Negotiating FCPA, OFAC and Anti-money Laundering Representations in Underwriting Agreements | Practical Law

Negotiating FCPA, OFAC and Anti-money Laundering Representations in Underwriting Agreements | Practical Law

A summary of the key negotiation issues for FCPA, OFAC and anti-money laundering representations in underwriting agreements and an introduction to PLC Corporate & Securities resources that can assist underwriters' and issuer's counsel in drafting and negotiating these representations.

Negotiating FCPA, OFAC and Anti-money Laundering Representations in Underwriting Agreements

by PLC Corporate & Securities
Published on 18 Apr 2013 • USA (National/Federal)
A summary of the key negotiation issues for FCPA, OFAC and anti-money laundering representations in underwriting agreements and an introduction to PLC Corporate & Securities resources that can assist underwriters' and issuer's counsel in drafting and negotiating these representations.
Some of the most hotly negotiated representations and warranties (reps) in an underwriting agreement are often those certifying the issuer's compliance with:
PLC Corporate & Securities can help lawyers drafting and negotiating these reps to quickly spot the key issues and gauge market practice. Our What's Market underwriting agreement database can instantly retrieve reps from dozens of recent precedents and sort by lead underwriter, issuer status (for example, emerging growth company (EGC) or well-known seasoned issuer (WKSI)) and industry sector.
While this resource discusses FCPA, OFAC and AML reps in the context of underwriting agreements for SEC-registered offerings, the same analyses and PLC resources are relevant for purchase agreements for Rule 144A/Regulation S offerings.

Importance of the FCPA, OFAC and AML Reps

Underwriters place great importance on robust FCPA, OFAC and AML compliance reps because of:
  • Increased enforcement activity by federal authorities in recent years, resulting in high-profile investigations, prosecutions and settlements.
  • Severe civil and criminal penalties and significant reputational damage that may result from violations, including for the underwriters.
Accordingly, underwriters' counsel is often instructed to use the standard FCPA, OFAC and AML reps in the form underwriting agreement designated by the lead investment bank or banks and to make no changes without the banks' express consent. Nonetheless, issuer's counsel often have good reasons to request changes to these reps to tailor them to the specific circumstances of the issuer.

Key Negotiation Issues

Some of the most commonly negotiated issues are:
  • Scope of the subject parties. The default language in most investment bank form underwriting agreements for the FCPA and OFAC reps certifies compliance by the issuer, its subsidiaries and their respective directors, officers, employees and agents. However, issuer's counsel may be able to negotiate the subject parties down to a narrower universe of parties for one or both of these reps.
  • Knowledge qualifiers. The reps often include a knowledge qualifier ("to the Company's knowledge") for some of the subject parties (for example, the employees and agents of the issuer and its subsidiaries). Issuer's counsel typically push to have the knowledge qualifier apply to a broader group of the subject parties (for example, not only the employees and agents but also the directors and officers).
  • Materiality qualifiers. While rarely successful, issuers sometimes request a carve-out for any non-compliance that would not result in a material adverse effect (MAE) for the issuer. AML reps also sometimes qualify the issuer's compliance by referring only to "material compliance" or "compliance in all material respects."

FCPA, OFAC and AML Reps: What's Market?

When negotiating an underwriting agreement, issuer's and underwriters' counsel often review recent precedents to gauge market practice and support their negotiating positions. With PLC's What's Market underwriting agreement database, you can instantly retrieve FCPA, OFAC and AML reps from dozens of recent agreements.
Simply visit the underwriting agreement database and take the following steps:
  • If desired, narrow the sample set of agreements using the facets on the left-hand side. For example, you can narrow by:
    • lead underwriter or underwriters;
    • issuer status (for example, EGC, WKSI or foreign private issuer); and
    • industry sector.
  • Check the boxes next to the agreements you want to compare and click the "Compare" button.
  • In the pop-up window that appears, scroll down and click box number:
    • 20 for OFAC reps;
    • 21 for FCPA reps; and
    • 22 for AML reps.
  • Click the "Compare" button at the bottom of the pop-up window.
This produces a customized, searchable report setting out the text of the designated reps, together with links to the underlying agreements as filed with the SEC. The report can be exported to Word or Excel using the buttons on the upper right-hand side.