Recently the news is filled with M&A activity. Companies are acquiring or merging with other companies on a global scale. What some companies fail to do, however, is to consider the FCPA implications of a M&A transaction.
Yes, the Foreign Corrupt Practices Act (FCPA) plays a major role when considering the acquisition of another company, especially a foreign owned company. Specifically, due diligence needs to cover FCPA concerns. There are several reasons for this:
- If a company’s foreign subsidiary or affiliate includes inaccurate entries on its books and records in violation of the FCPA and that is reported up within the parent for purposes of consolidated financials, the parent may have violated the FCPA.
- Successor in interest- a successor company in an M&A transaction will also in most cases inherit the liability of the target’s FCPA violations, if any.
- Agency implications- under the agency concept, the parent will be liable for the actions of its subsidiary or JV partners as they are considered agents of the parent.
What may seem to be a reasonable acquisition may turn to be a nightmare of government fines and investigations if the acquiring party fails to adequately investigate a target company’s potential FCPA violations. Anti-bribery laws, especially the US FCPA and the UK Anti-Bribery Act are now very important and must be considered in the context of a merger or acquisition. Not only are U.S. companies liable for the acts of non US affiliates when it comes to the FCPA, but if they a successor in interest to a non US company that has committed FCPA violations, they may very well inherit liability for FCPA violations. And sanctions levied by the DOJ for FCPA violations may be very invasive.
So, make certain your due diligence covers the FCPA. Make certain your due diligence covers the target’s 3rd party vendor relationships and agreements, especially if they operate in high risk jurisdictions. Look at the target’s FCPA rules if any? Has an assessment been done on the effectiveness of the FCPA policies? What accounting controls are in place? What FCPA training, if any, was performed at the target company? Do they even know what the FCPA is?
Remember, when considering M&A transactions, especially involving a foreign owned company or a company that does business in high risk jurisdictions, FCPA due diligence is a must!
Therefore, when structuring your Legal Risk Management processes for M&A transactions, I highly recommend due diligence processes that also consider potential FCPA issues. FCPA due diligence these days is a given!