When Ball Corporation, a US industrial conglomerate, was looking to diversify internationally during the mid-2000s, its attention fell on Formametal SA, an Argentine maker of metal cans. The target looked like a good fit, adding a reliably in-demand product to Ball’s broad portfolio, and in 2006 the deal was done.
But soon after the deal closed, Ball found that Formametal employees had been paying Argentine government officials to secure the import of used machinery, and the export of raw materials with reduced tariffs, according to findings by the Securities and Exchange Commission, the US regulator.
Payments of at least $106,749 were logged in Formametal’s books as “customs advisory services” and “verification charges”, but were allegedly bribes organised by two senior executives at the company.
According to the SEC, Ball did not do enough to stop graft, and bribes continued even after Formametal was under its control. The SEC launched an investigation into whether Ball had violated the Foreign Corrupt Practices Act (FCPA), and only last year did Ball settle for $300,000, without admitting any liability.
Ball’s story highlights the risks of M&A in emerging markets. Buying into developing economies can offer a fast path to growth, but it can also introduce corruption, fraud, the need for risk management and other issues to the organisation.
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Source: David Gelles | Financial Times