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Mergers and the FCPA

Wednesday, July 20, 2011 - 00:00

General FCPA due diligence issues. A basic understanding of the operations of the target is required, which is determined by requesting the following:

• A list of countries where the target conducts business
• A list of countries where the target has sold directly or indirectly to foreign governments
• A list of companies that the target does business with that are owned by a foreign government
• Estimates of what percentage of the target’s business depends upon dealings with foreign governments and state-owned entities
• Copies of all contracts for purchases by, or sales to, state-owned entities, and details regarding how these contracts were negotiated
• A list of any joint ventures or other arrangements with state-owned entities
• A list of any business relationships with government officials

Compliance and training. Information regarding the target’s training and compliance measures provides a window into the culture of the target. Discovering this type of information is accomplished by requesting the following:

• A description of the target’s antibribery compliance program and all its elements, including training
• A copy of any materials provided to employees as part of their antibribery training
• A description, and contents, of any third-party FCPA compliance training
• A list of all red flags uncovered through the operation of the target’s antibribery compliance program

General due diligence issues: Agents and third parties. Third parties cause many FCPA problems. To minimize this risk, the acquirer should seek information regarding the following:

• Whether the target has hired any foreign officials as agents or in any other role, and whether any of these relationships are ongoing
• The due diligence procedures relating to the hiring of agents, the results of any due diligence performed, and a description of how any red flags discovered during the hiring of agents were addressed
• Any contracts with agents or other third parties, including certifications of FCPA compliance
• Any past or present relationships between foreign officials and any agents hired by, or acting on behalf of, the target
• The services provided by any agents, the total compensation paid in relation to those services, and the basis for establishing the compensation
• Any payments made to foreign officials for any reason, including visits to conferences, trips and entertainment
• The procedures used to reimburse agents for entertainment of foreign officials
• Any hiring by the target of government officials as agents, consultants or in any other business capacity
• Any documents relating to the suspension of payments to agents or other third-party representatives, including information pertaining to the red flags that led to the suspension

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