In recent years, the US Department of Justice (DOJ) and US Securities & Exchange Commission (SEC) have further defined their anti-corruption due diligence and disclosure expectations of acquiring companies pre- and post-acquisition. Notwithstanding the government’s efforts to clarify expectations and promote greater transparency, acquiring companies remain at risk of inheriting liability as successors (or joint venture partners) and may face enforcement actions should they not swiftly discover and stop any misconduct from continuing post-acquisition. In other words, what you don’t know can at times hurt you, but the risk of pain significantly increases when you do know but don’t take steps to fix the inherited problems.
With more preparation and a deeper understanding of how an acquisition target operates, companies can work towards implementing ethics and compliance programs with appropriate risk assessments and comprehensive mitigation plans to address potential risk factors—from anti-corruption and sanctions to privacy and security—before the ink on the deal paperwork dries.
Focusing specifically on successor liability in the Foreign Corrupt Practices Act (FCPA) context, the FCPA Resource Guide’s Second Edition, issued by DOJ and SEC in 2020, recognizes the potential benefits of corporate mergers and acquisitions especially where the acquiring company has an existing and robust compliance program and works to implement it at the merged entity as soon as practicable. DOJ and SEC espouse several benefits they view as flowing to companies that conduct preacquisition due diligence and improve compliance programs and internal controls after acquisition, including the following:
However, risks remain where less than comprehensive due diligence takes place whether by design or by virtue of real barriers. The FCPA corporate enforcement policy , which sets forth the benefits of and expectations surrounding voluntary self-disclosure of potential misconduct, also was updated in recent years to make clear that the same benefits apply in the mergers and acquisitions (M&A) context. Specifically, where an acquiring company uncovers misconduct through thorough and timely due diligence or—where appropriate—through post-acquisition efforts and decides to voluntarily self disclose such misconduct to the government, cooperating fully and appropriately remediating, will be afforded a presumption of a declination with disgorgement of any ill-gotten gains resulting from the misconduct.
An effective compliance program includes pre-close due diligence and post-close acquisition risk assessment and integration activities to identify any issues and implement controls to detect and prevent similar issues in the future.
To ensure at least some degree of success, a company’s compliance program must be “adequately resourced and empowered to function effectively” (A Resource Guide to the U.S. Foreign Corrupt Practices Act, Second Edition). This includes the program’s ability to:
Pre-Close Due Diligence
To start, ethics and compliance officers must work with the acquisition target to determine the following key factors:
As day one imminently approaches, integration should be a prime focus. To encourage a timely integration process:
For more on this topic, check out partners Amy Schuh and Sandra Moser’s Global Public Academy program, “M&A: Expectations and Practicalities of Anti-Corruption Due Diligence Through Ethics & Compliance Integration.”