DOJ: Mere Acquisition of Foreign Company Does Not Retroactively Create FCPA Liability for Acquiror | Practical Law

DOJ: Mere Acquisition of Foreign Company Does Not Retroactively Create FCPA Liability for Acquiror | Practical Law

The US Department of Justice (DOJ) has issued an Opinion Procedure Release, determining that a US company would not face liability for the target company's violations of the Foreign Corrupt Practices Act (FCPA).

DOJ: Mere Acquisition of Foreign Company Does Not Retroactively Create FCPA Liability for Acquiror

by Practical Law Commercial
Published on 18 Nov 2014 • USA (National/Federal)
The US Department of Justice (DOJ) has issued an Opinion Procedure Release, determining that a US company would not face liability for the target company's violations of the Foreign Corrupt Practices Act (FCPA).
On November 7, 2014, the US Department of Justice (DOJ) concluded in Opinion Procedure Release 14-02 that a company would not be liable for violations of the Foreign Corrupt Practices Act (FCPA) by the target company, which was not subject to US jurisdiction before the acquisition.
In Opinion Procedure Release 14-02 a US-based company (the Acquiror) sought anonymous guidance on whether it would face vicarious liability for the actions of a target company (the Target), which it was in the process of acquiring. The Acquiror disclosed to the DOJ that during its due diligence it discovered that several acts by the Target were likely to have violated the FCPA. However, at the time of its request for guidance from the DOJ, the Acquiror:
  • Had already implemented remedial measures to alleviate the Target's FCPA compliance issues.
  • Determined that no contract or other asset acquired through bribery would remain in operation or generate financial benefit for the Target after the acquisition.
In concluding that the Acquiror would not face liability under the FCPA the DOJ noted that, while successor liability is a basic tenet of mergers and acquisitions, merging or acquiring another entity cannot create liability where none existed before the transaction. According to the DOJ, the Acquiror would not face liability under the FCPA for its acquisition of the Target because:
  • The improper payments, transactions and practices would not have resulted in liability under the FCPA. Neither the Target nor its parent company were subject to US jurisdiction before the acquisition. None of the payments to foreign officials:
    • occurred in the US; or
    • were made by US individuals or issuers.
  • The Target no longer derived benefits from any contract or other asset acquired through bribery once it became subject to US jurisdiction.
To avoid liability under the FCPA, a company acquiring a foreign target should follow the recommendations made by the DOJ in its A Resource Guide to the U.S. Foreign Corrupt Practices Act, including:
  • Conducting thorough FCPA and anti-corruption due diligence.
  • Implementing the company's code of conduct and anti-corruption policy as quickly as practicable.
  • Conducting FCPA and other relevant training for the acquired entity's directors and employees, as well as third-party agents and partners.
  • Conducting an FCPA-specific audit of the acquired entity as quickly as practicable.
  • Disclosing to the DOJ any corrupt payments discovered during due diligence.
For a comprehensive resource on the FCPA, see Practice Note, The Foreign Corrupt Practices Act: Overview.