For companies shifting to growth mode after months of cost-cutting, expanding into emerging markets could be key, particularly through a merger or acquisition. Indeed, a third of M&A activity in 2010 was conducted in emerging markets, according to Thomson Reuters, marking a 76% increase over 2009 figures.

But a killjoy lies in wait for many would-be acquirers: the U.S. Foreign Corrupt Practices Act (FCPA). Nearly 80% of North American corporate buyers have ended or renegotiated business deals in the past three years because of anticorruption issues or potential violations of the FCPA, according to a recent Deloitte survey.

Over the past few years, regulators have stepped up enforcement of the 33-year-old antibribery law. Lanny Breuer, assistant attorney general for the U.S. Department of Justice, said in a speech last November that “we are in a new era of FCPA enforcement.” Breuer’s declaration followed the 12-month period with the most criminal penalties ever imposed in FCPA-related cases, totaling more than $1 billion (see table below).

The aggressive enforcement is coming not just from the DoJ. The Securities and Exchange Commission set up a separate FCPA enforcement unit a year ago. Other countries are also paying closer attention to questionable relationships among companies, third parties, and government officials willing to trade bribes for business. For example, last year the United Kingdom passed an antibribery law that is expected to cover a wider range of activities than the FCPA does. (The U.K. Justice Ministry has recently delayed the law’s implementation.)

Acquire a company and you assume its FCPA risks as well. Possible repercussions include the time and expense of a government investigation, a hefty fine, and personal liability from shareholder lawsuits. “If you buy an FCPA problem, you’re not going to be able to get away with escaping punishment by saying we didn’t own the company [when the violations occurred],” says Stuart Altman, a partner at law firm Hogan Lovells.

Indeed, witness General Electric’s $23.4 million settlement last year of SEC charges that GE and two subsidiaries violated the FCPA by participating in a kickback scheme with the Iraqi government. The alleged violations occurred before GE acquired the two subsidiaries, Ionics and Amersham. Nevertheless, “corporate acquisitions do not provide GE immunity from FCPA enforcement of the other two subsidiaries involved,” said Cheryl Scarboro, chief of the SEC’s FCPA unit, at the time.

For acquisitive companies, the increased scrutiny means premerger due diligence has become even more important for deals involving overseas companies. This entails digging through the target company’s internal controls, recordkeeping practices, and ties to third parties, often onsite.

Executives in the Deloitte study who ended or changed the terms of a deal were wary of the potential business partner’s lack of transparency, payment structures in contracts, or relationships between its executives and government officials or third parties. Wendy Schmidt, a principal at Deloitte Financial Advisory Services, says she has frequently seen deals fall apart during the initial phase of a due-diligence process, based solely on background checks of a target company’s principals.

To be sure, identifying potential problems doesn’t automatically mean a deal should be scuttled. Instead, the acquirer may have more leverage for changing the transaction price, and it may want to pursue a preemptive strike on its FCPA risk by revealing findings to the government. “Oftentimes the DoJ will look positively upon a company that is acquiring a problem company and is bringing up compliance [issues],” says Altman. Moreover, regulators want to see evidence that the acquirer conducted proper due diligence before moving forward with the transaction, he adds.

For executives debating whether to OK a risky deal or scrap it, the decision could come down to the extent of a problem. Does a potential issue involve one rogue employee, or does risky behavior permeate the company? “If you’re buying a company where the culture is such that they can’t operate without paying bribes or engaging in illegal activity,” says Altman, “then you will have a difficult road ahead.”