For the first time since the Bribery Act 2010 came into force on 1 July 2011, anti-bribery due diligence has become a necessity for companies undertaking mergers, acquisitions and investments. The Bribery Act sets out a corporate offence whereby companies are strictly liable for actions of bribery of their employees and associated third parties. Companies and investors may find themselves facing severe financial fines or criminal proceedings as a result of instances of bribery that occurred before a company is acquired.
While some organisations are very thorough with their anti-bribery due diligence prior to making an investment, research has shown that others are not. With pressured time restrictions on concluding transactions, the need for effective anti-bribery due diligence can easily be overlooked or rushed.
Transparency International (the world’s leading non-governmental, anti-corruption organisation) has now published guidance for anti-bribery due diligence in mergers, acquisitions and investments. It sets out due diligence steps that should be taken and also highlights reasons why companies and investors need to be more diligent in this area. It is very significant that almost 50% of US corruption-related prosecutions in 2007 were connected to M&A transactions and this is a growing trend. The guidance suggests that purchasers' manage their investment risk in transactions “in the context of three overarching considerations:”
- Anti-bribery due diligence should be applied to all investments on a risk-based approach. The level of due diligence should be proportionate to the investment itself and the likelihood of risk of bribery.
- In cases where the necessary information for due diligence is not immediately accessible (ie. the acquisition of public companies, hostile takeovers, auctions or minority investments) there is still a need for anti-bribery due diligence, but this may need to be carried out post-completion.
- A good practice approach characterises ethical and responsible businesses, but is also the most effective means for companies to manage bribery risks across multiple jurisdictions and in a changing legal and enforcement environment.
The guidance also highlights that factors such as changing deals, legislation, and expectations by shareholders, can create an increasingly high risk area for companies. Care should also be taken to ensure that bribery does not occur during the investment or acquisition process itself. With strict deadlines, use of third parties and the desire to obtain information, these transactions are particularly vulnerable to bribery.
A checklist of risk models is provided in the guidance. Legal risks are outlined, including the risk of criminal offences both for corporations and individuals under the Bribery Act and the US Foreign and Corrupt Practices Act, as well as sections on considerations for obligations for minority investors and reporting obligations.
As well as an aid to those involved in certain transactions, this guidance is welcomed by providing a standard by which companies and investors involved in such transactions can be judged.
The TI guidance can be accessed free of charge here.