On October 4, 2023, the United States Department of Justice (DOJ) announced a new policy to encourage voluntary self-disclosure of criminal misconduct by companies in the context of mergers and acquisitions (M&A). The new policy continues, and extends to the M&A context, DOJ’s practice over the last several years of publishing formal criteria to incentivize companies to self-disclose to DOJ misconduct by employees or others.

I. Background

In the Mergers & Acquisitions Safe Harbor Policy, DOJ provides a presumption that it will decline to prosecute an acquiring company that: (1) promptly and voluntarily discloses misconduct at the acquired entity within six months from the date of closing, and (2) cooperates, remediates, and disgorges profits earned from the criminal conduct within one year of the date of closing. Both deadlines are subject to a “reasonableness” analysis. The new policy also provides benefits for the acquired entity unless aggravating factors exist, including eligibility under DOJ’s separate voluntary self-disclosure policy (see here and here).  Finally, under the M&A Safe Harbor Policy, the disclosed misconduct is not considered in DOJ’s analysis of whether the acquiring company is a “recidivist,” subject to exclusion from the presumption of non-prosecution.

In announcing the new Policy, Lisa Monaco, the Deputy Attorney General, DOJ’s second highest-ranking official, stated that the Policy, aims “to incentivize the acquiring company to timely disclose misconduct uncovered during the M&A process” while avoiding “discourag[ing] companies with effective compliance programs from lawfully acquiring companies with ineffective compliance programs and a history of misconduct.”

As alluded to above, the Safe Harbor Policy is part of DOJ's broader efforts to expand and innovate its corporate enforcement actions, especially in areas implicating national security, foreign bribery, cybersecurity, and technology.  DAG Monaco highlighted several recent examples of corporate resolutions that involved novel tools and remedies, such as divestiture, specific performance, and compliance-promoting compensation criteria.  DAG Monaco also noted that DOJ has increased its resources and personnel to pursue corporate crime that intersects with national security, such as terrorist financing, sanctions evasion, and export controls violations. 

II. Takeaways

The Safe Harbor Policy underscores the importance of conducting thorough compliance-related pre- and post-acquisition due diligence and integration in M&A transactions so that an acquiror can timely uncover misconduct and assess whether to report any misconduct to DOJ.  Companies that are considering taking advantage of the policy should:

• Assess whether they are prepared to meet the criteria of “voluntary self-disclosure,” which generally, under DOJ policy, requires that the company disclose all relevant facts related to the misconduct;
  
  
• Assess whether, after making the initial voluntary self-disclosure, they are prepared to continue to cooperate with investigation, remediate, and potentially pay financial penalties related to the misconduct;
  
  
• Understand that the Safe Harbor Policy does not have the force of law and, ultimately, the question of whether a company qualifies for the Policy is largely within the hands of DOJ;
  
  
• Understand that the Safe Harbor Policy apply only to DOJ criminal investigations; it does not affect civil merger enforcement or other disclosure obligations (for example, under the securities laws) nor does it apply to state regulators or private counterparties;
  
  
• Understand that, as DAG Monaco emphasized, the Safe Harbor Policy will only apply to “bona fide, arms-length M&A transactions” and that companies that do not perform effective due diligence or self-disclose misconduct will be subject to full successor liability under the law.

DOJ’s Safe Harbor Policy joins an expanding list of strategic compliance and risk-mitigation opportunities for companies operating across domestic and international markets, now spanning from pre-acquisition to post-acquisition integration to ongoing compliance monitoring of ongoing business activities.

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