Potential liability for the corrupt acts of third parties may be not be high on the lists of concerns of the private equity community when considering potential investments. But, it should be. The Serious Fraud Office ("SFO") has already highlighted that organisations involved in private equity with a connection to the UK could be exposed to liability under the "Corporate Offence" of the Bribery Act 2010 for the corrupt acts of companies that they actively invest in (no matter where those companies are based) unless the private equity company has adequate procedures in place to prevent this.
What are the practical implications for this on the private equity community? The SFO has made it clear that they expect institutional investors to satisfy themselves as to the business practices of the companies that they are investing in. Any failure to do this could have serious consequences for the investor (and even more so for any representative appointed as a director of the investee company). As part of the due diligence on the potential investment, the private equity investor will be expected to undertake a thorough assessment of the risks of the target engaging in acts of bribery and corruption. This should include a consideration of specific risks based on, for example, the target’s geographic location, the industry it operates in, its interaction with third parties and nature of the investment.
The SFO has made it clear that they will have little sympathy with any institutional investors who fail to carry out thorough due diligence before adding a company to their portfolio. It is impossible to prescribe with certainty the level of due diligence which will be deemed sufficient or when procedures to prevent bribery will be considered adequate. It is not an exact science, it will vary from case to case and each investment will need to be separately evaluated. We would be happy to discuss this with you and explain further.