Financial crime compliance during international M&A – 3 top tips

Having recently worked on a complex multi-jurisdictional acquisition on behalf of a client in the insurance sector, you might be interested in some of my findings so that you can better adhere to the laws and regulations in relation to sanctions, anti-bribery and corruption (ABC) and anti-money laundering (AML).


The acquisition project highlighted a number of issues that anyone thinking of a merger or acquisition (M&A) across several jurisdictions needs to think about. There were three broad areas that the project covered:

  • Corporate intelligence
  • ABC compliance review
  • Sanctions and AML compliance review


Financial crime compliance review

Essentially we had to review the financial crime compliance of a European insurance company with operations in Africa. Whilst you might not operate in this particular territory, many of the lessons learnt are equally applicable in other jurisdictions globally.


The work we did highlighted three main areas of concern:


  1. Corruption risk - There is a culture of entertainment and hospitality in the insurance market, in particular amongst brokers.  We found that written policy, process or limits on expenditure were minimal. Lavish pure entertainment carries a higher corruption risk and so companies need to demonstrate procedures to mitigate this risk.
  2. Local shareholders - Government intrusion and requirements to have local shareholders created issues in many of the jurisdictions (e.g. threat of forced change of control and local shareholders wanting involvement). In order to operate in these markets it is critical to get an understanding of the political and business networks of shareholders. This is significantly increased through local knowledge. To some extent this work also needs to be forward looking and consider the potential risks which may arise as a result of future elections or regime changes.
  3. Government intervention - The levels of involvement with government or state-owned businesses were much higher than anticipated in many jurisdictions. We also identified that other, often crucial, business relationships have government issues and need to be thoroughly understood and verified because, for example, a client may be backed by a ruling political party.


Whilst there was a consistent focus on protecting the business from fraud, there was less placed on general compliance with applicable laws and regulations around sanctions, ABC and AML. Compliance programmes were generally found to be weak and customer due diligence was, at best, 'ad hoc’. In addition to this there was a general lack of sanctions screening and an undue reliance on self-declared systems of politically exposed persons (PEP) identification.


Business ethics appear to be generally well understood but often local market practices seem to take precedent and therefore prevail.


Three top tips

With the above in mind, here are three things you can do to make sure your business is compliant when it comes to sanctions, ABC and AML:

  • Have clear policies on sanctions, ABC and AML and set the tone from the top;
  • Make sure your staff are trained on the application of these policies and understand your expectations of them; and
  • Develop management information to monitor your exposure to sanctions, ABC and AML risk.


To wrap up, whilst it can take time to change a company’s culture (and, indeed, that of a nation!), it’s important to make sure you do your due diligence ahead of a deal to make sure you comply with the right regulations to avoid your acquisition turning into a headache.


What instances of bribery and corruption have you encountered in your international M&A? Share your thoughts below or schedule a meeting to discuss your situation in confidence.

Ben Luddington | Forensic Services Director
Profile | Email |  +44(0)20 7804 1865


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