Over the last two years, the Department of Justice (DOJ) has announced numerous policy changes on corporate criminal enforcement policies, which were largely based on a self-described “carrot and sticks” approach (“a mix of incentives and deterrence”). The latest policy affects mergers and acquisitions. 

On October 4, 2023, Deputy Attorney General Lisa Monaco, in remarks before the Society of Corporate Compliance and Ethics, announced a new safe harbor policy for voluntary self-disclosures made in connection with bona-fide, arms-length mergers and acquisitions.  

This latest policy continues the DOJ’s recent efforts to encourage corporate general counsel and compliance officers to proactively ensure compliance with the law. As Deputy Attorney General Monaco stated during her speech announcing the policy, “The last thing the Department wants to do is discourage companies with effective compliance programs from lawfully acquiring companies with ineffective compliance programs and a history of misconduct. Instead, we want to incentivize the acquiring company to timely disclose misconduct uncovered during the M&A process.”

Under the policy, acquiring companies will qualify for a presumption of declination if: (1) they disclose criminal misconduct within six months of closing an M&A transaction, (2) cooperate with the ensuing investigation, and (3) engage in requisite, timely, and appropriate remediation, restitution, and disgorgement of any ill-gotten gains.

Timing is critical, and the window provided by the DOJ is short. An acquiring company must disclose misconduct discovered within an acquired entity within six months of the transaction’s closing date (regardless of whether the misconduct was discovered pre- or post-acquisition). The acquiring company will then have at least one year from the transaction’s closing date to fully remediate the misconduct (including paying restitution or disgorgement). This timeline can be extended based on the specific facts, circumstances, and complexity of the deal. In addition, the DOJ expects full cooperation with any resulting investigation into the reported misconduct. 

Timing is critical, and the window provided by the DOJ is short.

If the acquiring company complies with these conditions, it will qualify for a presumption of declination. The presence of aggravating factors will not impact the acquiring company’s ability to receive its declination, and any misconduct disclosed under the policy will not be factored into future recidivist analysis for the acquiring company. Importantly, the M&A Safe Harbor does not apply to misconduct that is otherwise required to be disclosed, already public, known to the Department, or relating to civil merger enforcement. 

Key Takeaways

  • DOJ has provided a safe harbor for the voluntary self-disclosure of issues learned during the course of M&A transactions, but the time frames are narrow.
  • “Compliance must have a prominent seat at the deal table if an acquiring company wishes to effectively de-risk a transaction,” according to Deputy AG Monaco.
    • Corporate attorneys and deal teams performing mergers and acquisitions should think strategically about a plan of action before issues arise during due diligence or closing so informed, deliberate decisions can be made.
  • Although the DOJ has applied the policy department-wide, look for specific DOJ components to further tailor requirements to their specific enforcement missions.
  • Additional resources are being surged in several key areas of corporate criminal enforcement. DOJ is adding more than 25 new corporate crime prosecutors in the National Security Division, including the division’s first-ever Chief Counsel for Corporate Enforcement, and increasing the number of prosecutors in the Criminal Division’s Bank Integrity Unit by 40 percent, which investigates financial institutions for sanctions and the Bank Secrecy Act violations. 

More to come

Deputy AG Monaco stated “You should expect more to come on this topic as we continue to extend consistent, transparent application of our corporate enforcement policies across the Department, beyond the criminal context to other enforcement resolutions – from breaches of affirmative civil case settlements to violations of CFIUS mitigation agreements or orders.”