In its latest annual report, Illinois-based Kraft Foods said it received a subpoena on February 1 from the SEC. The subpoena is connected to an FCPA investigation of a facility in India that was part of Kraft's $19 billion acquisition of U.K.-based Cadbury last year.
Kraft said its pre and post-acquisition due diligence revealed potential compliance problems in various jurisdictions, including India, triggering a deeper internal investigation. The company hasn't disclosed publicly what it found or why the SEC subpoena is limited to India-related issues. It said legal charges in 2010 were "insignificant" and in 2009 it recorded a $50 million legal charge related to certain European operations.
The SEC, Kraft said, wants information about its "dealings with Indian governmental agencies and officials to obtain approvals related to the operation" of the India plant.
A string of FCPA settlements has established the DOJ and SEC's interest in pressing cases following acquisitions or tender offers.
Cardinal Health's 2003 acquisition of Syncor produced FCPA precedents concerning an acquirer's pre-merger due diligence obligations and successor liability. Titan Corporation's FCPA violations were discovered after a Lockheed tender offer. Lockheed aborted the offer and in 2005 Titan paid a record $28.5 million for its FCPA settlement. More recently, M&A activity resulted in enforcement actions involving Delta Pine, Aibel, and Latin Node, among others.
In 2008, Halliburton's clumsy attempt to buy British firm Expro through a hostile takeover produced the most intrusive Justice Department FCPA Opinion Procedure Release on record.
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Here's Kraft's full FCPA disclosure from its Form 10-K:
A compliant and ethical corporate culture, which includes adhering to laws and industry regulations in the United States and abroad, is integral to our success. To this end, after we acquired Cadbury in February 2010 we began reviewing and adjusting, as needed, Cadbury’s operations in light of U.S. and international standards as well as Kraft Foods’ policies and practices. We initially focused on such high priority areas as food safety, the Foreign Corrupt Practices Act (“FCPA”) and antitrust. Based upon Cadbury’s pre-acquisition policies and compliance programs and our post-acquisition reviews, our preliminary findings indicated that Cadbury’s overall state of compliance was sound. Nonetheless, through our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We have undertaken these investigations, which are ongoing.
On February 1, 2011, we received a subpoena from the SEC. The subpoena, issued in connection with an investigation under the FCPA, primarily relates to a Cadbury facility in India that we acquired in the Cadbury acquisition and primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are cooperating with the U.S. government in its investigation of these matters.
Kraft Foods Inc. trades on the NYSE under the symbol KFT.
Its February 28, 2011 Form 10-K is available here.