Can an Acquisition Create New Sanctions Risk?

from Corruption Crime & Compliance Hosted by Michael Volkov

You can buy a company’s assets, its customers, its brand, and guess what? Its sanctions violations. And sometimes the violation doesn’t exist until the day you close. Here’s what I mean. Under a sanctions program like Cuba and Iran, a foreign company owned by a U.S. buyer becomes subject to U.S. sanctions the moment the deal closes. Business that was lawful on Monday can be a violation on Tuesday. That’s what happened at First Bank, whose euro payments to Iranian parties became violations after a U.S. investor bought it. It’s what happened to Key Holding, whose new Colombian subsidiary shipped to Cuba for 19 months because nobody told it the rules had changed. And diligence alone won’t save you. Unicat’s buyer did diligence, missed the problem, disclosed quickly, and earned DOJ’s first declination for an acquirer. Yet the company it bought still paid millions. Stanley Black & Decker found Iran sales in diligence, made them a closing condition to stop, and still got hit because OFAC says no one monitored whether they actually stopped. So before signing and acquiring, ask what becomes illegal the day you own it. On day one, tell the target in writing that U.S. sanctions apply, and after closing, test the transactions yourself. Don’t accept a certification from the people hiding the problem. The Ethics and Compliance Q and A show is produced by One Stone Creative.