Importance of Local Partnering In Foreign Projects -- Are Local Partners A Necessity For American Investors? B. Due Diligence On A Proposed Local Partner

Importance of Local Partnering In Foreign Projects -- Are Local Partners A Necessity For American Investors? B. Due Diligence On A Proposed Local Partner

By Mark J. Riedy, Esq.

1. General Requirements

In selecting a local partner, an American investor must implement a process of careful due diligence to address these considerations. This due diligence process can result in the success or failure of the American investor's project.

In this regard, the American investor must determine exactly the potential local partner's business and financial status; its overall history and reputation; its corporate practices, policies and overall culture; and, as aforementioned, its motivation and goals in becoming a partner. An American investor should obtain and check thoroughly business and bank references, meet with the U.S. officials in the host country embassy and/or consulate, meet with the available Chambers of Commerce and associations and employ investigative firms, local and/or international, to effect a complete due diligence review.

2. Specific Requirements

The American investor must not only assure itself that the potential local partner is trustworthy, financially strong and has the requisite knowledge and experience in the particular industry of the proposed project. It also must be certain that the local company selected as its partner is the right company in the particular industry and the local region of the proposed plant site to best effect a successful venture. Oftentimes, a local company may seem to be the perfect partner, except that its strength in the local region siting the proposed project is weak vis-a-vis other candidates.

As part of its analysis, the American investor also must determine whether a potential local partner is a potential risk to that investor with respect to compliance considerations under the U.S. Foreign Corrupt Practices Act ("FCPA"). The propensity of the proposed local partner to provide anything of value to a government official to obtain or retain business could result in a direct violation of the FCPA. Such a violation could result in the loss of reputation, fines and incarceration for the American company and/or its officers, directors and/or employees. This determination is one of the most important due diligence items with respect to the selection of a local partner. As such, any Joint Development Agreement, Shareholders Agreement, Joint Venture Agreement or any other contract between the American company and its local partner should contain a strong FCPA anti-bribery provision.

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