Recently-announced Foreign Corrupt Practices Act (FCPA) invesigations by the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and cooperation by the United Kingdom's Serious Fraud Office (SFO) shortly after the U.K. enacted a sweeping Bribery Act indicate that financial institutions, including banks and private equity firms, that make substantial investments abroad, may form part of the next FCPA enforcement wave. Within the last year, the SEC and the SFO have announced probes into bank and private equity firm transactions involving sovereign wealth funds (SWFs) and national pension funds, joint ventures, and foreign private companies in a private equity firm's portfolio. In fact, Richard Alderman, head of the SFO, squarely took aim at the private equity industry in a speech on June 22, 2011, stating "[a]s owners of companies, private equity, as well as the big institutional shareholders, has a responsibility to society to ensure that the companies in which they have a shareholding operate to the right standards."1 The potential exposure to liability under the anti-bribery laws is enormous, with five separate companies entering into settlements to pay over $100 million each in FCPA-related fines and penalties to the DOJ and SEC in 2010. In order to accurately value investments, private equity firms and other financial institutions that invest internationally must identify and appropriately address FCPA risk in investments. By assessing FCPA risk at every stage of the investment process - from the fundraising stage to deal origination to investment due diligence to post-acquisition management - private equity firms and other financial institutions that invest internationally can identify and appropriately address potential FCPA issues. FCPA violations often have large fines associated with them, so ignoring the risk of successor liability for actions taken by a target entity can completely undermine the value of an investment. Taking adequate protective steps to detect and avoid FCPA problems makes business sense and will allow these risks to be included in the valuation of the asset to be acquired.
Pre-Investment: Assessing Risk at the Deal-Origination and Fund-Raising Stages
The Acquisition: Conducting Diligent Due Diligence
Post Acquisition: Managing an Investment to Limit Legal Risk
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