fcpa due diligence in m&a: leveraging the new doj opinion procedure...
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FCPA Due Diligence in M&A: Leveraging the New DOJ Opinion Procedure Release Mitigating Pre-Closing Risks and Implementing Post-Closing Protections
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WEDNESDAY, FEBRUARY 4, 2015
Presenting a live 90-minute webinar with interactive Q&A
Thaddeus R. McBride, Partner, Bass Berry & Sims, Washington, D.C.
Brian Moffatt, Senior Compliance Counsel. EthosEnergy, Houston
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Mergers & Acquisitions Under the FCPA:
Adequately Addressing Due Diligence
Strafford Publications Webinar
February 4, 2015
Brian Moffatt
Thad McBride
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Agenda
FCPA Overview
Practical Guidance
Questions
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Goals
Understand the law and common pitfalls Don’t assume “deal team” has this covered
Learn to identify and report potential issues
Address issues earlier in diligence and negotiations
Smoother deal process overall
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Consequences
Discovery of FCPA violations may:
Alter transaction value
Change deal structure
Necessitate specific reps and indemnifications in
purchase agreement
Delay proposed deal
Cause integration challenges after closing
CRATER THE DEAL
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What is the FCPA?
US anti-corruption statute that has been in place since 1977
Other countries have similar laws
OECD, UN, and other international organizations have adopted similar conventions
Vigorous enforcement by DOJ and SEC
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What does the FCPA do?
Prohibits corrupt payments to foreign officials for a business purpose
Requires Issuers to maintain accurate books and records and robust internal controls Best practice even for non-Issuers
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Who is subject to the FCPA?
Any US citizen or resident, wherever located
Any entity organized/incorporated under US law,
wherever located
Any Issuer, regardless of nationality
Issuer = a company that (i) has securities registered in United
States or (ii) is required to file periodic reports with the SEC
Any person in United States, regardless of nationality
A regulated person’s agent or other representative
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What is a Payment?
Actual payment or gift
Offer or promise to pay
Authorize to pay
** Can be any thing of value.
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What is a Thing of Value?
Any thing of value to recipient
Money
Gift
Hospitality
Loan/favorable financing
Discounted/free maintenance
Donation
Can be proactive or reactive
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Who is a Foreign Official?
Any officer, employee or agent of any: Non-US government, whether national, state, local, etc.
Department, agency, or bureau of a non-US government
Instrumentality owned/controlled by a non-US government
Public international organization (e.g., UN, WTO, etc.)
Non-US political party
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Foreign Official (cont.)
A non-US political party itself
Candidate for non-US political office
Person holding ceremonial title depending on facts
Anyone acting on behalf of a Foreign Official
Rank or title is irrelevant
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What Payments are Permitted?
Reasonable and bona fide payment to Demonstrate, promote, or explain a product or service, or
Execute or perform a contract with a foreign government
Payment authorized under country’s written law
Facilitating Payments Payment to expedite non-discretionary governmental action
NOT PERMITTED under most country’s laws
Highly fact-dependent ; keep good records
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Settlements Involving M&A
Snamprogetti (2010)
2006: ENI sold Snamprogetti to Saipem
2010: Snamprogetti incurred FCPA criminal liability
and agreed to pay $240 million fine
ENI and Saipem held jointly liable
Each required to abide by terms of DPA
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Settlements (cont.)
Titan (2005)
In 2003, Lockheed sought to acquire Titan (US
military intelligence / communications company)
During pre-deal diligence, the parties found
payments to officials in Benin – including to
account in Monaco!
Disclosed to USG
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Titan (cont.)
Lockheed ultimately walked deal
L-3 acquired Titan in 2005
Titan settled with USG for total of $28.5
million
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Liability in M&A Context
Buyer may be liable for
target’s FCPA violations
pre-acquisition
Successor liability
Asset sale vs. stock sale
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DOJ Opinion Release 2008-2
Sought to acquire a UK company
By the terms of the acquisition, was restricted from
access to certain relevant FCPA-related information
DOJ stated it would not take action against company for
any subsequently determined violation
Committed to (i) conduct a detailed internal review and (ii)
report back to the Justice Department
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OPR 2008-2 (cont.)
Committed to following schedule: Within 10 days of closing – present DOJ with diligence plan
including low, medium, and high risk areas to review
Within 90 days – complete and report on low risk review
Within 120 days – complete and report on medium risk review
Within 180 days – complete and report on high risk review
Continue communication with DOJ, extend review as needed,
complete all diligence within 1 year
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OPR 2008-2 (cont.)
The Opinion serves as a guide based on the
DOJ’s standard of disclosure Predicated on accuracy of facts as submitted to
DOJ
Not binding on DOJ in any other matter
Not clear that such a diligence plan is only way to
conduct adequate diligence
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DOJ Opinion Release 14-02
Requestor planned to acquire non-issuer foreign
company
$100,000 in suspicious payments
Inadequate records to support transactions
Deficient accounting practices
No compliance program
No ongoing contracts that may have been
acquired through bribery
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OPR 14-02 (cont.)
“Successor liability does not … create liability
where none existed before”
No intention to take enforcement action
No potentially improper payments subject to US
jurisdiction
No retroactive FCPA liability
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OPR 14-02 (cont.)
DOJ reiterated steps for M&A:
(1) conduct thorough risk-based FCPA and anti-
corruption due diligence;
(2) implement acquiring company’s code of conduct and
anti-corruption policies as quickly as practicable;
(3) conduct FCPA and other relevant training for
acquired entity’s directors and employees, as well as
third-party agents and partners; and
(4) conduct FCPA-specific audit of the acquired entity.
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FCPA Due Diligence - General
Risk Assessment
Review “risk-indicators” based on
‒ Public sector revenue
‒ Use of third parties (agents, distributors, etc.)
‒ High-ranking CPI territories
‒ Relationships with state-owned enterprises
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Diligence (cont.)
Consider other factors too: Is the target in an industry where corruption
is pervasive?
Is the target important to the business?
Is the acquisition particularly high-profile?
In the media?
Within the company?
Were target’s key assets or contracts
obtained appropriately?
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Key Steps (cont.)
Determine any essential remedial actions and
perform a disclosure analysis, if necessary
KEY OBJECTIVE: Determine successor liability
disclosure action no later than 180 days, in
alignment with the DOJ’s Opinion Procedure
Release No: 08-02
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M&A Diligence Nuts & Bolts
Review documents such as:
Compliance policies and procedures
Copies of training presentations and attendance lists
Reports of compliance / internal audits
Information about any investigations
Agent / distributor agreements
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Nuts & Bolts (cont.)
Review books and records
Focus on accounts such as: Hospitality
Entertainment
Gifts
Facilitation
Petty cash
Expense reimbursements
Special / miscellaneous / other unusual
Interview personnel if needed
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Compliance Pitfalls
Fail to evaluate third party relationships
Not doing a deeper dive on revenue programs
Lack of documented compliance procedure and
/ or trainings (enhanced review)
Missing an enforcement disclosure analysis
Not preparing for integration on DAY 1 post-close
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M&A – Contract Terms
Include appropriate protections
Standard compliance reps and
warranties
Indemnity, including for costs of
any compliance investigation
Additional terms if needed based
on facts of deal
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Post-Acquisition
If not possible pre-acquisition, conduct due
diligence post-acquisition
Promptly incorporate acquired company into
compliance program
Training
Re-evaluate third parties
Audits of new business units
Disclose if absolutely necessary
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Hypothetical
Alabama Co is pursuing a joint venture with a Chinese company.
Alabama Co decides to proceed with the venture even though the Chinese company made corrupt payments.
Should Alabama disclose the issue to the US government?
Are there other steps Alabama should take?
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THANK YOU!
Brian Moffatt Thad McBride
Senior Compliance Counsel Partner
EthosEnergy Bass Berry & Sims
+1 (713) 812 2396 +1 (202) 827 2959