DOJ incentivizes self-reporting with new M&A Safe Harbor Policy

On October 4, 2023, US Deputy Attorney General (DAG) Lisa Monaco announced that the US Department of Justice (DOJ) is adopting a new Mergers & Acquisitions Safe Harbor Policy,1 incentivizing companies to voluntarily disclose misconduct identified during the mergers and acquisitions (M&A) process.

The Safe Harbor Policy, which will apply across the DOJ, provides that companies will receive a presumption of declination if they voluntarily self-disclose the acquired entity’s misconduct, cooperate, remediate, and engage in appropriate restitution and disgorgement. Moreover, when an acquirer voluntarily self-discloses under the Safe Harbor Policy, the acquired company may also qualify for voluntary self-disclosure benefits, including potentially a declination, unless aggravating factors exist.

In her speech, DAG Monaco specified the time by which companies must self-disclose and remediate in order to qualify under the Safe Harbor Policy; companies (1) must voluntarily disclose the acquired entity’s misconduct within six months of closing (irrespective of whether they identified the misconduct before or after closing), and (2) fully remediate within one year of the transaction’s closing. DAG Monaco noted that companies should treat the prescribed timeline as a baseline. DOJ prosecutors have discretion about whether to extend the deadlines, and companies should not necessarily wait the entire time before self-disclosing—particularly in instances where the misconduct threatens national security or involves ongoing or imminent harm. The DOJ will not consider disclosures made pursuant to the Safe Harbor Policy when conducting any recidivist analysis related to the disclosure at issue or when resolving future misconduct for the acquiring company.

DAG Monaco made clear, however, that the Safe Harbor Policy only applies to criminal conduct discovered in bona fide, arms-length M&A transactions, and does not apply to misconduct that is already public or known to the DOJ. Further, the Safe Harbor Policy will not affect civil merger enforcement.

The Safe Harbor Policy is just the most recent example of the DOJ’s efforts to encourage voluntary self-disclosure. In September 2022, the Department released guidance requiring all DOJ components to review or, for those without a formal written policy on self-disclosure, to draft and publish, a policy setting forth expectations and available benefits.2 Earlier this year, the DOJ revised the FCPA Corporate Enforcement Policy (which applies to all Criminal Division matters) to encourage voluntary self-disclosure3 and released a nationwide policy for US Attorney’s Offices clarifying when companies may receive credit for self-disclosure.4

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The Safe Harbor Policy codifies informal announcements previously made by the DOJ encouraging self-disclosure in the context of M&A transactions. It also goes a step further in offering the acquisition targets a degree of leniency when its acquirer reports. The Safe Harbor Policy creates predictability around how various DOJ components will treat self-disclosure of misconduct identified during the M&A process. Companies with robust compliance programs now have an additional way to mitigate risk when they are acquiring companies operating in higher risk jurisdictions or ones that may not have fulsome corporate compliance programs themselves.

Companies should take this opportunity to review their M&A due diligence processes and escalation procedures to ensure that they are well equipped to identify and address misconduct uncovered during the M&A process and can avail themselves of the Safe Harbor Policy’s benefits as appropriate. Companies should also confirm that they have established policies and procedures that enable them to promptly implement effective corporate compliance programs in acquired entities post-acquisition. Only with robust M&A due diligence and post-closing integration can companies take full advantage of the Safe Harbor Policy.

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