Increasing enforcement of anti-bribery and corruption regulations and an increased focus on compliance have made a pre-acquisition compliance due diligence a common feature of cross-border M&A transactions in Africa and elsewhere. Many experienced transaction attorneys and dealmakers will be aware of the limits of even the most thorough due diligence. This has led to concerns about the liability of an acquiring company related to the conduct of a target, after the takeover has been finalised. The US Department of Justice (DoJ) has recently published an opinion that may alleviate some of these concerns.
While the DoJ opinion might at this stage be cold comfort to companies which are not subject to the US Foreign Corrupt Practices Act (FCPA) or which are also subject to strict anti-bribery legislation in other jurisdictions, the global enforcement trends of recent years suggest that European regulators might adopt a similar approach. The approach of regulators in South Africa in this area also tends to follow the approach of their US and European counterparts.
The opinion stands for the proposition that the DoJ will not penalise a company subject to the FCPA for acquiring a foreign target with corruption issues, if:-
- the acquiring company did a reasonable due diligence investigation under the circumstances;
- the company has an integration plan designed to implement real anti-corruption controls at the target post closing; and
- the company is not knowingly acquiring tainted contracts or other assets from which it will derive a financial benefit going forward.
The DoJ issued the opinion after guidance was sought by a US listed multinational company in circumstances where the anti-corruption controls and financial records of a target company were so deficient that the acquirer had been unable to determine, even through a reasonable due diligence, whether the assets it was acquiring had been tainted by corruption. Although the due diligence revealed improper transactions exceeding US$100 000 in value, none of the payments which appeared to have been made to government officials could be linked to the acquisition of a specific asset.
The opinion sets out specific steps which companies subject to the FCPA should follow when engaging in mergers and acquisitions. These steps serve as a useful guide for all companies and are set out below:
- Conduct a thorough risk based anti-corruption due diligence
- Implement the acquiring company’s code of conduct and anti-corruption policies at the target level as quickly as practicable
- Conduct anti-bribery and other relevant training for all the acquired entities’ directors and employees, as well as third party agents and partners
- Conduct an anti-bribery specific audit of the acquired entities as quickly as practicable
- Disclose to the applicable regulator any corrupt payments discovered during the due diligence process
The FCPA was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.