What the Dramatic Rise in FCPA Enforcement Means for M&A
A recent expansion by the DOJ to its FCPA Corporate Enforcement Policy (CEP) has gone largely unnoticed, but provides new incentives for companies to self-report misconduct discovered after a merger or acquisition, while raising the specter of increased exposure for companies and executives who sell assets tainted by corruption. On June 27, 2019, Deputy Assistant Attorney General Matthew Miner delivered prepared remarks in Prague, Czech Republic, explaining that acquiring companies in M&A deals may now obtain a declination of criminal charges without publicity, and possibly without the disgorgement of profits, which previously were required under the CEP.1 This remedy is available to self-reporting companies that fully remediate and cooperate with government investigations into the culpable entities and individuals, and where the misconduct and financial impact are deemed to be “de minimis.”
This recent change is the second move by DOJ in less than a year to focus specifically on M&A transactions in FCPA cases. Under the new policy, an acquiring company may be well positioned to argue for a full declination without publicity and without disgorging profits if, for example, the company self-reports and terminates a problematic contract before significant benefits are realized. In such cases, the DOJ may be apt to make a positive example of the company so it can message the success — even if anonymously — by rewarding the company with a non-public declination and without disgorgement, provided, of course, that the company fully remediate and cooperate with the department’s investigation of the case.
The new policy may have triggered the first test case for self-disclosure by an acquiring company. On August 6, 2019, International Flavors & Fragrances Inc. reported that it had self-disclosed allegations of improper payments discovered post acquisition to U.S. and Israeli authorities. Companies should pay close attention to the outcome of that case to see if DOJ’s new policy proves meaningful.2
On the flip side, sellers in M&A deals should ensure that appropriate measures are taken to upgrade and enhance compliance systems so that all potential issues are cleaned up and fully remediated before problematic companies or assets are sold. Red flags in corporate documents, emails and board minutes, which may transfer with a company in any asset sale, may be used against the seller in the event a buying company discovers wrongdoing and opts to cooperate with the DOJ.
Whether on the buying or selling side of an M&A deal, the new policy and enforcement trends require that companies obtain a nuanced analysis and understanding of the FCPA and the CEP. To avoid trouble and achieve the best outcome, companies should engage counsel with the requisite experience and expertise navigating these complex waters.
For a more fulsome analysis of this and related FCPA enforcement updates, read the full article here.
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1 U.S. Department of Justice, Deputy Assistant Attorney General Matt Miner Delivers Remarks at The American Bar Association, Criminal Justice Section Third Global White Collar Crime Institute Conference, Prague, Czech Republic, June 27, 2019, available at https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-matt-miner-delivers-remarks-american-bar-association.
2 The Wall Street Journal, Flavor Company Reports Potential Bribery by Company It Acquired, August 6, 2019, available at https://www-wsj-com.cdn.ampproject.org/c/s/www.wsj.com/amp/articles/flavor-company-reports-potential-bribery-by-company-it-acquired-11565136938.