FCPA Compliance and Ethics Blog

February 21, 2010

Establishing Relationships with Foreign Business Partners—Due Diligence, Due Diligence and then Due Diligence

There are several critical components in the selection, use and retention of any Foreign Business Partner, such as agents, resellers, joint venture partners or distributors. In view of the critical risks a US Company must manage when entering into a relationship with a Foreign Business Partner, the US Company should, prior to establishing the relationship, kick off the risk management process by initiating thorough due diligence on the proposed Foreign Business Partner. The due diligence process should contain, at a minimum, inquiries into the following areas:

• Need for the relationship with a Foreign Business Partner: The Company Business Team or Business Person should articulate the business case for the proposed Foreign Business Partner relationship. This must be approved by management before it goes to legal or compliance for review.

• Credentials: List the critical reasons for selection of the proposed Foreign Business Partner. This should include a discussion of the business partner’s background and experience.

• Ownership Structure: Describe whether the proposed Foreign Business Partner is a government or state-owned entity, and the nature of its relationship(s) with local, regional and governmental bodies. Are there any members of the business partner related, by blood, to governmental officials?

• Financial Qualifications: Describe the financial stability of, and all capital to be provided by, the proposed Foreign Business Partner. Obtain financial records, audited for 3 to 5 years, if available.

• Personnel: Determine whether the Foreign Business Partner will be providing personnel, particularly whether any of the employees are government officials. Obtain the names and titles of those who will provide services to the US Company.

• Physical Facilities: Describe what physical facilities will be provided by the Foreign Business Partner. Who will provide the necessary capital for their upkeep?

• Reputation: Describe the business reputation of the proposed Foreign Business Partner in its geographic and industry-sector markets.

These due diligence inquiries are required under the Federal Sentencing Guidelines and the guidance offered by the Department of Justice (DOJ) Opinion Releases and the publicly released Plea Agreements and Deferred Prosecution Agreements (DPA) entered into by US companies who admit to violating the Foreign Corrupt Practices Act (FCPA). This due diligence should be recorded and maintained by the US Company for review, if required, by a governmental agency. Some of the due diligence can be handled by the US Company’s in-house legal and/or compliance groups. However, it is recommended that for any high risk Foreign Business Partner, an outside forensic auditing firm and outside legal counsel be retained to conduct the due diligence investigations. This brings a level of expertise usually not available within a corporation plus an outside perspective less susceptible to in-company business pressures.

After this initial inquiry is concluded the US Company should move forward to perform a background check on a prospective Foreign Business Partner by using the following resources:

• References: Obtain and contact a list of business references.

• Embassy Check: Obtain information regarding the intended business partner from the local US Embassy, including an International Company Profile Report.

• Compliance Verification: Determine if the Foreign Business Partner, and those person within the Foreign Business Partner who will be providing services to the US Company, have reviewed or received FCPA training.

• Foreign Country Check: Have an independent third party, such as a law firm; investigate the business partner in its home country to determine compliance with its home country’s laws, licensing requirements and regulations.

• Cooperation and Attitude: One of the most important inquiries is not legal but based upon the response and cooperation of the Foreign Business Partner. Did the business partner object to any portion of the due diligence process? Did it object to the scope, coverage or purpose of the FCPA? In short, is the business partner a person or entity that the US Company is willing to stand up with under the FCPA?

After a company completes these due diligence steps, there should be a thorough review by the Board, or other dedicated Management Committee, on the qualifications of the proposed foreign business relationship partner. It is critical that the reviewing Committee is not subordinate to the US company’s business unit which is responsible for the business transactions with the Foreign Business Partner. This review should examine the adequacy of due diligence performed in connection with the selection of overseas partners, as well as the Foreign Business Partner’s selection of agents, subcontractors and consultants which will be used for business development on behalf of the US Company.

The steps listed herein do not include the use of, or continued management of, a Foreign Business Partner. These steps need to be taken by all US Companies entering into, or already engaged in, a relationship with Foreign Business Partners as the FCPA applies to all US Companies, whether public or private. Remember, due diligence, due diligence and once that has been completed; more due diligence.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

February 16, 2010

What’s in a Name: Agents, Resellers and Distributors under the FCPA

What is in a name? The terms agent, reseller and distributor are sometimes used interchangeably in the business world. However in the legal world they usually have distinct definitions. An agent can be generally defined as is a person who is authorized to act on behalf of another to create a legal relationship with a Third Party. An agent can also be a person who makes introductions and generally facilitates relationships between the seller of goods or services and end-using buyer. Such an agent usually receives some type of percentage of the final sale as his commission. An in-country national agent is often required in most Middle East and Far East countries. A reseller can be generally defined as a company or individual that sells goods to an end-using buyer. A reseller does not take title and thereby own the goods; the reseller is usually a conduit from the seller to the end-using buyer. A reseller usually receives a flat commission for his services, usually between 5-10% of the final purchase price. This format is often used in the software and hardware industries. A distributor can be generally defined as a company or individual which purchases a product from an original equipment manufacturer (OEM) and then independently sells that product to an end user. A distributor takes title, physical possession and owns the products. The distributor then sells the product again to an end-using purchaser. The distributor usually receives the product at some discount from the OEM and then is free to set his price at any amount above what he paid for the product. A distributor is often used by the US manufacturing industry to act as a sales force outside the US.

The landscape of the Foreign Corrupt Practices Act (FCPA) is littered with cases involving both agents and resellers are they are the most clearly acting as representatives of the companies whose goods or services they sell for in foreign countries. However many US businesses believe that the legal differences between agents/resellers and distributors insulate them from FCPA liability should the conduct of the distributor violate the Act. They believe that as the distributor takes title and physical possession of the product, the legal risk of ownership has shifted to the distributor. If the goods are damaged or destroyed, the loss will be the distributor’s not the US business which manufactured the product. Under this same analysis, many US companies believe that the FCPA risk has also shifted from the US company to the foreign distributor. However such belief is sorely miss-placed.

As almost everyone knows, the FCPA prohibits payments to foreign officials to obtain or retain business or secure an improper business advantage. But many US companies view distributors as different from other types of sales representatives such as company sales representatives, agents, resellers or even joint venture partners, for the purposes of FCPA liability. However the Department of Justice (DOJ) takes the position that a US company’s FCPA responsibilities extend to the conduct of a wide range of third parties, including the aforementioned company sales representatives, agents, resellers, joint venture partners but also distributors. No U.S. company can ignore signs that its distributors may be violating the FCPA. Company management cannot engage in conscious avoidance to the activities of a distributor that the company has put into a business position favorable to engaging in FCPA violations. Court interpretation of the FCPA has held that it is applicable where conduct violative of the Act is used to “to obtain or retain business or secure an improper business advantage” which can cover almost any kind of advantage, including indirect monetary advantage even as nebulous as reputational advantage.

This scenario played out in China from 1997 to 2005 through AGA Medical Corporation. The Minnesota-based firm manufactured products used to treat congenital heart defects. To boost is China sales, AGA worked through its Chinese distributor. AGA sold products at a discounted rate to its Chinese distributor. This distributor then took some of the difference between his price from the equipment manufacturer AGA and the price he sold the equipment to Chinese hospitals to and paid corrupt payments to Chinese doctors to have them direct their government-owned hospitals to purchase AGA’s products. Its sales in China for the period were about $13.5 million. The Chinese distributor was found to have paid bribes in China of at least $460,000 to doctors in government-owned hospitals and patent-office officials. In 2008, AGA agreed to pay a $2 million criminal penalty and enter into a deferred prosecution agreement with the Department of Justice to settle Foreign Corrupt Practices Act violations.

The same game was played by a Volvo subsidiary, Volvo Construction Equipment International (“VCEI”) when it used a Tunisian distributor to facilitate additional sales of its products to Iraq. VCEI reduced its prices to enable the distributor to make the illegal payments based on bogus after-sales service fees. Volvo’s 2008 settlement with the SEC included an agreement permanently enjoining it from future violations of Sections, ordering it to disgorge $7,299,208 in profits plus $1,303,441 in pre-judgment interest, and to pay a civil penalty of $4,000,000. In addition to this fine imposed by the SEC, Volvo also paid a $7,000,000 penalty pursuant to a deferred prosecution agreement with the DOJ.

So what is in a name? Do we simply look to Shakespeare and his immortal words, “”What’s in a name? That which we call a rose; By any other name would smell as sweet.” Unfortunately I do not think the answer is quite so ethereal. It is more down to earth. If it walks like a duck and quacks like a duck, it probably is a duck. If you have a distributor, it must be subjected to the same FCPA scrutiny and management as an agent, reseller or joint venture partner.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author can be reached at tfox@tfoxlaw.com.

 

© Thomas R. Fox, 2010

February 12, 2010

Proposed UK Bribery Bill: It’s Implications and Contrasts to the FCPA

In March 2009, the United Kingdom introduced into Parliament a Bribery Bill drafted to consolidate and bring into the 21st Century the various UK anti-corruption and bribery laws. As stated by Her Royal Highness Queen Elizabeth II, in her speech of November 18, 2009, the purpose of the Bribery Bill is to “Provide a modern and comprehensive scheme of bribery offences to equip prosecutors and courts to deal effectively with bribery at home and abroad.” As of February 9, 2010, the Bribery Bill had its third and final reading in the House of Lords, where no changes were proposed, and the bill has now been presented to the House of Commons for the first reading.

Background

General reform of the bribery laws was first proposed in a Law Commission report in 1998. This led to a draft Government Bill in 2003 that failed to win broad support in pre-legislative scrutiny. This defeat led to mounting pressure as the UK faced criticism from the Organization for Economic Co-Operation and Development (OECD) for the UK’s lack of clear substantive prohibitions on bribery and its failure to comprehensively implement and enforce its obligations under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The Secretary of State for Justice Jack Straw introduced the draft Bribery Bill, which was informed by a further review by the Law Commission and was published in March 2009. The bill was subject to pre-legislative scrutiny by a Joint Committee of both the House of Lords and Commons from May to July 2009. The Joint Committee report, published in July 2009, was broadly supportive of the Government’s proposals. The Government’s response to the Joint Committee report was published on November 20, 2009; the same day as the publication of the Bribery Bill.

With wide cross-party support it is anticipated that the Bribery Bill will pass the House of Commons and become law by May, 2010. The Bribery Bill amends and repeals existing anti-bribery offences under the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916 and abolishes the UK common law offenses of bribery and embracery (bribery of jurors). This proposed legislation represents a long awaited simplification of the law on corruption and makes the UK compliant with its international obligations under the OECD. It will have a major impact on the way businesses connected to the UK manage their international business.

Offenses under the Bill

A. Individuals

Individuals can be prosecuted for making an offer to, or a promise to, bribe where such promise or offer gives a financial or other advantage to another person to obtain a reward. The bribe need not be financial but can be of “other value”. This can occur for any function of “of a public nature” (i.e. ‘governmental official’) or “connected with a business” (i.e. ‘private entity’). The Bribery Bill makes it a crime to accept a bribe where a person agrees to receive or accepts something of value and it occurs whether or not the person actually receives it; if the action is linking to providing improper performance. As with offering a bribe, the legislation prohibits such actions by both public officials and those “connected with a business”. The test for whether an offer or promise is a bribe is “what a reasonable person in the UK would expect in relation to the performance of the type of function or activity concerned.”

B. Companies

In addition to the ongoing corporate liability for its employees engaging in bribery, this Bill creates a strict liability crime when a company fails to prevent bribery. This means that if an employee offers or makes a bribe and the person, who has the responsibility of preventing bribery, fails to prevent the bribe such person can be liable under the Bribery Bill. If there is no ‘person responsible’ for preventing bribery within the company, responsibility for the action is deemed to be that of any senior officer, such as a director, secretary or manager of the company. The only defense to this situation is if the company can show it had “adequate procedures designed to prevent…such conduct.”

C. Extraterritorial application

This legislation has extraterritorial application so that any UK citizen or company transacting business anywhere in the world can be liable under this Bill. This means that the relevant criminal act can occur outside the UK and persons or companies in the UK can be liable. But more importantly for non-UK companies, they are covered as well if they have a UK office or operation or even probably if they employ a UK citizen. There is no requirement in the Bribery Bill that the illegal conduct be approved by or paid through the UK branch or subsidiary. The simple instance of having a UK presence will create jurisdiction. So if a Dutch company has a UK branch and engages in bribery in some country in Asia, that Dutch company can now have UK liability under the Bribery Bill and be prosecuted in the UK.

D. Penalties

The Bribery Bill provides penalties for individuals for up to 10 years in jail per offense and unlimited fines. Senior company officials who consent to or are a part of a bribery scheme are liable as individuals as well. Equally significantly prohibited actions by companies are punishable by fines that not limited.

Contrast with the Foreign Corrupt Practices Act

The Bribery Bill is significantly broader than the US Foreign Corrupt Practices Act (FCPA). There is more strict scrutiny in the Bribery Bill and enhanced criminal penalties available to UK prosecutors. The significant differences in the two pieces of legislation are as follows.

A. Public v. Private

The FCPA focuses on anti-corruption of foreign governmental officials. The Bribery Bill specifically covers non-governmental officials, i.e., private citizens. This makes any bribery illegal; not just trying to or bribing a foreign governmental official.

B. Facilitation Payments

The FCPA has a specific defense for facilitation payments. The Bribery Bill has no such defense and indeed, certain types of corporate hospitality are prohibited if they are “intended to subvert the duties of good faith or impartiality that the recipient owes his or her employer”.

C. Strict Liability for Failing to Prevent Bribery

The FCPA has no strict liability either written directly into the statute or interpreted by judicial review. The Bribery Bill creates a new strict liability of corporate offense for the failure of a corporate official to prevent bribery.

D. Penalties

The FCPA has criminal penalties of 5 years per offense. The Bribery Bill has penalties of up to 10 years per offense.

Defenses under the Bill

There are two affirmative defenses listed in the Bribery Bill. The first is listed as the ‘adequate procedures’ defense. The Explanatory Notes to the Bribery Bill indicate that this narrow defense would allow a corporation to put forward credible evidence that it had adequate procedures in place to prevent persons associated from committing bribery offences. Although not explicit on the face of the Bill, in accordance with established case law, the standard of proof the defendant would need to discharge is the balance of probabilities. The legislation requires Secretary of State to publish guidance on procedures that relevant commercial organizations can put in place to prevent bribery by persons associated with their entity.

Other than this commentary, the Bill provides no further information on what might constitute ‘adequate procedures’ as a defense but the Government has signaled that it will work with the UK business community to provide appropriate guidance to this critical component of the Bribery Bill. The UK law firm KattenMuchin has indicated that they expect the Government will apply a test regarding the ‘adequate procedures’ defense “with regard to the size of the company, its business sector and the degree to which it operates in high risk markets.”

Conclusion

The Bribery Bill is a significant departure for the UK in the area of foreign anti-corruption. It is the culmination of many years of debate within the British government on how to move forward with its responsibilities under the OECD Convention on the Combating of Bribery. The Bribery Bill is significantly stronger than the US FCPA. Many internationally focused US companies have offices in the UK or employ UK citizens in their world-wide operations. This legislation could open them to prosecution in the UK under a law similar to, but stronger than, the relevant US legislation. US companies should monitor the progress of this Bribery Bill and be ready to enact changes to their FCPA compliance programs to incorporate the required changes if they have UK subsidiaries or business operations.

February 8, 2010

Change in the Wind for FCPA Ethics and Compliance Programs?

On January 21, 2010, the United States Sentencing Commission (USSC) proposed amendments to the Federal Sentencing Guidelines. These proposed changes included several which are used as the basis for the consideration of penalties for companies which violate the Foreign Corrupt Practices Act (FCPA). The proposed amendments can be found at http://www.ussc.gov/2010guid/20100121_Reader_Friendly_Proposed_Amendments.pdf
These changes could require serious re-evaluations by companies of their FCPA ethics and compliance policies, the proposed changes which would apply are as follows:

1. Effective Compliance and Ethics Program. The proposed amendment would change the Commentary to clarify the remediation efforts required to satisfy the requirement for an effective compliance and ethics program. These changes would add a new requirement which sets the reasonable steps to respond appropriately after criminal conduct is detected, including remedying the harm caused to identifiable victims and payment of restitution to any harmed victims.

2. Recommended Conditions of Probation for Organizations. This proposed amendment changes the recommended conditions of probation for organizations. Under the proposal, the current distinction between conditions of probation imposed solely to enforce a monetary penalty and conditions of probation imposed for any other reason are consolidated into one subsection. This will allow a supervising Court, which makes a determination that there is a need for organizational probation, to have at its disposal, all conditional probation terms available for consideration.

3. Engagement of Independent Monitor. This proposed amendment inserts specific language regarding the engagement of an independent, properly qualified, corporate monitor. This language reflects discussions and complaints regarding the use of monitors which have been ongoing over the past years, including incorporating changes from the House bill entitled, “Accountability in Deferred Prosecution Act of 2009”, introduced in April, 2009 by House Democrats. The proposed changes clarify that the monitor shall make period reports to the supervising Court on the organization and the disposition of funds received. Finally, the proposed amendment inserts specific language requiring the company to submit to a reasonable number of regular or unannounced examinations of books and records by experts engaged by the Court or the monitor.

4. Board and High Level Management Involvement. This proposed amendment makes three requirements aimed at the highest levels within a company. First the Board “shall be knowledgeable…about the compliance and ethics program and shall exercise reasonable oversight”…Second, a “High-level” person within a company is required to ensure the organization has an effective ethics and compliance program. Third, specific individuals may have day-to-day responsibility for the ethics and compliance program but they must have access to “high-level personnel…or the governing authority” AND must be given “adequate resources” and “appropriate authority” to complete their charge.

Interestingly the USSC requested comments from the public on whether an organization should receive certain credits towards a reduced sentence when high-level personnel (think Jack Stanley?) are involved in a violation of the FCPA or other offense covered by the Sentencing Guidelines. The Sentencing Commission posed three queries for comment as to this possible mitigation:

(A) Did the persons with the “operational responsibility” for the company’s ethics and compliance program have direct reporting authority to the Board of Directors or a Board Committee?
(B) Was the ethics and compliance program successful in “detecting the offense prior to discovery” or when it was reasonable likely to be discovered by a person outside the company?
(C) Did the company promptly report the violation to the appropriate authority?

The public has 60 days, or until March 12, 2010, to submit written comments regarding the proposed amendments. The USSC will hold its public hearing to discuss the proposed amendments on Thursday, March 18, 2010, in Washington, DC.

These changes to the Sentencing Guidelines should be monitored closely by companies as they represent significant amendments to the Sentencing Guidelines. It appears that the Department of Justice is moving to force companies to place compliance and ethics in a higher profile within their organizations and not simply to pay lip service, along the lines of “we have a code of ethics and act responsibly”.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

February 2, 2010

SO YOU WANT TO BUY A BUSINESS: THE ROLE OF THE FCPA IN INTERNATIONAL ACQUISITIONS

The recession has lessened and all that cash your Company has been hoarding for the rainy days of the Obama years is burning a whole in your CEO’s pocket. He has his powder dry and is ready to make a big bang by going on a buying spree, targeting overseas entities, to beat the competition in coming out of your industry’s downturn. The Legal Department is told to put together an acquisition squad and to be ready to go at a moment’s notice. The job assigned to you is to make sure that your acquisition does not run afoul of the Foreign Corrupt Practices Act (FCPA) and to prepare a list of FCPA based due diligence that the Law Department should focus on to perform on the Target Company. What should be on your list? In the recent article, “FCPA Due Diligence in Acquisitions,” Securities and Commodities Regulation, Vol. 43, No. 2, January 20, 2010, lawyers from Squire Sanders, thoroughly explored this topic, through a hypothetical case it was based upon a “real life scenario”. Some of their suggestions included the following suggestions.

I. Who is the Owner of the Target Company?

An initial inquiry should be made into the ownership structure of the target company. If any portion of the entity is owned or held by a government or governmental entity then such an entity is covered under the FCPA as a “foreign governmental instrumentality”. There are several factors to consider in making such a determination. Some of these factors include: percentage ownership of the target company; control exercised over the target company; and how are the employees of the target company described by their country’s government.

II. Are Agents involved in the Transaction?

Many times a “consultant” will be used in facilitating the purchase of a target company in a country outside the United States. If there is a clear and articulated business case for the Agent to be involved in the transaction, there should be due diligence on the Agent. It should include some a review of the Agent’s credentials, ownership structure and financial records going back 3 to 5 years. Lastly, it is also critical to know the reputation of the Agent in the country’s business community. If the Agent passes all these reviews, you establish a business relationship with a strong written contract.

III. Does the Target Company want you to pay for Travel?

What if the Target Company desires your business to pay for a representative to come to the US to visit your facilities? Such a trip falls under the FCPA and its proscription of “offering or promising anything of value”. However, if there are legitimate business expenses which can be paid by the US purchasing company under the FCPA. The key is to evaluate each travel and entertainment request. Generally, coach class travel and hotel expenses such as room charges, business center and telephone charges related to business can be reimbursed. Personal room expenses such as minibar, Pay-for-Movies and spa fees at the hotel should not be reimbursed. Receipts should be provided for any charges and if possible, the third party service provider should be paid directly rather than reimbursement of the Target Company’s representative. Entertainment and business dinners can be reimbursed if there is a legitimate business purpose but personal, including the family expenses of the Target Company’s Representative, cannot be reimbursed under the FCPA. Lastly, do not give a “per-diem” in cash.

IV. Did the Target Company make any “Red Flag” Payments?

In your company’s financial due diligence of the Target Company, did any evidence of “Red Flag” payments turn up which warrant further investigation? If such “Red Flags” arise, the US purchasing company must not turn a blind eye. If there is reason to believe that payments of the Target Company may violation the FCPA, further investigation is mandated. The recent conviction of Frederick Bourke for engaging in “conscious indifference” in that he knew, or should have known, that bribery and corruption was involved in the proposed acquisition, demonstrates the power of the FCPA in the acquisition arena. Red Flag areas would include the discovery of payments for gifts, entertainment, use of agents, facilitation payments or other payments which could not be adequately accounted for are discovered.

V. Are the Books and Records Reasonable?

In addition to its anti-bribery provisions, the FCPA also requires that a company keep such books and records which reasonably reflect the transactions of the entity and that there are proper internal controls. A key in this area is if the Target Company has any payments which are labeled as “miscellaneous” or there are payments which cannot be reasonably described. Gifts, entertainment and business expenses need to be recorded and documented. Internal controls are required to show that the Target Company has its statements in accordance with some form of accepted accounting principles.

VI. What Happens Afterwards?

Your Company has completed all the above steps but your due diligence has turned up items which cannot be resolved before your Company’s President wants to fire that dry powder. What can you do? In Opinion Procedure Release 08-02, the Department of Justice gave its opinion on the steps required by a US company contemplating a such a transaction. This opinion held that if Halliburton, in purchasing a Target Company, satisfactorily completed a rigorous, DOJ-mandated 180-day FCPA and anticorruption due diligence work plan after the closing, then the DOJ did not “presently intend” to take enforcement action against Halliburton for any disclosed unlawful pre-acquisition conduct by the Target Company within 180 days of the closing. Halliburton was not the successful bidder for the Target Company but the DOJ’s flexibility and Halliburton’s open dialogue with the DOJ indicates there will be increased involvement between companies and regulators during FCPA acquisition due diligence.

VII. The End or Is it?

The potential liabilities for failing to engage in pre-acquisition FCPA due diligence can be severe. Just how severe can be demonstrated by the eLandia acquisition of Latin Node. The FCPABlog reported that “eLandia also disclosed that its purchase price for Latin Node “was approximately $20.6 million”. After the acquisition, eLandia discovered that Latin Node had engaged in bribery and corruption. eLandia investigated, albeit after the purchase, and self-reported the violations to the DOJ. eLandia was assessed a $2 million fine, shut down Latin Node as an operating business and wrote off the entire purchase. For those of you keeping score at home, that is several years of pre-acquisition due diligence, plus legal fees for the FCPA investigation added to the fine, purchase price, business shut down and full financial write-off.

So what’s the moral of this story? You can keep your powder dry but you must engage in full FCPA due diligence in any overseas transaction before moving forward.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication.

© Thomas R. Fox, 2010

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