One of the continuing myths around Foreign Corrupt Practices Act enforcement is so-called “springing liability,” where a company that acquires a business also acquires a FCPA violation along with the purchase.

I say that it is a myth because the purchase of a corrupt company isn’t the FCPA violation. If the the acquiring entity allows the bribery and corruption to continue after the purchase—that’s the violation. Hence the wisdom of Pete Townsend in Won't Get Fooled Again: Meet the new boss, same as the old boss. (Cue massive Keith Moon drum crescendo here).

Most companies understand their obligations under the FCPA to engage in pre-acquisition due diligence to the best extent possible, and then engage in post-acquisition training and remediation, which 12 to 18 months after the deal is closed. But what happens if the bribery and corruption stop, yet the benefits of this illegal conduct continue going forward?

Recently the Wall Street Journal reported Mondelez International Inc., the successor entity to Kraft Foods, which had acquired Cadbury India in 2010, was in negotiation with the Securities and Exchange Commission to resolve allegations of FCPA violations in relation to bribes paid by Cadbury India to obtain certain licenses and permits. The twist is that these licenses and permits allowed Cadbury India to claim certain tax benefits which accrued to Mondelez International after the purchase. Another Wall Street Journal article reported that this tax benefited added up to $46 million over a period of 10 years.

Mondelez International self-disclosed potential FCPA violations by Cadbury India back in 2010 and has been cooperating with the SEC in its investigation since that time. One interesting thing to see in this enforcement action will be the penalty assessed by the SEC. The SEC has the statutory right to seek profit disgorgement from a FCPA violator. What if, however, Mondelez International is continuing to obtain tax benefits from bribes paid where the Indian national tax authority has not revoked the tax status which may have been obtained through bribery and corruption all in violation of the FCPA?

I hate to say it, but this is a sticky situation for all involved.

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