The Importance of FCPA Due Diligence in International Mergers, Acquisitions Joint Ventures .


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2. FCPA Enforcement in the M
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The Importance of FCPA Due Diligence in International Mergers, Acquisitions & Joint Ventures Presentation to: Ninth Annual Pharmaceutical Regulatory and Compliance Congress Washington, DC October 27-29, 2008 Joseph B. Tompkins, Jr. Sidley Austin LLP Washington, DC Leslie A. Shubert Sidley Austin LLP Washington, DC

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FCPA Enforcement in the M&A Context Expectation by SEC/DOJ that organizations perform due determination in M&A setting with willful exposure of issues Specifically in pharma setting, the substantial number of mergers and acquisitions by "significant players" of little new companies convey FCPA issues to the consideration of the administration Recent situations where FCPA infringement have been found over the span of pre-obtaining due tirelessness Collapse of Lockheed Martin\'s proposed $1.6 billion procurement of Titan Deferred arraignment assention went into by Invision Technologies, Inc. before securing by GE SEC/DOJ settlements by Syncor, Inc. before obtaining via Cardinal Health ABB, Ltd. also, ABB Vetco settlement including $10.5 million criminal fine and $5.9 million ejection.

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Potential FCPA Exposure in M&A Context Acquisition including government claimed or controlled element or where government official has possession intrigue Need for government approval of private substance obtaining Inherit obligation for past FCPA infringement when procure private element FCPA due steadiness contemplations when entering joint wander association

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Successor Liability Successor risk for the most part appends in stock exchange or merger Transfer of value ordinarily exchanges both the benefits and the liabilities of the objective element subsequent to shutting Successor risk may connect in an advantage buy Involves a nuanced investigation into the certainties and conditions in regards to the particular securing One of a few wide exemptions to general manage of no successor obligation with regards to a benefit buy is the point at which the buying element is simply a continuation of the offering organization Purchase assentions may indicate which liabilities exchange with resources

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Successor Liability Two critical calculates deciding successor risk: The degree of the due perseverance directed to distinguish and address potential issues; and The degree and adequacy of shields received upon obtaining to forestall repayment by the acquirer of despicable activities and to avert them later on

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The Buyer\'s Perspective The Buyer needs to abstain from: Paying punishments and different fines Other extra costs, including expenses of contracting and keeping up a consistence screen Debarment Other common activities, including shareholder activities and RICO infringement Negative reputation Canceled exchange See e.g. , Titan Corp., amid pre-procurement due steadiness Lockheed found critical FCPA infringement that not just brought about the cancelation of the proposed exchange, additionally hardened punishments forced upon Titan

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Buyer\'s Goals Avoid securing risk for past or progressing FCPA infringement (Successor Liability) Ensure that dealer takes care of expenses of infringement Maintain greatest estimation of obtained substance Key staff Key contracts and markets Key connections

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Seller\'s Perspectives Increased implementation likewise impact a Seller\'s activities Goal of Seller: Ensure that exposures viewing material authoritative arrangements, for example, portrayals are not deluding Result: Internal evaluations, additionally alluded to as "wellbeing checks" Health checks survey merchant\'s FCPA consistence program and other interior controls Also permit venders to expect whether the business cost can be tested because of obscure FCPA issues

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What Protective Steps Are Necessary? Due industriousness on focus before consenting to the buy arrangement FCPA-related arrangements incorporated into the buy assention Further due tirelessness, and start consistence preparing between the consenting to of procurement arrangement and shutting Extensive consistence preparing and consistence program push-down instantly subsequent to shutting

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Factors to Consider in Designing Pre-Merger FCPA Due Diligence Steps Little accessible expert on required due perseverance steps – "a workmanship, not a science" Educate determination group on FCPA issues Factor in essential time for FCPA audit – handle likely will require periods of survey as audit group gets data and experiences warnings Follow-up on recognized warnings and hazard regions Document due constancy steps

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Pre-securing FCPA due persistence agenda Assess defilement levels of the nation in which the objective element works together Transparency International Index Do not overlook little or remote operations Investigate personality of the objective substance Internet/other individual verification on target Search for government affiliations, political gathering affiliations and whatever other associations with government authorities or government subsidiary organizations Dun & Bradstreet reports, Commerce, State, Treasury confined gatherings records and US Embassy check

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Pre-obtaining FCPA due ingenuity agenda Review of the objective element\'s current FCPA consistence program and controls Clear strategies and methodology Senior administration oversight Third gathering specialist due steadiness and affirmations Regular preparing Hotline announcing components Test sufficiency of the objective element\'s books and records/inward controls. Monetary controls Red banner exchanges

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Pre-obtaining FCPA due tirelessness agenda Evaluate target\'s hazard profile Frequent collaborations with government authorities either as clients or controllers Reliance on outsider specialists and experts Demonstrated business require and relating pay Due ingenuity records Anti-gift confirmations Compliance with nearby laws and directions Identify any earlier examples of FCPA issues or infringement Government examinations, settlements, supplication assentions Internal examinations Internal review reports Annual report/SEC documenting revelations Hotline reports

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Protection through the Purchase Agreement Representations and Warranties Participation in exchanges allowed by neighborhood law No bit of the returns paid by the organization will be utilized to store installments regarding securing government endorsements, despicable favorable circumstances, and so on. No degenerate installments were made to remote authorities regarding going into or securing essential endorsements Absence of government authorities as proprietors or in other significant positions Books and records are precise and finish

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Protection through the Purchase Agreement Termination Right to fire relationship if any portrayals are physically untrue or if different pledges broke Indemnification Right of repayments for any harms brought about by material break

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DOJ Opinion Procedure Releases DOJ Opinion Procedure Release 03-01 : Purchaser learned over the span of pre-obtaining due persistence that objective had made conceivably ill-advised installments to outside authorities Purchaser guaranteed to: (1) keep on cooperating with the DOJ, SEC and remote law requirement offices; (2) guarantee that the mindful representatives or officers are restrained; (3) unveil any extra found pre-procurement installments made by the organization to the DOJ after the arrangement closes; (4) actualize its current consistence program all through the gained organization; and (5) guarantee that the procured organization executes an adequate arrangement of inner controls and keeps up exact books and records. In view of the prior, DOJ permitted the exchange to continue and remained any authorization activity against the Purchaser

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DOJ Opinion Procedure Releases DOJ Opinion Procedure Release 08-02 : DOJ supported a down to earth way to deal with a circumstance where lawful and functional hindrances kept Halliburton from performing careful, pre-securing due constancy. DOJ fortified desire that a gaining organization join careful pre-securing due tirelessness with fast post-obtaining push-down of its consistence program into the procured organization. DOJ reemphasized its view that intentional divulgence and incite therapeutic endeavors are basic when FCPA issues are revealed.

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Other Business Combinations Asset Purchase Generally, does not pass on potential lawful liabilities However, frame does not trump substance Joint Venture Company Potentially still at risk for activities of the JVC, including the JV accomplice Must act "in compliance with common decency" to guarantee that the JVC fulfills the FCPA\'s bookkeeping arrangements Purchase of Minority Share Degree of hazard relies on upon level of possession, voting power and other corporate administration

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