Want a Smooth Transition? Plan Your Acquisition Carefully [U.S. Export Controls]

(Lexology – John R. Liebman et al, McKenna Long & Aldridge LLP)

The Directorate of Defense Trade Controls (“DDTC”) and the Bureau of Industry and Security (“BIS”) have no qualms about imposing successor liability and penalizing companies for past export violations committed prior to a merger or acquisition. BIS established this in the famous Sigma Aldrich case, while DDTC did the same in the 2003 Boeing/Hughes settlement – each of which resulted in millions of dollars in fines against successor entities. As a result, export compliance due diligence is not only mandatory, but it must be conducted well in advance of the purchase or sale decision (let alone the closing date of any deal). Acting early is essential because it may take many weeks – or even months – to fully understand the complexity and severity of any export control issues. Following this review, it may take another several months to firm up any loose ends with either DDTC or BIS (if necessary). This extended timeline to close export control issues often results in “unknowns” as of the closing date.

It is essential to note here that successor liability attaches to any acquisition, whether as a stock purchase, or the purchase of all or a substantial part of assets on a going-concern basis. Successor liability may also attach where assets are purchased at a bankruptcy trustee’s or receiver’s sale. Read more here.