DOJ Warning of FCPA Legacy Liability
The Department of Justice – Opinion Procedure Release 14-02 (the “Opinion”)[1]
The Opinion stands for the proposition that the DOJ will not penalize a company subject to the FCPA for acquiring a foreign target with corruption issues, provided (a) the acquiring company did reasonable due diligence under the circumstances, (b) the company has an integration plan designed to implement real anti-corruption controls at the target post-closing, and (c) the company is not knowingly acquiring tainted contracts or other assets from which it will derive financial benefit going forward.
http://www.justice.gov/criminal/fraud/fcpa/opinion/2014/14-02.pdf
The release is well written and has a good deal of real-world feel to it, I commend the DOJ for this release and the approach. In short, if a US company is looking to make an acquisition of a foreign company – with no ties to the US subjecting to US law and in the process of a proper due diligence investigation find problems there are step the US company can take to proceed with the acquisition. In short the process is to be adult and remediate the shortcomings found. It is to remediate the gaps in management that allowed to problematic practices to occur, and establish oversight such that these practices should not occur again.
“Successor liability does not, however, create liability where none existed before. For example, if an issuer were to acquire a foreign company that was not previously subject to the FCPA’s jurisdiction, the mere acquisition of that foreign company would not retroactively create FCPA liability for the acquiring issuer.”
“To be sure, the Department encourages companies engaging in mergers and acquisitions to (1) conduct thorough risk-based FCPA and anti-corruption due diligence; (2) implement the acquiring company’s code of conduct and anti-corruption policies as quickly as practicable; (3) conduct FCPA and other relevant training for the acquired entity’s directors and employees, as well as third-party agents and partners; (4) conduct an FCPA-specific audit of the acquired entity as quickly as practicable; and (5) disclose to the Department any corrupt payments discovered during the due diligence process.”
From the SEC
“Feb. 24, 2015 — The Securities and Exchange Commission today charged Goodyear Tire & Rubber Company with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries paid bribes to land tire sales in Kenya and Angola.
Goodyear agreed to pay more than $16 million to settle the SEC’s charges.
According to the SEC’s order instituting a settled administrative proceeding, Goodyear failed to prevent or detect more than $3.2 million in bribes during a four-year period due to inadequate FCPA compliance controls at its subsidiaries in sub-Saharan Africa. Bribes were generally paid in cash to employees of private companies or government-owned entities as well as other local authorities such as police or city council officials. The improper payments were falsely recorded as legitimate business expenses in the books and records of the subsidiaries, which were consolidated into Goodyear’s books and records.”
Goodyear appears to be an example of how not to oversee operations in corrupt prone areas. Goodyear did self report and the SEC commended Goodyear for prompt remedial actions and significant cooperation with the SEC.
Corruption is destabilizing entire regions of the world. The idea that a gift between friends when doing business becomes a reward to a friend for doing business is balancing on the danger line.
