The FCPA and Joint Venture Liability

As more companies seek to enter new markets in China, Brazil, India and other emerging economies, they frequently do so by entering into joint ventures.

Joint ventures vary in their form.  Some are as simple as a contract for a specific project, and some are complex involving the creation of a new entity with new organizational structures.  Whatever their form, FCPA liability for joint ventures is a tricky area where legal and compliance officers need to pay extra attention.

The two most common scenarios for FCPA analysis are (1) a joint venture between a US company/issuer and a state-owned enterprise; and (2) a joint venture between a US person/partnership/company and a foreign private company which manufactures or has sole responsibility for important functions needed to manufacture a product.

Looking at compliance from the perspective of a US issue involved in a joint venture, there are several significant risks to the company, directors and joint venture itself.

Issuers can be held liable for corrupt payments to foreign officials; and the shareholders of a foreign firm (issuer) can be held liable for any act in the US to direct or authorize a corrupt payment to a foreign officials.

Directors (e.g. half of the board which is appointed from US company/joint venture partner) can be held liable as employees or agents of an issuer for any corrupt payments made to a foreign official; as a "domestic concern" or as employees of a corporation with a principal place of business in the US, if they make use of an instrumentality of in furtherance of such payment; or if they are with a foreign firm and they are in the US when they make use of the mails or instrumentality in relation to the corrupt payment.

The joint venture itself may be liable if it as a foreign firm has a stockholder or agent on its behalf while in the US makes a corrupt payment using the mails or commits an act in furtherance of the corrupt payment to a foreign official. 

The Justice Department has taken a very expansive view of the "in furtherance" requirement and courts have upheld such a broad view.  In addition, the Justice Department has targeted its enforcement actions against the US partner in a joint venture rather than the joint venture itself.

Compliance and internal controls for joint ventures are essential to avoid serious pitfalls and risks.  The scenarios can be mind-numbing and careful analysis is required before mapping out a compliance strategy.