JVs present many FCPA risks that other business relationships do not. For example, the JV may interact with foreign government officials or employees of a state-owned enterprise; then exploit those relationships for an improper benefit in connection with contracts, regulatory licenses, permits or customs approvals. It is difficult to arrange a JV interaction with foreign government officials when your partner is a state-owned enterprise or your company relies on the local company for its local contacts and business expertise. See more +
The risks are compounded when the US company does not exercise control over the JV. This is further exacerbated by the fact that there is no minimum threshold for an FCPA enforcement action against a US company for the actions of a JV in which it has an interest. If a company owns anything less than majority rights, it must push, plead and plead for the majority partner to adhere to anti-corruption compliance standards and controls. Often, these requirements are set out in the JV agreement, but success in securing such contract protections depends on the importance of the global company to the JV itself.
Another set of issues comes from the JV seeking to retain third-party agents and/or distributors. Depending on the amount of control, the US company can usually impose its own due diligence standards on third-party agents and distributors. These risks are compounded when the JV partner brings in a proposed third-party agent or distributor and vouches for the agent or distributor. If the JV partner is a state-owned enterprise, matters become even more complicated as such a referral creates an obvious red flag for a government-sponsored referral.
Three main recommendations:
1. JVs present unique FCPA risks and must be managed accordingly.
2. Your final report should consider the final viewer of the document, potentially the DOJ or SEC.
3. Follow up on any red flags raised but not cleared and action items for repair or additional review.
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