The Requestor’s French Dilemma

Facing a decision to either stay in a joint venture or leave, when staying means violating the Foreign Corrupt Practices Act and leaving means breaching contractual obligations, is a legal disaster. But it’s an easy trap to fall into.

One U.S. company (called the “Requestor”) proposed to enter into a joint venture with a French company. There were doubts about how the French company obtained some of its contracts. So the Requestor took various precautions to protect itself against an FCPA violation. Accordingly, if it learned its French partner had breached the compliance warranty, the Requestor could terminate the relationship if the breach had a “material adverse effect” upon the business.

Not good enough, said the U.S. Department of Justice:

Should the Requestor’s inability to extricate itself result in the Requestor taking, in the future, acts in furtherance of original acts of bribery by the French company, the Requestor may face liability under the FCPA. Thus, the Department specifically declines to endorse the “materially adverse effect” standard.

The Lesson: Accept no limits or conditions on the right to terminate a joint venture when there is evidence of an FCPA violation.

View DOJ Opinion Procedure Release 2001-01 (May 24, 2001) Here.