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the president as a member of its senior management in its annual filing with SEC and in annual reports. Additionally, the parent's legal department approved the retention of the third-party agent through whom the bribes were arranged despite a lack of documented due diligence and an agency agreement that violated corporate policy; also, an official of the parent approved one of the payments to the third-party agent.'*! Under these circumstances, the parent company had sufficient knowledge and control of its subsidiary’s actions to be liable under the FCPA. Successor Liability Companies acquire a host of liabilities when they merge with or acquire another company, including those aris- ing out of contracts, torts, regulations, and statutes. As a gen- eral legal matter, when a company merges with or acquires another company, the successor company assumes the prede- cessor company’s liabilities.’ Successor liability is an integral component of corporate law and, among other things, pre- vents companies from avoiding liability by reorganizing.'” Successor liability applies to all kinds of civil and criminal liabilities,!** and FCPA violations are no exception. Whether successor liability applies to a particular corporate transac- tion depends on the facts and the applicable state, federal, and foreign law. Successor liability does not, however, create liability where none existed before. For example, if an issuer were to acquire a foreign company that was not previously subject to the FCPA’s jurisdiction, the mere acquisition of that foreign company would not retroactively create FCPA liability for the acquiring issuer. DOJ and SEC encourage companies to conduct pre- acquisition due diligence and improve compliance pro- grams and internal controls after acquisition for a variety of reasons. First, due diligence helps an acquiring company to accurately value the target company. Contracts obtained through bribes may be legally unenforceable, business obtained illegally may be lost when bribe payments are stopped, there may be liability for prior illegal conduct, and the prior corrupt acts may harm the acquiring company’s reputation and future business prospects. Identifying these issues before an acquisition allows companies to better The FCPA: Anti-Bribery Provisions evaluate any potential post-acquisition liability and thus properly assess the target's value.'*® Second, due diligence reduces the risk that the acquired company will continue to pay bribes. Proper pre-acquisition due diligence can iden- tify business and regional risks and can also lay the founda- tion for a swift and successful post-acquisition integration into the acquiring company’s corporate control and com- pliance environment. Third, the consequences of potential violations uncovered through due diligence can be handled by the parties in an orderly and efficient manner through negotiation of the costs and responsibilities for the inves- tigation and remediation. Finally, comprehensive due dili- gence demonstrates a genuine commitment to uncovering and preventing FCPA violations. In a significant number of instances, DOJ and SEC have declined to take action against companies that voluntarily disclosed and remediated conduct and cooperated with DOJ and SEC in the merger and acquisition context." And DOJ and SEC have only taken action against successor companies in limited cir- cumstances, generally in cases involving egregious and sustained violations or where the successor company directly participated in the violations or failed to stop the misconduct from continuing after the acquisition. In one case, a U.S.-based issuer was charged with books and records and internal controls violations for continuing a kickback scheme originated by its predecessor.'*’ Another recent case involved a merger between two tobacco leaf merchants, where prior to the merger each company committed FCPA violations through its foreign subsidiaries, involving multiple countries over the course of many years. At each company, the bribes were directed by the parent company’s senior management. The two issuers then merged to form a new public company. Under these circumstances—the merger of two public companies that had each engaged in HOUSE_OVERSIGHT_022530