DOJ Deputy Attorney General Announces Safe Harbor Policy for Voluntary Self-Disclosure in M&A

Deputy Attorney General Lisa Monaco announced the US Department of Justice’s (DOJ’s) new “Safe Harbor Policy” impacting mergers and acquisitions (M&A) on October 4. Through the policy, acquiring companies can avoid DOJ charges if they voluntarily disclose misconduct of the acquired company to the DOJ.

These latest remarks build upon the DOJ’s previous announcements in 2022 and 2023 encouraging companies to voluntarily self-disclose misconduct and emphasizing the importance of strong corporate compliance programs.

DOJ’S CONTINUED EMPHASIS ON COOPERATION AND SELF-DISCLOSURE

Deputy Attorney General Lisa Monaco announced the latest development in a chain of new policies from the DOJ on voluntary self-disclosure: a Safe Harbor Policy for acquiring companies to self-report wrongdoing from acquired companies. Monaco explained that the DOJ does not want to “discourage companies with effective compliance programs from lawfully acquiring companies with ineffective compliance programs and a history of misconduct” but instead hopes to “incentivize the acquiring company to timely disclose misconduct uncovered during the M&A process.”

The acquired company’s misconduct must be discovered during the course of “bona fide, arm’s-length M&A transactions” and cannot be applied to misconduct that is already disclosed and/or known to the DOJ. This policy also does not impact civil merger enforcement.

HOW TO SATISFY THE SAFE HARBOR REQUIREMENTS

Acquiring companies that can satisfy the Safe Harbor Policy requirements can qualify for a “presumption of declination” through the following criteria:

• Self-disclosure within six months: The acquiring company must disclose the misconduct at the acquired company within six months of the transaction closing date, regardless of whether the misconduct was discovered before or after the acquisition.
• Cooperation: The acquiring company must fully cooperate with the ensuing investigation.
• Remediation within 12 months: The company must fully remediate the disclosed misconduct one year from the closing date, including restitution and disgorgement.

The timeline to meet the safe harbor requirements is short. However, recognizing that every M&A deal is different, this one-year deadline can vary depending on “specific facts, circumstances, and complexity of a particular transaction.”

IMPORTANCE OF CORPORATE COMPLIANCE PROGRAMS

Monaco also emphasized the importance of corporate compliance and its importance for national security:

Gone are the days when executives could view corporate enforcement matters as the cost of doing business. In this new era, corporate executives need to redouble time and attention to compliance programs, compensation programs, and diligence on acquisitions. Failing to do so can have dire consequences for companies, shareholders, and our nation . . . by focusing on robust compliance and by investing in good corporate governance, you are also protecting our national security.

Noting that this latest announcement is not the end for the DOJ’s emphasis on voluntary self-disclosure, Monaco alluded to “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.”

OTHER KEY TAKEAWAYS AND PRACTICAL IMPLICATIONS

• The policy incentivizes acquiring companies to disclose misconduct and provides guidance on how companies can handle misconduct discovered during an M&A transaction.
• The timeline to qualify for a presumption of declination is very short, so companies must act quickly to disclose and fully remediate the conduct.
• It remains to be seen how the DOJ will handle variation—if any—among deals, particularly ones that are more complex.