The United States (US) enacted the Foreign Corrupt Practices Act of 1977 (FCPA) in response to concerns regarding pervasive bribery by US companies in foreign jurisdictions. In broad terms the FCPA has made it illegal for certain companies to influence foreign officials to engage in corrupt activities. The FCPA applies to US companies, foreign companies that trade securities in the US, US citizens and US residents who engage in foreign corrupt practices, as defined in the FCPA, regardless of whether they are physically present in the US.

Application of the FCPA

When implementing a cross-border corporate merger or acquisition, the acquiring company may be held liable for infractions under the FCPA committed by the target company. This could be in the scenario where the acquiring company failed to identify, terminate and remediate the target company’s past unlawful conduct. Therefore, neglecting to perform a thorough pre-acquisition anti-corruption due diligence exposes companies that are subject to the FCPA to potential successor liability. This can result in severe sanctions under the FCPA. There are also associated risks such as potential reputational damage and a reduction in the target company’s profits if the bribery and alleged corrupt practices, as defined under the FCPA, is halted.

The two bodies charged with enforcing the FCPA, the US Department of Justice (DOJ) and the Enforcement Division of the US Securities and Exchange Commission (SEC), published A Resource Guide to the U.S. Foreign Corrupt Practices Act (Resource Guide). In this Resource Guide it identifies that the payment to a government official must be made “corruptly” in order for the FCPA to apply, meaning there must be an intention to wrongfully influence the official to misuse his official position. In order for an individual to be criminally liable under the FCPA they must also act “wilfully” which, broadly speaking, has been interpreted by the courts to mean that the act is committed voluntarily and with purpose, and knowing such conduct is unlawful.

The Resource Guide elaborates on what constitutes a bribe for purposes of the FCPA in that it is inclusive of offers, payments, promises to pay, or the authorisation of the payment of any money, or offer, gift, promise to give, or authorisation of the giving of anything of value for a corrupt purpose to a foreign official. Payments made or things of value given through third parties or intermediaries while knowing that all or a portion of such payment or thing of value will be utilised for the purposes of a bribe is expressly prohibited in terms of the FCPA.

Defences under the FCPA

There are two defences under the FCPA’s anti-bribery provisions and in both instances the defendant bears the burden of proof that:

  • the payment was lawful in terms of the written laws of the foreign country; and
  • the money was spent as part of demonstrating a product or performing a contractual obligation.
  • In terms of the second defence, the Resource Guide provides that companies are allowed to provide reasonable and bona fide travel and lodging expenses to foreign officials.

Relevance to South Africa

The Resource Guide states as follows: “[the] DOJ and SEC encourage companies to conduct pre-acquisition due diligence and improve compliance programs and internal controls after acquisition….” A pre-acquisition anti-corruption due diligence assists the acquiring company to more accurately assess the target company’s value. Such a due diligence combined with a successful post-acquisition implementation of an anti-bribery compliance program will also reduce the risk that the target company will continue to engage in bribery.

The consequences of pre-acquisition violations of the FCPA which are uncovered through a due diligence can be acted on in a pre-emptive and orderly manner by negotiating the cost and responsibilities for the consequential investigation. The Resource Guide provides that “a successor company’s voluntary disclosure, appropriate due diligence, and implementation of an effective compliance program may also decrease the likelihood of an enforcement action regarding an acquired company’s post-acquisition conduct when pre-acquisition due diligence is not possible.”

A paper on the FCPA called A Primer on FCPA Due Diligence in Cross-Border M&A Transactions: Avoiding Legal and Business Risks by Maria Luisa Cánovas and Nicholas E. Rodriguez makes reference to the Resource Guide and states that it outlines tangible steps that a company subject to the FCPA should take upon considering a merger or acquisition. These are:

  1. conduct a thorough risk-based FCPA and anti-corruption due diligence on potential new business acquisitions;
  2. ensure that the acquiring company’s code of conduct and compliance policies and procedures regarding the FCPA and other anti-corruption laws apply as quickly as is practicable to newly acquired businesses or merged entities;
  3. train the directors, officers, and employees of newly acquired businesses or merged entities, and when appropriate, train agents and business partners on the FCPA and other relevant anti-corruption laws and the company’s code of conduct and compliance policies and procedures;
  4. conduct an FCPA-specific audit of all newly acquired or merged businesses as quickly as practicable; and
  5. disclose any corrupt payments discovered as part of its due diligence of newly acquired entities or merged entities.

From the perspective of a South African entity that may want to enter into a merger or acquisition with another entity that is subject to the FCPA it is advisable to consistently maintain detailed records of account when conducting business and to have a reasonable and FCPA adherent compliance program.

An article titled Importance of FCPA Due Diligence in Cross-Border M&A by Dentons’ Partners, Michelle J Shapiro and Peter G Feldman, and Senior Counsel, Randy Bregman sets out a non-exhaustive list of risk factors that a potential buyer should look at before marketing the company, in particular to US buyers. These are its geography; industry; government business and government interaction; business development and sales strategy; third-party intermediaries; mergers, acquisitions and joint ventures; compliance program and history.


Cross-border mergers and acquisitions have become increasingly common with the advent of globalisation. Given the far-reaching application of the FCPA it has made pre-acquisition anti-corruption due diligence a necessity. Our prediction is that the FCPA is going to continue to be vigorously enforced and it is therefore crucial for potential acquirers to understand the provisions of the FCPA and how to mitigate the sanctions imposed under the FCPA.