Foreign Corrupt Practices Act: Four Practical Steps To Minimizing Fcpa Risk In Cross-border M&a

Foreign Corrupt Practices Act: Four practical steps to minimizing FCPA risk in cross-border M&A
The process of managing due diligence for cross-border M&A is becoming more challenging for a number of reasons, not the least of which is the U.S. governments interest in identifying and prosecuting businesses under the U.S. Foreign Corrupt Practices Act (FCPA). In its drive to stop corruption, the government has extended its reach both broader and deeper into U.S. companies foreign M&A activities, forcing buyers and sellers to be cognizant of the risks and ramifications associated with FCPA violations.
Under the FCPA, an acquiring company may be held liable for any prior unlawful payments made by the acquired company1. Both the buyer and the acquired target will be held liable for the conduct. Furthermore, the liability applies not only to U.S.-based companies, but also to foreign issues whose American Depository Receipts (ADRs) trade on U.S. financial exchanges, even if the payments took place prior to the acquisition.
The consequences of being found guilty of FCPA violations can be enormous for both a company and its key individuals, including:
Steep financial penalties
Debarment: preventing the company from pursuing government contracts
High legal and investigative costs that can adversely affect the companys profitability
Drop in stock price/shareholder value
Damage to the companys reputation
Prison terms for key individuals
FCPA violations that are discovered as a result of pre-acquisition due diligence can result in additional consequences for both the buyer and the seller including:
Lengthy and expensive government investigations
Penalties
Imposition of a government-mandated monitor
A renegotiation of the deal at a lower purchase price
The decision not to pursue the deal
For these reasons, any company involved in cross-border M&A activity must incorporate FCPA due diligence into their M&A playbook. Following is a discussion of best practices that can be deployed to implement a program and minimize risk.
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