In today’s climate, where corruption is rarely out of the headlines, businesses are under mounting pressure from a media and society that demands integrity, transparency and accountability.
The risks of falling foul of anti-corruption laws are greater than ever, and this applies particularly to mergers and acquisitions.
The far-reaching Bribery Act 2010, which came into force in July 2011, applies to both the private and public sectors and introduces new criminal offences. As well as giving, offering, receiving and accepting bribes, bribing a foreign public official is also a distinct offence.
The most significant of the new criminal offences, however, is the strict liability offence for commercial organisations that fail to prevent bribery by those acting on their behalf.
Importantly, the Bribery Act extends its reach beyond the UK. Offences that take place outside the UK may be subject to the legislation where there is a close connection to the UK. For example, a UK resident who is working overseas would be subject to the UK’s anti-bribery laws, as would a UK-based business that is undertaking a contract abroad.
While the full force of the Bribery Act and its impact on M&A transactions is yet to be felt, it has already driven many organisations to consider how they deal with the issue of bribery and corruption. Given the serious consequences for commercial organisations, those who choose to do nothing do so at their peril.
The act is further evidence of increasing international enforcement attempts and seeks to emulate the regime under the US’s Foreign Corrupt Practices Act, which has led to significant corporate prosecutions.
In the context of acquisitions, prospective buyers must take the Bribery Act and any other relevant anti-corruption laws into account, and those seeking to be acquired must be prepared to meet the required standards or face the certainty of their sale falling through.
The financial, legal and reputational risks can be even greater for those who choose to venture into emerging markets where corruption can be more prevalent.
Effective anti-bribery due diligence is key. The extent of the due diligence depends on various factors – sector, country of operations, time available and relative bargaining power.
However, when faced with the risk of inheriting criminal liability under anti-bribery legislation, any potential purchaser will be careful to scrutinise the business practices of the seller.
While it may be the case that increased due diligence will lengthen the M&A process and possibly increase costs, these are likely to be worthwhile in light of the penalties that may be imposed for any conviction.
Jamie Stark is a partner in the corporate division at Paull & Williamsons