Author Archives: Luiz Santiago

The New FCPA Resource Guide Wisely Suggests a More Flexible Approach to Successor Liability

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When a company subject to the jurisdiction of the U.S. Foreign Corrupt Practices Act (FCPA) merges with or acquires another company that is also covered by the FCPA, should the former company also acquire the latter’s potential FCPA liability? In other words: Suppose Company A acquires Company B, and evidence later comes to light that prior to the acquisition, Company B’s employees paid bribes to foreign government officials, in violation of the FCPA. Can or should Company A be subject to a post-acquisition enforcement action for these earlier FCPA violations? This is known (in the FCPA context and elsewhere) as the question of “successor liability.” In U.S. law, the general rule is that successors inherit the acquired company’s civil and criminal liabilities. The U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC), which share responsibility for enforcing the FCPA, have long argued that there is no reason to make an exception to this general rule for FCPA cases. Yet critics have argued that successor liability in the FCPA context “can kill deals.” Numerous transactions have fallen through or decreased in value because of corruption-related concerns, and other transactions became costlier due to such risks.

The DOJ and the SEC’s traditional response to such concerns—as laid out in the first edition of their FCPA Resource Guide, published in 2012—is that companies should conduct pre-acquisition due diligence to identify red flags and potentially undertake various forms of remediation. Furthermore, the agencies have stated that they might decline to pursue enforcement actions against an acquiring firm on a successor liability theory if that firm’s pre-acquisition efforts were adequate. The problem, though, is that pre-acquisition due diligence on possible FCPA violations is often difficult or impossible to conduct properly. In some cases, laws in foreign countries known as blocking statutes may prevent the acquiring firm from getting the information it needs from the target company (see, for example, here and here). More generally, there are numerous practical reasons why pre-acquisition due diligence on possible FCPA violations may not be possible, including time-sensitivity, the difficulty of accessing data stored or located in distant places, and the target company’s reluctance to cooperate with external investigations that could result in the target’s personnel facing criminal exposure. These factors can make pre-acquisition due diligence impractical.

The DOJ and SEC appear to have acknowledged and responded to that concern in the second edition of the FCPA Resource Guide, published this past July. While the second edition’s treatment of successor liability seems mostly the same as in the first edition (save for some wording adjustments and references to more recent cases), the second edition also includes one short but potentially crucial additional paragraph, which reads as follows:

DOJ and SEC also recognize that, in certain instances, robust pre-acquisition due diligence may not be possible. In such instances, DOJ and SEC will look to the timeliness and thoroughness of the acquiring company’s post-acquisition due diligence and compliance integration efforts.

Although subtle, this passage represents a potentially important shift, as it indicates that the DOJ and SEC will consider not only pre-acquisition due diligence, but also post-acquisition measures, when deciding whether to pursue enforcement actions against a company on a successor liability theory.

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Fixing the Brazilian Anticorruption Leniency Program

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When the Brazilian Anticorruption Law came into force in 2014, pundits celebrated the enactment of a statute that finally authorized action against corporations and other legal entities involved in public corruption, and that provided for substantial penalties. The statute’s most important innovations, however, were not so much its substantive provisions but rather the procedural reforms it introduced, chief among them the Anticorruption Leniency Program, which, alongside the criminal plea bargains for accomplice cooperation created by the Organized Crime Act (enacted on the same day as the Anticorruption Law), authorizes enforcement agencies to settle corruption-related cases.

            The Anticorruption Leniency Program largely reproduces the key features of Brazil’s Antitrust Leniency Program, which, in turn, was inspired by the amnesty program adopted by the U.S. Department of Justice’s Antitrust Division. To qualify for a leniency agreement, a company must be the first among those involved in a corruption scheme to state its interest in cooperating, admit its participation in the wrongdoing, cease any further involvement, cooperate fully with the investigation, and agree to pay compensation for any harm caused to the Public Administration. In exchange, the qualifying company can receive a significant reduction in the administrative fine, as well as protection against debarment or suspension from doing business with the Public Administration. (In contrast to the Antitrust Leniency Program, however, an Anticorruption Leniency agreement does not shield individuals associated with the qualifying company from criminal prosecution.)

Despite its importance in high-profile investigations such as the Lava Jato investigation (Operation Car Wash), critics have emphasized shortcomings of the Anticorruption Leniency Program. Coordination – or rather the lack thereof – between different enforcement agencies is often considered the most significant weak point of the program. However, I want to suggest a different source for the relative ineffectiveness (so far) of the Anticorruption Leniency Program: the requirement that, in order to be eligible for leniency, a company must admit its participation in the wrongdoing. Importantly, this requirement is not (merely) that the company accepts legal responsibility; rather, the program requires admissions of facts—facts that the company cannot subsequently dispute in other proceedings, which, from an enforcement standpoint, is precisely what creates the need for coordination between agencies. But such admissions can also entail additional collateral consequences:

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Measuring the Success of Brazil’s 2014 Anticorruption Law

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In January 2014, following nationwide protests prompted by concerns about widespread corruption, the Brazilian Congress enacted a new Anticorruption Law. The 2014 Anticorruption Law was a landmark in part because it represented the shift from the traditional focus on individual bribe-takers to the bribe-paying corporations. Although a few prior statutes did address the conduct of alleged bribe payers, the Anticorruption Law both authorized much more stringent penalties on bribe-paying companies (including fines of up to 20% of a company’s gross revenue in the prior year, and even mandatory dissolution of the company in extreme cases), and also adopted a revolutionary strict liability regime for corporate corruption offenses.

More than six years have passed since the Brazilian Anticorruption Law entered into force. Has the law been effective? What do we know so far about its enforcement? On the whole, the enforcement numbers seem rather disappointing, suggesting that the law has not (yet) been deployed aggressively to sanction bribe-paying corporations in most parts of Brazil. Nonetheless, there are a variety of reasons why it would be premature to conclude from these numbers that the law has not been, or will not be, effective.

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