In a previous
post, we discussed the importance of considering
anti-corruption and bribery risks when engaging in international
transactions. In connection with the OECD Convention on
Combatting Bribery of Foreign Public Officials in International
Business Transactions, Canada, the US and the UK, as well as
an increasing number of legislatures around
the world have implemented legislation forbidding the transfer of
benefits for the purpose of influencing foreign officials.
Companies charged under the Canadian Corruption of Foreign
Public Officials Act (CFPOA) are criminally
prosecuted, and can be forced to pay unlimited fines in addition to
suffering irreparable reputational damage.
Asset acquisitions may not shield an acquirer from
Although the purchase of assets, as opposed to the purchase of
shares, typically permits an acquirer to negotiate which
liabilities of target are to be assumed post-acquisition, there is no guarantee under Canadian law that
the acquirer will be successful in evading any corruption liability
incurred by the target prior to the acquisition. Rather, Canadian
courts are likely to conduct a fact-dependent investigation to
determine whether corruption liability should follow the assets or
remain with the target post-acquisition.
Due diligence is essential
Both acquirers and targets benefit from anti-corruption due
diligence. An informed acquirer will not only be in a better
position to assess corruption risks and re-evaluate the appropriate
purchase price, it may also be able to insist on the inclusion in
deal documents of representations, warranties and indemnities that
protect its interests, or negotiate the implementation of specific
measures to resolve any issues identified. Targets who maintain an
effective anti-corruption program, including a comprehensive and
widely-distributed policy, an effective auditing and reporting
structure as well as whistleblower protection mechanisms will also
maximize their chances of negotiating a better deal.
Anti-corruption due diligence should include an assessment of
the corruption risk in the target's country of residence and
industry sector, a comprehensive review of the target's
policies, procedures, financial accounts and business development
programs as well as consideration of the target's reliance on
key relationships with governments (especially with respect to
permits, taxes and customs). An effective due diligence program
should also incorporate interviews with target personnel and major
contractors. Working with independent professionals who understand
the local business environment is key to obtaining any meaningful
assessment. Any "red flags" identified in the course of
due diligence should be subject to additional scrutiny.
Due diligence should also be conducted with respect to any
agents, subsidiaries or joint venture partners of the target
company. An OECD review of 427 foreign bribery cases
prosecuted globally revealed that 75% of cases involved
intermediaries such as agents, distributors and brokers or
subsidiary companies, local consulting firms and offshore financial
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The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.
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