The FCPA Guidance contains good news and bad news. When I ask one of my kids which they want to hear first … they inevitably choose bad news first.
With that in mind, the FCPA Guidance includes relatively bad news on successor liability. In leading up to the FCPA Guidance, I thought the DOJ and SEC “teasers” would become a reality. What was I hoping (praying) for?
In a number of recent settlements, DOJ and SEC have given companies time: 12 months, 18 months or even “reasonable” time periods to integrate acquired companies into existing companies’ compliance programs. DOJ and SEC were being more flexible, backing away from some of their more strict policies, articulated in 08-02, the Halliburton case. At the same time that DOJ and SEC seemed to be heading in a more flexible direction, DOJ and the SEC continued to require “voluntary disclosures” of any violations which may occur or are discovered during the flexible integration time.
My hope (and prayer) was that DOJ and the SEC would expand this relaxed integration time to provide a certain benefit – meaning that a company that made any such disclosures during that time period would receive favorable consideration for an enforcement pass. This seemed like a fair extension of the flexible time policy shift. It is unfair to hold companies to a strict standard the day after a closing. Giving companies more time to integrate acquired companies into a compliance program, should include favorable consideration of any disclosed violations.
Such a policy would not require any legislation. It could be implemented tomorrow by DOJ and the SEC “with the stroke of a pen.” Unfortunately, this pen did not have any ink.
The good news from the FCPA Guidance on “successor liability” was the benefits which flow from pre-acquisition due diligence. In each of the examples cited by DOJ and the SEC, as well as the explanations, one thing is clear – if you conduct comprehensive due diligence of a target company, you will be in the best position possible. If your pre-acquisition due diligence is sloppy or non-existent, you will pay the price for violations which are discovered or occur after the acquisition.
The business community and commentators need to continue the drumbeat against broad application of 08-02, the Halliburton procedure. The opinion release is unduly harsh and rarely comes up but apparently is used for situations which may be analogous and not directly on point. The 08-02 procedures should be limited to those cases when an acquiring company is prevented by law or regulation from securing access to information needed to complete a due diligence review of a company. That is it – nothing more or less.
Instead, DOJ and SEC should create greater incentives for companies to complete a comprehensive pre-acquisition due diligence process. Again, vague promises of “flexibility” or “we will take care of you” are not sufficient.
The FCPA Guidance would have been the perfect opportunity to create those clear and substantial incentives. Unfortunately, DOJ and SEC declined to do so.
This is an issue which they still need to address.