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22 March 2013

Importance of anti-corruption due diligence emphasised

Content team

The importance of undergoing thorough due diligence as part of merger and acquisition processes to root out any possible corruption cannot be understated, it has been observed.

It was noted by Corporate Counsel that being able to prove processes were done well will gain trust from regulators in the US and UK.

Partner at Mayer Brown Alistair Graham stated on a recent conference call that the attitude of the UK's Serious Fraud Office (SFO) towards acquisition where anti-corruption problems surface is that "if your due diligence was thorough, then you will not get into trouble".

Because the Bribery Act imposes strict liability on organisations that do businesses in the UK, failure to prevent bribery on their behalf is treated extremely seriously, no matter what jurisdiction any incidents take place in.

Therefore, partner at Mayer Brown William Kucera outlined several key points that companies must considered when they are undertaking risk assessments of potential targets.

He said businesses need to look at the countries a firm operates in and whether this posed a greater risk of corruption. In addition, businesses involved in mergers should inquire about how much interaction a target has with government officials, whether it employs any third-party agents or brokers and what anti-corruption measures are already in place.

Having all the right information about a company's previous dealings is not only important for meeting regulatory requirements, but it can also inform a firm about the true picture of their merger or acquisition target. For example, if it turns out that in the past, a target has won contracts based on corrupt practices, these will not be any good to the buyer and the value of the deal may be affected accordingly.

"There may very well be a lessening of value if the acquisition goes forward," Mr Kucera said.

He added the key thing is to be prepared and make sure you're fully aware of all legal requirements for every jurisdiction your target operating in, as they may often have their own laws that are not always compatible with US/EU/UK regulations.

Content team, Bureau van Dijk

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