Beyond Balance VII: Lost Opportunities of Successor Liability

In my last post, I examined a possible reform — the expansion of personal jurisdiction — and argued that although it is supported by anti-bribery advocates, it would actually serve the interests of the U.S. business community. Today, I want to do the opposite: examine one of the business community’s reform proposals that anti-bribery advocates should fully embrace.

Expanding personal jurisdiction over a broader swath of foreign companies is one way to broaden the FCPA’s effect. There is yet another way: encourage companies now under FCPA jurisdiction to acquire companies that are not.

Think about it. Imagine a company that is beyond the scope of FCPA jurisdiction and that is doing business in a bribery-prone sector. We don’t know, but strongly suspect, that it is paying bribes. The FCPA can’t reach this company, and the company’s own government is not likely to address the problem. If we can’t stop the bribery through the FCPA directly, what’s the next best way? Let an FCPA-compliant company acquire the bribe-payor.

By this logic, we would not merely tolerate U.S. companies acquiring likely bribe-payors. We would encourage it. And we would do absolutely nothing to deter it. The policy would be quite simple: let U.S. companies acquire as many such bribe-paying companies as possible; then hold the parents criminally liable for post-acquisition bribery. Bingo.

But that’s not what the FCPA’s current M&A policy does. Rather, through various enforcement actions and opinion procedure releases, the DOJ has made clear that U.S. acquirers will be criminally liable for the acquired company’s pre-acquisition bribery. And there can be little doubt that this policy has deterred, and is now deterring, U.S. acquisition of companies in bribery-prone sectors. Some may think this a good thing; but what is the likely result? Sure, the U.S. has kept its hands clean of other companies’, and other countries’, bribery problems. Meanwhile, companies that could have been brought into U.S. jurisdiction are still paying bribes. And worse yet, they stand to be acquired by even larger, and more aggressive, bribe-payors.

The FCPA asks that we do more than merely wash our hands of other countries’ problems. It asks that we roll up our sleeves and engage in the difficult and messy work of promoting good governance overseas. It asks that we expand, and not retract, anti-bribery law’s reach.

Sure, modifying successor liability for pre-acquisition bribery would make U.S. companies more competitive.  But it would also do something far more important: it would greatly increase the volume of ethical business in the world.

And who could object to that?

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Andy Spalding teaches international business law at the Chicago-Kent College of Law; effective June 1, he’ll be an Assistant Professor at the University of Richmond School of Law. A former Fulbright Senior Research Scholar and lawyer at a major international firm, he has lectured and conducted research on anti-corruption law throughout the developing world. He can be contacted here.

We’re grateful to Professor Spalding for allowing us to serialize ‘Beyond Balance.’

Beyond Balance I can be viewed here, II here, III here, IV here, V here, and Beyond Balance VI here.