Tag: Joint Ventures

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31 Days to More Effective Compliance Programs

One Month to More Effective Compliance for Business Ventures – Tying it all Together for Joint Ventures

I want to emphasize again the risks JVs 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 JV is a good fit, meaning that each side will benefit. Too much time is spent on looking at the JV partner’s compliance toolbox (i.e., 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.

Indeed the 2020 Update to the Evaluation of Corporate Compliance Programs posed the following questions under the category, “Process Connecting Due Diligence to Implementation” What has been the company’s process for tracking and remediating misconduct or misconduct risks identified during the due diligence process? What has been the company’s process for implementing compliance policies and procedures, and conducting post- acquisition audits, at newly acquired entities? Remember a “newly acquired entity” can be a joint venture.
Three key takeaways: 

  1. It all starts with a Relationship Manager.
  2. Have company oversight of all JVs. Couple this with a COC for a second set of eyes.
  3. Audit, monitor, and remediate (as appropriate) your JVs on an ongoing basis.
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31 Days to More Effective Compliance Programs

One Month to More Effective Compliance for Business Ventures – Auditing Joint Ventures

JVs provide many FCPA risks that other types of business relationships do not bring. For instance, the JV may interact with foreign government officials or employees of a state-owned enterprise; then leverage those relationships for an improper benefit relating to contracts, regulatory licenses, permits or customs approvals. It is difficult to regulate a JVs interaction with foreign government officials 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.

The risks are compounded when the U.S. company does not exercise control of the JV. This is further compounded by the fact there is no minimum threshold for a FCPA enforcement action against a U.S. company for the actions of a JV 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 JV agreement but the 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 when it seeks to retain third-party agents and/or distributors. Depending on the amount of control, the U.S. 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 JV partner brings a proposed third-party agent or distributor and vouches for the agent or distributor. If the JV partner is a state-owned enterprise, the issues become even more complicated as such a referral creates an obvious red flag for a government-sponsored referral.

Three key takeaways: 

  1. JVs present unique 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.
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31 Days to More Effective Compliance Programs

One Month to More Effective Compliance for Business Ventures – Compliance Terms and Conditions for Joint Ventures

Numerous U.S. companies have come to FCPA grief for their overseas JVs, which continues to be a bane for many companies under the FCPA. Some basic compliance terms and conditions should be considered for any foreign JV agreement to help U.S. companies manage these compliance risks.
As a starting point, it is important to have compliance terms and conditions, and 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-U.S. party, and 3) to provide a financial incentive to do business in a compliant manner.

This all must be spelled out for them, so you should have language regarding the following:

  • Prohibition of all forms of bribery and corruption. 
  • Right to cancel and recoupment rights.
  • Duties in JV Governance.
  • Audit rights.
  • Prohibited Parties.
  • Certifications.

After the contract is signed, your company will have to work just as hard to keep the compliance program for any JV robust and meaningful. However, with these terms and conditions in place, you can maintain your FCPA obligations and manage the risk involved when working jointly with non-U.S. companies.
Three key takeaways: 

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

One Month to More Effective Compliance for Business Ventures – JV Due Diligence

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

A U.S. business looking to engage a JV partner must consider the people who make up its JV partner. 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 JV partner will take these obligations before rather than after you ink the JV agreement.

Three key takeaways:

  1. JV’s 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 the onsite investigation of your potential JV partner.
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31 Days to More Effective Compliance Programs

One Month to More Effective Compliance for Business Ventures – JV risks under the FCPA

Just as the FCPA enforcement field is covered with actions centering around M&A, multiple actions involve JVs. JVs continue to plague many U.S. companies up to this day. In many ways, JVs present more difficult issues for the compliance practitioner than M&A because of the control issues present in JVs with foreign governments or state-owned enterprises ownership.

There are other risks that a company must seek to avoid. These include transferring things of value to a state-owned enterprise for the benefit of someone outside the JV. A company must avoid payments for which there is no legitimate business purpose to the state-owned enterprise in the JV itself, as they will be deemed illegal benefits to the state-owned enterprise outside the JV.

The bottom line is JVs present a unique set of FCPA risks for the compliance practitioner. You will need to incorporate risk management 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. JVs present unique FCPA risks.
  2. Control is only one issue a compliance practitioner must consider in evaluating JV risks.
  3. Companies continue to have significant FCPA risks from JVs.
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Survive and Thrive

What do you do when you are given 2 weeks to close a JV?


Welcome to SURVIVE AND THRIVE, the newest addition to the Compliance Podcast Network. This is a podcast where we unpack compliance, crisis disasters and walk you through all the red flags which appear, and give you some lessons learned going forward. This show is hosted by the Compliance Evangelist Thomas Fox and Kortney Nordrum, Regulatory Counsel & Chief Compliance Officer, Deluxe Corporation.
Today’s episode is all about JOINT VENTURES. New sets of compliance risks arise for companies subject to the Foreign Corrupt Practices Act (FCPA). Suppose that you are given two weeks to close a joint venture, what are concrete steps you can take to protect the organization and help the joint venture do business ethically and profitably?
Key steps & takeaways discussed in the episode:
✔️ Set expectations and figure out what Compliance is exactly in charge of handling. Initiate M&A due diligence process and send DD questionnaire to the integration/JV manager.
✔️ Brief the team on the advanced timeline and reprioritize DD based on risks.
✔️Learn key steps to expect from outside counsel and what can you do in-house as well?
○ Counsel:
· Responsible for drafting agreements
· Need to advise on government approvals and registration/licensing if needed
· Deep dive into the JV candidate company and their Board/Executive  leadership
· Antitrust management – with JV candidate and their counsel
· Engage a third-party diligence organization to do boots-on-the-ground diligence in foreign partner country
○ In house:
· Compliance, privacy, and risk diligence – including questionnaires, interviews, meetings, and reviewing evidence and documents provided by the JV candidate
· Training the internal JV team on what they can and can’t do throughout diligence (what they can disclose, ask about, and plan for)
· Preparing readouts and diligence summaries for the Board
✔️It always pays to be prepared. People don’t always have the resources needed. Putting together a toolkit that you can rely upon when the timing is condensed will be helpful. Having a backpack full of tools for M&A, a questionnaire already equips you to respond to a speedy timeline.
✔️Build a cadence with your business, your CEO, your executive leadership that keeps you in the loop. Be the trusted business adviser who masters compliance, ethics, and legal requirements. Make it clear that your business savvy and proactively address concerns; then it will build your credibility. Also, do not be a panic button. Do not raise a red flag unless you need to raise a red flag.
✔️ Never stop engaging in due diligence. You never stop communicating, learning, finding out, and obtaining information. Data is a two-way street. It is both inbound and outbound. Always prepare for the unexpected when the unexpected hits, what do you do because you have prepared so it’s not unexpected.
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Do you have a podcast (or do you want to)? Join the only network dedicated to compliance, risk management, and business ethics, the Compliance Podcast Network. For more information, contact Tom Fox at tfox@tfoxlaw.com.