Criminal due diligence for company acquisitions

Almost every legal obligation in a corporate context carries a criminal provision. Company law, tax law and social law punish numerous breaches not only administratively but also criminally, with fines, confiscation and imprisonment. It is not only the directors of the target company who risk having to answer before the criminal court: the company itself faces the same risk.

When weighing whether a company should be punished, the judge takes into account the extent to which it had put preventive criminal risk management in place beforehand. A company that has clearly mapped its risks and assigned their management to specific departments or individuals, for example through a delegation of powers, can often count on more leniency, particularly for unintentional offences such as a workplace accident.

For an acquisition, that review carries double weight. Money laundering, misuse of company assets, forgery and serious tax fraud are all punished with a level 3 sanction or higher, and money laundering carries an additional fine that can reach 2,000,000 euro. If an earlier phase of the target company went bankrupt, serious tax fraud also counts in any event as a manifestly gross fault that exposes the director of that time personally for the shortfall.

Fraud and breach of trust also surface regularly during such a review, each punished with a level 3 sanction. The review therefore goes beyond the balance sheet: it checks whether the target company’s directors carried out their duties without a conflict of interest, and whether earlier transactions with related parties took place on market terms.

Our specialists guide companies that want to map out and channel their criminal risks during an acquisition. We offer the criminal due diligence as a separate assignment, or integrated into a broader due diligence exercise, alongside the usual tax, social and commercial points of attention.

Where our review shows insufficient preventive risk management at the target company, we work with you to draw up a delegation of powers for the period after the acquisition. Such a delegation only protects the acquiring director where the delegate holds the required competence, authority and means, and only for duties the law does not impose personally on a specific director. Company directors find on our company directors page the eight other assignments we carry out for them, from the criminal liability audit to the delegation of powers.

If you also want the target company’s anti-money laundering duties checked, our AML audit connects to this naturally, as does our anti-fraud audit of internal control. That gives you, before closing, a complete picture of the criminal risk you are taking on.

This review maps out the criminal risks of the target company, alongside the usual tax, social and commercial points of attention of an acquisition. The review looks at possible breaches of company law, tax law and social law, and at specific offences such as money laundering, misuse of company assets and forgery. You receive the findings as a separate report or as part of a broader due diligence assignment.

Yes, the criminal judge takes into account, when assessing a company, the extent to which it had put preventive criminal risk management in place beforehand. A company that clearly mapped its risks and assigned their management to specific departments or individuals can then count on more leniency. That applies in particular to unintentional offences, such as a workplace accident.

Not automatically. A delegation of powers only works where the delegate holds the required competence, authority and means, and only where the legislator permits that transfer, if only implicitly. For duties the law imposes personally on a specific director, the liability remains, even after an acquisition.