The acquisition seems perfect: General Electric (GE) is looking to purchase a piece of French engineering firm Alstom SA. But there’s only one catch, and it comes in the form of a U.S. Department of Justice (DOJ) investigation into possible Foreign Corrupt Practices Act (FCPA) violations from the firm.
Although Alstom has not revealed specifically what the investigation entails, former Alstom employees have been charged in connection with an alleged scheme to bribe high-ranking Indonesian officials. Alstom, along with other companies, received a $118 million energy contract as part of a consortium in 2004.
Another company within the consortium, Japanese trading company Marubeni Corp., agreed to pay $88 million and pleaded guilty to bribery charges in connection with the case in March. That penalty was the second time in three years that Marubeni was hit with a major FCPA fine, said the DOJ. Acting Assistant Attorney General Mythili Raman also said at the time that Marubeni refused to cooperate with the government’s investigation, and thus was hit with a larger fine.
As a result of the investigation, according to the New York Times, GE’s talks to buy Alstom’s energy operations could be hitting a snag. Although outside counsel to Alstom has previously said that the firm is “cooperating closely, actively, and in good faith with the DOJ investigation,” GE may be wary of taking on potential liability for the case.
Guidelines released by the DOJ in November 2012, however, reveal that General Electric has every reason to take care within the M&A phase, as the DOJ and Securities and Exchange Commission (SEC) take variables such as FCPA due diligence and quick incorporation into compliance programs into account.
“[C]ompanies that conduct effective FCPA due diligence on their acquisition targets are able to evaluate more accurately each target’s value and negotiate for the costs of the bribery to be borne by the target,” the guidelines say. “In addition, such actions demonstrate to DOJ and SEC a company’s commitment to compliance and are taken into account when evaluating any potential enforcement action.”
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