DOJ's New M&A Safe Harbor Policy for Voluntary Self-Disclosures
2024-09-27 01:22:01
On October 4, 2023, U.S. Deputy Attorney General Lisa Monaco announced a new Safe Harbor Policy by the Department of Justice (DOJ) regarding mergers and acquisitions (M&A).[1] The Safe Harbor Policy aims to encourage acquiring companies to conduct thorough due diligence and voluntarily disclose any misconduct discovered at the target company level.
Under the Safe Harbor Policy, acquiring companies are encouraged to voluntarily identify and disclose any criminal misconduct uncovered during due diligence or post-acquisition integration. If the acquiring company reports such misconduct within six months of the transaction closing and remediates it within one year of closing, the company will be presumed eligible for a DOJ declination of prosecution. This presumption applies even in cases traditionally considered aggravating factors in legal proceedings, such as senior management involvement in misconduct or significant profits derived from the misconduct. Additionally, misconduct disclosed under this policy will not be used in future cases to analyze the acquiring company's recidivism.
The Safe Harbor Policy applies across the entire DOJ but allows each DOJ component to tailor its application based on its specific enforcement regime. However, the policy does not apply to misconduct already known to the DOJ, conduct required to be disclosed by other means, or conduct involving civil enforcement actions.
While the Safe Harbor Policy provides certainty and benefits for acquiring companies, it also presents challenges. Acquiring companies must weigh the potential benefits of self-reporting against the risks, including possible restitution and disgorgement costs, as well as reputational damage. Moreover, the policy does not apply to target companies, which may still face prosecution unless there are no aggravating factors and the target company meets specific conditions. Additionally, as Deputy Attorney General Monaco noted, in cases involving national security, acquiring companies may not benefit from the Safe Harbor Policy even if they disclose within six months and remediate within one year.
In summary, the introduction of the Safe Harbor Policy reflects the DOJ's emphasis on corporate compliance and its expectation that companies have robust processes to identify and address potential violations. For acquiring companies, it is crucial to establish a due diligence team capable of assessing risk profiles and compliance programs and to quickly integrate target companies into their compliance frameworks post-acquisition. Furthermore, the complexity of this policy requires a deep understanding of its scope and limitations, making it essential for companies engaged in M&A activities to seek professional legal and compliance advice.