the joint venture, either through onsite or remote mechanisms. The compliance professional should work closely with the Relationship Manager to provide advice, training and communications to the joint venture. 

A company should have a Compliance Oversight Committee review all documents relating to the full panoply of a joint venture’s compliance program. It can be a formal structure or some other type of group but the key is to have the senior management put a ‘second set of eyes’ on any joint ventures. In addition to the basic concept of process validation of your risk management of joint ventures, this is a manner to deliver additional management of that risk going forward.

After the commercial relationship has begun the Compliance Oversight Committee should monitor the joint venture on no less than an annual basis. This annual audit should include a review of remedial due diligence investigations and evaluation of any new or supplemental risk associated with any negative information discovered from a review of financial audit reports on the joint venture. The Compliance Oversight Committee should review any reports of any material breach of contract including any breach of the requirements of the Company’s of joint venture’s Code of Ethics. In addition to the above remedial review, the Compliance Oversight Committee should review all compliance-impacted payments by the joint venture to assure such payment are within the company guidelines and are warranted by the contractual relationship with the joint venture. Lastly, the Compliance Oversight Committee should review any request to provide the joint venture any type of non-monetary compensation and, as appropriate, approve such requests.

A key tool in managing the affiliation with a joint venture post-contract execution is auditing. Audit rights are a key clause in any compliance terms and conditions and must be secured. Your compliance audit should be a systematic, independent and documented process for obtaining evidence and evaluating it objectively to determine the extent to which your compliance terms and conditions are followed. Noted fraud examiner expert Tracy Coenen described the process as (1) capture the data; (2) analyze the data; and (3) report on the data, which is also appropriate for a compliance audit. 

In addition to monitoring and oversight of your joint ventures, you should periodically review the health of your joint venture management program. The robustness of your joint venture management program will go a long way towards preventing, detecting and remediating any compliance issue before it becomes a full-blown FCPA violation. As with all the steps laid out, you need to fully document all steps you have taken so that any regulator can review and test your metrics. The Evaluation of Corporate Compliance programs lays out what the DOJ will be reviewing and evaluating going forward for your compliance program. You should also use these metrics to conduct a self-assessment on the state of your compliance program for your joint ventures. 

Three Key Takeaways

  1. It all starts with a Relationship Manager.
  2. Have company oversight of all joint ventures. Couple this with a Compliance Oversight Committee for a second set of eyes.
  3. Audit, monitor and remediate (as appropriate) your joint ventures on an ongoing basis.

 

This month’s podcast series is sponsored by Michael Volkov and The Volkov Law Group.  The Volkov Law Group is a premier law firm specializing in corporate ethics and compliance, internal investigations and white collar defense.  For more information and to discuss practical solutions to compliance and enforcement issues, email Michael Volkov at mvolkov@volkovlaw.com or check out www.volkovlaw.com.

For instance, the joint venture may interact with foreign government officials or employees of a state-owned enterprise; then leverage those relationships for an improper benefit either contracts, regulatory licenses, permits or customs approvals. It is difficult to regulate a joint venture’s interactions with foreign government officials when you partner is a state-owned enterprise, or where your company is relying on the local company for its local contacts and expertise for business development and/or regulatory knowledge and experience.

The risks are compounded when the US company does not exercise control of the joint venture. This is further compounded by the fact there is no minimum threshold for a FCPA enforcement action against a US company for the actions of a joint venture in which it holds an interest. If a company holds something less than majority rights, it must to urge, beg and plead for the majority partner to adhere to anti-corruption compliance standards and controls. Often, these requirements are established in the joint venture agreement but the success in securing such contract protections depends on the importance of the global company to the joint venture itself.

Another set of issues comes from the joint venture when it seeks to retain third party agents and/or distributors. Depending on the amount of control, the US company usually can impose its set of standards for conducting due diligence of third party agents and distributors. These risks become more difficult when the joint venture partner brings to the joint venture a proposed third party agent or distributor and vouches for the agent or distributor. If the joint venture partner is a state-owned enterprise, the issues become even more complicated as such referral creates an obvious red flag for a government-sponsored referral.

Now add on the fact that the foreign joint venture partner may not be proficient in English as a first language. The US company may not have financial personnel with requisite language skills in the foreign country. Some companies have a policy that English will be used throughout the world in its business dealings. However, even with such an English only policy in place, the risks represented by such lack of effective oversight by the multinational extend not only to potential FCPA violations, but to other corrupt acts, including kickbacks, fraud and theft.

At this point you have engaged in due diligence prior to the create of the joint venture agreement. The agreement itself has a robust set of compliance terms and conditions, including the right to audit. Mike Volkov has called the exercise of the right to audit one of the key elements in the risk management process around joint ventures. He advocates that any audit take a deep dive into the payments made by the joint venture to a wide range of persons and entities, including agents, suppliers, customers or any others. This would be particularly important for payments made to do business or otherwise operate legally in the joint venture’s locations. This means there should be an inspection of the joint ventures books and records to see if facilitation payments are properly recorded as facilitation payments.

Volkov noted that one interesting area which requires greater review is around payments to colleges or universities outside the US. If there are payments for research or other projects you need to audit the payments and services with an eye towards determining that the rate paid is not out of line with the local payment rate. The same holds true around gifts and entertainment as the local tradition of your foreign partner may be quite different than the expectations of an American company operating in a country such as China.

Another area for audit is if the foreign partner receives a management fee, which can be used for improper purposes. Several FCPA enforcement actions were based on this or similar payment schemes. Such fees may simply be based upon a percentage of joint venture revenue or profit, and often are not required to correspond to defined tasks, or specific efforts or hours. Most usually, there are no substantive billings associated with such fees, they simply become due. Under this type of arrangement, it is almost impossible to justify this fee if requested by the DOJ. If the foreign partner does receive such a fee, this will need to be closely scrutinized in the audit process.

Volkov advocates using a wide-range of investigation techniques in any audit of a foreign joint venture. He said that a trip to the joint venture headquarters is mandatory, as are onsite interviews with key joint venture personnel such as joint venture CEO, CFO, head of audit, head of HR and compliance. A key interview is always the head of sales for the joint venture and any head of sales who might deal with foreign governments or state-owned enterprises. Phone interviews can be used to supplement these in person interviews where appropriate.

Volkov stated that “what we were trying to put together was a product that can stand up to subsequent scrutiny, particularly by the Justice Department and the SEC.” Yet there are other key reasons for the audit; these include education, training and communication. Every time you meet with someone, you have the chance to not only listen to them but give them information on the compliance program and expectations thereunder. Equally important is the ease and (hopefully) comfort the participants in the joint venture will feel about your compliance efforts and their compliance obligations going forward.

As a baseline, I would suggest that any audit of a joint venture include, at a minimum, a review of the following:

  1. the effectiveness of existing compliance programs and codes of conduct;
  2. the origin and legitimacy of any funds paid to Company;
  3. books, records and accounts, or those of any of its subsidiaries, joint ventures or affiliates, related to work performed for, or services or equipment provided to, Company;
  4. all disbursements made for or on behalf of Company; and
  5. all funds received from Company in connection with work performed for, or services or equipment provided to, Company.

If you want to engage in a deeper dive you might consider evaluation of some of the following areas:

  • Review of contracts with joint ventures to confirm that the appropriate FCPA compliance terms and conditions are in place.
  • Determine that actual due diligence took place on the joint venture.
  • Review FCPA compliance training program; both the substance of the program and attendance records.
  • Does the joint venture have a hotline or any other reporting mechanism for allegations of compliance violations? If so how are such reports maintained? Review any reports of compliance violations or issues that arose through anonymous reporting, hotline or any other reporting mechanism.
  • Does the joint venture have written employee discipline procedures? If so have any employees been disciplined for any compliance violations? If yes review all relevant files relating to any such violations to determine the process used and the outcome reached.
  • Review employee expense reports for employees in high-risk positions or high-risk countries.
  • Testing for gifts, travel and entertainment that were provided to, or for, foreign governmental officials.
  • Review the overall structure of the joint venture’s compliance program. If the company has a designated compliance officer to whom, and how, does that compliance officer report?
  • How is the joint venture’s compliance program designed to identify risks and what has been the result of any so identified?
  • Review a sample of employee commission payments and determine if they follow the internal policy and procedure of the joint venture.
  • Regarding any petty cash activity in foreign locations, review a sample of activity and apply analytical procedures and testing. Analyze the general ledger for high-risk transactions and cash advances and apply analytical procedures and testing.

Finally, is your follow up after the audit. If there are any red flags which were not fully investigated during the audit process, that must be accomplished in this phase. Additionally, if there were action items for remediation they should be completed in a timely manner. There may be some issues which may bear greater scrutiny during the year, such as gift, travel and entertainment expenses which can be noted as well. 

Three Key Takeaways

  1. Joint Venture present unique risks FCPA risks and must be managed accordingly.
  2. Your final report needs to consider the final viewer of the document, potentially the DOJ or SEC.
  3. Be sure to follow up on any red flags raised but not cleared and action items for remediation or additional scrutiny.

 

This month’s podcast series is sponsored by Michael Volkov and The Volkov Law Group.  The Volkov Law Group is a premier law firm specializing in corporate ethics and compliance, internal investigations and white collar defense.  For more information and to discuss practical solutions to compliance and enforcement issues, email Michael Volkov at mvolkov@volkovlaw.com or check out www.volkovlaw.com.

Numerous US companies have come to FCPA grief for their overseas joint ventures and the continue to be a bane for many companies under the Act. There are some basic compliance terms and conditions which should be considered for any foreign joint venture agreement to help US companies manage these compliance risks.

As a starting point, it is important to have compliance terms and conditions, these reasons can include some of the following: (1) to set expectations between the parties; (2) to demonstrate the seriousness of the issue to the non-US party; and (3) to provide a financial incentive to do business in compliant manner.

  1. Prohibition of all forms of bribery and corruption. Many foreign joint venture partners may not understand that the FCPA applies to them if they partner in a business relationship with a US company. Further, they do not understand that they may be governmental officials under the FCPA. This all must be spelled out for them so you should have language regarding the following:
  • Prohibition of all forms of bribery and corruption, but you should be careful to make note that FCPA is broader than simple bribery; it includes hospitality/gifts/entertainment/travel as well.
  • Affirmation of FCPA compliance, this should be in writing and it should also require that the non-US party understand or have familiarity with the FCPA, as well as that they will comply with the tenets of the FCPA.
  • Agreement to comply with local laws and customs regarding anti-bribery and anti-corruption in the jurisdiction where it is located and/or does business.
  1. Right to Cancel and Recoupment rights. These should include the following:
  • Right to cancel the contract if there is a compliance violation or breach of contract because that allows you maximum flexibility.
  • Withhold any payments due.
  • Allow for disgorgement of any monies previously paid under the agreement.
  • Take any other action you think necessary or appropriate.
  1. Duties
  • Spell out exact duties and deliverables of the Joint Venture.
  • Employees of the joint venture have continuing duty to adhere to training.
  • There will be updated due diligence performed on the JV partner.
  • There is an ongoing duty to report changes in ownership structure of any non-US partner. This includes changes in corporate structure and/or corporate leadership. There must be immediate notification to the US company and it is particularly important when government changes.
  • Require that the joint venture follow generally accepted accounting principles (GAAP), and conduct an annual audit by an agreed upon independent accounting firm.
  • Prohibit the creation of any funds without the approval of the joint venture’s governing body (supermajority approval in the case of minority interest by the multinational).
  • If the foreign joint venture partner has day-to-day management responsibilities, require dual signatures for checks or electronic funds transfers drawn on joint venture bank accounts.
  • Require that the joint venture conduct investigative due diligence on agents, consultants and other third parties retained by the joint venture.
  • Require the implementation of a code of business conduct by the joint venture and implement an anonymous reporting mechanism for joint venture employees.
  1. Audit Rights – these are an important tool in your joint venture risk management process and must be included in any joint venture agreement. In addition to putting your JV partner on notice that you are not simply willing to look the other way once the agreement is signed, it is an active acknowledgement that there will be ongoing transactional review during the term of the joint venture agreement. If any illegal payments are made or discovered the US company should retain full access to the audit trail which it can then turn over to the proper authorities. Additionally, the joint venture should have the right to audit any agent(s) it may hire for its own use.

If you have audit rights you must exercise them. The same calculus is true for termination rights. If you have a good faith belief that your JV-US partner has violated the FCPA, you better exercise your right to terminate. If you do not do so, your US company will probably be in more hot water with the DOJ.

  1. Prohibited Parties – the Joint Venture will not deal with US designated Prohibited Countries, Prohibited Parties or any other persons or entities on any such OFAC prohibited list.
  2. Certifications-you should specify that the foreign partners will annually, personally, certificate that they have not violated the FCPA on any matters relating to the joint venture, are aware of no FCPA violations by the joint venture which they have not previously reported and have received and understood annual FCPA training.

Lastly one area which is continuing to be problematic is that of how to make payments. Some of the tools to manage this risk are the following:

  • Always try to make payments via wire transfer.
  • No large upfront payments unless designated for legitimate start-up expenses.
  • Pay only to the named company, not unknown third parties.
  • Payment in local currency, however you can pay in USD. The key is consistency in how you are paying and your documentation.
  • Pay where the agent’s country of residence or where the work is done.

All the above steps should be taken only after extensive due diligence has been completed. After the contract is signed your company will have to work just as hard to keep the compliance program for any joint venture robust and meaningful. However, with these terms and conditions in place, you will have a chance to maintain your FCPA obligations and to manage the risk that is involved when working jointly with non-US companies.

Three Key Takeaways

  1. Failure to secure appropriate compliance terms and conditions in a JV agreement can cause great FCPA risk for a US company.
  2. Certifications are important requirements to obtain.
  3. Audit rights must be secured and equally importantly, exercised.

 

 

This month’s podcast series is sponsored by Michael Volkov and The Volkov Law Group.  The Volkov Law Group is a premier law firm specializing in corporate ethics and compliance, internal investigations and white collar defense.  For more information and to discuss practical solutions to compliance and enforcement issues, email Michael Volkov at mvolkov@volkovlaw.com or check out www.volkovlaw.com.

When you bring two entities together to operate jointly, there are several difficult issues to analyze. For the US company operating under the FCPA, there must be an adequate business justification for a joint venture with a specific partner, all in writing and approved by an appropriate level of the organization. Mike Volkov has noted this is where the due diligence process comes into play. The due diligence process should be built on principles like those involving third parties. The procedure should be robust, documented and address all potential risks involved. A company should use its due diligence review of the JV partner to proper assess and uncover any corruption risk. Using this due diligence and its evaluation, you can then move to contractual clauses, certifications, representations and warranties from a JV partner or insist on other remedial measures to minimize its risk exposure.

Dennis Haist, the General Counsel and Chief Compliance Officer at Steele Compliance Solutions, Inc. in an article entitled, “Guilt by Association: Transnational Joint Ventures and the FCPA laid out some of the specifics that you should ask for in a due diligence review of prospective JV partners.

  1. Entity information
  • Entity name, DBA, previous names, physical address and contact information, website address.
  • Legal structure, jurisdiction of organization, date organized and whether the entity is publicly traded.
  • Entity registration number(s), and dates and places of registration; number of years in business.
  • Entity tax licenses, business licenses, or certificates or commercial registrations.
  • Description of business, customers, industry sectors.
  • Names, addresses and jurisdictions of formation for all companies or other affiliated entities, and ownership interest in each.
  • Names and contact information for main point of contact.
  • Names and contact information for entity’s outside accountants/auditors and primary legal counsel.
  1. Ownership information
  • Name, address, nationality, percentage of ownership and date of acquisition for each parent company up to ultimate parent.
  • Name, nationality, ID type/number, percent ownership and date of acquisition for all shareholders and owners.
  • Identity of any other persons having a direct or indirect interest in the entity’s equity, revenues or profits.
  • Identity of any other person able to exercise control over the entity through any arrangement or relationship.
  • Information on any direct or indirect ownership interest by any government, government employee or official; or political party, party official or candidate, and employee of any state-owned enterprise.
  1. Management information
  • Name, address, nationality, ID type/number and title for each member of the entity’s governing board.
  • Name, address, nationality, ID type/number and title for each officer of the entity.
  • Information on any other business affiliations of principals, owners, partners, directors, officers or key employees who will manage the business relationship.
  • Information on whether any principals, owners, partners, directors, officers or employees, currently or in the past, have been officials or candidates of a political party or been elected to any political office.
  1. Government relationships
  • Information on whether any principals, owners, partners, directors, officers or employees hold any official office or have any duties for any government agency or public international organization.
  • Information on whether any owners, directors, officers or key employees have an immediate family member who is an employee, contractor or official of the foreign government, or a public international organization.
  • Information on whether any employee of, or contractor or consultant to, any government entity or public international organization will benefit from the joint venture.
  • Approximate percentage of entity’s overall annual sales revenue derived from government sales.
  1. Business conduct
  • Information on whether the entity has ever been barred or suspended from doing business with a government entity. Information on whether any principals, owners, partners, directors, officers or employees are identified on any government designated nationals, blocked persons, sanction, embargo or denied persons lists.
  • Information on whether the entity, its principals, owners, partners, directors, officers or employees have ever been charged with, convicted of, or alleged to have been engaged in fraud, bribery, misrepresentation and/or any other criminal act.
  • Information on whether the entity, its principals, owners, partners, directors, officers or employees have been investigated for violating the FCPA or any other anti-corruption law.
  • Information on whether the entity has a compliance program which includes the prevention of bribery and information on the training of employees.
  1. References
  • Three or more unrelated business references, including a bank and existing client.
  1. Certification/authorization/declaration
  • Certification of accuracy.
  • Authorization to conduct due diligence, authorization for third parties to release data and consent to collection of data.
  • Anti-corruption compliance declaration.

In addition to asking for all this information, you must take care to document the entire process that your company goes through in the investigation and creating a foreign joint venture. (Dcoucment Document Document) It is equally important to remember that obtaining this information is only one step. A company must evaluate the information and follow up if responses to such inquiries warrant such action. A paper program is simply not good enough and can lead to serious consequences if Red Flags are not reviewed and cleared. This evaluation should also be documented so that if a regulator ever comes knocking you can demonstrate what you asked for, why, the response, your follow up and the details of your evaluation.

Finally, never forget the human factor. It is important to perform an in-person interview of your proposed joint venture partner. It is important that you meet them, see their facilities and assess them up close and personal. A US business looking to engage a joint venture partner must consider the people who make up its joint venture partner. As Mike Volkov has noted, “These people, in turn, act together or can be influences together, as part of the joint venture’s culture. This is what I mean by the human factor. A global company cannot ignore the human factor of its joint venture partner. It has to assess the culture, and more importantly, the key personnel who are part of the joint venture partner – the leaders, the go-to-people who get the job done, and the overall environment in which they operate.” As you will have to mesh what may be two very different cultures and understandings of compliance, it is important to assess how your potential joint venture partner will take these obligations before, rather than after you ink the JV agreement.

Three Key Takeaways

  1. Joint Venture due diligence must focus on the unique risks.
  2. Ask for a detailed list of information from your potential JV partner.
  3. Be sure to do onsite investigation of your potential joint venture partner.

 

This month’s podcast series is sponsored by Michael Volkov and The Volkov Law Group.  The Volkov Law Group is a premier law firm specializing in corporate ethics and compliance, internal investigations and white collar defense.  For more information and to discuss practical solutions to compliance and enforcement issues, email Michael Volkov at mvolkov@volkovlaw.com or check out www.volkovlaw.com.

Just as the FCPA enforcement field is covered with actions centering around mergers and acquisitions, there are multiple actions involving joint ventures (JVs). JVs continue to plague many US companies up to this day. In many ways, JVs present more difficult issues for the compliance practitioner than mergers and acquisitions because of the control issues present in JVs with foreign governments or state owned enterprises ownership.

In an article in the Virginia Law & Business Review, entitled “Traversing the Minefield: Joint Ventures and the Foreign Corrupt Practices ActDaniel Grimm explained that JVs can provide a variety of benefits to a company desiring to enter an international market. Some of the benefits can include; satisfying a local content or partner requirement, a method of international expansion under “which outside investors benefit from the knowledge of local firms while retaining “some operational and strategic control” over the enterprise”; all with a lower overall cost for both resources and integration than required through a traditional corporate merger. Yet these same benefits can also bring greater FCPA risks.

Mike Volkov in an article entitled, “Digging Down on Joint Ventures and FCPA Compliance” noted that when you create a JV, there are a number of difficult issues to analyze. Initially, is the requirement of adequate due diligence. This is more difficult than in a traditional merger. Next is the set of governance issues surrounding control of the JV. If your JV partner is a state-owned enterprise, the issues become even more complex.  The interactions between the company and the state-owned enterprise within the joint venture itself should be regulated so that they are not perceived as intended to improperly influence the state owned enterprise, “either directly or in other areas of interaction.” Even if JV involves a private, as opposed to state-owned partner, the compliance issue then becomes the controlling the actions of the JV sales people, JV staff responsible for regulatory interactions, and JV-retained third party agents and distributors.

A new JV creates a new set of risks for the company subject to the FCPA. In the JV context, the company has, by definition, less control.  As a result, these issues need to be addressed in the formation of the JV. The issue becomes even more difficult when the company entering the JV has less than 50 percent control.  Grimm noted that “An issuer with a minority stake in another entity is required to “proceed in good faith to use its influence, to the extent reasonable under the issuer’s circumstances,” to cause the entity to comply with the books and records and internal controls provisions of the FCPA. Relevant circumstances include “the relative degree of the issuer’s ownership” and “the laws and practices governing the business operations of the country” in which the entity is located.”

As early as 2002, in the SEC FCPA enforcement action involving BellSouth, which owned only 49% of a JV in in Telefonia Celular de Nicaragua, S.A. (“Telefonia”), a Nicaraguan corporation that relinquished operational control to an indirect, wholly-owned BellSouth subsidiary. Relying on the FCPA’s good faith influence requirement for an issuer holding a minority stake in another entity, the SEC alleged that BellSouth “held less than 50 percent of the voting power of Telefonia, but through its operational control, had the ability to cause Telefonia to comply with the FCPA’s books and records and internal controls provisions.”

There are multiple types of FCPA liability to a parent for the actions of a JV in which it is a partner. These can include directly liability such as with Halliburton and its former subsidiary KBR in the TSJK JV involved in bribery and corruption in Nigeria. Halliburton paid a total FCPA penalty of $579MM to the US and $25MM to the Nigerian government of the actions of its subsidiary, KBR.

In addition to the traditional direct liability, JVs can be a source of vicarious liability. Grimm noted that “A business entity may, depending on the circumstances, be held vicariously liable for FCPA violations committed by a joint venture, a joint venture partner, or an agent acting on behalf of a joint venture. Vicarious liability traditionally applies in situations where a business entity authorized, directed, or controlled acts that violate the FCPA’s anti-bribery provisions.” It could also violate the accounting provisions around keeping accurate books and records and effective internal controls. This was the situation involving 2016 enforcement action involving Anheuser-Busch InBev, in India, where the company paid $6 million to settle charges that it violated the FCPA and impeded a whistleblower who reported the misconduct.

Mike Volkov identified other risks that a company must seek to avoid. These include the transfer of things of value to a state-owned enterprise for benefits of someone outside the joint venture. A company must avoid payments for which there is no legitimate business purpose to the state-owned enterprise in the joint venture itself; as they will be deemed to be illegal benefits to the state-owned enterprise outside the joint venture. In this case, the joint venture becomes a vehicle by which to disguise bribery payments for benefits to those outside the joint venture.

Any company which operates a JV with foreign governments or state-owned enterprises holds the same FCPA risk as the JV partner itself; the risks become apparent relating to the operation of the joint venture itself. This means that if the joint venture interacts with foreign government officials or employee of a state-owned enterprise and leverages its state-owned enterprise relationships for an improper benefit either contracts and/or regulatory licenses, permits or customs approvals; it could well be subject to FCPA scrutiny. Unfortunately, it is often difficult to regulate a JVs interactions with foreign government officials, particularly when your partner is a state-owned enterprise, or where your company is relying on the local company for its local contacts and expertise for business development and/or regulatory knowledge and experience in the country where the JV operates.

The bottom line is JVs present a unique set of FCPA risks for the compliance practitioner. You will need to incorporate risk manage techniques in all phases of the JV relations; pre-formation, the JV agreement and in operations after the JV has begun operation. The compliance obligations and compliance process are ongoing.

Three Key Takeaways

  1. Joint Ventures present unique FCPA risks.
  2. Control is only one issue a compliance practitioner must consider in evaluating joint venture risks.
  3. Companies continue to have significant FCPA risks from joint ventures.

 

This month’s podcast series is sponsored by Michael Volkov and The Volkov Law Group.  The Volkov Law Group is a premier law firm specializing in corporate ethics and compliance, internal investigations and white collar defense.  For more information and to discuss practical solutions to compliance and enforcement issues, email Michael Volkov at mvolkov@volkovlaw.com or check out www.volkovlaw.com.