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The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
Presenting a live 90-minute webinar with interactive Q&A
FCPA Due Diligence in M&A
Amid Increased Enforcement Developing and Risks and Implementing Post-Closing Protections
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, AUGUST 24, 2016
Thaddeus R. McBride, Partner, Bass Berry & Sims, Washington, D.C.
Bob Schuettler, Vice President, Office of the General Counsel, Vista Outdoor, Arlington, Va.
James Simoes, Director, International Regulatory Affairs, Vista Outdoor, Arlington, Va.
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Panelists • Bob Schuettler Vice President, OGC
Vista Outdoor Inc. [email protected]
• Jay Simoes Director, International Regulatory Affairs Vista Outdoor Inc.
• Thad McBride Partner Bass, Berry & Sims PLC [email protected]
6
FCPA Overview
• Prohibits corrupt payments to foreign officials for a
business purpose
• Requires “Issuers” to maintain accurate books and
records and robust internal controls
- Best practice even for non-Issuers
8
Jurisdiction
• Any US citizen or resident, wherever located
• Any entity organized/incorporated under US law, wherever located
• Any Issuer, regardless of nationality • Issuer = a company that (i) has securities registered in United States or (ii)
is required to file periodic reports with the SEC
• Any person in United States, regardless of nationality
• A regulated person’s agent or other representative
9
Payment
• Actual payment or gift
• Offer or promise to pay
• Authorization to pay
• Any thing of value
10
Foreign Official
• Any officer or employee of any:
• Non-U.S. government
• Non-U.S. political party
• Public international organization (e.g., the U.N.)
• Any non-U.S. political party, party official, or
candidate for non-U.S. political office
• Anyone acting on behalf of a Foreign Official
11
Penalties
• Extraterritorial enforcement
• Significant monetary fines
• Prison for individuals
• Reputational damage
12
M&A Considerations
• Buyer may be liable for target’s FCPA violations pre-
acquisition
• Successor liability
• Asset sale vs. stock sale
14
Discovery of FCPA Violations
• Alter transaction value
• Change deal structure
• Require specific reps and indemnifications in purchase agreement
• Cause integration challenges after closing
• Delay or crater the deal
15
M&A Example 1
• Snamprogetti (2010)
• 2006: ENI sold Snamprogetti to Saipem
• 2010: Snamprogetti incurred FCPA criminal liability and
agreed to pay $240 million fine
• ENI and Saipem held jointly liable
• Each required to abide by terms of DPA
16
M&A Example 2
• Titan (2005)
• 2003: Lockheed sought to acquire Titan (US military intelligence / communications company)
• During pre-deal diligence, found payments to officials in
Benin
• Disclosed to USG
• Lockheed ultimately abandoned the deal
• L-3 acquired Titan in 2005
• Titan settled with USG for total of $28.5 million
17
DOJ Opinion Release 2008-2
• Halliburton
• Sought to acquire a UK company
• Acquisition terms restricted access to certain relevant FCPA-related information
• DOJ stated it would not take action for any subsequently determined violation
• Committed to (i) conduct a detailed internal review and (ii) report back to the Justice Department
18
OPR 2008-2 (cont.)
• Reporting Schedule
• Within 10 days of closing – present DOJ with diligence plan including low, medium, and high risk areas to review
• Within 90 days – complete and report on low risk review
• Within 120 days – complete and report on medium risk review
• Within 180 days – complete and report on high risk review
• Continue communication with DOJ, extend review as
needed, complete all diligence within 1 year
19
DOJ Opinion Release 14-02
• Requestor planned to acquire non-Issuer foreign
company
• $100,000 in suspicious payments
• Inadequate records to support transactions
• Deficient accounting practices
• No compliance program
• No ongoing contracts that may have been acquired
through bribery
20
OPR 14-02 (cont.)
• “Successor liability does not . . . create liability where
none existed before”
• No intention to take enforcement action
• No potentially improper payments subject to US jurisdiction
• No retroactive FCPA liability
21
OPR 14-02 (cont.)
• DOJ reiterated steps for M&A:
(1) Conduct thorough risk-based FCPA and anti-corruption due diligence
(2) Implement acquiring company’s code of conduct and
anti-corruption policies as quickly as practicable
(3) Conduct FCPA and other relevant training for acquired
entity’s directors, employees, third-party agents, and partners
(4) Conduct FCPA-specific audit of the acquired entity
22
The Yates Memorandum
• Issued on September 9, 2015 by Deputy US Attorney
General Sally Yates to all U.S. Attorneys
• Focus on individual accountability
• “Because a corporation only acts through
individuals, investigating the conduct of individuals is
the most efficient and effective way to determine the facts and extent of any corporate misconduct.”
24
DOJ Enforcement Plan & Pilot Program
• April 5, 2016 – Criminal Division, Fraud Section
• Intensifying investigative and prosecutorial efforts by
increasing FCPA law enforcement resources
• Strengthening coordination with foreign counterparts
• One-year FCPA enforcement pilot program
25
Pilot Program (cont.)
• Mitigation credit available if a corporation:
• Voluntarily self-discloses
• Fully cooperates
• Discloses all relevant facts about individuals involved
• Remediates
26
Voluntary Self-Disclosure
• Prior
• Prompt
• Complete – including identifying individuals involved
27
Full Cooperation • Timely, complete, and proactive
• Preservation, collection, disclosure, translation of documents
• Frequent updates
• De-confliction of internal investigation
• Information regarding third-party companies and individuals
• Officers and employees available for interviews
• Disclosure of all facts and attribution to specific sources
28
Remediation
• Implementation of an effective compliance and ethics program
• Appropriate discipline
• Additional steps to demonstrate: • Recognition of seriousness of misconduct
• Acceptance of responsibility
• Measures to reduce risk of repetition
29
Risk Assessment
• Review “risk-indicators” based on
• Public sector revenue
• Use of third parties (agents, distributors, etc.)
• High-ranking CPI territories
• Relationships with state-owned enterprises
31
Other Considerations
• Is target in industry where corruption is pervasive?
• Is target important to the business?
• Is acquisition particularly high-profile?
• In the media?
• Within the company?
• Were target’s key assets or contracts obtained
appropriately?
32
Nuts & Bolts
• Review documents such as:
• Compliance policies and procedures
• Copies of training presentations and attendance lists
• Reports of compliance / internal audits
• Information about any investigations
• Agent / distributor agreements
• Invoices from high-risk third parties
33
Nuts & Bolts (cont.)
• Review books and records
• Focus on accounts such as: • Hospitality / Entertainment
• Gifts
• Facilitation
• Petty cash
• Expense reimbursements
• Special / miscellaneous / other unusual
• Interview personnel if needed
34
Compliance Pitfalls
• Fail to evaluate third party relationships
• Not doing a deeper dive on revenue programs
• Lack of documented compliance procedure and /
or trainings (enhanced review)
• Missing an enforcement disclosure analysis
• Not preparing for integration on DAY 1 post-close
35
Key Steps
• Determine any essential remedial actions and
perform a disclosure analysis, if necessary
• KEY OBJECTIVE: Determine successor liability
disclosure action no later than 180 days, in alignment
with the DOJ’s Opinion Procedure Release No: 08-02
36
M&A Contract Terms
• Include appropriate protections
• Standard compliance reps and warranties
• Indemnity, including for costs of any compliance
investigation
• Additional terms if needed based on facts of deal
37
Post-Acquisition
• If not possible pre-acquisition, conduct due diligence
post-acquisition
• Promptly incorporate acquired company into
compliance program
• Training
• Re-evaluate third parties
• Audits of new business units
• Disclose if absolutely necessary
38
Hypothetical
• Alabama Co. is pursuing joint venture with a Chinese
company.
• Alabama proceeds with the venture even though
the Chinese company made corrupt payments.
• Should Alabama disclose the issue to the USG?
• Are there other steps Alabama should take?
39