FCPA Due Diligence in the Context of Mergers and Acquisitions
David S. Krakoff & James T. Parkinson
September 29, 2008
Mergers and acquisitions serve as important instruments for companies to enter global markets. In 2007, worldwide merger and acquisition activity totaled $4.38 trillion.1 Major target companies include both privately held firms and state-owned enterprises in a variety of sectors, including telecommunications, financial services, health care, energy, and transportation. The U.S. Foreign Corrupt Practices Act (FCPA) poses crucial challenges for companies seeking to gain a foothold in new markets via mergers or acquisitions, particularly where targets are foreign companies or have extensive foreign operations.
Under the FCPA, an acquiring company may be held liable for any prior unlawful payments made by the acquired company. FCPA prosecutions in the context of mergers and acquisitions are an increasingly significant area. In 2007, nearly one-half of U.S. FCPA prosecutions arose from pre-acquisition due diligence and disclosure by acquiring companies. Such actions can scuttle deals and result in criminal charges, penalties and reputational damage. Consequently, it is critical for acquiring companies to conduct FCPA-specific due diligence to evaluate and resolve any potential FCPA problems before the deal closes. This article discusses recent FCPA cases in the mergers and acquisitions context and provides guidance on basic strategies for businesses to finalize deals in order to avoid FCPA liability with respect to pre-acquisition activities of the target company.