Compliance in practice: setting up a multinational joint venture

Compliance – Challenges and opportunities for the legal profession

October 29, 2016 -UIA Budapest Congress

Arianna Righi

Senior Counsel EMEA

Archer Daniels Midland Company

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Introduction• The FCPA and the recent enforcement actions involving multinational JVs :

Examples: the cases involving RAE Systems Inc. or JGC Corporation, Technip SA, ENI SPA, Snamprogetti Netherlands BV and KBR Inc.

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Introduction• High liability faced by companies because of the misconduct of a JV or JV

partners.

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Liability of JV partners under FCPA provisions• The liability under the FCPA for JV partners arises under both:

o its anti-bribery provisions and

o its accounting provisions

• The liability under the anti-bribery provisions of FCPA for JV partners is regardless that they hold or not a majority interest in the JV.

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Transparency International Corruption Perception Index

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Compliance risk-management measures for JVs

Due to the liability risk and the authorities increasing focus on joint ventures, companies subject to the FCPA and other anti-corruption regulations should consider various risk-management measures before setting up a JV.

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1. Compliance due diligence prior to the set up of the JV

Due diligence review of all potential JV partners or target of the JV project prior to executing the JV agreement.

• Objective: identify compliance and reputational risks which may impact the investment decision or the successful integration or operation of the JV.

• Red flags: questionable transactions, inappropriate dealings with government, reputational concerns.

• Decision on how the identified risks can be addressed prior to the execution of the JV agreement:

o providing in the JV agreement on obligation for the JV partners to implement compliance policies, procedures and audits and to modify certain business practices as from completion of the JV transaction;

o the JV project cannot be pursued due to the high risks associated with actual or potential compliance violations.

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2. Compliance clauses in the JV agreement

• Representations and warranties from the other JV partner that they or the JV target company and their directors/employees have not prior to signing/closing of the JV agreement breached any applicable anti-corruption laws.

• Provisions prohibiting improper payments by JV partners and V company in connection with the joint venture and providing for the remedies in case of violation.

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2. Compliance clauses in the JV agreement

• Other compliance clauses:

• Obligation of the JV partners and JV company to ensure:

- the implementation within the JV company of appropriate FCPA/anti-corruption compliance programs and audits;

- proper recordkeeping of the JV company and internal accounting controls, to comply with the books and records provisions of FCPA

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2. Exit clauses in the JV Agreement

Exit strategy to be addressed in the JV agreement, in case of violation by the other JV partner of its obligations regarding compliance with the anti-corruption regulations.

To include a provision allowing the JV partners to terminate the JV agreement in the event that the other partner :

o has made misrepresentations regarding past conduct in relation to anti-corruption regulations or

o violates the anti-corruption compliance requirements of the JV agreement as from completion.

The provision should provide for the conditions for the buy-out by the infringing JV partner of the shares of the other partner in the JV company.

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3. Compliance in practice after the set-up of the JV

• Implementation of Compliance policies, procedures and controls

Upon its set-up, the JV shall adopt and implement policies, procedures and controls designed to ensure compliance with anti-corruption regulations, including:

to ensure that the books and records of JV accurately and fairly reflect the transactions of the JV entity, in order to prevent, detect and cure fraud, corruption and material errors or misstatements in the JVs’ financial statements.

Examples: Code of Conduct and other compliance policies (incl. payment policies), vendors due diligence, update of contractual terms, etc.

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3. Compliance in practice after the set-up of the JV

• Training of JV board members

Compliance training upon creation of the JV

and regularly thereafter.

• Training of the JV personnel – agents/service providers

Audience and scope of compliance training to be determined depending on the personnel roles and exposure to corruption risk.

This may include training of agents and service providers of the JV.12

Conclusion

Comments?

Thoughts?

Thank you!

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