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No.: 08-02
Date: June 13, 2008
Foreign Corrupt Practices Act Review
Opinion Procedure Release
The Department has reviewed the Foreign Corrupt Practices
Act ("FCPA") Opinion Procedure request of
Halliburton Company and its controlled subsidiaries
("Halliburton"), a U.S. issuer, which is currently
considering making an additional bid to acquire the
entire share capital of a company based in the United
Kingdom ("Target"). Target is traded on the
London Stock Exchange, has approximately 4,000 employees,
and operates in over fifty countries, including throughout
Africa, the Middle East, Asia, the former Soviet Union,
South America, Europe, and North America. Target is
involved in well flow management and provides specialized
products and services in the upstream oil and gas industry.
Target has a number of national oil companies as customers.
A company formed by a consortium of primarily foreign
investors ("Competitor") is also bidding to
acquire Target. Competitor submitted the first, and
more recently the highest, bid, which is unconditional.
Halliburton has submitted a request for an opinion
regarding the Department's present intention to take
enforcement action under the circumstances here, specifically
posing the following three questions: (1) whether the
proposed acquisition transaction itself would violate
the FCPA; (2) whether through the proposed acquisition
of Target, Halliburton would "inherit" any
FCPA liabilities of Target for pre-acquisition unlawful
conduct; and (3) whether Halliburton would be held criminally
liable for any post-acquisition unlawful conduct by
Target prior to Halliburton's completion of its FCPA
and anti-corruption due diligence, where such conduct
is identified and disclosed to the Department within
180 days of closing.
Circumstances of the Request
The circumstances of the request are as follows: Halliburton
represents that, as a result of U.K. legal restrictions
inherent in the bidding process for a public U.K. company,
it has had insufficient time and inadequate access to
information to complete appropriate FCPA and anti-corruption
due diligence and that it can only complete such due
diligence post-closing. Pursuant to the U.K. bidding
process, given that Target's board has already recommended
to its shareholders the acceptance of Competitor's bid,
Target is legally obliged to provide to Halliburton
the same information given to Competitor, but it is
not required either to (1) provide any additional information
to Halliburton, or (2) agree to entertain an offer by
Halliburton that is subject to any condition that has
not already been imposed upon Competitor.
Thus, if Halliburton wanted to condition the making
of its bid on the satisfactory completion of FCPA and
anti-corruption diligence or on the pre-closing completion
of remediation to its satisfaction, Target would be
under no legal obligation to agree to any such terms,
and might well reject a conditional, higher bid by Halliburton
in favor of the lower, but unconditional bid of Competitor.
While in connection with the bidding process Halliburton
has had access to a data room with certain information
concerning Target, under the terms of a confidentiality
agreement entered into between Halliburton and Target,
Halliburton is not permitted to discuss with the Department
whether any specific FCPA, corruption, or related internal
controls or accounting issues have arisen, and if so,
the nature and extent of such issues, except as required
by applicable law.(1)
Halliburton represents that, in light of the above
restrictions, if it makes an additional bid which is
successful and thus acquires Target, it intends to implement
the following post-closing plan:
- Immediately following the closing, Halliburton will
meet with the Department to disclose whether the information
made available to Halliburton or otherwise learned
by Halliburton pre-closing suggests that any FCPA,
corruption, or related internal controls or accounting
issues exist or existed at Target and, if so, will
disclose such information to the Department.
- Within ten business days of the closing, Halliburton
will present to the Department a comprehensive, risk-based
FCPA and anti-corruption due diligence work plan which
will address, among other things, the use of agents
and other third parties; commercial dealings with
state-owned customers; any joint venture, teaming
or consortium arrangements; customs and immigration
matters; tax matters; and any government licenses
and permits. Such work plan will organize the due
diligence effort into high risk, medium risk, and
lowest risk elements. Halliburton shall consult with
the Department regarding the work plan. Over time,
the work plan shall be reviewed and, if necessary,
revised as the plan is implemented and more information
is learned.
- Within 90 days of the closing, Halliburton will
report to the Department the results to date of
its high risk due diligence. Halliburton will
provide the Department periodic progress reports
over the course of the 90 days, and thereafter
as appropriate.
- Within 120 days of the closing, Halliburton
will report to the Department the results to date
of its medium risk due diligence. Halliburton
will provide the Department periodic progress
reports over the course of the 120 days, and thereafter
as appropriate.
- Within 180 days of the closing, Halliburton
will report to the Department the results to date
of its lowest risk due diligence. Halliburton
will provide the Department periodic progress
reports over the course of the 180 days, and thereafter
as appropriate.
- To the extent that issues identified during
Halliburton's due diligence require further examination
beyond the 180-day period, Halliburton will complete
such remaining due diligence expeditiously and
provide periodic reports thereof to the Department
until concluded.
- In any event, Halliburton will complete its
due diligence and remediation related to Target,
including completing its investigation of any
issues that are identified within the 180-day
period, by no later than one year from the date
of closing.
- Halliburton will retain external counsel and third-party
consultants, including forensic accountants, as well
as utilize internal resources, as appropriate, to
conduct the FCPA and anti-corruption due diligence.
The due diligence process shall include, under all
appropriate circumstances and in all appropriate locations,
examination of relevant Target records, including
e-mail review and review of company financial and
accounting records, as well as interviews of relevant
Target personnel and other individuals.
- All agents and other third parties associated with
Target who are expected to continue to work for Target
post-closing, and as to whom there are no compliance
issues to be resolved, will as soon as commercially
reasonable be required to sign new contracts (rather
than contract modifications or extensions) with Halliburton
that incorporate appropriate FCPA and anti-corruption
representations and warranties, anti-corruption provisions,
and audit rights, as provided for under Halliburton's
Code of Business Conduct and related policies and
procedures. Agents and other third parties who will
not continue to work for Target post-closing will
be terminated as expeditiously as possible. Based
on the results of its due diligence efforts, Halliburton
will take appropriate remedial action in the event
it discovers any FCPA or corruption-related problems,
including suspending or terminating any agents and
other third parties and taking appropriate remedial
action regarding relevant employees.
- Upon closing, Halliburton will immediately impose
its own Code of Business Conduct and specific FCPA
and anti-corruption policies and procedures on Target,
including effectively communicating the same to all
Target employees. Within 60 days of the closing, Halliburton
will provide FCPA and anti-corruption training to
all Target officers and all Target employees whose
positions or job responsibilities warrant such training
on an expedited basis, including all employees in
management, sales, accounting, and financial control
positions. Halliburton shall provide all other appropriate
Target employees with such training within 90 days
of closing.
- Halliburton will disclose to the Department all
FCPA, corruption, and related internal controls and
accounting issues that it uncovers during the course
of its 180-day due diligence. Halliburton will complete
any additional steps the Department deems necessary
to complete the due diligence and remediation plan.
Halliburton further represents that post-closing, it
will maintain Target as a wholly-owned subsidiary for
so long as the Department is investigating any conduct
by Target or any of its officers, directors, employees,
agents, subsidiaries, and affiliates. Halliburton expressly
acknowledges and agrees that Target, and all Target
subsidiaries and affiliates, retain their liability
for past and future violations of the FCPA, if any.
Analysis and Conclusion
Based upon all the facts and circumstances as represented,
and assuming Halliburton satisfactorily completes each
of the steps detailed herein, the Department does not
presently intend to take any enforcement action against
Halliburton for: (1) the acquisition of Target in and
of itself; (2) any pre-acquisition unlawful conduct
by Target disclosed to the Department within 180 days
of the closing; and (3) any post-acquisition conduct
by Target disclosed to the Department within 180 days
of the closing, and which does not continue beyond the
180-day period or, if in the judgment of the Department
the alleged conduct cannot be fully investigated within
the 180-day period, which does not continue beyond such
time as the conduct can reasonably be stopped. In issuing
this Opinion Release, the Department specifically notes
the particular circumstances of this transaction, including
the foreign legal impediments to robust pre-acquisition
due diligence. In the view of the Department, for the
reasons set forth below, the issuance of this Opinion
Release advances the interests of the Department in
enforcing the FCPA and promoting FCPA due diligence
in connection with corporate transactions, and permits
the Requestor to proceed with an additional bid for
Target with the benefit of the protections afforded
by the Opinion Release procedure.
First, consistent with precedent, the Department believes
that the execution of the transaction here would not,
in and of itself, create FCPA liability for Halliburton.
In FCPA Opinion Procedure Release 2001-01 (May 24, 2001),
the Department addressed whether funds a corporation
contributes as part of a corporate combination transaction
may be considered a "payment" that is "in
furtherance of" a bribe within the meaning of 15
U.S.C. § 78dd-1. The Department discussed the risk
that funds contributed to a joint venture by Corporation
A might be used to make payments to an agent under pre-existing
unlawful contracts that Corporation B contributed to
the joint venture. Those issues, however, do not appear
to be present here. Target is a public company listed
on a major exchange, and at least 65% of its shares
are held by large, institutional investors. Any amounts
Halliburton pays to acquire Target will go to shareholders
and not to Target itself. It is unlikely that any Target
shareholders were corruptly given their shares such
that the purchase of Target by Halliburton would improperly
enrich such shareholders. Moreover, as a practical matter,
it is impossible for any acquirer of a substantial public
company to determine the identity of all shareholders
and investigate how such shares were acquired.
Second, in light of the facts presented here and the
particular restrictions in U.K. law regarding the bidding
process, the Department does not presently intend to
take any enforcement action with respect to any pre-acquisition
conduct by Target disclosed to the Department during
the 180-day period following the closing, provided Halliburton
satisfactorily proceeds in accordance with the post-closing
plan and remediation detailed above.
Third, the Department notes that an acquiring company
may be held liable as a matter of law for any unlawful
payments made by an acquired company or its personnel
after the date of acquisition. In that regard, in a
prior Opinion Release, which related to an acquiring
corporation's potential FCPA liability based on the
target's pre-acquisition conduct, the Department did
not provide assurances with respect to unlawful "payments
made after the date of acquisition." Release No.
2003-01 (January 15, 2003). Under the circumstances
here, however, there is insufficient time and inadequate
access to complete appropriate pre-acquisition FCPA
due diligence and remediation. As represented by Halliburton,
under the application of the U.K. Takeover Code, it
has no legal ability to require a specified level of
due diligence or to insist upon remedial measures until
after the acquisition is completed. As a result, Halliburton's
ability to take action to prevent unlawful payments
by Target or its personnel during the period immediately
after the closing has been severely compromised. Assuming
that Halliburton, in the judgment of the Department,
satisfactorily implements the post-closing plan and
remediation detailed above, and assuming that no Halliburton
employee or agent knowingly plays a role in approving
or making any improper payment by Target, the Department
does not presently intend to take any enforcement action
against Halliburton for any post-acquisition violations
of the antibribery provisions of the FCPA committed
by Target during the 180-day period after closing provided
that Halliburton: (a) discloses such conduct to the
Department within 180 days of closing; (b) stops and
remediates such conduct within 180 days of closing,
or, if the alleged conduct, in the judgment of the Department,
cannot be fully investigated within the 180-day period,
stops and remediates such conduct as soon as it can
reasonably be stopped; and (c) completes its due diligence
and remediation, including completing its investigation
of any issues that are identified within the 180-day
period, by no later than one year from the date of closing.
The Department reserves the right, however, to take
enforcement action against Halliburton with respect
to: (a) any FCPA violations committed by Target during
the 180-day period that are not disclosed to the Department
during this same time period; (b) any FCPA violations
committed by Target at any time where any Halliburton
employee or agent knowingly participates in the unlawful
conduct; and (c) any issues identified within the 180-day
period which are not investigated to conclusion within
one year of closing. In no event does this Opinion Release
provide any protection for any conduct which occurs
after the 180-day period. The Department further reserves
the right to prosecute or take enforcement action against
Target and any of its subsidiaries and affiliates for
any and all violations of the FCPA or any other federal
criminal statute either pre- or post-acquisition, whether
disclosed to the Department or not. The Department notes,
however, that any unlawful conduct by Target disclosed
to the Department by Halliburton pursuant to the post-closing
plan and this Opinion Request would qualify as a "voluntary
disclosure" under the Department's Principles
of Federal Prosecution of Business Organizations,
Section VII, and such disclosure may be considered by
the Department as a factor in any determination whether
to charge Target.
This FCPA Opinion Release applies to the Requestor,
Halliburton, only, has no binding application to any
party which did not join in the request, and can be
relied upon by Halliburton only to the extent that the
disclosure of facts and circumstances in this request
is accurate and complete and continues to accurately
and completely reflect such facts and circumstances.
_________________
(1)While
the Department accepts the representation that in order
to be a viable bidder for Target, Halliburton had to
enter into the confidentiality agreement, the Department
discourages companies wishing to receive an FCPA Opinion
Release in the future from entering into agreements
which limit the information that may be provided to
the Department.
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