DOJ Urges U.S. Companies Acquiring or Merging with Foreign Companies to Self-Disclose FCPA Misconduct Identified during Due Diligence

Carlos F. Ortiz, Shawn M. Wright, Mayling C. Blanco, and Alexandra Clark

In a keynote address at the Ninth Global Forum on AntiCorruption Compliance in High Risk Markets, Matthew S. Miner, Deputy Assistant Attorney General of the Department of Justice’s (“DOJ”) Criminal Division, urged U.S. companies merging with or acquiring foreign targets to voluntarily disclose potential misconduct to the DOJ pursuant to the revised Foreign Corrupt Practices Act (“FCPA”) Corporate Enforcement Policy (the “Policy”).

As previously reported by Blank Rome, the Policy incentivizes companies to voluntarily self-disclose potential FCPA-related misconduct, fully cooperate with the government’s investigation, and remediate the alleged misconduct through a robust compliance program. Companies satisfying these three criteria are entitled to a presumption that the DOJ will resolve the case through a declination.

Alternatively, if aggravating factors warrant enforcement, then the company can still avail itself of a 50-percent reduction off the low end of the fine range. Under either circumstance, the company will be required to disgorge the ill-gotten gains. While acknowledging the great progress that the DOJ has made recently in its approach to corporate enforcements, particularly with the implementation of the revised Policy, Miner conceded that improvement was needed with regards to mergers and acquisitions.

Miner noted that the DOJ “understand[s] that through acquisitions otherwise law-abiding companies can sometimes inherit problems that are not of their own making.” Miner further recognized that “[n]ot only can the acquiring company help to uncover wrongdoing, but more importantly the acquiring company is in a position to right the ship by applying strong compliance practices to the acquired company.” The DOJ, Miner went on to note, wants to encourage this type of activity and not have “the specter of enforcement to be a risk factor that impedes such activity by good actors, and instead cedes the field to non-compliant companies.” With this, Miner announced that the DOJ intends to apply the Policy to successor companies that uncover wrongdoing after a merger and acquisition.

As outlined by Miner, a U.S. company may avail itself of the benefits of disclosure during or after the merger or acquisition:

  • Discovery during Due Diligence: If the U.S. company (issuers or domestic concerns) uncovers corruption concerns during the due diligence process, that company is encouraged to seek the DOJ’s opinion as to whether the suspected activity would elicit FCPA enforcement by using the FCPA Opinion Procedure. Opinions will be issued within 30 to 45 days after the government receives all necessary information. Miner noted that the FCPA Opinion Procedure is underutilized, apparently recognizing the delay it possesses, but observed that “it sometimes makes sense to slow down to assess risks.” Miner stated that this is “a tremendous resource” and the DOJ intends to make “greater use” of it in the future.
  • Discovery Post-Acquisition or -Merger: Realizing that acquiring companies may have limited access to a target’s information, particularly in high-risk markets, if the acquiring company discovers potential misconduct after a merger or acquisition, they should take the disclosure steps outlined in the Policy. Miner commented “we want to encourage [the acquiring company’s] leadership to take the steps outlined in the FCPA Policy, and when they do, we want to reward them accordingly for stepping up, being transparent, and reporting and remediating the problems they inherited.”

The DOJ believes that its stated approach to disclosures in the context of mergers and acquisitions will provide U.S. companies “greater certainty” when “deciding whether to go forward with a foreign acquisition or merger, as well as in determining how to approach wrongdoing discovered subsequent to a deal.” Having the Policy expressly apply to mergers and acquisitions is a significant policy shift from the DOJ “may” decline prosecution to a presumptive declination if the Policy requirements are met. Miner appreciates that, for corporate management, in making the calculus of whether to disclose or not, there “is a big difference between a theoretical outcome and one that is concrete and presumptively available.”

The DOJ’s revised approach to corporate disclosures in mergers and acquisitions reinforces the public policy advanced by the Policy whereby companies are strongly encouraged to “invest in effective compliance programs and robust control systems to prevent misconduct” and to report any misconduct to the DOJ. In the context of mergers and acquisitions, Miner emphasized that fighting corruption remains a priority for the DOJ and that “there are many benefits when law-abiding companies…enter high-risk markets or take over otherwise problematic companies.” Such behavior helps to detect and prevent corruption and encourages compliance in other companies.

U.S. companies considering a merger or acquisition with a foreign target, particularly one in a high-risk market, should be well informed of these new policy statements. This announcement shifts the calculus of self-disclosure, re-emphasizes previously underutilized options during the due diligence period, and continues to re-enforce the importance of strong compliance policies and thorough and robust due diligence to ensure that their foreign target’s activities comport with the FCPA, even if the target was not subject to the FCPA prior to the transaction.

This article was first published as a Blank Rome White Collar Defense & Investigations advisory in August 2018.