One industry which faces potentially onerous obligations under the Bribery Act 2010 about which there has been little official comment is private equity. That position changed last week. In a speech to private equity clients of the law firm Debevoise & Plimpton LLP, Richard Alderman, the Director of the Serious Fraud Office, made it clear that the Act applied as much to private equity firms as any other:
As owners of companies, private equity, as well as the big institutional shareholders, has a responsibility to society to ensure that the companies in which they have a shareholding operate to the right standards... It may even be that it is a condition of investment by fund managers allocating funds to you to invest that you invest only in companies that are FCPA and Bribery Act compliant.
Stressing that, even if the firms had no knowledge of the bribery taking place, liability can nevertheless attach for money laundering or proceeds of crime related offences, Mr. Alderman made it clear that the SFO were actively considering how to extract monies from the firms that profit from the underlying corrupt conduct:
The owning company or partners may know nothing about this although they will have received the benefit through dividends or other distribution... We are looking at how we recover the benefit.
Apparently, private equity firms are set to be an early target for the SFO’s scrutiny once the new Act comes into force. Given the risk of prosecution for the strict liability offence of failing to prevent bribery by associated parties, it is particularly important that such organisations take steps to put into place adequate procedures to prevent corrupt payments being made by companies in which they invest.
The first step, though often unattractively costly, is to carry out proper risk assessments and due diligence. A clear message from the SFO has been that compliance cannot be carried out in a vacuum. It must address, and be proportionate to, the level of risk faced. The oft repeated need to set the “tone from the top” may mean those overseeing the operations of subsidiary companies will need to become involved in setting the anti-corruption policy agenda. At the very least, they must ensure that there is proper board level oversight in each venture owned by the private equity parent.
As to future ventures, it will no doubt become crucial to seek assurances and warranties regarding companies’ anti corruption compliance, and to identify any “legacy risks”, before investments are made.