Government Enforcement

DOJ Encourages Self-Disclosure of FCPA Violations Discovered Through M&A Activity

Deputy Assistant Attorney General Matthew Miner, head of the DOJ’s Fraud Section, recently discussed the DOJ’s efforts to address corruption discovered during mergers and acquisitions. During his remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance In High Risk Markets, DAAG Miner explained that the DOJ would apply the principles in the FCPA Corporate Enforcement Policy (“FCPA Policy”) to successor companies that disclose and cooperate with the agency after discovering wrongdoing in connection with a merger or acquisition.

The FCPA Corporate Enforcement Policy. The Foreign Corrupt Practices Act prohibits corporate bribery of foreign officials and requires strong accounting practices. Last year, Deputy Attorney General Rod Rosenstein announced a revised FCPA Policy to help companies understand the costs and benefits of cooperation when deciding whether to voluntarily disclose misconduct. Absent aggravating circumstances or recidivism, and provided certain conditions are met, companies that voluntarily disclose, cooperate and remediate misconduct benefit from a presumption that they will receive a declination. (9-47-120 – FCPA Corporate Enforcement Policy.) Where a criminal resolution is warranted and (again) absent recidivism, the DOJ will recommend a reduction in the fine range. (Id.)

Application in the Mergers and Acquisition Context. With respect to M&A activity, especially in high-risk industries and markets, DAAG Miner explained that application of the FCPA Policy will give companies and their advisors more certainty when evaluating a foreign deal and determining how, and whether, to proceed with the transaction. (Deputy Assistant Attorney General Matthew S. Miner Remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets.) Recognizing the benefits of having companies with strong compliance programs entering high-risk markets, the DOJ wants to encourage acquiring companies to “right the ship” by enforcing robust compliance. (Id.) Not only does application of the FCPA Policy in the M&A context encourage greater corporate compliance, it also frees up DOJ resources and enables the agency to focus on other matters. (Id.)

If potential misconduct is discovered during due diligence, the DOJ recommends the company seek guidance through its FCPA Opinion Procedures. (Id.) These procedures allow a party to assess the risk by obtaining an opinion about whether certain conduct conforms with the DOJ’s FCPA Policy. (Foreign Corrupt Practices Act Opinion Procedure.) Even for companies that discover misconduct after the acquisition, the DOJ wants to “encourage its leadership to take the steps outlined in the FCPA Policy, and when they do … reward them[.]” (Deputy Assistant Attorney General Matthew S. Miner Remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets.)

Takeaways. The DOJ’s approach highlights the need for strong cross-disciplinary team staffing on mergers and acquisitions. For example, white-collar counsel can advise buyers on strategy once misconduct is flagged by corporate or antitrust counsel during the M&A process. Counsel for sellers that learns of misconduct during due diligence can discuss options with the client and coordinate as necessary to take advantage of the DOJ’s policies and guidance in mitigating any issues. Moreover, counsel for either party may uncover conduct from documents reviewed or conversations with the client that should be flagged to further assess whether misconduct has occurred. It is important to keep in mind that some of these documents may get produced to the DOJ or FTC during a merger review. Entities involved in deals in high-risk markets or industries should therefore involve deal, regulatory and enforcement experts where necessary.

Don’t Hold Back: FTC Offers New Guidance on HSR Filing Obligations

As discussed previously on this blog, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires parties to certain proposed transactions to submit detailed premerger notification filings and wait for clearance before consummating the deal. To facilitate the antitrust review, merging companies that meet the HSR thresholds are required to submit a wealth of information about their businesses and the proposed transaction, including annual reports, market analyses, and agreements and other documents bearing on the deal. Despite these broad requirements, the FTC found that some merging companies were withholding side agreements relevant to the antitrust review process on the theory that they were ancillary to the main agreement and/or protected by a common interest privilege or joint defense agreement. READ MORE