New Summary of Global Anti-Bribery Enforcement Activity Highlights U.S. Leadership and the Importance of FCPA Due Diligence for M&A Transactions
Last week TRACE International released its first ever summary of worldwide anti-bribery activity, covering 33 years of global enforcement. Interestingly, TRACE also announced plans to release annual reports on this topic going forward. TRACE found that the United States is by far the world leader in anti-bribery enforcement – accounting for 75% of anti-bribery enforcement actions initiated world-wide. Other countries in their top five list are: the United Kingdom, Denmark, Germany, and Italy. Moreover, as the recent Imnospec case illustrates, the SEC and DOJ are increasingly cooperating with other countries' enforcement agencies on anti-bribery cases.
The United States will likely remain the world leader in this area with the SEC's increased emphasis on FCPA enforcement. Additionally, the recently passed Dodd bill includes increased incentives for whistleblowers – contemplating rewards of up to 30% of any fines collected as the result of FCPA enforcement actions. These incentives, if implemented, would further condense the time to decide whether to report a potential FCPA violation. Early self-reporting is a first step in cooperating with the SEC and DOJ and often leads to lower fines, as was the case with Imnospec.
FCPA compliance has also become a hot topic in the M&A field. Latin Node and similar cases indicate that reliance on unsubstantiated representations and warranties regarding FCPA compliance in the definitive agreement for an M&A transaction may not be enough. Risk-based FCPA due diligence can help an acquiror identify potential FCPA violations by a target company during the due diligence phase, before signing a definitive agreement. An assessment of a target company's FCPA compliance risk can be a useful first step. This generally includes evaluating the risk of corruption in each country where the target does business. Transparency International's corruption index map is a great resource for this.
The following due diligence actions may be appropriate, based on the results of the initial risk assessment:
• Include in the initial due diligence request list specific questions regarding the target's FCPA compliance program and any due diligence procedures that the target has implemented for third party agents;
• Conduct on-site interviews and audits regarding high-risk transactions;
• Use resources provided by the U.S. Department of Commerce's International Company Profile program; and
• Include FCPA compliance experts on legal and accounting due diligence teams.
We suggest documenting any due diligence efforts that an acquiror undertakes to confirm a target company's FCPA compliance.
Here are some examples of "red flags" that may be found during due diligence:
• Use of third party agents to arrange business with governmental entities;
• Employment of senior management with close ties to government officials; or
• Payments for which documentation is not available or the purpose for which appears to be vague.
If an acquiror discovers any red flags, here are some examples of follow-up that may be helpful:
• submit follow-up due diligence requests regarding the compliance issue;
• engage forensic accountants to audit all of target's transactions in a particular category, such as employee reimbursements;
• consult with in-country experts regarding relevant local customs or practices; or
• conduct on-site interviews of implicated employees or agents.
If an FCPA violation is uncovered, the acquiror will likely want to evaluate whether the proposed transaction still makes sense from an economic and reputational perspective. If so, it may be advisable for the acquiror to immediately begin discussions with the target regarding self-reporting and otherwise cooperating with the SEC and DOJ.
Thanks to Adam Glant, a business associate in the firm's Seattle office, for contributing to this post.
