DOJ Announces Safe Harbor for Mergers and Acquisitions Amid Voluntary Self-Disclosure Policy

The Department of Justice (DOJ) has increased its focus on enforcing corporate crimes. Earlier this year, the DOJ announced a voluntary corporate disclosure policy designed to create uniform standards for companies to timely disclose misconduct. A recently announced new DOJ policy specifically targets mergers and acquisitions (M&A).

On October 4, Assistant Attorney General Lisa Monaco introduced a new M&A safe harbor policy designed to encourage acquiring companies to voluntarily disclose misconduct discovered during the acquisition process. Under the M&A safe harbor, the DOJ will likely decline to prosecute acquiring companies that promptly and voluntarily self-disclose criminal misconduct; cooperate with the ensuing investigation by the DOJ; and engage in necessary, timely and appropriate remedial action, restitution and restitution.

It is important to note that this policy only applies in the criminal context and does not encompass the civil enforcement efforts of the Department of Justice. It also does not apply to misconduct that is already public or of which the DOJ already has knowledge (through a sealed qui tam complaint or otherwise).

To benefit from the M&A safe harbor, the acquiring company must: 1) timely disclose the criminal misconduct within six months from the closing date (regardless of when the misconduct was discovered, i.e., before or after the acquisition), 2) fully remedy the misconduct within one year of closing, and 3) cooperate fully with any DOJ investigation.

Acquired entities may also benefit from voluntary reporting and may also benefit from refusal, except in aggravating circumstances. Aggravating factors include (but are not limited to) criminal conduct that endangers national security, public health, or the environment; is systemic; and/or involves current directors and officers of the company.

Monaco emphasized the importance of timely due diligence and compliance onboarding throughout the transaction process. These presumed deadlines are subject to reasonableness analysis and may be extended by the DOJ depending on the facts, circumstances and complexity of a particular transaction, she said. Monaco also noted that these deadlines could be accelerated if the criminal offenses in question threaten[s] national security or involve[es] continuing or imminent harm.

An acquiring company that fails to self-disclose criminal misconduct discovered during the acquisition process exposes itself to the full liability of its successor for this misconduct. Given the DOJ’s new M&A Safe Harbor Policy, acquiring and acquiring companies should ensure a strong emphasis on compliance during the due diligence process and a thorough understanding of the risks and benefits voluntary self-disclosure if criminal misconduct is discovered during the due diligence process. process or other.