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FCPA – Mergers & Acquisition Due Diligence


In general, when a company acquires another company, the successor company can be liable for the acquired company’s activities before acquisition. The U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) have administered Foreign Corrupt Practices Act (“FCPA”) enforcement actions against successor companies in cases involving egregious and sustained violations, where the successor company directly participated in the violations, or where the successor company failed to stop the misconduct from continuing after the acquisition.

To avoid potential FCPA liability for pre-acquisition and post-acquisition conduct, the DOJ and SEC have instructed companies that engage in mergers and acquisition to: (1) Conduct thorough risk-based FCPA and anti-corruption due diligence on potential business acquisitions; (2) Ensure that the acquiring company’s code of conduct and compliance policies and procedures apply as quickly as is practicable to newly acquired businesses or merged entities; (3) Train the directors, officers, and employees of newly acquired businesses and, when appropriate, train agents and business partners on the FCPA and other applicable anti-corruption laws and the company’s code of conduct and compliance policies and procedures; (4) Conduct an FCPA-specific audit of newly acquired businesses as quickly as practicable; and (5) Disclose any corrupt payments discovered as part of its due diligence of newly acquired businesses.

Recently, Michael Volkov, and Jonathan T. Marks, Partner, Baker Tilly US LLP, discussed best practices for integration and audits to ensure a smooth application of compliance policies to the successor company and the conduct of effective audits to confirm the absence of FCPA violations.

This writing outlines some of the key pre and post procedures that should be considered when contemplating or executing on a merger or acquisition.

These procedures are not all-inclusive and must be tailored for your particular situation.


Target Screening for Deal Killers

Pre-announcement/Pre-close FCPA Due Diligence:

Post-closing remediation and controls implementation

Pre-announcement Controls and Risk Assessment

Phase One – Key Procedures

Post-announcement/Pre Close Field Work and Transaction Testing

Phase Two – Key Procedures


Paradigm B.V., a Houston-based oil and gas services provider, entered into a non-prosecution agreement with the U.S. Department of Justice to resolve payments that violated the Foreign Corrupt Practices Act. Paradigm made prohibited payments to foreign officials in China, Indonesia, Kazakhstan, Mexico and Nigeria. It will “pay a $1 million penalty, implement rigorous internal controls, retain outside compliance counsel, and cooperate fully with the Department of Justice,” according to the DOJ’s September 24, 2007 announcement.

Paradigm’s parent company, Paradigm Ltd., which is controlled by private equity fund Fox Paine, discovered the corrupt payments during due diligence for its planned NASDAQ IPO and self-disclosed them to prosecutors. The conduct at issue did not involve current senior management, according to the company. The DOJ said, “Paradigm’s actions in this matter, including voluntary disclosure and remedial efforts, are consistent with our view of responsible corporate conduct when FCPA violations are uncovered. Accordingly, the Department has resolved this case to permit the company to move forward on sound footing, governed by ethical business practices.”



I welcome your thoughts, comments, and suggestions.

Stay safe, and be well!

Jonathan T. Marks, CPA, CFF, CFE


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