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Home Compliance

Anti-Corruption and the Hallmarks of an Effective Compliance Program: Part 10

by Scott Moritz
February 14, 2014
in Compliance
man looking in binoculars

This is the 10th in a series of articles intended to assist organizations in assessing their anti-corruption programs through the lens of the 10 hallmarks of an effective compliance program as set forth in “A Resource Guide to the U.S. Foreign Corrupt Practices Act” (“the Guide”), jointly published by the U.S. Department of Justice and the Securities and Exchange Commission in November of 2012.  This article centers on hallmark number 10:

Mergers and Acquisitions: Pre-Acquisition Due Diligence and Post-Acquisition Integration

There is a well-known maxim in the realm of criminal investigation, as well as psychology:

“The best predictor of future behavior is past behavior.” That is an important lesson in understanding the value – and limitations – of due diligence.

Due diligence is one of those terms that means different things to different people. It used to be that mergers and acquisitions due diligence was an analysis of the finances and legal implications of the acquisition. It has expanded into something much broader and now often includes background investigations of the acquisition target, its key executives/control persons, and critical business intermediaries, including sales agents and distributors, determining the extent to which they are an important part of the business model.

This last part is particularly important if you have an existing third-party anti-corruption process. Neglecting to hold critical third parties of an acquisition target to the same or a similar standard of care as your existing third parties could serve to undermine the efficacy of that program should the deal go forward and those third parties become integrated into the company without first having been vetted properly.

Another important and sometimes overlooked aspect of acquisition due diligence is the performance of an anti-corruption risk assessment. In a perfect world, all acquisition targets have robust anti-corruption programs. In actuality, many small to midsize companies operating overseas do not have any type of anti-corruption program. That is why the performance of a high-level anti-corruption risk assessment is so important. Gaining an understanding of the company’s ownership group, executive team, customer base, distribution channel, sales and marketing, products and services, activities and overall nexus to foreign officials will better position you as a potential acquirer in evaluating the true purchase price, inclusive of any compliance remediation work that may be necessary to properly integrate the entity post-acquisition. Not only will doing an anti-corruption risk assessment on the front end lower your risk of a future bribery violation, it could provide you with additional leverage in negotiating a more favorable purchase price.

The FCPA Guide recognizes that even the most robust acquisition due diligence is based upon limited information and allows for a grace period (although no time period is defined) to integrate the acquired company into the acquirer’s ethics and compliance program and overall control environment. Indeed, the post-integration actions a company has taken factor heavily into whether it will be held liable for the actions of the acquired company. According to the Guide:

DOJ and SEC evaluate whether the acquiring company promptly incorporated the acquired company into all of its internal controls, including its compliance program.

The clear implication of this statement is that simply performing robust due diligence on the front end of an acquisition is not enough. There needs to be an urgency with which the newly acquired entity is brought into alignment with all of the hallmarks and associated controls of your anti-corruption program. Failing to do so can lead to the same types of fines, penalties and market capitalization impact that could result if improper acts of the acquired company were committed by the company itself.

This article is part 10, the final piece in a 10-part series exploring Anti-Corruption and the 10 Hallmarks of an Effective Compliance Program.  Each piece in the series is based on a section from a whitepaper published by Protiviti, titled “Viewing Your Anti-Corruption Efforts Through the Lens of the Hallmarks of an Effective Compliance Program,” which is available in full at:http://www.protiviti.com/en-US/Documents/White-Papers/Internal-Audit/Viewing-Anti-Corruption-Efforts-Lens-Hallmarks-Effective-Compliance-Program-Protiviti.pdf.


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Scott Moritz

Scott Moritz

Scott Moritz is a managing director at global consulting firm Protiviti Inc., where he leads the firm’s fraud, anti-corruption, and investigations practice, serving clients worldwide in a variety of industries.
A noted anticorruption strategist with more than 26 years’ experience, Moritz has been a top consultant in designing programs to help companies use risk scoring and technology to identify, investigate, and remediate high-risk relationships. He was instrumental in the development and launch of widely recognized anti-corruption platforms and due diligence products. Prior to joining Protiviti, Moritz served as a managing director for global investigations and compliance at Navigant. Before that, he spent four years as the head of the anti-corruption and investigative due diligence practice at Daylight Forensic & Advisory, which was acquired by Navigant in 2010.  Previously, Moritz also held leadership positions KPMG, LLP, in two separate instances, most recently as a director of corporate intelligence for the firm’s forensics practice.  His experience also includes senior roles at IPSA International, Inc., BDO Seidman, LLP, and PricewaterhouseCoopers, LLP. Moritz spent 10 years serving as a special agent for the Federal Bureau of Investigation (FBI), where he gained extensive experience in complex investigations of multi-national criminal investigations that included organized crime, money laundering, fraud, corruption that often involved a variety of industries such as financial services, securities, insurance, and public and private services. He was a nationally recognized expert for the FBI on asset forfeiture investigations and money laundering. Moritz graduated from the FBI Academy in Quantico, Va.  He also holds a bachelor’s degree in marketing and management from Jacksonville University.

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