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Presenting a live 90-minute webinar with interactive Q&A

FCPA Due Diligence in M&A

Amid Increased Enforcement Developing and Risks and Implementing Post-Closing Protections

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, AUGUST 24, 2016

Thaddeus R. McBride, Partner, Bass Berry & Sims, Washington, D.C.

Bob Schuettler, Vice President, Office of the General Counsel, Vista Outdoor, Arlington, Va.

James Simoes, Director, International Regulatory Affairs, Vista Outdoor, Arlington, Va.

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FCPA DUE DILIGENCE August 24, 2016

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Panelists • Bob Schuettler Vice President, OGC

Vista Outdoor Inc. bob.schuettler@vistaoutdoor.com

• Jay Simoes Director, International Regulatory Affairs Vista Outdoor Inc.

Jay.Simoes@vistaoutdoor.com

• Thad McBride Partner Bass, Berry & Sims PLC tmcbride@bassberry.com

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Agenda

• FCPA Overview

• M&A Liability

• Recent Developments

• Effective Diligence

• Questions

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FCPA Overview

• Prohibits corrupt payments to foreign officials for a

business purpose

• Requires “Issuers” to maintain accurate books and

records and robust internal controls

- Best practice even for non-Issuers

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Jurisdiction

• Any US citizen or resident, wherever located

• Any entity organized/incorporated under US law, wherever located

• Any Issuer, regardless of nationality • Issuer = a company that (i) has securities registered in United States or (ii)

is required to file periodic reports with the SEC

• Any person in United States, regardless of nationality

• A regulated person’s agent or other representative

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Payment

• Actual payment or gift

• Offer or promise to pay

• Authorization to pay

• Any thing of value

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Foreign Official

• Any officer or employee of any:

• Non-U.S. government

• Non-U.S. political party

• Public international organization (e.g., the U.N.)

• Any non-U.S. political party, party official, or

candidate for non-U.S. political office

• Anyone acting on behalf of a Foreign Official

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Penalties

• Extraterritorial enforcement

• Significant monetary fines

• Prison for individuals

• Reputational damage

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M&A LIABILITY

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M&A Considerations

• Buyer may be liable for target’s FCPA violations pre-

acquisition

• Successor liability

• Asset sale vs. stock sale

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Discovery of FCPA Violations

• Alter transaction value

• Change deal structure

• Require specific reps and indemnifications in purchase agreement

• Cause integration challenges after closing

• Delay or crater the deal

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M&A Example 1

• Snamprogetti (2010)

• 2006: ENI sold Snamprogetti to Saipem

• 2010: Snamprogetti incurred FCPA criminal liability and

agreed to pay $240 million fine

• ENI and Saipem held jointly liable

• Each required to abide by terms of DPA

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M&A Example 2

• Titan (2005)

• 2003: Lockheed sought to acquire Titan (US military intelligence / communications company)

• During pre-deal diligence, found payments to officials in

Benin

• Disclosed to USG

• Lockheed ultimately abandoned the deal

• L-3 acquired Titan in 2005

• Titan settled with USG for total of $28.5 million

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DOJ Opinion Release 2008-2

• Halliburton

• Sought to acquire a UK company

• Acquisition terms restricted access to certain relevant FCPA-related information

• DOJ stated it would not take action for any subsequently determined violation

• Committed to (i) conduct a detailed internal review and (ii) report back to the Justice Department

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OPR 2008-2 (cont.)

• Reporting Schedule

• Within 10 days of closing – present DOJ with diligence plan including low, medium, and high risk areas to review

• Within 90 days – complete and report on low risk review

• Within 120 days – complete and report on medium risk review

• Within 180 days – complete and report on high risk review

• Continue communication with DOJ, extend review as

needed, complete all diligence within 1 year

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DOJ Opinion Release 14-02

• Requestor planned to acquire non-Issuer foreign

company

• $100,000 in suspicious payments

• Inadequate records to support transactions

• Deficient accounting practices

• No compliance program

• No ongoing contracts that may have been acquired

through bribery

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OPR 14-02 (cont.)

• “Successor liability does not . . . create liability where

none existed before”

• No intention to take enforcement action

• No potentially improper payments subject to US jurisdiction

• No retroactive FCPA liability

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OPR 14-02 (cont.)

• DOJ reiterated steps for M&A:

(1) Conduct thorough risk-based FCPA and anti-corruption due diligence

(2) Implement acquiring company’s code of conduct and

anti-corruption policies as quickly as practicable

(3) Conduct FCPA and other relevant training for acquired

entity’s directors, employees, third-party agents, and partners

(4) Conduct FCPA-specific audit of the acquired entity

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RECENT DEVELOPMENTS

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The Yates Memorandum

• Issued on September 9, 2015 by Deputy US Attorney

General Sally Yates to all U.S. Attorneys

• Focus on individual accountability

• “Because a corporation only acts through

individuals, investigating the conduct of individuals is

the most efficient and effective way to determine the facts and extent of any corporate misconduct.”

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DOJ Enforcement Plan & Pilot Program

• April 5, 2016 – Criminal Division, Fraud Section

• Intensifying investigative and prosecutorial efforts by

increasing FCPA law enforcement resources

• Strengthening coordination with foreign counterparts

• One-year FCPA enforcement pilot program

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Pilot Program (cont.)

• Mitigation credit available if a corporation:

• Voluntarily self-discloses

• Fully cooperates

• Discloses all relevant facts about individuals involved

• Remediates

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Voluntary Self-Disclosure

• Prior

• Prompt

• Complete – including identifying individuals involved

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Full Cooperation • Timely, complete, and proactive

• Preservation, collection, disclosure, translation of documents

• Frequent updates

• De-confliction of internal investigation

• Information regarding third-party companies and individuals

• Officers and employees available for interviews

• Disclosure of all facts and attribution to specific sources

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Remediation

• Implementation of an effective compliance and ethics program

• Appropriate discipline

• Additional steps to demonstrate: • Recognition of seriousness of misconduct

• Acceptance of responsibility

• Measures to reduce risk of repetition

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EFFECTIVE DILIGENCE

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Risk Assessment

• Review “risk-indicators” based on

• Public sector revenue

• Use of third parties (agents, distributors, etc.)

• High-ranking CPI territories

• Relationships with state-owned enterprises

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Other Considerations

• Is target in industry where corruption is pervasive?

• Is target important to the business?

• Is acquisition particularly high-profile?

• In the media?

• Within the company?

• Were target’s key assets or contracts obtained

appropriately?

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Nuts & Bolts

• Review documents such as:

• Compliance policies and procedures

• Copies of training presentations and attendance lists

• Reports of compliance / internal audits

• Information about any investigations

• Agent / distributor agreements

• Invoices from high-risk third parties

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Nuts & Bolts (cont.)

• Review books and records

• Focus on accounts such as: • Hospitality / Entertainment

• Gifts

• Facilitation

• Petty cash

• Expense reimbursements

• Special / miscellaneous / other unusual

• Interview personnel if needed

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Compliance Pitfalls

• Fail to evaluate third party relationships

• Not doing a deeper dive on revenue programs

• Lack of documented compliance procedure and /

or trainings (enhanced review)

• Missing an enforcement disclosure analysis

• Not preparing for integration on DAY 1 post-close

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Key Steps

• Determine any essential remedial actions and

perform a disclosure analysis, if necessary

• KEY OBJECTIVE: Determine successor liability

disclosure action no later than 180 days, in alignment

with the DOJ’s Opinion Procedure Release No: 08-02

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M&A Contract Terms

• Include appropriate protections

• Standard compliance reps and warranties

• Indemnity, including for costs of any compliance

investigation

• Additional terms if needed based on facts of deal

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Post-Acquisition

• If not possible pre-acquisition, conduct due diligence

post-acquisition

• Promptly incorporate acquired company into

compliance program

• Training

• Re-evaluate third parties

• Audits of new business units

• Disclose if absolutely necessary

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Hypothetical

• Alabama Co. is pursuing joint venture with a Chinese

company.

• Alabama proceeds with the venture even though

the Chinese company made corrupt payments.

• Should Alabama disclose the issue to the USG?

• Are there other steps Alabama should take?

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THANK YOU!

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