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Private Equity Firms May Be Covered by Bribery Law, SFO Says

Private equity firms in the U.K. could face prosecution or be held liable for bribes paid by officials at companies they own, the director of the Serious Fraud Office said.

SFO Director Richard Alderman told private equity clients of the law firm Debevoise & Plimpton LLP in London yesterday that the U.K. Bribery Act applies to them as well as large multi-national companies. Even if private equity firms aren’t aware of the bribes, they may be responsible for money laundering at a company they own, or liable for returning profits from the proceeds of a crime.

“The owning company or partners may know nothing about this although they will have received the benefit through dividends or other distribution,” Alderman said. “We are looking at how we recover the benefit.”

The Bribery Act, considered by some lawyers to be the strictest anti-corruption law in the world, will take effect July 1. Under the law, companies can be prosecuted for failing to prevent bribery by not having adequate controls in place, even if company officials didn’t know about the payment.

“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,” Alderman said. “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.”

Bill Waite, the chief executive officer of the Risk Advisory Group in London, said at a separate event that private equity firms are already scrutinizing corruption risks at the companies they invest in.

“Private equity are asking before they fund, what anti-bribery controls do you have in place?” he said at a conference today at the Organization for Economic Cooperation and Development in Paris.

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