Top investment professionals lack anti-bribery and corruption due diligence procedures, a recent survey suggested.
Only two out of 80 financial services firms had undertaken anti-bribery and corruption due diligence in an M&A transaction, said business adviser, Kinetic Partners, basing the findings on a survey carried out at a seminar.
Kinetic said that with the potential for exceptional penalties from regulators in both the UK and the US, and with the obvious commercial impact that uncovering illegal activity at a takeover target after a transaction would have, the lack of due dilligence ranks as a serious concern.
There is increased scrutiny of firms regarding bribery and corruption under part of the UK Bribery Act that builds on the provisions of the US Foreign Corrupt Practices Act.
Weaknesses against this regulatory backdrop include insufficient oversight by senior management across group entities, and no challenge to decision making processes.
The audience at the Kinetic seminar were briefed about high-profile cases, including Walmart’s Mexico subsidiary, eLandia’ operations in Honduras and Lockheed Martin’s proposed takeover of Titan. In these cases activities in high-risk countries and a lack of management oversight resulted in significant fines, whilst in the Titan case, a failed takeover subsequently destroyed significant shareholder value.
Julian Korek, a founder of Kinetic, said: “There is a surprising lack of focus on [anti-bribery and corruption] due diligence amongst investment professionals. It is clear that regulators and lawmakers on both sides of the Atlantic are expecting significant levels of investigation to be undertaken by firms themselves. It has never been truer that ignorance is not an excuse.”#
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