Beware: Anti-Bribery Audits Are Now Key In M&A Transactions

Author:Mr Arthur Dethomas and Christelle Coslin
Profession:Hogan Lovells

As compliance requirements continue to evolve in France, the guide offers focused, much-needed advice on three areas: audits as part of M&A, how and when to audit, and the outcomes.

Most companies know the consequences bribery or corruption allegations may have on them, both the legal risks and the reputational damage. Following the Sapin 2 law, more and more businesses have implemented compliance programs. These include measures to prevent risks within their organizations, as well as in their supply chain and distribution channel relationships.

Under Sapin 2, French-based groups that employ (directly or through affiliates) at least 500 people and turnover more than €100 million must have a compliance program. This applies to the French holding companies and their subsidiaries, regardless of whether the subsidiaries have their registered office in France or abroad. Even companies that don't meet these criteria are urged to implement a compliance program. This should be tailored to their size, their activities and the geographical areas they operate in.

Over the past months, the focus in France has been increasingly put on corruption risks in mergers and acquisitions (M&A). On 17 January 2020, the French Anti-Corruption Agency (Agence Française Anticorruption - AFA) issued a practical guide on anti-corruption audits in the context of mergers and acquisitions (Guide pratique: Les vérifications anticorruption dans le cadre des fusions-acquisitions).

Why carry out anti-corruption audits during an M&A transaction?

Under French law, criminal liability remains strictly personal. As such, it cannot be transferred in any way, not by way of a contract or any kind of agreement. In other words, the buyer may not incur criminal liability for alleged offenses committed by the target company before the M&A transaction was completed.

However, this observation must be tempered:

The target, if it hasn't been dissolved, will remain criminally liable for offenses committed before acquisition. If bribery and corruption allegations continue after completion of the transaction, then the new entity created and/or the parent company that absorbed the target may also incur criminal liability under certain circumstances. Under Sapin 2, the buyer, or the target if it has not been absorbed, may incur administrative fines and sanctions pronounced by the AFA for failure to prevent corruption committed by the target before the acquisition. In addition, the absorption...

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