Anti-bribery due diligence: Buyers and investors beware

Anti-bribery due diligence: Buyers and investors beware


Author: Nigel Thorne

The UK Bribery Act 2010 is now in force in the UK, and alongside existing exposure under the US Foreign Corrupt Practices Act 1977 reinforces the investment case for carrying out effective anti-bribery due diligence.

Transparency International UK is a leading anti-corruption organisation which has been campaigning for the modernisation of anti-bribery legislation. Its recent draft guidelines for investors highlight the importance of avoiding legal liabilities and financial and reputational damage by undertaking comprehensive anti-bribery due diligence at a sufficiently early stage in all but the smallest M&A and investment deals.

The guidance forms part of a series of documents published by Transparency International to promote good practice. The guidance highlights that anti-bribery due diligence is often not undertaken, neglected or allocated insufficient time and resources. The guidance also refers to new expectations by stakeholders - including governments, regulators, the media and civil society - that significantly increases the risk and accountability for private equity investors and those engaged in M&A.

Good practice principles include:

  • Anti-bribery due diligence is conducted for all but the smallest investments
  • It should be conducted in sufficient depth and with sufficient resource to ensure that it is undertaken effectively
  • It should be undertaken sufficiently early in the due diligence process
  • The findings should be properly examined and understood at the highest level of decision-making
  • Bribery detected through the process should be reported to the relevant authorities
  • After the transaction has been completed the information gained should be passed efficiently and effectively to the target company's management.

Questions for the due diligence process:

  • Has there been any bribery in the past? 
  • Is it likely or possible that bribery is currently taking place?
  • Is such bribery widespread?
  • Does the target have an adequate anti-bribery programme in place?
  • What would be the impact if bribery was discovered after the transaction is completed?

The guidance includes a helpful detailed checklist of indicators as an aid to due diligence. However, it is not only the target that needs to be considered. It is also important to make sure that bribery does not take place during the actual investment or acquisition process, for example by way of bribe or facilitation payment to obtain information or speed up the transaction, either directly or via a third party. The guidance highlights that anti-bribery due diligence is most effective when the purchaser itself has in place an anti-bribery programme.

The draft guidance is open for consultation until 15 September 2011 and the final version is expected to be published in October 2011. It offers a helpful and comprehensive reminder of the anti-bribery issues in due diligence.