Protecting your corporation against FCPA liability in mergers & acquisitions

Mar 28, 2011. The Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. companies and citizens, foreign companies listed on a U.S. stock exchange, or any person acting while in the United States, from corruptly paying or offering to pay, directly or indirectly, money or anything of value to a foreign official to obtain or retain business. The FCPA is jointly enforced by the Department of Justice (“DOJ”) and the Securities Exchange Commission (“SEC”). As I recently wrote, both agencies are enforcing the statute much more stringently than in the past, including through litigation strategies based on strict liability as a standard by which corporate officers can be judged for overseeing bribery schemes. The DOJ has collected a record $450 million and $400 million fines against two companies, and record numbers of individuals have been indicted on corruption-related charges since 2009, a number that skyrocketed in 2010.


The DOJ’s and SEC’s more stringent enforcement of the FCPA has important implications for mergers and acquisitions. According to Rebekah Poston, an expert anti-corruption practitioner at the international law firm Squire Sanders & Dempsey, American companies who neglect to conduct thorough due diligence when acquiring foreign companies risk inheriting or creating FCPA violations. See Rebekah A. Poston, David A. Saltzman & Gregory W. Bates, FCPA Due Diligence in Acquisitions, 43 The Review of Securities and Commodities Regulation 13 (Jan. 20, 2010). Acquiring a foreign company requires the performance of a number of affirmative duties on the part of the acquirer. These include, but are not limited to:

1. Determining whether “private” entities may in fact be state-owned to an extent that could trigger FCPA liability for improper action (or inaction);

2. Using highly vetted consultants who are trained in FCPA compliance to deal with foreign officials. Neither the importance of such consultants nor the necessary amount of prior due diligence to vet them can be overstated;

3. Using carefully drafted contracts that protect your company from FCPA liability. Few contracts will ever be FCPA-proof, but Poston, Saltzman, and Bates offer invaluable suggestions, which are discussed below;

4. Maintaining detailed documentary evidence of your due diligence. This is critical if your company is investigated by U.S. officials;

5. Addressing FCPA accounting concerns by instituting carefully tailored internal controls.

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