U.S. DOJ Announces Application of FCPA Policy to Post-Merger Successor Entities
On July 25, 2018, the U.S. Department of Justice (“DOJ”) sought to clarify and confirm that the DOJ would apply the U.S. Foreign Corrupt Practices Act (“FCPA”) Corporate Enforcement Policy (“FCPA Policy”) to FCPA violations that companies uncover when seeking to acquire another company1. While companies subject to the FCPA are not required to self-report potential violations, the FCPA Policy incentivizes self-disclosure in several ways, including its presumption that – absent aggravating factors – the DOJ will decline to prosecute a company that self-discloses an FCPA violation, cooperates with the DOJ’s investigation, and remediates the conduct.
Under the joint DOJ/SEC Resource Guide to the FCPA issued in 2012, the DOJ had previously stated that it “may” decline to prosecute companies that self-disclose FCPA violations that they uncover when seeking to acquire another company. In its July 25 announcement, the DOJ acknowledged that the 2012 language might not have provided the certainty necessary for companies trying to decide whether to complete a merger and/or self-disclose the target company’s wrongdoing. Accordingly, the DOJ will now “apply the principles contained in the FCPA Corporate Enforcement Policy to successor companies that uncover wrongdoing in connection with mergers and acquisitions and thereafter disclose that wrongdoing and provide cooperation, consistent with the terms of the Policy.”2 Even for situations in which pre-acquisition due diligence did not reveal subsequently-uncovered wrongdoing, the DOJ wants to encourage and reward transparency, disclosure and remediation as outlined in the FCPA Policy.
In announcing the policy, the DOJ is seeking to ensure that companies are able to enter and compete in high-risk markets, and that the DOJ’s approach does not impede their expansion or otherwise force them to “ced[e] the field to non compliant companies.”3 From the DOJ’s perspective, these law-abiding companies can help root out corruption and institute strong compliance policies.
Companies should be mindful, however, that while the FCPA Policy provides a presumption of declination for companies that self-disclose, cooperate and remediate, the presumption is a rebuttable one. If “aggravating circumstances” exist, such as involvement of c-suite executives in the conduct or a history of past violations by the company, the presumption may no longer apply. Self-disclosure is always a complex and difficult decision, whether in the merger context or otherwise, and is heavily fact- and circumstance-specific.
The confirmation that the DOJ will apply the FCPA Corporate Enforcement Policy to post-merger successor entities provides useful guidance for companies conducting business in high-risk markets. Companies pursuing mergers and acquisitions would be wise to conduct robust pre- and post-transaction due diligence and comprehensive compliance training post-acquisition.
1. Matthew S. Miner, “Deputy Assistant Attorney General Matthew S. Miner Remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets” (July 25, 2018), hereinafter “Miner ACI Remarks,” available at https://www.justice.gov/opa/pr/deputy-assistant-attorney-general-matthew-s-miner-remarks-american-conference-institute-9th.
2. Miner ACI Remarks.
3. Miner ACI Remarks.