FCPA Enforcement & Inherited Liability

The Justice Department made another plug for voluntary disclosure of FCPA trouble on Wednesday, this time stressing that prosecutors will apply the department’s new FCPA Corporate Enforcement Policy even to misconduct companies inherit through mergers and acquisitions.

Matthew Miner, deputy assistant attorney general, delivered that message while giving a speech to compliance professionals in Washington. He sympathized that businesses need certainty when mulling whether to disclose FCPA violations, or even whether to proceed with an M&A deal when problems are uncovered during due diligence.

Miner also noted that that Justice Department’s FCPA compliance guidance from 2012, which every compliance officer and their uncle reads when building compliance programs, only says the department may decrease the likelihood of enforcement action if a successor company discloses trouble inherited via acquisition. That’s not good enough, he said.

“There is a big difference between a theoretical outcome and one that is concrete and presumptively available,” Miner said.

To that end, then, Miner said the Justice Department will apply its FCPA Corporate Enforcement Policy even to issues involving “successor liability.” Translation: if a successor company hits the three marks of the Corporate Enforcement Policy — voluntarily reports the violations, cooperates in the investigation, takes corrective action — it will be presumed eligible for a declination of prosecution. That would apply to misconduct uncovered during due diligence prior to an acquisition or post-acquisition.

“We are fully cognizant that in some instances an acquiring company has limited access to a target company’s data and records, perhaps even more so when the target company is in a high-risk jurisdiction,” Miner said.

It’s a good thing when law-abiding companies wade into risky markets and take over problematic companies, Miner said. The compliant successor companies then are in position to uncover wrongdoing and “right the ship.” The prospect of enforcement action shouldn’t impede those deals, he added.

When an acquiring company unearths misconduct and follows the Corporate Enforcement Policy guidelines, “we want to reward them accordingly for stepping up, being transparent, and reporting and remediating the problems they inherited,” Miner said.

Is this really news? Well, we haven’t seen a Justice Department person actually say it, although that may be due to the lack of senior officials at the department generally. But no compliance officer who’s been following along at home should be surprised by this statement, either.

The FCPA Corporate Enforcement Policy is one in a series of signals the Trump Administration has sent that while FCPA enforcement will continue, it will be based more on olive branches and forgiveness, so long as a company confesses and works to resolve the issue. So of course the department would say something like this.

Get an FCPA Opinion

Companies that find FCPA problems before an acquisition should take advantage of the Justice Department’s FCPA opinion procedures, Miner added. Seeking an opinion might prolong the time necessary to close a deal, Miner said, but it gives companies guidance on whether enforcement action would be pursued. In the early 2010s the department churned out several opinion releases annually; the last was seen in 2014.

“In our view, the opinion process is a tremendous resource and we want to encourage greater use of it going forward,” Miner said.

Companies don’t need to worry about getting a favorable opinion and later discovering misconduct after the deal is completed; they should feel comfortable disclosing the misconduct and know that they will be treated fairly under the new enforcement policy, Miner said.

“This is not to say that wrongdoers will be getting a pass for corrupt behavior that occurred in the past in an acquired entity; far from it,” Miner said. “The department continues to focus on individual accountability, and those responsible for past wrongdoing or the concealment of wrongdoing will continue to be investigated and prosecuted.”

This was Miner’s first speech since his appointment. While it was mostly a recap of DOJ policies and some recent enforcement actions, he emphasized the department’s commitment to consistency as opposed to past unpredictability regarding when enforcement action would be pursued.

“By fostering a climate in which companies are fairly and predictably treated when they report misconduct, we hope to increase self-reporting and individual accountability — an outcome that is beneficial both for companies and the department,” Miner said.