Decree 8.420/2015, which contains regulations under Brazil's Anticorruption Law (Law 12.846/2013), gives new importance to due diligence investigations in mergers and acquisitions, broadening the scope of the potential risks and liabilities to be identified and dealt with before the companies involved in the potential transaction decide to go ahead with the deal.
Under the Anticorruption Law, corporate transactions can make one company liable for the corrupt acts of another. The parties to the corporate transaction can take steps to avoid exposure to penalties under the Anticorruption Law, and the most important of these steps is a careful legal due diligence investigation.
When conducted prior to implementing a corporate transaction, a legal due diligence investigation will assess, among other factors, the potential for corrupt acts by reason of a company's business activities, and the existence of an effective compliance program to prevent and mitigate unlawful conduct.
With this assessment in hand, the companies involved in the proposed transaction and their legal advisers can decide on a strategy to deal with the question of corruption and put an end to any undesirable practices that may exist.
The strategy can include actions such as: appropriate treatment in the transaction documents for identified risks and liabilities, improving or implementing internal procedures and mechanisms to avoid the occurrence of corrupt actions, and voluntary disclosure to authorities to obtain the benefit of reduced penalties for the corrupt practices identified in the due diligence investigation.
The Anticorruption regulations also provide that the existence and effective implementation of a compliance program can be a mitigating factor in determining the penalties that will be imposed on offenders.
According to the Anticorruption regulations, a compliance program is a set of internal mechanisms and procedures, audits, and whistle-blowing incentives, and the effective application of codes of ethics, codes of conduct, policies and guidelines, all directed to preventing, detecting and stopping corruption involving government agents.
One of the criteria listed in the regulations for assessing the effectiveness of compliance programs is anticorruption legal due diligence investigations in corporate transactions in which the company is involved.
The legal due diligence investigation should be capable not only of identifying unlawful acts that have been committed or are being committed, but also of pointing out vulnerabilities in companies' internal procedures that require action to reduce the risk that improper or illegal conduct will occur.
BMA has professionals who specialize in conducting legal due diligence investigations, using methodologies and internal procedures designed specifically to evaluate documents and information on companies and assets involved in corporate transactions from all legal perspectives. In its due diligence work, BMA identifies existing and contingent liabilities and other risks, restrictions and adverse consequences for the parties' intended transaction, and presents measures to mitigate or eliminate those risks.
Legal due diligence investigations into corporate ethics and anticorruption matters require particular skills and knowledge. The risks to be analyzed, the documents and information to be reviewed, and any interviews and on-site visits have to take into account not only the law applicable in Brazil, but best practices around the world.
It's fair to say that the new Anticorruption regulations give particular importance to legal due diligence investigations by including them among the essential elements of a compliance program, with the result that legal due diligence will have an even bigger role to play in preparing the ground for mergers and acquisitions in Brazil.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
