United States: FCPA Diligence In Infrastructure Transactions

Companies that make, authorize, or even promise bribes to foreign officials face the risk of criminal prosecution under U.S. law. The United States Foreign Corrupt Practices Act of 19771 (FCPA) makes it illegal for issuers2, domestic concerns3 and, under certain circumstances, foreign persons, to bribe foreign officials4 in order to obtain or retain business. The FCPA also covers the officers, directors, employees and agents of such companies. Companies that acquire businesses that have engaged in bribery can acquire significant liability.

FCPA compliance presents special challenges for U.S. companies and investors engaged in infrastructure and energy transactions worldwide. Infrastructure and energy projects are particularly susceptible to FCPA violations. Companies can reduce this risk by performing in-depth FCPA diligence when acquiring an at-risk target.

This Stroock Special Bulletin highlights some of the procedures that should be employed when conducting FCPA diligence in infrastructure or energy transactions outside of the U.S.

FCPA Enforcement

Enforcement of the FCPA falls within the jurisdiction of the U.S. Department of Justice ("DOJ") and the Securities and Exchange Commission (the "SEC"). Beginning in 2005, FCPA enforcement increased substantially with a string of high profile (and costly) investigations and settlements having taken place over the past few years. FCPA investigations and convictions can result not only in huge investigation and settlement costs, but can force companies to submit to a regulatory monitor, and defend themselves in suspension and debarment proceedings, both as exporters and as government contractors. In addition, companies can suffer enormous reputational costs and market losses.5

Although U.S. companies and individuals are the most likely targets for FCPA scrutiny by DOJ and the SEC, foreign companies that are issuers, that do business in the U.S., or that otherwise conduct business with U.S. companies, can also face exposure under the law. Both DOJ and the SEC have taken the position that foreign companies or their representatives can subject themselves to U.S. jurisdiction under the FCPA if, for example, they conspire with U.S. companies or individuals to obtain business overseas by paying bribes – even if the foreign national in question never set foot in the United States. Foreign investors also can run afoul of the FCPA if they, or their agents, cause some act in furtherance of a bribe that has a connection to the U.S.6 In addition, private investment funds that seek capital from foreign government entities, such as sovereign wealth funds or government-controlled pension plans, can also be at risk for FCPA liability.

Although any U.S. business (and, as noted, sometimes even a foreign business or investor) which interacts directly or indirectly with foreign governmental entities and their officers and employees can be the subject of an FCPA violation, certain industries are more at risk. Infrastructure and energy projects are particularly susceptible to FCPA violations due to the highly regulated nature of the projects, the high risk of bribery and corruption in many of the countries in which these projects are undertaken, the common utilization of third-party agents or consultants to handle related transactions in-country, and the numerous government concessions and approvals that are often part of such projects. Companies can take steps to reduce their potential exposure to FCPA risk by implementing measures that include creating a culture of compliance starting at the top, implementing robust training, maintaining vigorous compliance programs and internal controls, performing targeted due diligence when acquiring an at-risk target or when entering into business with an at-risk agent, and writing FCPA-compliance requirements into contracts.

Red Flags

When conducting FCPA due diligence for M&A deals we typically employ the following process. In the initial stages, we focus on identifying any potential bribery/corruption risks ("red flags") that are presented by a proposed acquisition or merger. These red flags may occur across a broad spectrum of risk, and could include a combination of country risk (such as China, India or Mexico, where bribery is considered in many business sectors as "a way of doing business"), industry risk (such as infrastructure and natural resources), business partnership risk (such as third party sales representatives) or specific transaction risk. In looking for red flags, our typical areas of focus include, among others:

  • High risk markets and third party relationships;
  • Government contracts or highly regulated businesses;
  • Expenses (e.g., travel, hospitality, entertainment, gifts, donations);
  • Inventory management;
  • Sales and promotional activities;
  • Compensation arrangements;
  • Reports of non-compliance (e.g., hotline or media reports);
  • Pricing, payment and accounting practices; and
  • Control issues or weaknesses previously identified by internal/external audits.

Infrastructure projects are often government-sanctioned or involve highly regulated businesses, often with monopolies due to government-granted concessions or permits. Such concessions or permits can be the subject of potential bribery or unlawful payments due to the subjective award criteria often employed, as well as the ever present risk of a government revocation of the concession grant or permits. As a result, infrastructure projects can present significant FCPA risks in an acquisition/transaction setting.

Diligence Approach

We typically begin our diligence by reviewing all relevant documentation that is posted to the transaction data room (or that is otherwise made available), and submitting due diligence questions, with particular focus on the following items and tasks:

1 The Target's corporate compliance manual, ethics policy or corporate code of conduct, anti-corruption policies and procedures, and any other related documents.

2 The Target's ethics compliance program, including training. Identification of the personnel responsible for the program, including the chief compliance officer and the person to whom s/he reports, and those personnel who staff the other ethics functions.

  • Review copies of training programs, materials, metrics (attendance, testing scores, etc.) and employee certifications.
  • Review copies of any internal anti-corruption compliance audits, reviews or reports.

3 The Target's sales of products or services to foreign government, quasi-government, or state-owned buyers or customers, including the identification of the countries in which such sales occur, and whether the sales involved agents, brokers or other similar third-party representatives.

4 Sales agents, brokers, or other similar third party representatives retained by the Target in foreign countries for the previous five-year period.

  • Review copies of all agreements with such representatives and, where appropriate, conduct interviews of such individuals. Commission arrangements present inherent risk, and high commissions are a red flag.

5 For the previous five-year period (the statute of limitations period for an FCPA violation), inquiries, audits, investigations (whether internal or external), prosecutions of, indictments or charges against, or convictions of the Target (including any officer, director, employee, or representative) by any Governmental authority concerning potential violations of the FCPA, or any other applicable anti-corruption law.

6 The internal accounting controls the Target has in place to ensure that transactions and related expenses are properly executed and recorded, and any compliance audits respecting such internal controls, including policies and procedures for documenting and controlling disbursements for travel and entertainment expenses.

As part of the above inquiries, we usually seek to interview the chief compliance officer and, as necessary, other personnel from relevant departments such as Marketing, Legal, Finance/Accounting, Internal Audit, and HR.

In addition to the document review, we typically perform an internet search for news reports, if any, over the previous five years that would flag potential corruption risk. For example, we typically review any news reports of corruption involving the Target's customers, or that identify the Target's owners, senior managers, or agents as persons of interest in corruption investigations, or of illegal activity involving the Target or its senior managers or agents.

Based on the results of the initial stage of diligence, there may be areas that require additional inquiry in order to mitigate risk. For example, the initial diligence may reveal that a third-party sales representative has incurred substantial travel and entertainment costs in connection with a public contract tender, or that payments have been made in connection with permits, inspections or customs matters. Such circumstances would argue in favor of a more detailed review of those costs to ensure that there are no improprieties.

Depending on the circumstances, we generally work with local counsel in at-risk countries and, if necessary, rely on them to assist with FCPA diligence. In addition, if appropriate, we work with the accounting firm that is conducting financial diligence to assist in evaluating the accounting records. Among their tasks would be to conduct due diligence on internal controls, petty cash and disbursements.

Many countries have their own anti-corruption laws that also need to be complied with, including European nations such as the United Kingdom with its recently enacted Bribery Act, and the "BRIC" countries – Brazil, Russia, India, and China. Other countries, such as Mexico, have recently enacted anti-corruption legislation that also could carry additional risk. It is prudent to have local counsel review key concerns in a similar manner, and we work to ensure that such reviews are properly coordinated. It is important to note that bribery is illegal in virtually all nations, and that improper payments therefore may give rise to local prosecutions. Further, prohibitions against bribery may extend to commercial bribery as well as public corruption, as does, for example, the UK Bribery Act.

The above process enables us to conduct the appropriate level of diligence while controlling costs and levels of effort.


Any issues or concerns arising from our diligence review are reported to the client and the implications and liabilities discussed, including the risk of successor liability. Appropriate representations, indemnities and escrows would also be included within the M&A transaction documents.

Appropriate FCPA diligence is a cost-effective way of mitigating risk. The cost of performing an FCPA internal investigation or defending an FCPA enforcement action after an alleged violation can reach into the tens of millions of dollars, not including civil penalties or criminal fines.7

As noted above, under successor liability principles, an acquirer can be held liable for the FCPA violations committed by a target company – even if those violations took place prior to the acquirer obtaining control over the company. There is no grace period if there are ongoing violations. The expectation among government regulators at DOJ and the SEC is that companies will conduct adequate FCPA diligence as part of their overall acquisition/transaction due diligence.

Given the very real risks, the potentially enormous investigation and settlement costs, the risk of suspension and debarment proceedings, and the potentially devastating reputational costs and market losses, we strongly recommend that a potential acquirer conduct an appropriate level of FCPA diligence prior to acquiring a target. This is particularly important in the case of certain infrastructure projects, which present a high risk for improper payments and FCPA violations.

Originally published by Law360

Richard Madris, based in New York, is a partner and chairman of the infrastructure practice at Stroock, which represents clients engaged in infrastructure projects, public-private partnerships and development transactions in a range of sectors, including transportation, water, PPPs and economic development, stadiums and social infrastructure, utilities and transmission, power generation, renewable energy, industrial facilities, infrastructure funds, joint ventures and consortiums. Christopher Brewster and Gregory Jaeger are special counsel in Stroock's national security/CFIUS/compliance practice, which handles FCPA investigations, compliance and diligence reviews. They are both based in Washington, D.C.


1 Pub. L. No. 95-213 (codified as amended in 15 U.S.C. §78dd et seq.)

2 The term "issuers" means those issuing registered securities on U.S. stock exchanges or that are required to file reports under the U.S. Securities Exchange Act of 1934.

3 The term "domestic concern" means any (a) individual who is a citizen, national, or resident of the United States; and (b) any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.

4 The definition of "foreign official" is broad and includes any person employed by a foreign government – not just senior officials. Further, the term reaches employees of many state owned or controlled businesses.

5 The FCPA not only prohibits bribery of foreign officials, but requires issuers to prepare and maintain books and records that "accurately and fairly reflect the transactions and dispositions of the assets of the issuer," and to develop and maintain an adequate system of accounting controls.

6 It should be noted that non-US persons who engage in corruption can also be subject to prosecution under U.S. laws other than the FCPA, such as conspiracy, money laundering and mail/wire fraud.

7 Recent enforcement actions have also included the criminal prosecution of senior managers who endorsed illegal activity.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions