DealLawyers.com Blog

In mid-September, the SEC announced settled charges against Deere & Co. for allegedly violating the books, records & internal controls provisions of the FCPA. Deere consented to SEC’s cease and desist order and agreed to pay disgorgement and prejudgment interest totaling approximately $5.4 million and a civil penalty of $4.5 million. The charges are relevant to readers of this blog since the violative conduct was carried out by employees and senior personnel at a newly-acquired subsidiary in the few years following its acquisition. The SEC’s press release says:

“After acquiring Wirtgen Thailand in 2017, Deere failed to timely integrate it into its existing compliance and controls environment, resulting in these bribery schemes going unchecked for several years,” said Charles E. Cain, Chief of the SEC Enforcement Division’s FCPA Unit. “This action is a reminder for corporations to promptly ensure newly acquired subsidiaries have all the necessary internal accounting control processes in place.”

This Freshfields blog focuses on takeaways for acquirers:

The Order does not allege that any personnel at the parent company were complicit in or aware of the improper payments. … The Order notes that Deere itself had already adopted relevant policies and procedures, including policies on entertainment of government officials and policies on factory visits by non-U.S. government officials. …The fact that a penalty was assessed against Deere at all, however, underscores the continuing need for FCPA compliance after a transaction closes and while the new asset is being integrated.

This case highlights the long-term value proposition for an acquiring company to conduct risk-based FCPA and anti-corruption due diligence on potential new business acquisitions, reinforced by appropriate post-acquisition integration into the acquirer’s existing compliance and internal controls environment.  With focus before and after, acquirers have a better chance to identify and address any potential legacy issues and mitigate the risk that the acquired entity’s misconduct (if any) continues undetected post-acquisition, as it appears was the case for Deere and Wirtgen Thailand.

Over on the Radical Compliance blog, Matt Kelly gives more of the details for those interested, calling this “one of the more colorful FCPA cases we’ve seen in a while.” In the end, Matt also touts pre-acquisition due diligence on the target’s potential bribery risk and compliance program together with post-acquisition integration and reminds readers, “even expenditures that might be immaterial in financial reporting can still bring material FCPA risks.”

When I read this enforcement action, I immediately thought of the fairly recently announced “Mergers & Acquisitions Safe Harbor Policy” intended to incentivize voluntary self-disclosure of wrongdoing uncovered during the M&A process. But that is a DOJ program, and this involved civil enforcement by the SEC. In his blog, Matt pointed out that the SEC order identifies the remediation steps Deer undertook, including firing responsible employees, improving internal audit and compliance programs, and cooperating with the SEC’s investigation, although the order makes no mention of voluntary self-disclosure.

– Meredith Ervine