William & Mary Business Law Review


In recent years, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have vigorously enforced the Foreign Corrupt Practices Act (FCPA). The FCPA prohibits bribery of foreign government officials, and the statute provides for significant civil and criminal sanctions. Settling and remediating violations can cost corporate defendants millions, with several corporate enforcement actions exceeding $100 million in sanctions. Moreover, enforcement actions related to the FCPA often are not brought until many years after the alleged violations.

Because the massive potential liabilities associated with an FCPA violation may not manifest themselves until years after the violation occurred, prospective corporate acquirers have become acutely sensitive to the risk of “buying” an FCPA liability during a merger or an acquisition. Traditionally, an acquirer could avoid liabilities of the seller by structuring the acquisition as an asset purchase. Under the law of most U.S. jurisdictions, a court will not usually look beyond the allocation of liabilities in an asset purchase agreement, even when the acquirer purchases substantially all of the assets of the seller.

Despite this general rule, even asset purchase agreements cannot contract around certain liabilities that arise from federal law. In several cases, the Supreme Court and federal appellate courts have imposed liability on good faith, arm’s-length asset purchasers through the federal common law of successor liability.

In the FCPA context, there is no precedent directly on point. Influential guidance from the DOJ and SEC, however, emphasizes “successor liability” enforcement actions while failing to distinguish between companies that are “successors” by reason of a merger and “successors” by reason of an asset purchase. This silence by enforcers may lead overly conservative acquirers to abandon transactions out of an unfounded (but understandable) fear of being held liable for the violations of the seller, even when acquisitions would be socially and economically beneficial and likely could be accomplished without FCPA successor liability through an asset purchase.

This Article concludes that asset purchasers typically cannot be held civilly liable for the pre-acquisition FCPA violations of sellers because the rule of decision for successor liability in FCPA cases is determined by state, not federal law, and the law of most states does not impose successor liability on arm’s-length asset purchasers. This conclusion is even stronger with respect to criminal FCPA liability because the remedial policy rationales that underlie expansive civil successor liability doctrines are not present in criminal law.