Bribery and corruption issues have been on the radar for some years in transatlantic merger and acquisition (M&A) deals, as purchasers try to ensure that they are not about to be saddled with penalties and embroiled in investigations for business practices that may have taken place in the company they are seeking to acquire.
As such, bribery due diligence (or “FCPA due diligence”, after the US Foreign Corrupt Practices Act) regularly takes place in any deal with a US angle.
The UK’s long awaited reform of bribery legislation is now in place, with the Bribery Act 2010 receiving Royal assent in early April. Bribery due diligence must now cover all acquisitions.
The new Act introduces new criminal offences of offering or paying a bribe, requesting or receiving a bribe, as well as a corporate offence of failing to prevent bribery being undertaken on its behalf.
The consequences of breaking the law are harsh. The maximum penalty for bribery in the new Act is 10 years’ imprisonment, with an unlimited fine.
But on top of this, civil confiscation actions will inevitably be used to recover any gains resulting from bribes, and there is automatic and permanent debarring under EU rules from competing for public contracts.
Beware of the actions of business partners
Crucially, the new act has long arms. It applies not only to a company’s activities, but the activities of its subsidiaries, agents and business partners worldwide. This is where the risk areas lie.
When acquiring a company that uses marketing agents or distributors in far flung parts of the world, companies need to be sure that that these agents are not paying bribes to secure contracts, or even making small “grease payments” to facilitate administrative tasks.
Bribery Due Diligence
Ideally, an acquirer should conduct a bribery review of the target in advance of completion. This involves examining payments, interviewing key personnel and satisfying themselves that the risk of bribery is manageable.
But in the truncated timetable of a deal, full bribery due diligence is often impossible. Purchasers must therefore examine their options for contractual protections. Warranties and indemnities from the vendor are typically used, along with escrow accounts to cover fines and remediation costs for the more risky acquisitions.
This would include those in the oil services, construction, pharmaceutical, and travel sectors as well as those with operations in the emerging economic giants such as China, India, and Russia (for more see the Transparency International corruption perception index).
Grooming a company for sale
Because well-advised purchasers will be alive to the immense risks of buying a company riddled with bribery problems (and reducing the price accordingly), there is an increased trend towards companies doing their own bribery due diligence.
Vendors increasingly want to understand exactly what they are selling and are reporting issues accordingly. In high-risk areas, it is often the best way to reduce the purchaser’s risk and consequently achieve an increased sale price.
David Lawler is a forensic accountant and a partner at FRA, the UK/US bribery investigation and remediation experts