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Mergers and the FCPA

Wednesday, July 20, 2011 - 00:00

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Dealing with potential FCPA issues. Where it appears that the target has paid bribes, there are a number of tough questions for the acquiring company to ask itself before proceeding. These include:

• Is the conduct over? Are there likely other bribery situations that have not yet been discovered?
• Will continuing bribes be required to maintain the acquired company’s business? Will ending the bribes significantly impact the target’s business?
• If it appears that the acquirer will need to terminate personnel who were involved in the bribery, how important are these personnel to the operation of the target’s business? If they are demoted or dismissed, what is the impact on the business of the target?
• Where it appears that third-party agents, consultants, representatives, distributors, joint venture partners and other business partners are involved, what will be the impact of reforming or ending relationships with those parties?
• Where past bribes have been paid, does it appear that disbarment risks are raised, such as the potential loss of government contracts or export licenses?
• How will accounting and disclosure issues be dealt with after the closing?
• Does the price for the target need to be adjusted in light of not only the known corrupt activities, but also those whose discovery might not occur until after closing? Is the possibility of future discoveries taken care of in the sale agreement, including the potential expense of investigations, voided contracts, lost business or other potential problems?
• Is there the potential for shareholder class action or derivative suits?

FCPA considerations do not end when the merger is completed. An acquirer should take immediate steps to integrate the acquired company into its own FCPA compliance program. If the acquiring company, whether part of its due diligence or post-acquisition review, determines that an acquired company employee has engaged in suspect conduct, the company should immediately review the activities of the employee. The acquirer should take steps to discipline the employee and to ensure that the conduct does not recur. Acquirers also should consider integrating third parties into its compliance procedures. Doing so provides additional reassurance that the intermediaries understand the approach of the acquiring company to its FCPA obligations. Finally, the company should conduct a systematic audit to evaluate any known or discoverable red flags.

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