On October 4, 2023, Deputy U.S. Attorney General Lisa O. Monaco announced that the United States Department of Justice (DOJ) is implementing a new nationwide Mergers & Acquisitions Safe Harbor Policy (the “M&A Policy”). The DOJ’s new M&A Policy reflects the Department’s recent focus on ensuring that corporate criminal prosecutions target individual wrongdoers. As part of this focus, every section of the DOJ involved in prosecuting corporate crime was required to develop a formal, written voluntary self-disclosure policy. According to the new M&A Policy, companies that report misconduct discovered at a newly acquired entity will have six months from the transaction’s closing date to inform the DOJ of any irregularity or improper conduct. Once discovered, companies then have one year from the closing date to effectively remediate any unlawful conduct. Finally, any misconduct reported under the M&A Policy will not be factored into any future DOJ recidivism analysis were the company to find itself facing further legal trouble in the future. At the heart of the new policy is the commitment by the DOJ to the presumptive non-prosecution of companies that meet these standards.
The new M&A Policy ensures that the substantive disclosure policies that are already in place and promulgated by the Foreign Corrupt Practices Act Enforcement Unit, the Antitrust Division, the National Security Division, and the Environment and Natural Resources Division will now also apply in the specific context of mergers and acquisitions. The DOJ’s priority is encouraging a strong compliance culture across all industries while ensuring that companies with effective compliance structures are not punished for merging with entities that may maintain non-functional or ineffective compliance policies.
Business executives and corporate counsel should be aware that the DOJ’s policy seeks to encourage pre-deal due diligence, reward compliance culture, and promote collaborative efforts between business leaders and the DOJ. Accordingly, the M&A Policy will be interpreted in light of these goals, but the following represent the main takeaways:
- Scope: The M&A Policy applies only to “bona fide, arms-length M&A transactions.” It does not apply to conduct that companies must otherwise disclose, nor does it apply to conduct that is already known to the government. Finally, it does not apply to civil merger enforcement.
- Self-Disclosure: The M&A Policy requires that any newly discovered wrongdoing be disclosed to the DOJ within six months of the closing date. This applies to conduct discovered prior to the acquisition as well as conduct discovered after the acquisition. Failure to meet the six-month deadline may lead to a charging decision based on the new entity’s successor liability for the crimes of the old entity. Finally, the six-month window does not apply to (i) conduct involving the national security of the United States, or (ii) conduct involving ongoing or imminent harm. In both of these circumstances, the company must immediately disclose the wrongdoing.
- Remediation: Within one year of the closing date, the acquiring company must effectively remediate the wrongful conduct. This remediation may include disgorgement and restitution.
- Reasonableness Analysis: The baseline dates mentioned above are to be treated as just that—baselines. The DOJ may extend the reporting or remediation time based on a discretionary assessment of the facts, circumstances, and complexity of the underlying transaction. The DOJ refers to this as a “reasonableness” standard.
- Aggravating Factors: Generally, a company is not eligible to benefit from voluntary self-disclosure when a so-called aggravating factor is present. These typically include (i) the involvement of corporate officers in the crime, (ii) significant financial benefit to the corporation from involvement in the crime, (iii) the crime is against the national security of the United States, or (iv) the corporation has a history of recidivism. The new M&A Policy provides that the presence of aggravating factors at the acquired company will not have an impact on the acquiring company’s ability to benefit from voluntary self-disclosure.
- Recidivism: Wrongful conduct disclosed by the acquiring company pursuant to the M&A Policy will not count for purposes of any future recidivism analysis undertaken by the DOJ. This means it will not be an aggravating factor in any future voluntary self-disclosure.
The new DOJ M&A Policy provides substantial incentives for companies with rigorous corporate compliance cultures to acquire other companies without the fear of also acquiring any potential criminal liability. It also affirmatively rewards effective pre-merger due diligence. Companies active in the M&A space should ensure that pre-deal due diligence adequately assesses the acquired company’s potential criminal liability in a number of areas including, but not limited to, the Foreign Corrupt Practices Act, antitrust laws, national security and export control laws, and the various federal environmental laws. Robust and effective due diligence could be the difference between significant successor criminal liability and a successful voluntary self-disclosure. As always, before self-reporting to the DOJ it is best to consult with experienced White Collar and Government Investigations attorneys to ensure that the process for any self-disclosure is appropriately maintained and ultimately successful. The team at McCarter & English stands ready to provide all necessary support as companies navigate the new M&A Self-Disclosure Policy.