Anti-Corruption Due Diligence in Cross-Border M&A

Global enforcement of anti-corruption laws is at an all-time high and unlikely to recede any time soon. Accordingly, it is imperative that companies conduct adequate anti-corruption due diligence in connection with their merger and acquisition activity. Failure to do so exposes a buyer to potential successor liability, which can result in huge fines and penalties, often months or years after a deal is closed. Potentially even worse, a buyer who fails to conduct adequate anti-corruption due diligence may find after closing that it has purchased sales that cannot be sustained without illegal bribery.

These risks are not empty threats. In 2007, after eLandia International Inc. acquired Latin Node Inc. in a $26.8 million deal, eLandia discovered questionable payments and self-reported the situation to the Department of Justice ("DOJ") and Securities Exchange Commission ("SEC"). The post-acquisition investigation revealed a three-year history of approximately $2.2 million in bribes paid by Latin Node to Honduran and Yemeni officials, all of which occurred pre-acquisition.[1] Within a year of closing, Latin Node became insolvent, and eLandia disclosed that its "$26.8 million purchase price was approximately $20.6 million in excess of the fair value of the net assets acquired from Latin Node mostly due to the cost of the [Foreign Corrupt Practices Act ("FCPA")] investigation, the resulting fines and penalties to which it may be subject, the termination of Latin Node's senior management, and the resultant loss of business."[2] The company was also hit with a $2 million penalty by the DOJ in 2009.[3] Thus, within two years of closing, eLandia not only lost its initial investment but incurred millions in additional costs. These are consequences that could have potentially been avoided had eLandia conducted more robust anti-corruption due diligence.

Kraft Foods is another example. A few months after its $19 billion acquisition of Cadbury in 2010, Kraft received a subpoena from the SEC in connection with an FCPA investigation of Cadbury's India operations.[4] The investigation is ongoing, but surrounding allegations suggest that Kraft failed to conduct adequate, if any, pre-acquisition due diligence, which may have saved the company from its current turmoil and potentially severe financial consequences.

But pre-acquisition due diligence is not just for buyers. Sellers should also "clean house" to find and resolve potential violations of anti-corruption laws before a buyer learns of them and walks away, as Lockheed Martin ultimately did after discovering that Titan Corp. had previously made $3.5 million in improper payments.[5] Although Lockheed gave Titan eight months to obtain assurances from the DOJ or reach a plea agreement, Titan failed to satisfy the conditions, prompting Lockheed to terminate the acquisition[6] and Titan's stock value to plummet.[7]

The DOJ opinion procedure may further incentivize companies to conduct pre-acquisition due diligence. In Opinion Procedure Release 03-01, the DOJ agreed to forego action against an acquiring company for the target entity's potential FCPA violations. The request arose after the purchaser conducted pre-acquisition due diligence, which revealed payments by the target to foreign officials. In exchange for assurances, the purchaser agreed to: (i) cooperate with the DOJ and SEC in their investigations of the payments; (ii) discipline employees or officers who made or authorized the payments; (iii) disclose additional pre-acquisition payments; and (iv) implement a compliance program and system of internal controls.[8] These conditions, when compared to the financial and reputational disasters facing companies like eLandia and Kraft, are a small price to pay. The steps necessary to obtain these assurances, and avoid disaster, are discussed below.

Due Diligence Process

To conduct an effective due diligence review in an era of heightened anti-corruption enforcement, it is prudent for buyers to request documents and information, assess the target's risks, evaluate compliance, and, according to the results, determine the next steps.

Request Documents and Information. Requesting documents allows the buyer to closely examine the target's business practices, risks, and controls. Requests should relate to the target's anti-corruption policies and procedures, government contacts, and use of agents and third parties. In some cases, interviews of employees or other knowledgeable individuals may be more helpful, especially for discovering rumors of suspicious conduct.

Assess Risks. A risk assessment puts the buyer on early notice of the heightened potential that anti-corruption issues may exist. Factors to be considered include who owns and controls the target, with whom it does business, where it does business, and how it does business. The buyer should pay close attention if the target uses the services of third parties or conducts business in countries with a reputation for corruption.[9] These red flags, while not determinative of anti-corruption violations, will guide the buyer in planning its subsequent due diligence steps and negotiation strategies.

Evaluate Compliance. Surveying whether the target has any systems in place to detect or prevent corrupt payments allows a buyer to effectively evaluate the target's compliance program, or lack thereof. While most companies now have anti-corruption policies, the difficult task for the buyer is determining whether the target has merely a "paper program" [10] or a truly effective program. Buyers may assess, among other things, who receives training, how they receive training, and how the target ensures that its compliance program is working.

Determine Next Steps. After synthesizing and analyzing the collected information, the buyer should then decide what additional procedures, if any, are necessary. The buyer may rely on its due diligence findings to negotiate a better price[11] or terminate the deal altogether if closing the deal poses too high a risk.[12]

Responding to Red Flags

If the buyer uncovers potential violations of anti-corruption laws during due diligence, next steps may involve an internal investigation, self-disclosure, renegotiations, and future compliance monitoring.

Investigate. Requesting that the target launch an internal investigation is critical to determining the magnitude of any issues in advance of closing. Typically, outside counsel and forensic accountants are brought in to scrutinize the target's books and records and interview key employees. The parties may need to amend the closing date to allow for a sufficient review. Upon conclusion of the investigation, the buyer may then decide whether it should proceed with or terminate the deal.

Self-disclose. If a buyer wishes to proceed despite potential violations, the parties will likely have to determine whether to self-disclose to the SEC and DOJ. The possibility of cooperating with the government and mitigating penalties may provide incentives to self-disclose.[13] To reap these benefits, self-disclosure must be timely, and the buyer must often commit itself to ensuring the target's future anti-corruption compliance.[14]

Renegotiate. Because of the impact that investigations and self-disclosure may have on the target's value, what once may have been favorable terms under the original agreement may no longer satisfy the buyer. Renegotiation may be necessary to compensate for backlash caused by actual or potential anti-corruption issues.

Implement Compliance. After the deal closes, and whether required by the government or not, it would be prudent for the buyer to immediately implement an effective anti-corruption compliance program if the target does not have one. The DOJ has provided "minimum" suggestions, including enacting a corporate policy against violations, training employees to comply with the policy, and adopting compliance requirements for the retention and oversight of all agents and business partners.[15]


Adequate pre-acquisition due diligence, self-reporting, and future compliance may mitigate a buyer's risk of acquiring an unexpected liability or otherwise overpaying for the target. In an era when anti-corruption enforcement is a top priority for governments across the globe, establishing a due diligence plan and proceeding accordingly is critical when mergers and acquisitions reach across borders.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at

S. Wade Angus
New York / São Paulo
+1.212.326.3755 / +55.11.3018.3914

Mark E. Betzen

R. Scott Cohen
Dallas / Houston
+1.214.969.5060 / +1.832.239.3799

Stephen J. DeCosse

Angela Olivarez

Fernando de Ovando
Mexico City

Weston C. Loegering

George T. Manning

Luis Riesgo
São Paulo / Madrid
+55.11.3018.3910 / +34.91.520.3939

Joshua S. Roseman

Harriet Territt

Patricia J. Villareal

Nicholas E. Rodríguez
New York

Guillermo E. Larrea
Mexico City

Miguel Ishii
Mexico City

Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our "Contact Us" form, which can be found on our web site at The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.


[1] Press Release, Department of Justice, "Latin Node Inc., Pleads Guilty to Foreign Corrupt Practices Act Violation and Agrees to Pay $2 Million Criminal Fine" (Apr. 7, 2009), available here.

[2] eLandia Int'l Inc., Form 10-Q/A (filed 9/5/08 for period ending 9/30/07).

[3] See Press Release, supra note 1.

[4] Kraft Foods, Form 10-K (filed 2/27/12 for period ending 12/31/11).

[5] SEC Litigation Release No. 19107 (Mar. 1, 2005), available here.

[6]Press Release, Lockheed Martin, "Lockheed Martin Terminates Merger Agreement With the Titan Corporation" (June 26, 2004).

[7] See id.; "Lockheed Martin Terminates Merger Deal," The New York Times (June 27, 2004), available here.

[8] DOJ Op. Proc. Rel. 03-01, available here.

[9] Transparency International's Corruption Perceptions Index "measures the perceived levels of public sector corruption in 183 countries and territories" and is a useful tool for assessing these risks. See Transparency International, Corruption Perceptions Index 2011, available here.

[10] In 2008, Siemens AG reached a settlement with the SEC and DOJ for $1.6 billion—the largest amount a company has ever paid to resolve corruption-related charges. The FCPA violations arose out of $1.4 billion in payments made to foreign officials. SEC Litigation Release No. 20829 (Dec. 15, 2008), available at. The Attorney General coined Siemens' anti-corruption training as a "paper program," whereby circulars and policies were promulgated without much more. See Statement of Offense at 8, United States v. Siemens, Cr. No. 08-367-RVC, available here.

[11] In 2002, Cardinal Health's pre-acquisition due diligence of Syncor International Corp. revealed that Syncor had made improper payments totaling $600,000. Cardinal Health agreed to close the deal but only if Syncor would renegotiate. Thus, the parties agreed that instead of a .52 exchange rate, Syncor stockholders would only receive .47 of a Cardinal Health common share in exchange for each outstanding share of Syncor common share. Syncor Int'l Corp., Form 8-K (Dec. 4, 2002). Syncor ultimately settled with the SEC for $500,000, and its Taiwan subsidiary pled guilty and agreed to a $2 million fine, the maximum criminal fine for a corporation under the FCPA. SEC Litigation Release No. 17887 (Dec. 10, 2002), available here; Press Release, U.S. Department of Justice, "Syncor Taiwan Pleads Guilty to Violating the Foreign Corrupt Practices Act" (Dec. 10, 2002), available here.

[12] See Lockheed Martin, supra note 6.

[13] Helmerich & Payne is a key example. After self-disclosing, the case was resolved with the DOJ through a two-year nonprosecution agreement, including compliance self-reporting and a $1 million penalty. The compliance self-reporting was in lieu of an independent compliance monitor, and the penalty was about 30 percent less than that recommended by U.S. Sentencing Guidelines. Helmerich received these benefits because of its "forward-leaning, proactive, and highly cooperative approach." Comments by Lenny Breuer to the 5th Annual Conference for Corporate Financial, Legal, Risk, Audit & Compliance Officers, May 26, 2010.

[14] In 2008, while Halliburton was considering purchasing the entire share capital of a U.K.-based company, Halliburton requested that the DOJ consider its potential FCPA liability if the target had previously violated the law. Because of U.K. legal restrictions, Halliburton was prevented from conducting adequate pre-acquisition due diligence, and, thus, the target's potential FCPA liability was a "black box." The DOJ endorsed the acquisition and agreed to not press charges, so long as Halliburton agreed to "[u]pon closing … immediately impose its own Code of Business Conduct and specific FCPA and anti-corruption policies and procedures on Target … [and] provide FCPA and anti-corruption training to all Target officers and all Target employees whose positions or job responsibilities warrant such training." DOJ Op. Proc. Rel 08-02, available here.

[15] See Deferred Prosecution Agreement, United States v. Panalpina World Transp. (Holding) Ltd. (S.D. Tex. Oct. 27, 2010), at Attachment C.