FCPA Due Diligence in M&A Amid Increased Enforcement

Transcription

1 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 WEDNESDAY, AUGUST 24, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: 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. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 5 FCPA DUE DILIGENCE August 24, 2016

6 6 Panelists Bob Schuettler Vice President, OGC Vista Outdoor Inc. Jay Simoes Director, International Regulatory Affairs Vista Outdoor Inc. Thad McBride Partner Bass, Berry & Sims PLC

7 7 Agenda FCPA Overview M&A Liability Recent Developments Effective Diligence Questions

8 8 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

9 9 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

10 10 Payment Actual payment or gift Offer or promise to pay Authorization to pay Any thing of value

11 11 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

12 12 Penalties Extraterritorial enforcement Significant monetary fines Prison for individuals Reputational damage

13 M&A LIABILITY 13

14 14 M&A Considerations Buyer may be liable for target s FCPA violations preacquisition Successor liability Asset sale vs. stock sale

15 15 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

16 16 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

17 17 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

18 18 DOJ Opinion Release Halliburton Sought to acquire a UK company Acquisition terms restricted access to certain relevant FCPArelated 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

19 19 OPR (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

20 20 DOJ Opinion Release 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

21 21 OPR (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

22 22 OPR (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

23 23 RECENT DEVELOPMENTS

24 24 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.

25 25 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

26 26 Pilot Program (cont.) Mitigation credit available if a corporation: Voluntarily self-discloses Fully cooperates Discloses all relevant facts about individuals involved Remediates

27 27 Voluntary Self-Disclosure Prior Prompt Complete including identifying individuals involved

28 28 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

29 29 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

30 EFFECTIVE DILIGENCE 30

31 31 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

32 32 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?

33 33 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

34 34 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

35 35 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

36 36 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

37 37 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

38 38 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

39 39 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?

40 THANK YOU! 40