FCPAméricas Blog
M&A Transactions in Latin America: Practical tips for multinationals conducting anti-corruption due diligence (Part 1 – Local Resistance)
10.02.2013
With fast-growing economies, Latin American has seen an increasing number of M&A transactions. According to information published by the local press, in Brazil alone, 590 transactions were completed between January and September 2012, a record since 2002.
While M&A transactions are important tools for companies to expand their businesses, several FCPA enforcement actions in the recent past – as well as the FCPA Guidance – highlight the importance of conducting anti-corruption diligence in such transactions.
The M&A due diligence particularities in the region are so numerous and important that they deserve more than one blog post. Part 1 (below) highlights the resistance faced by companies conducting their anti-corruption due diligence in Latin America and ways to minimize it. Parts 2 and 3 discuss, respectively, main areas of concern and where to look to obtain pertinent information.
Local Resistance to M&A Due Diligence
One of the things that makes M&A anti-corruption due diligence in Latin America peculiar is that it is usually not conducted by locals. Foreign companies that are subjected to the FCPA and/or the UK Bribery Act are primarily the ones that do the work. Because of this, it often faces much resistance.
Specifically, local targets often take the anti-corruption due diligence personally and can feel offended by it. This sensitivity can be even more acute in cases of family-owned companies, and there are several such conglomerates in Latin America. As a result, a company that does not properly address this dynamic from the beginning can see the entire transaction collapse when certain anti-corruption questions are asked later on.
The DOJ and SEC generally will not accept resistance from the target as a reason for a free pass for companies not to conduct pre-acquisition due diligence. But there are practical steps companies can take to minimize the risks that diligence will undermine the transaction. Here are four:
1. First and foremost, the companies subjected to the FCPA and/or UK Bribery Act, from the outset, should explain to the target company that they, as the potential acquirer, are subjected to laws that apply internationally to their business and that require them to conduct this specific kind of assessment. It is often an ice-breaking measure to show that this is a standard practice of the buyer and not a measure specifically applied to the target.
2. Second, to the extent possible, the anti-corruption questionnaires should be sent together, and even under different sections, with the ones related to other areas of law (e.g. labor, tax, environmental, etc). This helps demonstrate that anti-corruption vetting is part of an ordinary due diligence and not something specific related to the target.
3. Third, companies should be mindful when naming the due diligence documentation. For example, though the content of the questionnaires can be the same, the titles of sections might need to be adjusted. For example, it is preferable to name a section “compliance” and not “anti-corruption”. The word “corruption” carries a strong and negative connation in the region and the word alone could create immediate resistance.
4. Fourth, when companies conduct interviews as part of their due diligence (which is highly advisable), they should be careful with how they ask the questions, taking into account cultural differences.
The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.
© 2013 FCPAméricas, LLC
Post authored by Carlos Henrique da Silva Ayres, FCPAméricas Contributor
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