Back in Sept. 2003, Lockheed Martin (NYSE:LMT) announced its intention to buy San Diego-based defense contractor Titan (NYSE:TTN) for $1.8 billion. Suspicions of corrupt activity by Titan consultants, however, may put that acquisition in doubt.

Last month, Titan revealed that it is cooperating with SEC and DOJ investigations into possible violations of the Foreign Corrupt Practices Act (FCPA). Specifically, the government agencies suspect that certain "foreign consultants" for Titan made improper payments to foreign government officials, and that Titan improperly accounted for the funds used in these payments.

Titan and Lockheed discovered the payouts in the course of their due diligence in preparation for the merger. Both Lockheed and Titan say they are cooperating with the government's investigations.

These revelations bode ill for the planned merger. While Titan's shareholders are to vote the merger up or down on March 16, there is no guarantee the pending government's investigation will be completed by then. Conceivably, the merger vote might be delayed and, if the merger is not completed by March 31, either company may be able to kill the deal.

That's just one part of the story, though. The other part, of course, is whether Titan itself may be in trouble. Thus far, the minimal information released to the public by two companies is insufficient to make an informed evaluation of the risk.

All we have is Titan's affirmation that it "is not aware of any unlawful payments by Titan." But that is just legal hair-splitting. Titan itself may have done nothing wrong, but if its agents have been bribing foreign government officials, the company will not be found blameless.

Moreover, Titan's failure to be "aware" of what its money is being used to accomplish could itself be a violation of the FCPA's "books and records test." Essentially, the books and records test is an SEC requirement that a publicly traded U.S. company maintain a good enough accounting system to know where its money is and what that money is being used for.

Titan really needs to come up with a better defense than "see no evil, hear no evil," if it hopes to satisfy the SEC.

Interested in talking about the pending investigations against Titan and future prospects for a successful merger with Lockheed? Just how tough is the SEC? Talk it out with other Fools on the Securities & Exchange Commission discussion board. Only on

Motley Fool contributor and lawyer Rich Smith advises companies on complying with the Foreign Corrupt Practices Act as part of his day job. His advice generally boils down to "you better do it." He owns no shares in any of the companies mentioned in this article.