TETIANA KHERUVIMOVA: ANTI-CORRUPTION DUE DILIGENCE IN CROSS-BORDER M&A
(Senior Associate, KPMG in Ukraine)
Here are some upsides and downsides from all over the world. According to the Survey, a little more than half of the respondents said their companies include anti-bribery and corruption considerations as part of pre-acquisition due diligence. At the same time, among Asia Pacific respondents, only 34 percent include anti-bribery and corruption considerations in their pre-acquisition due diligence process. In addition, 65 percent of Asia Pacific respondents are unaware of “successor liability” issues arising from the Foreign Corrupt Practices Act.
Currently, many foreign investors, seeing positive changes in investment environment, are looking for opportunities to enter the Ukrainian market. Before establishing or acquiring business, they are inclined to consider anti-bribery and corruption risks at first. Such trend may be interpreted as a response to changes in anti-bribery and corruption compliance in Ukraine.
From communication with our clients, we may say that business demonstrates a greater understanding of the anti-bribery and corruption risks faced. At the same time, such awareness does not mean the risks became easier to deal with, as anti-bribery and corruption considerations are rarely if ever included into pre-acquisition procedure in Ukraine.
The broad point is that investors loose an opportunity to see anti-bribery and corruption due diligence as a good driver of value. Such due diligence provides for both legal, commercial, regulatory, ethical and reputational risks. Understanding of these risks means that adjustments can be made to the purchase price. Given to that, investors do not consider the anti-bribery and corruption due diligence as an instrument to the better understanding of the target. It provides not only for the better understanding of the target and the more valuable business insight, but also for improving the performance of a company, once it is acquired. Specifically, once a company is acquired differences in corporate culture, processes and systems can make hard to integrate the target company into a global group compliance structure.
Although the legal guidelines encourage buyers to “conduct thorough risk-based FCPA/ anti-corruption due diligence procedures on potential new business acquisitions” to avoid successor liabilities and to avoid future bribe payments occurring, investors do not perceive the anti-bribery and corruption due diligence as what helps investors to avoid successor liabilities and prevent future infringements.
The added value of anti-bribery and corruption due diligence should not be underestimated especially in case where the buyer is a competitor of the target or which involve issues of extreme sensitivity (i.e., marketing and financial information, data involving supplier/customer information). Possible remedy include the use of an independent party to perform the anti-bribery and corruption due diligence procedures.
For those of us in the consulting and legal professions, it is obvious that there comes a time when anti-bribery and corruption due diligence stop to be a costly form of compliance. Considering the benefits it brings and risks mitigates, there is hope to believe that it will become a standard part of due diligence scope for companies, preparing to acquire or merge with other corporations in distant jurisdictions.
Source: European Business Association
