Article by: Thomas J. Manning
42 PEPP. L. REV. 377 (2015)
Though the FCPA has been the source of understandable alarm in the U.S. investment community, the DOJ and SEC (the law’s two enforcing bodies) have yet to bring an FCPA action directly against a private equity firm. Meanwhile, PE firms have continued to invest in environments that struggle with corruption, such as China, India, and Brazil. This ongoing investment—coupled with the lack of successful enforcement actions— seems to contradict the business and legal communities’ expressed anxiety regarding FCPA liability. Indeed, some investors may sense that certain aspects of PE investment work to insulate it from FCPA liability: for example, PE by its nature maintains separation between investor and local operator, and many emerging market PE projects cast the investor in a minority role.
Notwithstanding these observations, we believe the PE community has in fact responded to a very real threat of FCPA prosecution by developing a substantial degree of FCPA compliance. Our analysis of enforcement activity indicates a pattern of PE acquisitions followed by FCPA-related amelioration, often including the voluntary reporting of possible issues to the DOJ and SEC. However, this encouraging trend may mask a problematic one, that of PE investors avoiding risk of FCPA liability by foregoing otherwise attractive investment opportunities, thereby ceding opportunities to investors outside the FCPA’s jurisdiction. Accordingly, we urge government regulators to allow PE investors greater latitude for imperfect post-acquisition compliance when such imperfect compliance is coupled with substantive remedial action.