Page 37 - U.S. FOREIGN CORRUPT PRACTICES ACT

A Resource Guide to the U.S. Foreign Corrupt Practices Act. Second Edition.

subsidiary. In that matter, the subsidiary’s president the mere acquisition of that foreign company
reported directly to the CEO of the parent issuer, would not retroactively create FCPA liability for the
and the issuer routinely identified the president as a acquiring issuer.
member of its senior management in its annual filing DOJ and SEC encourage companies to
with SEC and in annual reports. Additionally, the conduct pre-acquisition due diligence and improve

parent’s legal department approved the retention compliance programs and internal controls after
of the third-party agent through whom the bribes acquisition for a variety of reasons.
were arranged despite a lack of documented due First, due diligence helps an acquiring
diligence and an agency agreement that violated company to accurately value the target company.
corporate policy; also, an officer of the parent Contracts obtained through bribes may be legally
approved one of the payments to the third-party unenforceable, business obtained illegally may be

agent. 186 Under these circumstances, the parent lost when bribe payments are stopped, there may
company had sufficient knowledge and control of be liability for prior illegal conduct, and the prior
its subsidiary’s actions to be liable under the FCPA. corrupt acts may harm the acquiring company’s
reputation and future business prospects.
Successor Liability Identifying these issues before an acquisition allows
Companies acquire a host of liabilities when companies to better evaluate any potential post-
they merge with or acquire another company, acquisition liability and thus properly assess the
including those arising out of contracts, torts, target’s value. 190 Second, due diligence reduces the

regulations, and statutes. As a general legal matter, risk that the acquired company will continue to pay
when a company merges with or acquires another bribes. Proper pre-acquisition due diligence can
company, the successor company assumes the identify business and regional risks and can also
predecessor company’s liabilities. 187 Successor lay the foundation for a swift and successful post-
liability is an integral component of corporate law acquisition integration into the acquiring company’s
and, among other things, prevents companies from corporate control and compliance environment.

avoiding liability by reorganizing. 188 At the same Third, the consequences of potential violations
time, DOJ and SEC recognize the potential benefits uncovered through due diligence can be handled
of corporate mergers and acquisitions, particularly by the parties in an orderly and efficient manner
when the acquiring entity has a robust compliance through negotiation of the costs and responsibilities
program in place and implements that program as for the investigation and remediation. Finally,

quickly as practicable at the merged or acquired comprehensive due diligence demonstrates a
entity. Successor liability applies to all kinds of civil genuine commitment to uncovering and preventing
and criminal liabilities, 189 and FCPA violations are FCPA violations.
no exception. Whether successor liability applies to DOJ and SEC also recognize that, in certain
a particular corporate transaction depends on the instances, robust pre-acquisition due diligence may
facts and the applicable state, federal, and foreign not be possible. In such instances, DOJ and SEC

law. Successor liability does not, however, create will look to the timeliness and thoroughness of the
liability where none existed before. For example, if acquiring company’s post-acquisition due diligence
an issuer were to acquire a foreign company that and compliance integration efforts.
was not previously subject to the FCPA’s jurisdiction,
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