The FCPA enforcement world is littered with companies that literally purchased an FCPA violation because they failed to engage in post-acquisition integration of the acquired entity. Probably the seminal enforcement action is the eLandia matter. In June 2007, the company acquired Latin Node, which provided wholesale telecommunications services to several developing countries by leasing lines from local phone companies, in Latin America for $20 million. In August 2007, during a post-acquisition financial integration review, eLandia discovered evidence that Latin Node had paid approximately $2.25 million in bribes to Honduran and Yemeni government officials between March 2004 and June 2007. Subsequently, eLandia voluntarily reported the payments to the Justice Department, eventually paying a $2 million fine and placing Latin Node into bankruptcy and thereby losing its entire investment.
There are generally three things a company must do in the M&A context, post-acquisition. They are (1) immediately train high-risk employees of the newly acquired entity; (2) perform a FCPA forensic audit; and (3) integrate the newly acquired company into the purchaser’s compliance program. One other factor is that if the purchaser uncovers FCPA violations the violations must be stopped at once and reported to the Justice Department. It is critical to remember that once an acquired entity is folded into your organization, it is not committing FCPA violations on its own—your company is now the FCPA violator. Even if the prior entity did engage in FCPA violations and your investigation uncovered them and you stopped them and then you reported them to the DoJ, however, your company will not receive any springing FCPA liability.
All of this must be done in strict timeframes. You basically have 12 months to complete your training and integrate the acquired entity into your compliance program. You have 18 months to complete your forensic audit and then self-disclose the results to regulators if you discover a legal violation. The clock is ticking, and you need to be prepared to move forward expeditiously as you do not want to write off your entire investment.
No comments yet