In a prior post, we discussed the importance of pre-acquisition due diligence and post-acquisition integration as an integral part of an effective compliance program. Our point of reference was the November 2012 joint U.S. Department of Justice and Securities and Exchange Commission Resource Guide to the U.S. Foreign Corrupt Practices Act.
Over the years, when performing anti-corruption due diligence on deals, we have uncovered and raised a number of issues that have become deal breakers for would-be investors and buyers.
Other risks have not stopped deals, but they have raised the buyers’ awareness of the potential red flags requiring their attention immediately post close. Throughout these deals, we have seen certain themes emerge, including the following 10 ten red flags to be mindful of when making an investment or acquisition abroad:
1. History of corruption in country or industry
2. Inadequate third-party selection or control
3. Ties to government officials
4. Use of shell companies
5. Cash payments
6. Invoicing discrepancies
7. Excessive gifts, travel, entertainment and contributions
8. Payments or promises to pay government officials
9. Extensive use of agents
10. No anti-bribery certification
The mere location of a company’s operations or business dealings, for example, can have an impact on the potential corruption risk there. For example, “BRIC” countries – Brazil, Russia, India, and China – are large emerging markets that historically have an increased level of perceived corruption.