Management | Compliance Risk

Corporations are stepping up their efforts to mitigate execution risk in cross-border mergers and acquisitions, as growing numbers of regulators worldwide are becoming more stringent about enforcing antitrust and anticorruption laws.

Mini vandePol, partner and head of the global compliance group at Baker & McKenzie, says: “With regulators in the US, the UK, China and many other Asian economies ramping up efforts to crack down on corruption, companies are faced with an unprecedented level of urgencies and complexities to put together effective compliance programs that meet both domestic and extraterritorial laws.” She says many emerging markets, though offering the greatest economic opportunities, often face increased corruption risk, which can threaten the success of mergers and joint ventures. “This means that identifying, investigating and mitigating risks ahead of the deal is critical.”

Bill Baer, assistant attorney general in the antitrust division of the US Department of Justice, told a recent conference at Fordham University School of Law in New York that antitrust authorities in the US and the European Union have been able to build a close and constructive relationship based on common values.

“The US and the EU share the core belief that antitrust enforcement must protect and promote competition and consumer welfare,” Baer says. Enforcement should not be used to promote domestic or industrial policy goals, protect state-owned or domestic companies from foreign competitors or create leverage in international trade negotiations, he says. However, making enforcement decisions based solely on competitive effects and consumer benefits is not easy in countries where state-owned corporations have considerable influence over enforcement authorities, he says.

Tim Lindsay, partner in the international arbitration group at Dechert Partners, a global specialist law firm, says planning for future disputes is essential to managing the risk of any transaction. “Contractual rights are the lifeblood of international commerce and are especially critical to private equity managers and investors who are increasingly investing internationally and in emerging markets, often alongside local partners and in politically important industries,” Lindsay says. To avoid partiality of local courts, international arbitration provides a neutral forum, according to Lindsay. “Perhaps the most important advantage of international arbitration is the near-worldwide enforceability of international arbitral awards,” he says. More than 140 countries have agreed to the New York Convention, created in 1958 to ensure that arbitral awards are recognized and enforced consistently with domestic awards.