Mergers and acquisitions are back. Seeking Alpha just said: “Over the past few weeks, there has been a resurgence in acquisition activity, fueling an already strong market rally. This news has spanned all regions of the economy ranging from the transportation sector (Burlington Northern being taken over by Berkshire Hathaway) to pharmaceuticals (Schering Plough being acquired by Merck). Most recently, in the consumer sector, Kraft announced its intention to take over confectionery giant Cadbury while Hewlett Packard announced plans to buy 3com.”
When M&A numbers climb, so do Foreign Corrupt Practices Act enforcement actions. That’s because all acquisitions involve due diligence, either before or after the deal is done. Due diligence is one way potential FCPA offenses are discovered. And once discovered, most are now self-reported to the Justice Department or the Securities and Exchange Commission. Directors protect themselves through disclosure. Beyond that, buyers in friendly M&A deals commonly insist that the target’s compliance problems be reported and resolved before the closing.
In the past, M&A activity has led to some well-known FCPA enforcement actions. Cardinal Health’s 2003 acquisition of Syncor produced FCPA precedents concerning an acquirer’s pre-merger due diligence obligations and successor liability. Titan Corporation’s FCPA violations were discovered after a Lockheed tender offer. Lockheed aborted the offer and in 2005 Titan paid a record $28.5 million for its FCPA settlement. More recently, M&A activity resulted in enforcement actions involving Delta Pine, Aibel, and Latin Node, among others. In May, Sun Microsystems self-disclosed an internal investigation into possible FCPA violations discovered during due diligence for Oracle’s takeover bid. And last year, Halliburton’s clumsy attempt to buy British firm Expro through a hostile takeover produced the most intrusive Justice Department FCPA Opinion Procedure Release on record.
The current M&A wave, combined with the DOJ’s already sharpening focus on the FCPA, means there’s lots more enforcement action on the way.
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Where do FCPA cases come from? In remarks yesterday to the National Forum on the Foreign Corrupt Practices Act, Assistant Attorney General Lanny Breuer said this: “Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistleblower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources. I have personally traveled abroad and spoken with Embassy personnel about this issue.”
A copy of Lanny Breuer’s November 17, 2009 remarks can be downloaded here.
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Presidential Proclamation 7750 allows the State Department to deny visas to foreign kleptocrats and their families. It was signed into law in 2004 and by 2006 it was being called a key tool in America’s anti-corruption arsenal. (The FCPA reaches bribe payers but not bribe takers.) Yet we could say without exaggeration in a post last week that the U.S. press had completely ignored Proclamation 7750.
But that’s now changed.
Harper’s Magazine published an article by Ken Silverstein on November 16 about the son of Equatorial Guinea’s ruler, Teodoro Nguema Obiang Mangue. The article began:
In 2004, George W. Bush issued Presidential Proclamation 7750, which barred corrupt foreign officials from entering the United States and ordered the State Department to compile a list of banned individuals. Three years later Congress approved a complementary measure that said the State Department should take special heed to bar officials when there was “credible evidence” to believe they were involved in the theft of natural resources revenues. Last July, the State Department issued a report noting that corruption eroded “confidence in democratic institutions” and that fighting it was a central tenet of American foreign policy. The report also stated that the Obama administration would “vigorously” enforce 7750, better known as the Anti-Kleptocracy Intiative, and give particularly close scrutiny to visa requests from individuals involved in corruption involving natural resources.
And somewhat improbably, the New York Times carried its own story on the same day by Ian Urbina about Teodoro Nguema Obiang that also featured the hitherto invisible Proclamation 7750.
After five years, what a difference a week makes.