Recent Developments In Successor Liability Under The FCPA And UK Bribery Act

 
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  1. New Guidance from the DOJ

    On November 7, 2014, the Department of Justice ("DOJ") issued a Foreign Corrupt Practices Act ("FCPA") Opinion Procedure Release 14-02 (the "DOJ Opinion") that provides real-world guidance on DOJ's application of FCPA successor liability principles.1

    The Opinion offers important insight into how DOJ assesses whether or not to pursue wrongful pre-acquisition conduct where the target was not historically subject to the reach of the FCPA. The DOJ Opinion clarifies and reinforces the DOJ's prior guidance regarding successor liability and offers some certainty for acquirers concerned about the prospect of inheriting FCPA liability.

    The DOJ Opinion was the product of a formal request from a U.S.-based multinational (the "Requestor"), who was contemplating acquiring a foreign-listed consumer products company (the "Target").2 In the course of its pre-acquisition due diligence, the Requestor uncovered evidence suggesting that the Target made improper payments to government officials and had serious recordkeeping deficiencies. Neither the suspicious payments nor any of the Target's business practices historically had a jurisdictional nexus to the U.S. The Requestor asked DOJ whether it might pursue an enforcement action based on the Target's pre-acquisition conduct alone.

    The DOJ answered that it would not. On the one hand, the DOJ was clear that "[i]n 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." But on the other hand, DOJ reaffirmed its position that "successor liability does not . . . create liability where none existed before." (emphasis added). The absence of any historical jurisdictional nexus to the U.S. deprived the DOJ of a basis to proceed against either the Requestor or the Target based on the Target's pre-acquisition misconduct.

    The DOJ Opinion should be welcomed by acquiring companies after several recent DOJ actions that have made acquiring companies nervous. For example, in February 2010, Kraft Food Groups, Inc., acquired U.K.-based Cadbury Ltd. and has faced regulatory scrutiny related to allegedly improper payments Cadbury previously made to establish a facility in Baddi, India. According to a Kraft SEC filing in 2011, the company received a subpoena from the SEC and launched an investigation into the...

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