Managing the Compliance Aspects of Private Equity Investments

October 06, 2016

International business transactions can be subject to intense scrutiny due to the broad scope of the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, in addition to other similar anti-corruption measures around the world. The risks for private equity investors that can result from corrupt activities of a target company may be significant, especially if the target operates in a high-risk jurisdiction or business sector. These risks can include loss of value of the investment, as well as being held liable for previously unknown wrongful acts committed by the target, its local shareholders or others acting on their behalf. Given the significant penalties that can result from violations of these laws, private equity investors can no longer afford to overlook the risks deriving from potential compliance violations attributable to a target or its shareholders before completing a deal. Further, while this article focuses on violations of anti-corruption provisions, similar considerations generally apply to international trade sanctions regulations.

Private equity investors therefore should consider:

  • Thoroughly assessing compliance risks through due diligence;
  • Protecting their investment by drafting contractual “shields” for relevant purchase agreements; and
  • Including post-closing protections in any shareholders’ agreement or other document related to the post-investment operations of the target (collectively, shareholders’ agreements).

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