Risk & Compliance

Bribery Charges Stop More Deals

Acquisitive companies are increasingly checking targets for violations of the Foreign Corrupt Practices Act.
Stephen TaubDecember 6, 2004

A growing number of companies are consulting with the Justice Department about possible bribery lapses before moving forward with cross-border acquisitions according to the Wall Street Journal.

Besides reducing their financial risk, prospective acquirers are looking into whether target companies have violated the Foreign Corrupt Practices Act (FCPA), which bars bribes to foreign officials. The exercise has actually slowed down deals and even killed some altogether, the paper reports.

“Big companies that are acquiring smaller companies are no longer willing to take on a litigation black hole,” Alexandra Wrage, president of TRACE International, a Washington nonprofit that advises companies on FCPA compliance, told the paper.

The Journal noted that Lockheed Martin Corp. dropped its plan to buy Titan Corp. earlier this year after the would-be partner became the target of government investigations. Further, General Electric Co.’s proposed takeover of InVision Technologies Inc. is being delayed for similar reasons.

Meanwhile, JP Morgan Partners Global Fund, Candover Investments PLC and 3i Group PLC completed their acquisition of two ABB Ltd. oil-services subsidiaries in July, but only after $16 million in penalties were leveled against ABB for FCPA violations. And JP Morgan obtained a written promise from the Justice Department that the units faced no more foreseeable prosecutions for foreign bribes, according to the newspaper.

For its part, JP Morgan Partners agreed to expand its own internal-control program to include regular external audits of anti-corruption compliance.