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DOJ’s New M&A Safe Harbor Policy for Voluntary Self-Disclosures

October 4, 2023

On October 4, 2023, U.S. Deputy Attorney General (DAG) Lisa Monaco introduced a new Safe Harbor Policy concerning mergers and acquisitions. This Safe Harbor Policy aims to encourage the acquiring companies to conduct thorough due diligence and self-disclose any discovered misconduct occurring at the target companies level.

 

Under this Safe Harbor Policy, the acquiring companies are incentivized to voluntarily discover and disclose any criminal conduct found during the due diligence or post-acquisition integration process. If they report such misconduct within six months of the closing of the transactions and remediate within one year of the closing, they are presumed to receive a declination of prosecution from the DOJ. This presumption remains intact, despite the presence of aggravating factors traditionally considered detrimental in legal proceedings, such as the involvement of senior management in the misconduct or significant profits derived from the misconduct. Moreover, misconduct disclosed under this Safe Harbor Policy will not be used against the acquiring companies as part of a recidivism analysis in future cases.

 

This Safe Harbor Policy is department-wide but allows for tailored application by each DOJ component to their specific enforcement regimes. It does not, however, apply to misconduct that was already known to the DOJ, required to be disclosed by other means, or pertains to civil enforcement actions.

 

While the Safe Harbor Policy offers clarity and benefits to acquiring companies, it also presents challenges. Acquiring companies must weigh the potential advantages of self-reporting against the risks, including the costs of potential restitution and disgorgement, as well as reputational damage. In addition, given that this Safe Harbor Policy does not apply to the target company, the target company may still face prosecution unless it also meets specific conditions absent aggravating circumstances. Furthermore, as suggested by the DAG, the acquiring company may not get the benefit of this Safe Harbor Policy in a national security case even if it discloses within six months and remediates within one year.

 

In conclusion, the announcement of this Safe Harbor Policy underlines the DOJ’s emphasis on corporate compliance and the expectation for companies to have robust processes to detect and address potential violations. It is important for the acquiring companies to create a due diligence team capable of assessing risk profiles and compliance programs and integrating the target companies into the acquiring companies’ compliance framework promptly after the acquisition.

 

Additionally, the intricacies of the Safe Harbor Policy also demand a sophisticated understanding of its scope and limitations, necessitating expert legal and compliance advice for companies navigating M&A activities.

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