FCPA Compliance: A Seat at Every Merger & Acquisition Table
FCPA compliance has become the lifeblood of business. Whether a company is seeking to acquire another company, or a company needs a loan from a bank, FCPA compliance is required. Companies understand this fact and have steadily ramped up compliance programs. A recent survey established that at least 50 percent of companies have increased spending on anti-corruption compliance.
FCPA issues now permeate every merger negotiation, due diligence review and transaction. Companies view FCPA risks as a reason to renegotiate, delay or walk away from a deal.
As a result, companies thinking of selling need to plan in advance for a possible sale. A preliminary, internal due diligence review should be conducted to help focus a due diligence review by a prospective buyer. Everyone knows when FCPA issues will be an important focus.
In advance of selling, a company needs to conduct its own due diligence review. Companies should know where the risks are, and should then identify, document and assess the risks. Where issues are identified, it does not always make sense for a company getting ready to sell to implement a comprehensive remediation plan.
Instead, specific issues have to be addressed in the context of a possible sale – a new owner will take over and likely has its own FCPA compliance program. As a result, if a prospective seller does not have a very robust compliance program, it does not make sense for the seller company to overhaul its FCPA compliance program.
This same advice does not necessarily work with regard to immediate risks created by specific third parties. If, for example, a seller company reviews its high-risk third party agents and determines that there are deficiencies in its due diligence process, then the company should take certain immediate steps to reduce that risk, including obtaining a written questionnaire from the third party (if not completed earlier), obtaining certifications of past and future compliance with the FCPA, or auditing the books of the third party to make sure that no violations have occurred.
In certain situations where the risk is so significant from a third party, a prospective seller should consider terminating a relationship, if possible and practical. It is difficult, if not impossible, to survive a due diligence review in a possible sale when you have outlying and outstanding risks with third party agents.
The driving fear for companies is “successor liability” or “buying an FCPA violation.” Companies seeking to acquire another will quickly walk away from a deal for fear of being held liable for past violations committed by a target company.
In advance of a due diligence process, prospective sellers have to conduct their own risks assessment, prioritize responses, and push aside comprehensive remediation steps. Aside from third party agents and due diligence, prospective seller companies need to focus on gifts, meals, entertainment expenses, as well as training programs. Gifts, meals, and entertainment are frequently areas where companies may be deficient. Often, these expenditures are relatively minimal, especially in comparison to overall company finances. If there are deficiencies in the financial controls, they can be quickly fixed and should be prior to any potential sale.