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15 May 2019
In a July 2018 conference speech, the US Department of Justice (DOJ) deputy assistant attorney general (DAAG) for the Criminal Division underscored the importance of pre-acquisition Foreign Corrupt Practices Act (FCPA) diligence. The DAAG's remarks reinforced FCPA enforcement as a DOJ priority and provided a disclosure roadmap for buyers that uncover FCPA-related misconduct both pre and post-acquisition. These statements were consistent with the DOJ's continuing efforts to provide clearer guidance and more consistent outcomes in FCPA enforcement.
The DAAG stated that the DOJ remains committed to "fighting corruption and ensuring a level playing field for law-abiding companies" in a way that is "fair and just". In the transactional context, law-abiding companies may inherit historical misconduct that their compliance programme had no opportunity to discover and remediate.
The DAAG suggested that buyers that uncover FCPA misconduct pre-acquisition should consider seeking guidance from the DOJ before completing the purchase using the DOJ's FCPA opinion procedures. Under the opinion procedures, companies may submit a written request to the DOJ's Criminal Division for an opinion as to whether certain specified conduct conforms with the DOJ's FCPA enforcement policy. The DOJ technically has 30 days to respond to a request, although in practice the process typically takes much longer. The DAAG noted that the DOJ could expedite its analysis based on timing needs, but that "it sometimes makes sense to slow down to assess risks". However, the DOJ has not issued an advisory opinion since 2014.
According to the DAAG, for misconduct identified post-acquisition, buyers that follow the steps outlined in the DOJ's FCPA policy will be rewarded for "stepping up, being transparent, and reporting and remediating the problems inherited". Accordingly, post-closing, successor entities that uncover historical misconduct should be mindful of the FCPA policy's incentives for self-disclosure, full cooperation and timely and appropriate remediation. Companies that comply with the policy can be rewarded with significantly discounted financial penalties, up to and including a complete declination from the DOJ.
The DAAG added that where the DOJ declines to act against an acquired entity, individual wrongdoers will not receive a free "pass for corrupt behavior" and the DOJ will investigate and prosecute, where appropriate, individuals who are responsible for carrying out or concealing the historical wrongdoing.
By establishing a clear enforcement framework in the mergers and acquisitions context, the DAAG said that the DOJ is encouraging US foreign investment in high-risk jurisdictions. Indeed, the DAAG noted that incentivising high-risk acquisitions by law-abiding companies helps the DOJ to "stamp out corruption". According to the DAAG, law-abiding companies that conduct robust diligence, self-disclose and remediate the misconduct and cooperate with the DOJ, free up DOJ resources.
The DAAG's commentary also emphasises the importance of both pre and post-acquisition diligence. The DOJ continues to see FCPA enforcement as a collaborative process where the DOJ is viewed as a "partner, not just an adversary". Regardless, it is clear from the commentary that the DOJ expects companies to conduct meaningful pre and post-acquisition diligence. If misconduct is identified, the buyer should begin remediation and weigh whether, and to what extent, it wants to engage in discussions with the DOJ.
For further information on this topic please contact Ryan Rohlfsen or Sarah M Kimmer at Ropes & Gray LLP's Chicago office by telephone (+1 312 845 1200) or email (firstname.lastname@example.org or email@example.com). Alternatively, contact Amanda N Raad at Ropes & Gray's London office by telephone (+44 20 3201 1500) or email (firstname.lastname@example.org). The Ropes & Gray website can be accessed at www.ropesgray.com.
James P Dowden, partner, and Alexandre H Rene, partner, assisted in the preparation of this article.
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