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August 14, 2018

DOJ Clarifies Application of FCPA Corporate Enforcement Policy to Risks Discovered During the M&A Process

By Antonio M. Pozos, Mary P. Hansen, Joseph A. Rillotta and Peter W. Baldwin

Late last month, Deputy Assistant Attorney General Matthew S. Miner discussed the Justice Department’s (DOJ) views on an acquiring company’s potential liability for Foreign Corrupt Practices Act (FCPA) violations by acquired companies during his comments at a conference in Washington, D.C. Miner’s remarks clarified portions of the DOJ and SEC’s joint 2012 publication, “A Resource Guide to the U.S. Foreign Corrupt Practices Act” (the “Resource Guide”), and the relationship between the Resource Guide and the FCPA Corporate Enforcement Policy (the “Policy”) that the DOJ unveiled in November 2017. In doing so, Miner’s speech emphasized the DOJ’s continuing efforts to encourage companies to self-disclose potential violations of the FCPA to the DOJ in exchange for credit under the provisions of the Policy. (As noted in our March 5 alert, the Policy now applies both in FCPA matters and in corporate cases more generally.)

As a threshold matter, the DOJ has generally taken the position set forth in the Resource Guide that “when a company merges with or acquires another company, the successor company assumes the predecessor company’s liabilities … and FCPA violations are no exception.” In his remarks, however, Miner opined that the DOJ has tempered this position in cases where the acquiring company engages in robust FCPA due diligence during the transaction process, voluntarily discloses wrongdoing discovered during that due diligence, and implements effective compliance programs. Indeed, Miner went further, acknowledging that DOJ’s past promises to “give meaningful credit to companies who undertake these actions,” and suggestion that DOJ “may” decline to bring cases under such circumstances, do not provide companies with enough information to evaluate how the company will be treated if it reports misconduct and cooperates with the government. Indeed, Miner recognized that this uncertainty “is a significant sticking point for corporate management.”

In an effort to provide additional certainty to corporate decision-makers evaluating whether to self-disclose potential FCPA violations discovered during the M&A process, Miner clarified that the DOJ “intend[s] to 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.” Benefits available to companies under the Policy include “a presumption that the company will receive a declination absent aggravating circumstances” if the company fully cooperates, engages in timely and appropriate remediation, and disgorges any ill-gotten gains. Further, if a company complies with the self-disclosure, cooperation and remediation requirements, but the DOJ still decides to prosecute, the Policy states that the DOJ “will accord, or recommend to a sentencing court, a 50 [percent] reduction off the low end” of the otherwise applicable fine (except in the case of a criminal recidivist). On the other hand, companies that do not self-disclose are eligible, at most, for only a 25 percent fine reduction – even if they subsequently cooperate with the government’s investigation and engage in appropriate remediation.

Miner also encouraged companies to make more frequent use of the DOJ’s FCPA Opinion Procedure, a process last used in 2014 through which a company may seek an opinion on whether conduct in an actual – not hypothetical – transaction complies with the DOJ’s enforcement policy. If the DOJ issues such an opinion, the company is entitled to a “rebuttable presumption” that it is in compliance with the FCPA. This presumption, however, is not absolute, and a company seeking an opinion through this process must include “all relevant and material information bearing on the conduct for which an FCPA Opinion is requested and on the circumstances of the prospective conduct” in an application certified by “an appropriate senior officer with operational responsibility for the conduct that is the subject of the request” and, if required by the DOJ, the company’s Chief Executive Officer. The length of the process for obtaining an opinion, which can take several months depending on the extent of the DOJ’s requests for information regarding the conduct and proposed transaction, can also discourage participation.

Miner’s comments reflect a continuing push by the DOJ to encourage corporate self-disclosures – including self-disclosures of FCPA matters discovered during M&A activity. The potential benefits of self-disclosure – up to and including a declination – underscore the importance of carefully considering the scope of FCPA due diligence in a proposed transaction, thoughtfully analyzing the potential advantages and disadvantages of any potential self-disclosure, and taking appropriate steps to remediate FCPA issues posed by the company to be acquired. Deciding on the appropriate levels of due diligence can, however, be especially challenging, particularly in high-risk jurisdictions where the scope of an inquiry can expand rapidly, and if trouble is found can raise sensitive and difficult questions, including how to handle the sellers and their likely, if natural desire to let sleeping dogs lie. Moreover, evaluating whether to make a self-disclosure can also be particularly complex when potential FCPA concerns are identified, but the acquiring company is unable to ultimately determine whether a violation has actually occurred. Companies facing these hard choices would be well-advised to consult closely with counsel versed in the FCPA’s Corporate Enforcement Policy and the complexities of their businesses.

If you have any questions about this alert, do not hesitate to contact the authors or your usual Drinker Biddle contact.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

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