Page 40 - U.S. FOREIGN CORRUPT PRACTICES ACT

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

may also decrease the likelihood of an enforcement cases, an acquiring company that voluntarily discloses
action regarding an acquired company’s post- misconduct may be eligible for a declination, even if
acquisition conduct when pre-acquisition due aggravating circumstances existed as to the acquired
diligence is not possible. 202 In fact, under the DOJ entity.
FCPA Corporate Enforcement Policy, in appropriate

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Hypothetical: Successor Liability Where Acquired Company Was Not Previously Subject to the FCPA

Company A is a Delaware corporation with its principal offices in the United States and whose shares are listed on
a national U.S. exchange. Company A is considering acquiring Foreign Company, which is not an issuer or a domestic
concern. Foreign Company takes no actions within the United States that would make it subject to territorial jurisdiction.
Company A’s proposed acquisition would make Foreign Company a subsidiary of Company A.

Scenario 1:
Prior to acquiring Foreign Company, Company A engages in extensive due diligence of Foreign Company,
including: (1) having its legal, accounting, and compliance departments review Foreign Company’s sales and
financial data, its customer contracts, and its third-party and distributor agreements; (2) performing a risk-
based analysis of Foreign Company’s customer base; (3) performing an audit of selected transactions engaged
in by Foreign Company; and (4) engaging in discussions with Foreign Company’s general counsel, vice president
of sales, and head of internal audit regarding all corruption risks, compliance efforts, and any other corruption-
related issues that have surfaced at Foreign Company over the past ten years. This due diligence aims to determine
whether Foreign Company has appropriate anti-corruption and compliance policies in place, whether Foreign
Company’s employees have been adequately trained regarding those policies, how Foreign Company ensures that
those policies are followed, and what remedial actions are taken if the policies are violated.
During the course of its due diligence, Company A learns that Foreign Company has made several
potentially improper payments in the form of an inflated commission to a third-party agent in connection
with a government contract with Foreign Country. Immediately after the acquisition, Company A discloses
the conduct to DOJ and SEC, suspends and terminates those employees and the third-party agent
responsible for the payments, and makes certain that the illegal payments have stopped. It also quickly
integrates Foreign Company into Company A’s own robust internal controls, including its anti-corruption
and compliance policies, which it communicates to its new employees through required online and
in-person training in the local language. Company A also requires Foreign Company’s third-party distributors
and other agents to sign anti-corruption certifications, complete training, and sign new contracts that incorporate
FCPA and anti-corruption representations and warranties and audit rights.

Based on these facts, could DOJ or SEC prosecute Company A?
No. Although DOJ and SEC have jurisdiction over Company A because it is an issuer, neither could pursue
Company A for conduct that occurred prior to its acquisition of Foreign Company. As Foreign Company was
neither an issuer nor a domestic concern and was not subject to U.S. territorial jurisdiction, DOJ and SEC have
no jurisdiction over its pre-acquisition misconduct. The acquisition of a company does not create jurisdiction
where none existed before.
Importantly, Company A’s extensive pre-acquisition due diligence allowed it to identify and halt the
corruption. As there was no continuing misconduct post-acquisition, the FCPA was not violated.
(cont’d)

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