Acquisition Due Diligence Bribery and Corruption Risk | Deloitte US has been added to your bookmarks.
Acquisition due diligence
Bribery and corruption risk
Buyers considering an acquisition typically encounter a competitive and time-sensitive diligence process focused on assessing the target’s performance key risks. Although each transaction is unique, a buyer’s failure to adequately consider bribery and corruption risk may lead to the purchase of an overvalued company and serious collateral consequences, including costly and intrusive post-transaction government investigations, restricted business opportunities, and reputational damage. Accordingly, buyers should understand a target’s corruption risk factors—including where it does business, its customers (particularly non-US public sector), and the extent to which it relies on third parties to conduct business on its behalf–to assess the target’s potential non-compliance with the US Foreign Corrupt Practices Act (FCPA) or local anti-bribery laws.
Acquisition due diligence bribery and corruption risk
Access to detailed financial and accounting transactional data is limited in many deals, buyers should consider performing integrity due diligence that would explore the background of the target, its key personnel, and third-party business partners, such as joint venture partners, distributors, sales agents, and other intermediaries. While US authorities have not described precisely how buyers should undertake acquisition due diligence to eliminate or minimize potential FCPA successor liability, they have been clear that taking shortcuts can backfire.
Conducting thorough integrity due diligence is typically even more important when the target company is in a foreign country, as available data sources can vary widely. In Latin America, for example, where intermediaries such as agents and brokers are commonly used, information on private companies can be surprisingly complete (compared to the US), but difficult to obtain because the information is not digitized. Identifying a problem in advance of, or within a short time following, an acquisition often enables a buyer with several options, including negotiating better terms, terminating the pursuit, or seeking post-sale remedies.
The starting point for integrity due diligence is often a focused questionnaire that seeks relevant information from potential targets or potential third-party partners. The questionnaire may include a request for detailed information in the following categories:
- Ownership and management of the seller, including all beneficial owners
- Identification of key customers and third-party intermediates
- Disclosure of any past or ongoing civil, criminal and regulatory matters
- The seller’s knowledge of and compliance with anti- corruption laws
- A signature from a responsible party who attests to the veracity of the information provided in the completed questionnaire
Once the target or potential partner agrees to complete the questionnaire, it is incumbent upon the company conducting the due diligence to verify the information that it receives, using reliable data sources – and experts to help navigate them. The due diligence starting point may include what are known as aggregator databases, which may compile hundreds of sanctions and watch lists from around the world, as well as a list of politically exposed persons, also known as PEPs. These searches are supplemented with additional media searches [should focus on/may also uncover] adverse reports on the target or its key executives and personnel, in both English and the local language.
These sources are useful, but may not be as comprehensive as they seem. They may miss an unnamed beneficial owner of a company who has political or government ties, for example, and likely won’t expose any information about lower-level managers who may be carrying out suspicious transactions. Therefore, the due diligence process should cover more sources.
Download "Acquisition due diligence bribery and corruption risk" article to learn more about conducting thorough integrity due diligence for cross-border acquisitions.
Meet the authors
For more information, please contact:
Hernan Marambio, Americas M&A Transaction Services leader, Deloitte & Touche LLP
John Leonard, director, Forensics and Investigations, Deloitte Financial Advisory Services LLP
Jose Velaz, Advisory specialist leader, Mergers, Acquisitions and Divestitures, Deloitte & Touche LLP