From the US to Brazil: Tackling corruption risks in M&A

Corporate transactions, especially mergers and acquisitions (M&A), have become pivotal strategies for growth in an increasingly globalized economy. However, with this expansion comes the responsibility of navigating complex regulatory frameworks, particularly in regions prone to corruption risks. The implications of such risks in M&A transactions are significant, impacting not only financial outcomes but also corporate reputation and long-term sustainability. This article explores the evolving landscape of corporate responsibility for corruption through the lenses of Brazil and the US, highlighting regulatory challenges and best practices for the future.

The Brazilian regulatory landscape

In 2013, the Brazilian Anti-Corruption Act (Law No. 12,846/2013) established a strict liability regime for companies, meaning they can be held accountable for corrupt acts even in the absence of direct intent or knowledge. This imposes considerable legal uncertainty, as acquiring companies may find themselves liable for historical misconduct by the target entity. Unlike jurisdictions that offer some level of protection to good-faith acquirers, Brazil does not have a "safe harbor" provision. As a result, businesses must prioritize comprehensive compliance strategies and remain vigilant throughout the transaction process.

However, companies often face the challenge of balancing the depth of their analysis with practical constraints, such as time and cost. This creates a tension between the need for thorough risk assessment and the realities of executing a fast-paced transaction. Nonetheless, the stakes are high: Failing to detect or address corruption risks can result in severe penalties, reputational damage, and long-term operational setbacks.

Contrasting the 2023 US Safe Harbor Policy

In 2023, the US Department of Justice (DOJ) announced a Safe Harbor Policy for acquirers in M&A transactions who disclose misconduct discovered post-acquisition. This policy provides that acquirers can obtain a presumption of declination from the DOJ if they, generally, voluntarily disclose criminal misconduct, cooperate with the DOJ, and remediate the criminal misconduct.

While the DOJ Safe Harbor Policy offers reassurance to acquirers and strives to promote ethical business practices, it also places pressure on organizations to maintain rigorous compliance frameworks capable of identifying and mitigating risks. The approach outlined in the 2023 DOJ policy stands in stark contrast to the Brazilian regulatory environment; therefore, companies operating globally are encouraged to seek understanding of the differences. Further, companies are also encouraged to keep abreast of the evolving legal landscape in the United States.

For example, on February 10, 2025, US President Donald Trump signed an Executive Order directing the Attorney General (AG) to pause enforcement of the Foreign Corrupt Practices Act (FCPA) until the AG can publish new FCPA enforcement guidelines and policies. Practically, this means that the DOJ may continue to work on existing FCPA investigations; however, until the new guidelines are published, and absent specific approval by the AG, the DOJ is not likely to initiate new FCPA investigations or charge individuals or corporations in connection with ongoing investigations.

The role of compliance and due diligence

Effective compliance programs have become indispensable in navigating the complexities of M&A. A successful pre-acquisition due diligence process will not only focus on materialized liabilities, but also consider broader corruption risks. These may include the target company’s reliance on government contracts, high levels of interaction with regulatory bodies, and the necessity of specific licenses and authorizations. Each of these factors can significantly elevate the corruption risk profile of the transaction.

To mitigate these risks, companies are encouraged to employ a combination of methods: structured Q&A sessions, independent background checks, and in-depth interviews with key personnel. Cultural assessments are equally important, as they provide insight into the ethical environment of the target organization. The goal is to uncover any red flags that may indicate a history of noncompliance or unethical behavior.

Post-acquisition due diligence and integration

The work of compliance does not end once the transaction is closed. Post-acquisition due diligence is crucial to address any gaps that were not fully explored before the deal. This phase provides an opportunity to access previously unavailable documentation, interview additional employees, and investigate any events that may raise suspicions. Continuous monitoring and the identification of new risks are essential to safeguarding the acquiring company's interests.

Furthermore, successful integration requires a well-defined plan and adequate resources. Companies may consider allocating a specific budget for integration efforts and, when possible, engaging the same consultants who assisted with the pre-acquisition due diligence. This continuity can ensure a seamless transition and effective implementation of recommendations. Key components of a robust integration strategy include the promotion of a compliance culture, the dissemination of whistleblowing channels, and comprehensive training sessions for all employees. Regular site visits can also help reinforce these values and ensure adherence to the company's standards.

Legal instruments and mitigating strategies in Brazil

In Brazil, companies have access to legal mechanisms such as leniency agreements and terms of commitment with the General Comptroller Office (CGU) that can be leveraged to mitigate legal exposure when corruption is detected during M&A. Leniency agreements offer reduced penalties in return for enhancement of government’s ability to investigate the violations. Terms of commitment allow companies to resolve issues efficiently, but require significant compliance commitments and improvements.

Conclusion

The landscape of corporate responsibility for corruption in M&A transactions will continue to evolve. Prudent companies will remain adaptable and proactive, investing in comprehensive due diligence and integrating strong compliance frameworks to mitigate risks. The contrasting regulatory environments, such as those of Brazil and the US, highlight the importance of understanding local laws and aligning corporate practices accordingly. By harmonizing ethical standards and promoting transparency, companies can navigate the complexities of M&A and drive sustainable growth in an interconnected global economy.