Compliance due diligence in M&A transactions: assessing bribery risk


Financier Worldwide Magazine

September 2017 Issue

Bribery-related liabilities may become a major challenge in M&A transactions, impacting the target, the seller and the buyer in different ways. However, there are tools to reasonably identify and reduce bribery risks, allowing the parties to close the transaction. If analysis reveals that a bribery liability may become a dealbreaker, the buyer will avoid major losses and trouble down the line, opening the door to other deals devoid of this kind of risk.

Bribes made by the target company may occur before, during or after a transaction is closed and the buyer takes over. Certain anti-bribery regulations impose successor liability, making the buyer suffer the consequences of bribes made by the target even before the buyer actually acquired ownership of the target. Indeed, several of these regulations apply not only domestically, but also to bribes occurring abroad. Therefore, international companies doing business worldwide are often subject to multiple anti-bribery laws, exposing them to a higher risk of being subject to one or more successor liability regulations.

Fortunately, there are procedures available to assess whether the potential bribery risks in a specific transaction are minor, material or dealbreakers and how those risks can be minimised, if at all.

First, analyse all anti-bribery laws applicable to the buyer, target and seller in the relevant M&A transaction to determine any specific exposure that each of them may potentially face should an incident of bribery be discovered. In transactions involving parties operating in multiple countries, this task may require a team of lawyers admitted to practice in all relevant jurisdictions.

Second, conduct proper anti-bribery compliance due diligence. This may be required under applicable regulations to minimise successor liability exposure for the buyer. Indeed, certain anti-bribery successor liability regulations require both pre-closing and post-closing due diligence (together with integration and remediation procedures). This is because during the pre-closing analysis the buyer is limited to the information disclosed by the seller or otherwise available in the public domain, while after taking control of the target the buyer is able to conduct a more thorough analysis, ensuring that all relevant information has been reviewed.

Even if no successor liability applies, timely due diligence would likely help identify bribery risks that the buyer may want to eradicate, should the deal eventually close. This may be particularly relevant for a buyer already operating under higher anti-bribery standards than those applicable to the target.

Due diligence procedures are not perfect and certainly do not guarantee results. However, they normally allow buyers to identify material information for the analysis of bribery risks, including: (i) interactions that the target has with public officials to conduct its operations; (ii) characteristics of the anti-bribery compliance programme implemented by the target to address bribery risks; and (iii) specific instances or allegations of bribery disclosed during due diligence procedures.

Sources of information relevant to detect bribery risks vary. For example, more often than not the target may openly disclose bribery-related incidents on the understanding that they are not a breach of bribery regulations, or even if they are, the odds of any enforcement action are negligible in the relevant jurisdiction. Other means of acquiring knowledge of corruption incidents range from weak evidentiary sources, such as minor blog posts, to actual settlements with competent authorities that have either taken place or are being negotiated.

Anti-bribery regulations usually punish the individuals involved with fines, imprisonment, prohibition to perform certain activities (such as serving as public officials) and other sanctions. But legal entities may also suffer fines and restrictions to engage in certain activities (e.g., exclusion from public procurement and government contracts) as well as forfeiture of assets obtained through bribery. Moreover, rights resulting from bribery (e.g., permits, licences, contracts) could be declared null and void, even triggering an obligation to indemnify any harmed third parties. Depending on the facts of a case, bribery schemes may also involve violations of tax, fraud, money laundering, false accounting and other regulations beyond bribery itself. And if the case is covered by the media, reputational damage could also happen.

The scope of contingencies arising from a bribery incident may range from immaterial to definitive dealbreakers. They may well impact the buyer under successor liability if the deal is closed. Potential liabilities could also hurt the buyer after closing if the acquired target remains liable because the applicable statute of limitations has not expired, or because the acts performed by the target in breach of anti-bribery laws continue to occur.

Some bribery-related contingencies arising from due diligence can be addressed through representations, warranties and indemnifications stipulated in the sale and purchase contract. But for these provisions to be effective, among other factors, it is often necessary to reasonably quantify the contingency and have some clarity on the facts to properly analyse the applicable statute of limitations. Unfortunately, this is not always possible due to the limited information available. And even when it is, there may be material concerns as to whether the seller would be solvent enough to face those indemnities, the purchase price makes any sense at all considering the exposure, or even if the target’s operations could be continued if the contingency materialises (e.g., if a permit or contract essential to the operations of the target could be terminated in case of bribery).

The potential for damage is high. However, readily available tools can help buyers, sellers and targets make informed and strategic decisions on how to address bribery-related liabilities, rather than simply walking away from a transaction or closing a deal blindfolded. In this context, retaining specialised counsel to conduct anti-bribery compliance due diligence and provide specific advice on how to address bribery-related contingencies in the sale and purchase agreement is a growing practice among buyers in Latin America and other regions of the world.


Gustavo L. Morales Oliver is an associate at Marval, O’Farrell and Mairal. He can be contacted on +54 11 4310 0100 or by email:

© Financier Worldwide


Gustavo L. Morales Oliver

Marval, O’Farrell and Mairal

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