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DOJ Releases Second FCPA Opinion of 2014 (Foreign Corrupt Practices Act)

The U.S. Department of Justice recently publicized its second Foreign Corrupt Practices Act Opinion Procedure Release of 2014. In the Release, the DOJ reiterated that an acquiring company may not inherit FCPA liability when the DOJ did not have jurisdiction over the target company’s prior corrupt activities.

The United States Department of Justice

The DOJ has repeatedly asserted that, through principles of successor liability, an acquiring company in an M&A transaction may assume FCPA liability for the pre-acquisition bribes paid by the target to foreign government officials.  Out of concern for this potential avenue of liability, a U.S.-based consumer products company recently sought guidance from the DOJ on whether it would bring an enforcement action for the pre-acquisition corrupt activities of a wholly-foreign target company.  The U.S. company sought this guidance by exercising a unique statutory procedure whereby companies can request a DOJ opinion on the FCPA enforcement ramifications of proposed conduct.  See 15 U.S.C. §§ 78dd-1(e), -2(f).

According to the Release, the U.S. company intends to acquire all shares of a company listed on a foreign stock exchange.  The target company’s operations are confined to a foreign country and reportedly lack a nexus to the U.S.  During the course of pre-acquisition due diligence, the acquiring company discovered over $100,000 in potentially improper transactions, ranging from payments to foreign government officials associated with the target company’s permits and licenses, to payments made to the state-controlled media to minimize negative publicity.  The acquiring company also found significant recordkeeping deficiencies, and that the target company lacked an anti-corruption policy and program.  The acquiring company proposed integrating the target company into its own compliance structure within a year of closing.

The DOJ stated that it would not take any enforcement action based on the target company’s pre-acquisition conduct (subject to the caveats ordinarily includes in Opinion Procedure Releases).  Consistent with past comments, the DOJ explained that although successor liability for FCPA violations may be conferred when integrating a target company into an acquirer’s operations through a stock purchase, it does not exist where, as here, the pre-acquisition payments to foreign officials did not occur in the U.S. or involve a U.S. person or entity.  In other words, the acquisition of a company does not create jurisdiction over prior corrupt activities otherwise beyond the DOJ’s reach.

Companies engaged in the escalating number of international M&A transactions would be wise to employ robust pre-acquisition anti-corruption due diligence.  Of course, no due diligence process can guarantee it will identify every risk.  But a combination of anti-corruption representations in acquisition contracts and a tailored remediation plan will help companies minimize the risk of FCPA liability from any pre- and post-acquisition corrupt activities.

© 2019 Proskauer Rose LLP.

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About this Author

Sigal P. Mandelker, White Collar Defense Attorney, Proskauer Law Firm
Partner

Sigal Mandelker is a Partner in the New York office. She is a member of the firm’s White Collar Defense & Investigations, Appellate, International Practice, and Privacy Groups. Sigal represents individual and corporate clients in connection with government investigations and prosecutions, including white collar criminal defense, the FCPA, anti-money laundering matters, SEC and related enforcement matters, internal investigations, public corruption, and cyber security. She has a broad range of experience in domestic and international enforcement matters, appellate litigation,...

212-969-3360
Phillip J. Caraballo-Garrison, Litigation Attorney, Proskauer Law Firm
Associate

Phil Caraballo is a senior Associate in the Litigation Department, resident in the New York office, where he also represents the Litigation Department on the Associate Council. His practice focuses on white collar criminal defense and corporate investigations, appellate litigation, and complex civil litigation at both the state and federal levels.

As a member of the White Collar Defense & Investigations Group, Phil represents clients in prosecutions involving a broad array of federal and state crimes, including insider trading, racketeering, tax evasion, money laundering, and antitrust charges. He frequently guides corporate clients through internal investigations conducted in cooperation with law enforcement and regulatory agencies, and internal investigations and due diligence processes focused on resolving potential anti-corruption issues under the FCPA.

212-969-3382