Minimising risks in corporate transactions
Your expert for questions
Arndt Engelmann
Partner, Forensic Services at PwC Germany
Tel: +49 151 14806264
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Assessing bribery and corruption risks in the context of mergers and acquisitions
Corporate acquisitions present a number of risks relating to anti-bribery and anti-corruption (ABAC) compliance. If cases of bribery, corruption or the granting or receiving undue advantages remain undetected in the target company, there is a risk of massive financial losses, legal consequences and reputational damage. A due diligence prior to the transaction reduces the risks and can have a significant impact on purchase negotiations and the valuation of the target company. Its purpose is to check whether the target company is conducting its business in accordance with the law and with integrity, and to derive appropriate actions.
Our experienced and globally active team will help you to uncover possible bribery and corruption risks prior to a corporate transaction. We can support you throughout the entire life cycle of a transaction in implementing targeted measures, such as controls in the target company.
Hidden corruption risks in transactions
Investigations into infringements of the law in connection with bribery and corruption are lengthy and complex – especially when they are initiated by public prosecutors or regulatory authorities. They can cause immense damage to the company’s reputation, its resilience and thus its value.
Large penalties can be imposed retrospectively for up to ten years. The buyer can be held liable both for infringements that occurred before the conclusion of the corporate transaction and those occurring through the continuation of contracts after closing. It is therefore essential for buyers to deal with the necessary requirements in a targeted manner in order to avoid possible infringements and thus any financial and non-financial problems.
Identify risks early with a due diligence
An ABAC and integrity due diligence prior to the company transaction establishes certainty about the situation of the target company with regard to compliance risks. It offers valuable information and conclusions for the drafting of the contract and, where appropriate, suggests measures for the buyer to implement after the acquisition of the company. Those could include the recommendation not to maintain particular sales models, contracts or business relationships after closing. Along the entire transaction life cycle, it is important to integrate relevant guidelines and internal controls to reduce ABAC risks in the target company.
Our business integrity assessment services
- Business model and business operations assessment
- Review of relevant policies and processes
- Review of business relationships and examination of contracts
- Background research on internal and external actors
- Transaction testing
- Information-gathering interviews
- Red flag reporting and recommendations
- ABAC remediation
- Change management
- Monitoring and reporting
Business model and business operations assessment
Does the target company have a solid business model? Does the target company operate abroad (for example, in sales, production or procurement), especially in higher-risk countries? We analyse the company’s products and services from a central compliance perspective, taking into account the type of order processing (order business, project business, etc.), the sales markets, the sales model and the customer base. Building on this, we derive concrete recommendations – for example, that business activities in countries with a high corruption perception index are not advisable.
Review of relevant policies and processes
Does the target company have a compliance programme that covers bribery and corruption risks? Which ABAC-related operating procedures are in force at the target company? We examine the purchasing and sales process, the use and selection of third parties (agents/distributors/suppliers), cash practices, employee reimbursements and internal controls to identify openings for infringements of the law.
Review of business relationships and examination of contracts
Does the target company have any interactions, contracts or agreements with foreign governments or governmental agencies in the course of its business? The review of selected existing contracts – for example with suppliers, marketing intermediaries and government agencies – will uncover any additional ABAC risks. Minimising factors include ABAC compliance clauses, review rights, an annual ABAC compliance confirmation, and the threat of penalties and/or immediate termination of the contract for breaches of contract or the law.
Background research on internal and external actors
Have the target company and/or relevant persons complied with ABAC rules? With a focus on ABAC issues, we analyse, inter alia, the general company information and available media and press reports about the target company; we identify key people and shareholders up to the level of the beneficial owner and include them in our research. For this we use our worldwide access to relevant information databases, such as commercial register, court and media databases.
Transaction testing
Does the target company keep books, records and accounts that accurately and fairly reflect its transactions? Which transactions were carried out in the target company that were related to gifts, donations, sponsorship expenses and lobbying? Are they appropriate in amount and compliant with any approval procedures and internal controls? By examining selected expense items, we identify suspicious transactions that can point to criminal activities relating to corruption and bribery.
Information-gathering interviews
We conduct interviews with key management and other relevant stakeholders to understand the target company’s business strategy, business model and operations. In the course of the discussions, we also gain an understanding of any risk and management systems implemented.
Red flag reporting and recommendations
Based on the documents and discussions, we generate an overall assessment. The results are summarised and visualised, and are included in a red flag report. We derive measures and develop an action plan with recommendations during and after the company transaction.
ABAC remediation
Policies against corruption and bribery can also be implemented as part of remediation measures relating to environmental, social and governance (ESG) issues. We can help you to develop an integration plan and support you in complying with ABAC guidelines in the acquired company.
Change management
The targeted communication of rules and guidelines is an important success factor for ensuring the achievement of ABAC objectives after a corporate transaction. We will support you in developing communication plans, setting the right incentives, conducting training and creating the necessary awareness for corruption prevention.
Monitoring and reporting
ABAC monitoring and reporting allows you to stay continuously informed about compliance-sensitive activities after a company transaction. We will support you in defining the crucial parameters for the recording and in setting up appropriate monitoring of the relevant activities.
Extensive research uncovers risks
In the Due Diligence, we rely on stringent and comprehensive background research based on publicly accessible sources, databases and social media. We investigate whether there are indications of integrity-related or reputational risks, or any other criminal activities surrounding the target company. We can also support you in complying with regulatory requirements on a global level. These include laws such as the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act (FCPA).
We review the target company’s ABAC programme in terms of its components, appropriateness and effectiveness. Depending on the risk under assessment, the focus is primarily on the underlying business model, sales and business partners.
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