Guidance on Reducing FCPA Risk in M&A and Examples of Predecessor Liability

29 Practical Tips to Reduce FCPA Risk in Mergers and Acquisitions Companies pursuing mergers or acquisitions can take certain steps to identify and potentially reduce FCPA risks: M&A Opinion Procedure Release Requests: One option is to seek an opinion from DOJ in anticipation of a potential acquisition, such as occurred with Opinion Release 08-02. That case involved special circumstances, namely, severely limited pre-acquisition due diligence available to the potential acquiring company, and, because it was an opinion release (i.e., providing certain assurances by DOJ concerning prospective conduct), it necessarily imposed demanding standards and prescriptive timeframes in return for specific assurances from DOJ, which SEC, as a matter of discretion, also honors. Thus, obtaining an opinion from DOJ can be a good way to address specific due diligence challenges, but, because of the nature of such an opinion, it will likely contain more stringent requirements than may be necessary in all circumstances. M&A Risk-Based FCPA Due Diligence and Disclosure: As a practical matter, most acquisitions will typically not require the type of prospective assurances contained in an opinion from DOJ. DOJ and SEC encourage companies engaging in mergers and acquisitions to: (1) conduct thorough risk-based FCPA and anti-corruption due diligence on potential new business acquisitions; (2) ensure that the acquiring company’s code of conduct and compliance policies and procedures regarding the FCPA and other anti-corruption laws apply as quickly as is practicable to newly acquired businesses or merged entities; (3) train the directors, officers, and employees of newly acquired businesses or merged entities, and when appropriate, train agents and business partners, on the FCPA and other relevant anti-corruption laws and the company’s code of conduct and compliance policies and procedures; (4) conduct an FCPA-specific audit of all newly acquired or merged businesses as quickly as practicable; and (5) disclose any corrupt payments discovered as part of its due diligence of newly acquired entities or merged entities. DOJ and SEC will give meaningful credit to companies who undertake these actions, and, in appropriate circumstances, DOJ and SEC may consequently decline to bring enforcement actions. bribery—both the new entity and the foreign subsidiaries were liable under the FCPA. The new parent entered into a non-prosecution agreement with DOJ and settled a civil action with SEC, while the company’s subsidiaries, which also merged, pleaded guilty.'* More often, DOJ and SEC have pursued enforce- ment actions against the predecessor company (rather than the acquiring company), particularly when the acquiring company uncovered and timely remedied the violations or when the government’s investigation of the predecessor company preceded the acquisition. In one such case, an Ohio-based health care company’s due diligence of an acquisition target uncovered FCPA vio- lations by the target’s subsidiary, and, before the merger was completed, the subsidiary’s violations were disclosed to DOJ and SEC. The subsidiary pleaded guilty and 139 paid a $2 million criminal fine, settled with SEC and paid a $500,000 civil penalty,’” the acquisition target and no successor liability was sought against the acquir- ing entity. In another case, a Pennsylvania-based issuer that supplied heating and air conditioning products and services was subject to an ongoing investigation by DOJ and SEC at the time that it was acquired; DOJ and SEC resolved enforcement actions only against the predecessor company, which had by that time become a wholly owned subsidiary of the successor company..”! DOJand SEC have also brought actions only against a predecessor company where its FCPA violations are discov- ered after acquisition. For example, when a Florida-based US. company discovered in post-acquisition due diligence that the telecommunications company (a domestic con- cern) it had acquired had engaged in foreign bribery, the successor company disclosed the FCPA violations to DOJ. It then conducted an internal investigation, cooperated fully with DOJ, and took appropriate remedial action— including terminating senior management at the acquired HOUSE_OVERSIGHT_022531