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Beyond the FCPA: M&A Due Diligence Under the Expanded DOJ Corporate Enforcement Policy
Over the past few years, the U.S. Department of Justice (DOJ) has taken notable steps to advance the axiom that the business community and law enforcement are "partners, not adversaries." In November 2017, DOJ promulgated its Foreign Corrupt Practices Act (FCPA) Corporate Enforcement Policy, which is incorporated into the Justice Manual (formerly known as the United States Attorneys Manual). The FCPA Corporate Enforcement Policy was intended to promote fairness and predictability in FCPA corporate enforcement and to incentivize self-reporting. Through a series of policy announcements, the DOJ expanded and clarified the reach of the FCPA Corporate Enforcement Policy — first as "nonbinding guidance" in corporate criminal cases outside the context of the FCPA, and later as applied to successor FCPA liability in mergers and acquisitions (M&A).
DOJ has now taken its guidance one step further. On Sept. 27, 2018, Deputy Assistant Attorney General (DAAG) Matthew Miner announced that the FCPA Corporate Enforcement Policy would apply to all potential wrongdoing discovered by an acquirer in the course of a merger or acquisition, not just to FCPA violations. The goal of this expansion, according to DAAG Miner, is to further incentivize companies to "come forward and say something" when they discover any type of criminal conduct either through pre-acquisition due diligence or post-acquisition integration. DOJ insists that an acquirer is in the best position to "right the ship by applying strong compliance practices to [an] acquired company." As such, because the expanded FCPA Corporate Enforcement Policy now encourages acquirers to "right the ship" beyond just the FCPA violations, the business community may use it as a tool to mitigate risks associated with criminal conduct discovered during both the pre-acquisition due diligence and post-acquisition review process. (See, DAAG Miner Remarks at the 5th Annual GIR New York Live Event, Sept. 27, 2018).
The Evolution of the DOJ's FCPA Policies as Applied to M&A Transactions
The application of the FCPA Corporate Enforcement Policy to successor entities provides greater certainty and transparency to companies involved in M&A transactions as compared to DOJ's past guidance. Initially, DOJ offered only ad hoc guidance on discrete M&A issues through its FCPA Opinion Procedures. However, in November 2012, in an effort to provide more concrete guidance and to respond to concerns that the requirements it had outlined in previously issued opinion letters were burdensome and impractical, the Criminal Division of DOJ and the Enforcement Division of the Securities & Exchange Commission jointly issued an FCPA Resource Guide (Resource Guide). (A Resource Guide to the U.S. Foreign Corrupt Practices Act, 2012).
The Resource Guide emphasized that, as a general legal matter, after a merger or acquisition the successor company assumes the predecessor company's liability for criminal violations, including FCPA violations. However, the Resource Guide acknowledged that there could be no successor liability for an acquirer of a foreign company that was not previously subject to the FCPA's jurisdiction. Thus, the mere acquisition of a foreign company would not retroactively create FCPA liability for the acquirer.
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