Guidance on anti-bribery due diligence in mergers, acquisitions and investments – companies and investors ignore at your peril

13 June 2012

Transparency International has published guidance for anti-bribery due diligence in mergers, acquisitions and investments.  It sets out due diligence steps that should be taken and also highlights reasons why companies and investors need to be ever more diligent in this area.  A compelling statistic for those involved in such transactions is that almost 50% of US corruption-related prosecutions in 2007 were connected to M&A transactions.

Private equity and institutional investors

The guidance highlights the UK’s Serious Fraud Office (SFO) statements about the responsibilities and liabilities of private equity and institutional investors.  This was illustrated following the guilty pleas to corruption offences and breach of UN Sanctions by Mabey & Johnson in September 2009. Notwithstanding that the parent company, Mabey Engineering (Holdings) Ltd, did not know about Mabey & Johnson’s inappropriate behaviour, the SFO was able to apply Part V of the Proceeds of Crime Act 2002 and recover, in civil proceedings before the High Court, the “property obtained through unlawful conduct” ie. the share dividends it had received derived from contracts won through unlawful conduct.

Risk of bribery in the M&A itself

A warning note is that care should be taken that bribery does not take place during the investment or acquisition process itself. Such transactions can be particularly vulnerable to bribery owing to factors such as tight deadlines, the desire to obtain information, use of third parties and intermediaries, interaction with public officials over licensing, or attempts by third parties to gain access to insider information.

Core aims of anti-bribery due diligence and risk checklists

Guidance is given on the core aims of anti-bribery due diligence, what to look for, and how to manage and integrate the anti-bribery due diligence in to the process.  The guidance includes a checklist of indicators as an aid to due diligence, including inherent risks (geographical and sector), business model risks, legislative footprint, organisational risks, anti-bribery programme, key bribery risks, and incidents.  Legal risks are outlined, including the risk of criminal offences both corporate and individual under the UK Bribery Act and the Foreign and the US Corrupt Practices Act, with particular sections on considerations for private equity investors, obligations for minority investors and reporting obligations.

Setting the standard

In many ways, the contents of this guidance is nothing new, however it does provide practical guidance for those involved in mergers, acquisitions and investments and the necessary steps they need to take to have effective anti-bribery due diligence. Possibly more importantly, it provides a standard by which companies, board members and investors involved in such transactions can be judged, with a risk that those companies and individuals (including board members and investors) who ignore such guidance may find themselves facing severe financial fines or criminal proceedings.

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