DOJ Addresses Scope of Successor Liability in New FCPA Opinion


In a recent Foreign Corrupt Practices Act (“FCPA”) Opinion Procedure Release, the U.S. Department of Justice (“DOJ”) provided guidance on the scope of successor liability in international M&A transactions. Using the advisory process outlined in the FCPA, the DOJ opinion affirmed that FCPA successor liability would not result in enforcement action against an acquiring company if the target company’s pre-acquisition conduct had no nexus to the United States and would not have been an FCPA violation at the time. The DOJ also suggested a number of guidelines for companies engaging in mergers and acquisitions to avoid inheriting FCPA liability.

U.S. companies and individuals can use a unique statutory opinion process to request guidance from the DOJ regarding potential exposure to FCPA liability. Specifically, pursuant to the FCPA Opinion Procedure, companies or individuals may submit written requests for opinions regarding whether certain activities would violate the DOJ’s FCPA enforcement policy. Although this opinion process is a rarely used tool—the DOJ has issued only four other opinions in the past three years—the opinions often provide helpful guidance to companies. Notably, however, these opinions have no binding legal effect on anyone but the requestor, and then “only to the extent that the disclosure of facts and circumstances . . . is accurate and complete.”

Exercising this opinion process, a U.S. company involved in the acquisition of a foreign company sought guidance from the DOJ after due diligence discovered recordkeeping deficiencies and a number of potentially improper transactions in the target company’s books. The target company’s operations were largely overseas and it had only “negligible business contacts” in the United States. The target company had never issued securities in the United States, nor sold or distributed its products in the United States. Moreover, no assets acquired from these improper transactions would continue to benefit the acquiring company following the acquisition.

Based on these facts and circumstances, the DOJ stated that no enforcement action would be taken against the target company’s pre-acquisition conduct. Although “a company assumes certain liabilities when merging with or acquiring another company,” the FCPA does not “create liability where none existed before.” Consequently, the DOJ stated that it lacks jurisdiction under the FCPA to prosecute the U.S. company for the target company’s pre-acquisition conduct because none of the pre-acquisition conduct was subject to the jurisdiction of the United States.

Finally, the opinion made several recommendations for companies engaging in an M&A transaction to minimize the risk of successor liability under the FCPA:

1) conduct thorough risk-based FCPA and anti-corruption due diligence;
2) implement the acquiring company’s code of conduct and anti-corruption policies as quickly as practicable;
3) conduct FCPA and other relevant training for the acquired entity’s directors and employees, as well as third-party agents and partners;
4) conduct an FPCA-specific audit of the acquired entity as quickly as possible; and
5) disclose to the DOJ any corrupt payments discovered during the due diligence process.

Read the DOJ opinion. For more information on the successor liability issues in the recent DOJ opinion or on the Opinion Process, please contact one of the following Haynes and Boone, LLP lawyers.

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