DOJ Announces New Mergers and Acquisitions Safe Harbor Policy for Voluntary Self-Disclosures

On Oct. 4, 2023, in remarks delivered to the Society of Corporate Compliance and Ethics’ 22nd Annual Compliance & Ethics Institute, Deputy Attorney General (AG) Lisa Monaco announced the Department of Justice’s (DOJ) new Mergers & Acquisitions Safe Harbor Policy. Under that policy, the DOJ will presumptively not prosecute acquirers that self-disclose and remediate wrongful activities discovered in arm’s-length merger transactions.^[1]

This announcement builds on the DOJ’s ongoing efforts to reward voluntary self-disclosure and to encourage corporate counsel and compliance officers to take a proactive role in ensuring compliance.^[2] In remarks last month previewing the DOJ’s cooperation policies, Principal Associate Deputy AG Marshall Miller emphasized that the DOJ wanted to avoid “deterring companies with good compliance programs from acquiring companies with histories of misconduct.” ^[3] On the contrary, “Acquiring companies should not be penalized when they engage in careful pre-acquisition diligence and timely post-acquisition integration to detect and remediate misconduct at the acquired company’s business.”

In announcing the new safe harbor policy this week, Deputy AG Monaco likewise stressed that “[t]he 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.”

As noted, under this new policy, the DOJ will presumptively decline to prosecute acquiring companies that voluntarily self-disclose and remediate any federal, criminal misconduct uncovered in connection with “bona fide, arms-length M&A transactions.” In order to qualify for this new safe harbor, acquiring companies must (i) disclose criminal conduct within six months of closing, (ii) cooperate with any ensuing investigation, and (iii) engage in “requisite, timely and appropriate remediation, restitution, and disgorgement.”

Timing is crucial, as the DOJ requires prompt disclosure and remediation in order to receive the benefits of the safe harbor. Acquiring companies wishing to benefit from the safe harbor must disclose misconduct discovered at the acquired entity within six months from the date of closing. That six-month deadline applies whether the misconduct was discovered pre- or post-acquisition. Disclosing companies will then have one year from the date of closing to fully remediate the misconduct. According to Deputy AG Monaco, both of those deadlines “are subject to a reasonableness analysis” and could be extended by prosecutors depending on the specific facts, circumstances and complexity of a particular transaction. However, companies that discover “misconduct threatening national security or involving ongoing or imminent harm” cannot wait until the deadline to self-disclose.

Deputy AG Monaco also clarified that aggravating factors will be treated differently in the M&A context. In particular, the presence of aggravating factors at the acquired company “will not impact in any way” the acquiring company’s ability to receive a declination. In addition, any misconduct disclosed under the safe harbor policy will not be factored into any recidivist analysis for the acquiring company either at the time of disclosure or in the future.

Critically, this safe harbor policy is only applicable to misconduct discovered in “bona fide, arm’s-length M&A transactions.” It does not apply to misconduct that was otherwise required to be disclosed, already public or already known to the DOJ. The policy also does not impact civil merger enforcement.

Companies wishing to take advantage of this new safe harbor policy should be mindful that “[c]ompliance must have a prominent seat at the deal table if an acquiring company wishes to effectively de-risk a transaction,” Deputy AG Monaco stated. By contrast, companies that do not perform effective due diligence or voluntarily self-disclose misconduct at an acquired entity “will be subject to full successor liability for that misconduct under the law.”

The new policy underscores the need for effective compliance due diligence in M&A transactions and the benefits that such due diligence will yield when accompanied by prompt remediation and cooperation. In setting out specific deadlines and timing guidance, the DOJ provides greater certainty as to its cooperation expectations. But it remains to be seen whether that timing is in fact practical in complex and international transactions.

^[1] _{Press Release, “Deputy Attorney General Lisa O. Monaco Announces New Safe Harbor Policy for Voluntary Self-Disclosures Made in Connection with Mergers and Acquisitions,” Dep’t of Justice (Oct. 4, 2023), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-announces-new-safe-harbor-policy-voluntary-self}

^[2] _{See Client Alert, “DOJ Reinforces Its Focus on Affirmative Corporate Accountability at the ABA’s 38th Annual White Collar Conference,” Kramer Levin (Mar. 10, 2023), https://www.kramerlevin.com/en/perspectives-search/doj-reinforces-its-focus-on-affirmative-corporate-accountability-at-the-abas-38th-annual-white-collar-conference.html; “United States Attorneys’ Offices Voluntary Self-Disclosure Policy,” https://www.justice.gov/usao-sdny/press-release/file/1569411/download}

^[3] _{Press Release, “Principal Associate Deputy Attorney General Marshall Miller Delivers Remarks at the Global Investigations Review Annual Meeting,” Dep’t of Justice (Sept. 21, 2023), https://www.justice.gov/opa/speech/principal-associate-deputy-attorney-general-marshall-miller-delivers-remarks-global}