Corruption costs 5% of the world’s GDP according to the UN.
Laws against corruption have been in place for decades. However, the inclusion of Anti-Bribery and Anti-Corruption ("ABAC") reps and warranties in the sale and purchase agreements (SPAs) has been a gradual process.
Martini analysed over 1,000 multi-jurisdictional SPAs in the last 15 years on ESG-related clauses and we found that in 2005, despite the OECD Anti-Corruption Convention already being in effect for several years, only 25% of the SPAs contained ABAC clauses. This figure has now increased to 82% (2020).
Not all ABAC reps and warranties are the same
Knowledge, time and materiality are typical qualifiers. A single knowledge qualifier is most often used (36%), followed by a knowledge plus materiality qualifier (23%). 22% of ABAC clauses are unqualified. There are jurisdictional differences as well.
Here are some drafting examples
4.27 Foreign Corrupt Practices. None of the Target Companies, nor any director, manager, officer, agent, employee or other Person acting on behalf of any of the Target Companies, has, in the course of his, her or its actions for, or on behalf of, any of the Target Companies, (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the United States Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
Section 2.17 Compliance with Laws; Permits.
(a) Except as set forth on the Compliance with Laws Schedule, the Company and its Subsidiaries are and since January 1, 2015 have been in compliance in all material respects with all applicable Laws of all applicable Governmental Authorities (including the US Foreign Corrupt Practices Act of 1977, the US Sarbanes-Oxley Act of 2002, all Privacy Laws, all Anti-Corruption Laws, all Anti-Money Laundering Laws, all Economic Sanctions Laws and all antitrust and competition Laws worldwide, in each case, as amended and including the rules and regulations thereunder). The Company, its Subsidiaries and, to the Company’s knowledge, the Company JVs, have, since January 1, 2015, timely made all filings with all applicable Governmental Authorities required to be made by the Company, its Subsidiaries or the Company JVs under all applicable Laws. Neither the Company, any Subsidiary of the Company nor, to the Company’s knowledge, any Company JV, has received any notice since January 1, 2015 alleging any material violation of any applicable Laws.
(b) To the Company’s knowledge, (i) none of the Company, the Subsidiaries of the Company, the Company JVs or the owners of the Managed Properties has ever been the subject of any bribery, money laundering, anti-kickback or economic sanctions investigation by any Governmental Authority and (ii) none of the directors, officers, agents, employees or other Persons acting on behalf of the Company, its Subsidiaries, the Company JVs or the owners of the Managed Properties, directly or indirectly, have taken any action, or failed to act, in a manner that would be a violation of any Anti-Corruption Laws, Anti-Money Laundering Laws or Economic Sanctions Laws. Neither the Company or any of the Subsidiaries of the Company nor, to the Company’s knowledge, any of the Company JVs or the owners of the Managed Properties has, since January 1, 2015, received any written notice of any facts or circumstances that would constitute a violation of any Anti-Corruption Laws, Anti-Money Laundering Laws or Economic Sanctions Laws.
(c) The Company, its Subsidiaries and, to the Company’s knowledge, the owners of, or the holders of the right to use, the Managed Properties each possess all material permits, approvals, orders, authorizations, consents, licenses, certificates, franchises, exemptions of, or filings or registrations with, or issued by, any Governmental Authority necessary for the operation of the business of the Company and its Subsidiaries (the “Permits”). All such Permits are in full force and effect in all material respects and there are no actions pending or, to the Company’s knowledge, threatened by any Governmental Authority that seek the revocation, cancellation, suspension or material modification of any such Permit or that would affect the renewal thereof. Neither the Company nor any of its Subsidiaries is in default in any material respect, and, to the Company’s knowledge, no condition exists that, with notice or lapse of time or both, would constitute a material default, under any such Permit.
(d) Except as set forth on the Compliance with Laws Schedule, the development, management, operation, marketing, sale, rental program and implementation of each Residence Project that is a Managed Property are, to the Company’s knowledge, in compliance with all applicable Laws of the jurisdictions in which such Residence Project is located or marketed.
Preventing bribery and corruption is but only one component of the ESG (Environmental, Social, and Governance) framework. In our next issue, we will have a closer look at the “Weinstein clause” and predict the speed of inclusion of the “Weinstein clause” in SPAs based on past trends.
Stay tuned to stay ahead of the curve!
A lawyer turned entrepreneur. Flora enjoys applying her legal skills with a brand new perspective. Formerly an M&A lawyer at Linklaters London, Hong Kong & Shanghai.