Beware of D&O Liability When Acquiring Foreign Entities
You act as a D&O on the board of a Canadian reporting issuer that is on an acquisition trail all over the world…..For each acquisition of a foreign entity, customary due diligence is conducted, but have you thought about potential D&O liability?
Beware as D&O’s on boards of issuers in Canada and the United States that acquire foreign entities can be held liable for bribery and corruption under the Corruption of Foreign Public Officials Act and the United States Foreign Corrupt Practices Act, respectively. Every person (which includes individuals and corporations) who, directly or indirectly, gives, offers or agrees to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official can be in trouble (up to 5 years in prison!) under the Canadian legislation. Dealing with public officials is a common occurrence in doing business in certain foreign jurisdictions, including for example, in the construction and oil and gas industries.
Corruption can be prevalent in such jurisdictions so to help you avoid potential liability, as a starting point, consider conducting enhanced due diligence when acquiring foreign entities. You may ask management at the foreign entity to complete D&O questionnaires and/or hire a third party to conduct an investigation into the foreign entity. When entering into agreements with the foreign entity, consider adding particular representations and warranties regarding compliance with law (including anti-bribery covenants) and the ability to terminate the agreement if a violation is discovered. To satisfy ongoing compliance, the issuer can institute a policy that does not tolerate violations whereby offenders are immediately removed from the issuer and held responsible for breaches.
For day-to-day money management at the foreign entity, consider requiring double or triple signatures on cheque requisitions, outsourcing the management of money to an independent third party and outlining permissible payments to foreign officials including requiring detailed reports of monetary funds provided to foreign officials.
corruption D&O D&O liability foreign acquisition reporting issuer