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Parental controls: Anti-corruption compliance programs for joint ventures, subsidiaries and franchisees (Part 8)

Over the course of the prior posts in this series, we examined various approaches to what we call “parental controls,” meaning compliance measures aimed at joint ventures and other affiliated entities that a company might employ. In this final post, we will review a few FCPA prosecutions to issue a note of caution.

(You can read Parts One, Two, Three, Four, Five, Six and Seven of this Series here.)

As a general matter, we come down on the “more is better” approach to the challenge of implementing compliance controls at joint ventures (JVs) and other affilaited entities. (But we are mindful of the dangers of compliance “overkill” too.)

Based on some recent case law, a note of caution must be taken before taking such a “more is better” approach.

That is because:

  • In a series of recent FCPA prosecutions, the government based liability on the parent for a subsidiary’s corrupt activities using an agency theory, even though there was no allegation of purposefully wrongful activity at the parent level. Those cases involved Smith & Nephew, Tyco International, Ralph Lauren and, most recently, Alcoa. Note that because the cases all involved settlements, it is difficult to know exactly why the government thought liability was justified in these circumstances.
  • In the Alcoa case, which was settled last month, among the circumstances providing the basis for using an agency theory to charge the parent for the subsidiary’s bribery was that the former “coordinated the legal, audit and compliance functions” of the latter.

The logic of this aspect of Alcoa is troubling from a policy perspective, to say the least, and may be without precedent, at least in the United States.

But in the 2012 case of EI du Pont de Nemours et Cie v. Commission, the fact that a parent company and subsidiary shared a compliance program was, along with other factors, used as basis for holding the parent liable for the subsidiary’s competition law violation.

We hope that the Alcoa and DuPont cases –- as unfortunate as they are -– do not drive companies to take a “hands off” approach to compliance in their JVs, subsidiaries and franchisees.

While they make the job of a “parent” a bit more difficult, a far greater risk to most companies than piercing the corporate veil is all the harm that can come from inadequate compliance in the many other members of the “family.”


Jeffrey M. Kaplan and Rebecca Walker are partners in Kaplan & Walker LLP.

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