Not one to mince words, KPS Capital's Michael Psaros offers a ...

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 83COMMUNITY COMMENTARYSuch a risk assessment helps to identify areas ofpotential exposure, areas requiring performanceof specific procedures and red flags. Examples ofthe components of a risk assessment include:identification of relevant anti-corruption laws andthe industries in which the target operates, geographicconsiderations, level of interaction withgovernment entities, internal audit findings, useof third party intermediaries, commission structures,travel and entertainment, gifts, competitorinformation and use of non-controlled entities.In addition, the risk assessment sets theagenda for FCPA-related pre- and post-closingprocedures, which should include a detailedanalysis of, among other items, accounts thatgenerate cash payments — such as travel andentertainment, charitable donations or consultingfees — and could potentially be used to paybribes. Because the due diligence team mayhave limited information, the pre-close procedurescan help an acquirer develop an effectivedetailed post-closing plan.A post-closing FCPA and anti-corruption plan“The line between stateownedand private entities isunclear, making it difficult todetermine whether paymentsto government officialsare occurring.”should also include integration of the complianceprograms of the purchaser as part of the integrationprocess. In Halliburton’s request to theDOJ, the plan included special training for employeesin high-risk areas such as sales, managementand accounting.Highly effective FCPA anti-corruption duediligence processes can help the acquirer toidentify broad risk areas, allow them to assesstheir tolerance for such identified risk and buildappropriate remedial action into a post-closeintegration plan. The plan should include a detailedfollow-through on any unresolved issuesidentified prior to acquisition.The risks and issues identified pre-closingshould be incorporated when determining thereal value of the target. Should corruption issuesemerge post-closing, timely and thoroughvetting of the potential risks in the due diligenceprocess can strengthen the argument for leniencyin any enforcement proceeding.Ernst & Young partners Ivan R. Lehon and RichardSibery and senior manager Tom Pannell all servein Ernst & Young’s Fraud Investigation & DisputeServices practice.