Archive for the ‘Successor Liability’ Category

DOJ Gets It Right In Recent FCPA Opinion Procedure Release

Monday, November 17th, 2014

i found you!In this November 2010 post regarding the FCPA guidance, I flagged the below statement as one of the ten most meaningful statements in the Guidance.

“Successor liability does not […] create liability where none existed before. For example, if an issuer were to acquire a foreign company that was not previously subject to the FCPA’s jurisdiction, the mere acquisition of that foreign company would not retroactively create FCPA liability for the acquiring issuer.” (Pg. 28)

I flagged the statement because … well … it was an accurate statement of black-letter law, but one often overlooked when analyzing Foreign Corrupt Practices Act issues in the connection with merger and acquisition activity.

Last Friday, the DOJ released this FCPA opinion release dated November 7th.  The Requester was a U.S. issuer in the consumer products industry and contemplating an acquisition of a foreign target.  In pertinent part, the opinion release states:

“Requestor is a multinational company headquartered in the United States. Requestor intends to acquire a foreign consumer products company and its wholly owned subsidiary (collectively, the “Target Company”), both of which are incorporated and operate in a foreign country (“Foreign Country”). In the course of its pre-acquisition due diligence of the Target Company, Requestor identified a number of likely improper payments – none of which had a discernible jurisdictional nexus to the United States – by the Target Company to government officials of Foreign Country, as well as substantial weaknesses in accounting and recordkeeping. In light of the bribery and other concerns identified in the due diligence process, Requestor has set forth a plan that includes remedial pre-acquisition measures and detailed post-acquisition integration steps.

Requestor seeks an Opinion as to whether the Department, based on the facts and representations provided by Requestor that the pre-acquisition due diligence process did not bring to light any potentially improper payments that were subject to the jurisdiction of the United States, would presently intend to bring an FCPA enforcement action against Requestor for the Target Company’s pre-acquisition conduct. Requestor does not seek an Opinion from the Department as to Requestor’s criminal liability for any post-acquisition conduct by the Target Company.

Requestor intends to acquire 100% of the Target Company’s shares beginning in 2015. The Target Company’s shares are currently held almost exclusively by another foreign corporation (“Seller”), which is listed on the stock exchange of Foreign Country. Seller is a prominent consumer products manufacturer and distributor in Foreign Country, with more than 5,000 full-time employees and annual gross sales in excess of $100 million. The Target Company represents part of Seller’s consumer products business in Foreign Country and sells its products through several related brands.

Seller and the Target Company largely confine their operations to Foreign Country, have never been issuers of securities in the United States, and have had negligible business contacts, including no direct sale or distribution of their products, in the United States.

In preparing for the acquisition, Requestor undertook due diligence aimed at identifying, among other things, potential legal and compliance concerns at the Target Company. Requestor retained an experienced forensic accounting firm (“the Accounting Firm”) to carry out the due diligence review. This review brought to light evidence of apparent improper payments, as well as substantial accounting weaknesses and poor recordkeeping. On the basis of a risk profile analysis of the Target Company, the Accounting Firm reviewed approximately 1,300 transactions with a total value of approximately $12.9 million. The Accounting Firm identified over $100,000 in transactions that raised compliance issues. The vast majority of these transactions involved payments to government officials related to obtaining permits and licenses. Other transactions involved gifts and cash donations to government officials, charitable contributions and sponsorships, and payments to members of the state-controlled media to minimize negative publicity. None of the payments, gifts, donations, contributions, or sponsorships occurred in the United States and none was made by or through a U.S. person or issuer.

The due diligence showed that the Target Company has significant recordkeeping deficiencies. The vast majority of the cash payments and gifts to government officials and the charitable contributions were not supported by documentary records. Expenses were improperly and inaccurately classified in the Target Company’s books. In fact, the Target Company’s accounting records were so disorganized that the Accounting Firm was unable to physically locate or identify many of the underlying records for the tested transactions. Finally, the Target Company has not developed or implemented a written code of conduct or other compliance policies and procedures, nor have the Target Company’s employees, according to the Accounting Firm, shown adequate understanding or awareness of anti-bribery laws and regulations. In light of the Target Company’s glaring compliance, accounting, and recordkeeping deficiencies, Requestor has taken several pre-closing steps to begin to remediate the Target Company’s weaknesses prior to the planned closing in 2015.

Requestor anticipates completing the full integration of the Target Company into Requestor’s compliance and reporting structure within one year of the closing. Requestor has set forth an integration schedule of the Target Company that encompasses risk mitigation, dissemination and training with regard to compliance procedures and policies, standardization of business relationships with third parties, and formalization of the Target Company’s accounting and recordkeeping in accordance with Requestor’s policies and applicable law.”

Under the heading “Analysis” the opinion release states:

“Based upon all of the facts and circumstances, as represented by Requestor, the Department does not presently intend to take any enforcement action with respect to preacquisition bribery Seller or the Target Company may have committed.

It is a basic principle of corporate law that a company assumes certain liabilities when merging with or acquiring another company. In a situation such as this, where a purchaser acquires the stock of a seller and integrates the target into its operations, successor liability may be conferred upon the purchaser for the acquired entity’s pre-existing criminal and civil liabilities, including, for example, for FCPA violations of the target.

“Successor liability does not, however, create liability where none existed before. For example, if an issuer were to acquire a foreign company that was not previously subject to the FCPA’s jurisdiction, the mere acquisition of that foreign company would not retroactively create FCPA liability for the acquiring issuer.” FCPA – A Resource Guide to the U.S. Foreign Corrupt Practices Act, at 28 (“FCPA Guide”). This principle, illustrated by hypothetical successor liability “Scenario 1” in the FCPA Guide, squarely addresses the situation at hand. See FCPA Guide, at 31 (“Although DOJ and SEC have jurisdiction over Company A because it is an issuer, neither could pursue Company A for conduct that occurred prior to the acquisition of Foreign Company. As Foreign Company was neither an issuer nor a domestic concern and was not subject to U.S. territorial jurisdiction, DOJ and SEC have no jurisdiction over its pre-acquisition misconduct.”).

Assuming the accuracy of Requestor’s representations, none of the potentially improper pre-acquisition payments by Seller or the Target Company was subject to the jurisdiction of the United States. For example, none of the payments occurred in the United States, and Requestor has not identified participation by any U.S. person or issuer in the payments. Requestor also represents that, based on its due diligence, no contracts or other assets were determined to have been acquired through bribery that would remain in operation and from which Requestor would derive financial benefit following the acquisition. The Department would thus lack jurisdiction under the FCPA to prosecute Requestor (or for that matter, Seller or the Target Company) for improper payments made by Seller or the Target Company prior to the acquisition. See 15 U.S.C. §§ 78dd-1, et seq. (setting forth statutory jurisdictional bases for anti-bribery provisions).

The Department expresses no view as to the adequacy or reasonableness of Requestor’s integration of the Target Company. The circumstances of each corporate merger or acquisition are unique and require specifically tailored due diligence and integration processes. Hence, the exact timeline and appropriateness of particular aspects of Requestor’s integration of the Target Company are not necessarily suitable to other situations.

To be sure, the Department encourages companies engaging in mergers and acquisitions to (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 FCPA-specific audit of the acquired entity  as quickly as practicable; and (5) disclose to the Department any corrupt payments discovered during the due diligence process. See FCPA Guide at 29. Adherence to these elements by Requestor may, among several other factors, determine whether and how the Department would seek to impose post-acquisition successor liability in case of a putative violation.”

In the release, the DOJ got it right.

Not all bribery that allegedly occurs in the world is subject to the DOJ’s jurisdiction and just because a company that is subject to the FCPA acquires a foreign company, such an acquisition does not magically create FCPA liability where there was none before.  In layman’s terms, what happened is similar to the following:  a foreign person – not subject to U.S. law – was speeding in a foreign country and just because a U.S. company then purchases the car does not create liability under U.S. law for speeding.

The DOJ also got it right as a matter of policy.  By its opinion, the contemplated transaction is likely to close whereas a contrary opinion might have caused the Requestor to abandon the transaction.  If the transaction indeed closes, a previously compromised foreign company is going to be brought within the corporate family of a U.S. company subject to the FCPA with an existing internal controls system.

On this score, I am reminded of Richard Alderman’s (former Director of the UK Serious Fraud Office) comment “that society benefits if an ethical corporation takes over and sorts out a corporation that has corruption problems.”


The DOJ’s FCPA Opinion Procedure program is often criticized because of the length of time it takes to obtain an opinion.  On this issue, the opinion release highlights the following dates.  The request was initially submitted on April 30th, the Requestor provided supplemental information on May 12th, July 30th, and October 9, 2014, and the release was issued on November 7th.  Thus, from start to finish, the process took approximately six months.


As to background information of the DOJ’s FCPA Opinion Procedure program:

The FCPA, when enacted, directed the DOJ Attorney General to establish a procedure to provide responses to specific inquiries by those subject to the FCPA concerning conformance of their conduct with the DOJ’s “present enforcement policy.  Pursuant to the governing regulations of the so-called DOJ Opinion Procedure Release Program, only “specified, prospective—not hypothetical—conduct” is subject to a DOJ opinion.  While the DOJ’s opinion has no precedential value, its opinion that contemplated conduct conforms with the FCPA is entitled to a rebuttable presumption should an FCPA enforcement action be brought as a result of the contemplated conduct.  Since the program went live in 1980, the DOJ has issued approximately sixty releases on a wide range of issues from charitable contributions to gifts, travel and entertainment, to third parties.

Is There Successor Liability For FCPA Violations?

Monday, October 20th, 2014

A guest post today from Taylor Phillips (an attorney with Bass Berry & Sims in Washington, D.C.).


Imagine you deliver pizza for a living.  You are good at your job, but there is another deliveryman who is the best in the business – Hiro Protagonist.  Thanks to a remarkably fast car, Hiro always makes his deliveries on time.

One day, however, Hiro asks if you are interested in buying the car.  He tells you that he had a “near miss” with a pedestrian and, shaken, he has decided to hang up his insulated pizza bag for good.  Because he offers you a good price on the car, you accept.

A few months later, the police show up at your door.  They inform you that Hiro did not have a “near miss” – he hit a pedestrian while making a delivery.  Worse, they say that because you bought substantially all of Hiro’s business assets, you are criminally culpable for the hit-and-run.  Moreover, because pizza delivery is a highly regulated industry, the Sicilian Edibles Commission brings an administrative action against your business based on Hiro’s failure to properly account for expenses related to the hit-and-run.


Obviously, this hypothetical is grossly oversimplified, but its patent injustice highlights the problems with expansive successor liability.  As FCPA practitioners know, successor liability is a key part of the government’s enforcement of the FCPA.  Consequently, as the FCPA Professor put it recently, “the FCPA is a fundamental skill set for all business lawyers and advisers, including in the mergers and acquisitions context.”

Of course, many attorneys who are not well-versed in the FCPA will look first to the DOJ and SEC’s Resource Guide to the U.S. Foreign Corrupt Practices Act.  It emphasizes that “[a]s a general legal matter, when a company merges with or acquires another company, the successor company assumes the predecessor company’s liabilities. . . . Successor liability applies to all kinds of civil and criminal liabilities, and FCPA violations are no exception.”  But is that right?

To assess the statement in the Resource Guide, it’s worth stepping back and considering how companies are purchased by other companies.  The most common acquisition structures are mergers, stock purchases, and asset purchases.  In a statutory merger, the resulting company assumes all the civil and criminal liability of its predecessor companies.  Thus, no transactional lawyer should be surprised that FCPA liabilities will transfer in a merger.  Conversely, in a stock purchase, there is no “successor”—the purchased company still exists, with all its existing liabilities.

Thus, asset purchases typically are the only cases in which “successor liability” is meaningfully analyzed by courts.  Interestingly, the rule is different from that stated in the Resource Guide: as a general legal matter, when a company acquires substantially all of another company’s assets, it does not assume the seller’s liabilities – even when it continues the seller’s business, brand, and contracts.

Of course, most rules have their exceptions, and there are four commonly recognized exceptions to the general rule of nonliability for asset purchasers.  The first exception—express or implied assumption of liabilities—simply states that where an acquirer intends to assume the liabilities of the seller, the law will enforce that intent.  The second exception—fraud—applies when the sale of assets would work a fraud on the seller’s creditors.  Finally, the third and fourth traditional exceptions—“mere continuation” and de facto merger—commonly are considered to be a single exception which can involve a number factors, depending on the idiosyncrasies of state law.  Critically, however, continuity of ownership between the buyer and seller typically is considered to be an indispensable factor for these two exceptions.  Thus, in accordance with traditional common law, an arms-length buyer that does not intentionally assume the seller’s liabilities nor engage in fraud will not be liable for the seller’s legal violations.  In other words, if only these exceptions applied to the hypothetical, the police would be wrong, and you would not have any successor liability, civil or criminal, for Hiro’s hit-and-run (even if you were well aware of it prior to the transaction).

Given this fairly clear answer, what explains the government’s silence regarding asset purchasers in the Resource Guide?  One potential answer is the “substantial continuity” exception.  In addition to the four traditional exceptions to successor nonliability referenced above, some federal courts have applied federal common law to find arms-length asset purchasers liable for violations of the seller where the asset purchaser (1) knew of the liability prior to the acquisition and (2) continued the enterprise of the seller.  Thus, unlike the traditional exceptions of “mere continuation” and “de facto merger,” the “substantial continuity” exception does not require continuity of ownership – merely continuity of enterprise.  Thus, if the substantial continuity exception applied to FCPA violations, there would be a plausible argument that China Valves had successor liability for Watts Waters’ FCPA violations (and that you would be at least civilly liable for Hiro’s hit-and-run).

Supreme Court precedent, however, strongly suggests that federal courts should incorporate state law rather than expand federal common law.  In particular, the Supreme Court’s decisions in United States v. Kimbell Foods, 440 U.S. 715 (1979), and United States v. Bestfoods, 524 U.S. 51 (1998), indicate that federal courts should adopt state law, rather than create a federal law of corporate liability.  Accordingly—as many circuit courts have found in other contexts—state successor liability law is applicable to many federal causes of action.  Because most states do not recognize the federal substantial continuity exception, several circuits do not apply the exception except in environmental, labor, and employment cases.

In short, there is a compelling argument that arms-length asset purchasers—even asset purchasers who continue the business of the seller and know about the seller’s FCPA violations—do not, as a matter of law, have successor liability for the FCPA violations of the seller.  For additional development of this argument see The Federal Common Law of Successor Liability and the Foreign Corrupt Practices Act, ___ William & Mary Business Law Review ___ (forthcoming).

Despite the general rule of successor nonliability, the Resource Guide does not squarely address FCPA liability for asset purchasers.  If only there was some way to ask the government for guidance on its present enforcement position with respect to successor liability…

“The FCPA – A View From The Hill”

Thursday, June 28th, 2012

At the Oil and Gas Supply Chain Compliance conference yesterday in Houston (see here), Todd Harrison (Chief Counsel, Oversight and Investigations, Energy and Commerce Committee, U.S. House) gave a presentation titled “The FCPA – A View from the Hill.”

Harrison provided his personal views on FCPA reform, specifically the “currents on the Hill” regarding the issue and a “sense of what Congress is thinking about in terms of changing” the law.  Harrison stated that until recently, the FCPA has not been a “tremendous focus on Capitol Hill” and that even against the backdrop of recent efforts to reform the FCPA “there is not a lot of momentum on the Hill for changes to the FCPA.”  However, Harrison stated that it “usually takes a lot of time to get things rolling and for legislation to come to fruition” and that changes to legislation often take place over 2-3 Congresses (each with a two year term) because there a lots of discussions with various stakeholders.”

[As a historical aside, the last period of major FCPA substantive reform occurred in the 1980’s and that process took 8 years from the time the first reform bill was introduced until President Reagan signed the Omnibus Trade and Competitiveness Act of 1988 which contained FCPA amendments at Title V, Subtitle A, Part I.]

Harrison next spoke of the “very prominent setbacks” the DOJ has recently suffered, most notably the Africa Sting cases, and that in light of these setbacks there was indeed “momentum gaining to make changes to the FCPA.”  However, Harrison said that the New York Times Wal-Mart article “changed the tide and mood entirely.”

During the Q&A, I asked Harrison generally as follows – “I know that Capitol Hill is a political institution and body, but explain why the Wal-Mart investigation should impact FCPA reform, after all, Wal-Mart is now one of approximately 125 companies under FCPA scrutiny and it is debatable whether the Wal-Mart payments at issue even violate the FCPA.”  (see here for the prior post).

Harrison said that as a “practical matter, public opinion matters, what happens in the real world matters” and that the atmosphere surrounding FCPA reform after the Wal-Mart article has made it “harder for different groups to advocate” for FCPA reform.  Harrison acknowledged that this perception “does not have a whole lot to do with the underlying facts” of the Wal-Mart matter, but that “public perception and pressure on government institutions” matters.

As to substantive FCPA reform, Harrison focused mostly on successor liability issues, which he called the Chamber’s number one reform issue.  However, Harrison said that this concern was hypothetical because as a “practical matter the DOJ has not been bringing prosecutions under this theory.”  During the Q&A I asked him whether anyone on the Hill is actually reading the enforcement actions because recent DOJ or SEC enforcement actions based on successor liability theories include Alliance One, General Electric and Watts Water Technologies.  In response, Harrison backtracked and said “no one has come to me about those particular cases” and that “none of these particular cases have become prominent on Capitol Hill.”

In short, Harrison’s personal view was that there is not a “wave of support or pressure to make actual legislative changes regarding successor liability.”

In response to a question, Harrison did not have any insight as to the timing of expected FCPA guidance.  He stated that his “personal guess is not anytime soon.”

FCPA Issues Can Reduce The Value Of A Merger

Thursday, June 14th, 2012

Getting transactional lawyers to take the Foreign Corrupt Practices Act seriously can sometimes be an uphill battle.

The recent and ongoing FCPA scrutiny of ABM Industries Inc. should help sell the story.

As noted in this prior post, in December 2011 ABM disclosed in its annual report as follows.  “During October 2011, the Company began an internal investigation into matters relating to compliance with the U.S. Foreign Corrupt Practices Act and the Company’s internal policies in connection with services provided by a foreign entity affiliated with a Linc joint venture partner. Such services commenced prior to the Company’s acquisition of Linc. As a result of the investigation, the Company has caused Linc to terminate its association with the arrangement. In December 2011, the Company contacted the U.S. Department of Justice and the Securities and Exchange Commission to voluntarily disclose the results of its internal investigation to date. The Company cannot reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known, the Company does not believe that these matters will have a material adverse effect on its business, financial condition, results of operations or cash flows.”

As suggested by the above disclosure, ABM’s FCPA scrutiny does not involve anything it did, rather it is based on a foreign entity affiliated with a joint venture partner of a company (The Linc Group LLC) ABM merged with December 2010.  As noted in this ABM release, ABM acquired The Linc Group, LLC (“TLG”) for $300 million in cash.

The merger agreement (here) contains a typical target company representation and warranty as follows.

“Section 3.25 Certain Practices. Neither the Company [The Linc Group LLC] nor any Subsidiary (including any of their officers, manager, directors or employees acting on behalf of the Company or any Subsidiary) nor, to the Knowledge of the Company, any other Person acting on behalf of the Company or any Subsidiary, has, directly or indirectly through another Person, made, offered or authorized the use of, or used, any corporate funds or provided anything of value (a) for unlawful payments, contributions, gifts, entertainment or other unlawful expenses relating to political activity, (b) to foreign or domestic government officials or employees in violation of the Foreign Corrupt Practices Act of 1977 and any similar anti-corruption or anti-bribery laws applicable to the Company or any of the Subsidiaries in any jurisdiction other than the United States (collectively, the “FCPA”), or (c) for a bribe, rebate, payoff, influence payment, kickback or other similar payment in violation of any Applicable Law.”

Perhaps FCPA specific due diligence was conducted by ABM prior to closing and the due diligence did not detect the potential FCPA issue or perhaps FCPA specific due diligence was not conducted.

Regardless of the answer, ABM’s FCPA scrutiny, based entirely on the pre-merger conduct of The Linc Group or its affiliates, is reducing the value of the merger.

In its recent quarterly filing (here), ABM disclosed, for the six months ending April 30, 2012, $2.7 million of legal fees and other costs associated with the internal investigation.  Given that ABM’s investigation would appear to be in its infancy, and factoring in potential exposure through an actual enforcement action, it is not hard to imagine that 5% of the merger price could evaporate due to the FCPA issue.  And then of course, there is potential post-enforcement action costs.

For instance, in 2010 Alliance One International resolved an FCPA enforcement action by agreeing to pay $19.5 million in combined DOJ and SEC fines and penalties.  The entire enforcement action was based on the pre-merger conduct of acquired entities.  (See here for the prior post).  Pursuant to a non-prosecution agreement, Alliance One was required to engage a compliance monitor for three years.  In FY 11, the company disclosed $3.4 million in monitor costs.  Earlier this week, in an annual report, the company disclosed an additional $6.1 million in monitor costs.

In short, the FCPA matters, including for transactional attorneys, in the context of M&A.

For previous posts discussing similar merger issues, see here and here.

As readers may know, one of the FCPA reform proposals suggested is in the context of M&A transactions.  The original ABM post from December 2011 linked above, discussed the company’s disclosure in the context of George Terwilliger’s (here – an FCPA practitioner at White & Case and former Deputy Attorney General) period of repose proposal.  The proposal, as Terwilliger explains in this piece “is that US companies, with notice to US enforcement authorities, would have a defined period after an acquisition in which to perform a rigorous FCPA compliance review of the acquired entity. If FCPA compliance issues were uncovered, the acquiring company would remediate them, and disclose both the existence of the problem and its remediation to the government. The acquiring company would be immune from civil or criminal enforcement as to matters uncovered during the review period, which could be on the order of 90 to 120 days.”
As to M&A issues, readers may be interested in this recent publication from Transparency International U.K. titled “Anti-Bribery Due Diligence for Transactions.”  As explained in the publication, the “guidance is intended to provide a practical tool for companies on undertaking anti-bribery due diligence in the course of mergers, acquisitions and investment.”

A Focus On FCPA Reform

Thursday, September 8th, 2011

The FCPA was enacted in 1977, amended in 1988, and amended again in 1998.

It is widely expected that an FCPA reform bill will be introduced this month.   Who will introduce the reform bill, what specific amendments will it seek, will hearings be held, will the reform bill succeed?  All interesting issues to monitor.

Against the backdrop of expected FCPA reform, several articles have been written in recent weeks.  In this Politico article, Assistant Attorney General Lanny Breuer stated, “I don’t really accept the fact that the FCPA is truly a burden on American business.”  Several former DOJ officials (not to mention many others) disagree.  One of the more vocal proponents of FCPA reform has been former U.S. Attorney General Michael Mukasey who testified at the June House hearing on behalf of the U.S. Chamber of Commerce.  (See here for links to his prepared statement as well an overview of the hearing).  In the Politico article, Mukasey states that “nobody is looking to slacken in cases involving real bribery of public officials.”

Former Deputy Attorney General George Terwilliger, who also testified at the June hearing, is in favor of reforming the FCPA as well.  Terwilliger recently penned a client alert (here) titled “Can the FCPA Be Good for Business?”  Placing FCPA reform in the context of current economic conditions, Terwilliger stated as follows.  “Those responsible for making and enforcing our laws are in a position to adopt laws and policies that can help foster, rather than inhibit, business growth. At the heart of that analysis, asking whether broad-ranging laws like the FCPA are functioning as an impediment to a restored economy is worthwhile.”  Terwilliger adds that “because of its global impact on the expansion of U.S. businesses abroad, it is worth looking specifically at the FCPA as a case study for worthwhile reform initiatives.”

Continuing a theme he discussed during the June hearing, Terwilliger writes as follows.  “One of the surest methods for US businesses to expand globally is through the acquisition of existing foreign companies. In many emerging markets, most acquisition targets are beyond the purview of the FCPA and thus unlikely to employ anti-corruption compliance policies. But these companies have become attractive targets because of their position in growth markets. Those markets are also noted as typically more corrupt than other, more established markets subject to closer scrutiny by governments. Preacquisition due diligence, looking specifically at indicia of potential FCPA compliance issues, can be an asset to decision making. But in most circumstances, the opportunity for the kind of in-depth examination that is likely to reveal potential FCPA compliance issues is quite limited. As a result, any acquisition abroad, and particularly those in emerging markets, can carry a ticking time bomb of FCPA compliance issues.  I have advocated in congressional testimony that Congress amend the statute to provide a period of repose under the FCPA following an acquisition. The idea is that US companies, with notice to US enforcement authorities, would have a defined period after an acquisition in which to perform a rigorous FCPA compliance review of the acquired entity. If FCPA compliance issues were uncovered, the acquiring company would remediate them, and disclose both the existence of the problem and its remediation to the government. The acquiring company would be immune from civil or criminal enforcement as to matters uncovered during the review period, which could be on the order of 90 to 120 days. At its most elemental level, this procedure would serve the fundamental objectives of the FCPA, which are to root out and eliminate corruption in the global marketplace. That it may also tip the balance toward overseas expansion by reducing the risk of hidden FCPA liability is good for business and good for the US economy.”

Terwilliger’s acquisition period of repose concept has merit, however it would seem that such a concept could easily be embedded within a compliance defense rather than a separate FCPA amendment.

Other recent articles regarding FCPA reform include here from David Hilzenrath at the Washington Post and here from Dan Froomkin at the Huffington Post.  Froomkin’s article is lengthy and contains views on both sides of the issues including those of Harvard Law Professor David Kennedy who correctly notes that the FCPA has “led to a quite remarkable network of measures across the world.”  However, coverage regarding other OECD member countries that have adopted FCPA-like measures lacks any mention (as noted in this prior post) that many of those countries have embedded compliance-like defenses in their domestic laws.  In addition, coverage regarding the U.K. Bribery Act also lacks any mention of the Act’s adequate procedures defense, a defense that undermines the foolish rhetoric that the Act is somehow the “FCPA on steroids.”

Terwilliger concludes his alert by rightly putting part of burden for FCPA reform on U.S. business.  He states as follows.  “US businesses can help themselves by advocating for reform of the FCPA’s terms and its enforcement. Until such reforms gain momentum, these companies will have to be prepared to face greater FCPA risk than is necessary as part of the price of moving businesses forward and bringing sustained growth to US companies and the economy—which is so dependent on them for job creation and expansion.”

However, what business or industry sector is going to step up to the plate and advocate for FCPA reform?  The atmosphere is just too toxic to do so.   Indeed, Froomkin begins his piece by noting that the U.S. Chamber is “taking on something as seemingly unassailable as an anti-bribery law.”

And therein lies the problem.

So I leave you with some guiding words from some of the major players the last time Congress undertook substantial FCPA reform in the 1980′s.

“The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.”  “The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective.”   (Senator Alfonse D’Amato – 1981).

“We’ve learned a great deal about the Foreign Corrupt Practices Act in the last three years. We’ve learned that the best of intentions can go awry and create confusion and great cost to our economy.”   ”Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the ‘bad old days’ of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill’s language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion.”   (Senator John Chafee – 1981).

“… There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?”  (Senator John Heinz – 1981).

And my personal favorite.

“Just because the Foreign Corrupt Practices Act spotlights a sensitive subject, some people wish to turn a ‘blind eye’ to its shortcomings rather than risk being accused of being ‘soft on bribery.’  That is too easy a way out.  Retreating from controversy will not cure the law’s deficiencies.  Such inaction will no more eliminate the need for FCPA reforms today than it can eliminate the criticism of the Act brought over the past several years.  After five and on half years experience with this law, after legitimate problems have been identified and examined, we have a responsibility to respond.  Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.”  (Honorable William Brock – U.S. Trade Representatives – 1983).

It will be an interesting Fall.  Feel free to make your voice heard on FCPA reform issues on this site.  E-mail me at