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What corruption really costs

Monday 30 January 2012 – by Heidi Lawson

As a result, corruption has a big impact on the cost and sometimes even the ultimate viability of a deal. Under the FCPA, an acquiring firm can be held responsible for the legal consequences of a target company’s historical practices.

The idea of “successor liability” is troubling to many legal practitioners, particularly those practicing outside the United States.

For instance, in the UK, successor liability is limited to certain torts, such as product liability and environmental breaches, situations involving express or implied assumptions of liability, de facto mergers where the successor is a continuation of the predecessor, or mergers done as a pretext to defraud creditors.

In contrast, successor liability is a primary enforcement feature of the FCPA in any type of merger, and because the vast majority of cases settle, its legality has not yet been challenged in a court of law.

Due Diligence

To avoid a loss in deal value, an acquirer must conduct careful anti-corruption due diligence that is specifically tailored to the company being acquired. First, the level of risk should be assessed through a series of key questions.

These questions include:
1. Are any employees, owners, or principals current or former government employees or closely affiliated with one?

2. What practices and safeguards are there regarding gifts, entertainment, hospitalities, charitable contributions, sponsorships, donations and other benefits?

3. What is the target’s relationship with intermediaries (distributors, agents, consultants, etc.)?

4. Have there been any past investigations/violations?

5. Does the target operate in a high-risk industry/high-risk country?

6. What is the target’s association with foreign governments? Does it provide them with goods and services? It is government owned or controlled? Does it rely on government issued licenses or permits?

7. Does the target have clear policies and procedures in place to detect, report and manage FCPA and UK Bribery Act violations?

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