DOJ Announces New Mergers & Acquisitions Safe Harbor Policy
14 NOVEMBER 2023 | Zac Soto
On October 4, 2023, Deputy Attorney General Lisa Monaco announced the new Mergers & Acquisitions (M&A) Safe Harbor Policy of the Department of Justice (“DOJ”). Under the new policy, acquiring companies that discover and disclose misconduct in a target or recently acquired company may, subject to certain conditions and limitations, enjoy the presumption of a declination to prosecute (that is, a formal statement that the DOJ will not prosecute the company) by the DOJ.
Requirements for Presumption of Declination to Prosecute
Disclosure and remediation requirements to receive the presumption of declination are as follows:
Prompt Self-Disclosure: Acquiring companies must promptly and voluntarily disclose any criminal misconduct discovered at the acquired entity within six months from the date of closing, whether discovered before or after closing, provided, however, that where discovered misconduct threatens national security or involves “ongoing or imminent harm”, disclosure must be made immediately upon discovery.
Cooperation and Remediation: Companies must fully cooperate with the DOJ’s investigation and engage in timely and appropriate remediation, restitution, and disgorgement with respect to disclosed misconduct, and acquiring companies must “fully remediate” disclosed misconduct within one year from the date of closing of the transaction giving rise to its discovery and disclosure. The DOJ may, at its discretion, extend these deadlines where facts dictate that such an extension is reasonable in light of the circumstances.
Additional Potential Benefits of Disclosure
Importantly, an acquiring company’s eligibility for a declination will not be influenced by the presence of aggravating factors, such as misconduct posing serious threats to national security, public health, or the environment, pervasive misconduct throughout the company, or involvement of current executive management. Additionally, unless aggravating factors are identified at the acquired company, that company may also qualify for benefits under the DOJ’s Voluntary Self-Disclosure Policy, potentially leading to a declination.
Any misconduct revealed under the Safe Harbor Policy will not be considered in future recidivist analyses for the acquiring company. This protection encourages voluntary disclosures without the fear of being labeled a repeat offender in subsequent DOJ enforcement actions.
Limitations
Importantly, the Safe Harbor Policy only applies to criminal conduct discovered in bona fide, arms-length M&A transactions, and does not apply to (i) misconduct that was otherwise required to be disclosed, (ii) misconduct that was already public, or (iii) misconduct already known to the DOJ. Disclosure to the DOJ will not remove disclosure obligations to other state or federal agencies, and counsel should be consulted to ensure that disclosure obligations are handled appropriately, as the Safe Harbor Policy is not binding on other federal or state agencies. Additionally, the Safe Harbor Policy solely pertains to criminal investigations and does not exert any influence on civil merger enforcement.
Conclusion
The introduction of the DOJ’s M&A Safe Harbor Policy provides acquiring companies with a valuable tool to navigate potential criminal prosecution arising from misconduct discovered during or after the M&A process. While not a substitute for thorough due diligence, this policy offers a level of protection and confidence to acquirers, emphasizing the importance of prompt self-disclosure, cooperation, and timely remediation. Acquiring companies should carefully adhere to the specified conditions and limitations, recognizing that compliance with the Safe Harbor Policy could be a decisive factor in avoiding punitive measures and securing a declination of prosecution from the DOJ.
DOJ Announces New Mergers & Acquisitions Safe Harbor Policy
14 NOVEMBER 2023 | Zac Soto
On October 4, 2023, Deputy Attorney General Lisa Monaco announced the new Mergers & Acquisitions (M&A) Safe Harbor Policy of the Department of Justice (“DOJ”). Under the new policy, acquiring companies that discover and disclose misconduct in a target or recently acquired company may, subject to certain conditions and limitations, enjoy the presumption of a declination to prosecute (that is, a formal statement that the DOJ will not prosecute the company) by the DOJ.
Requirements for Presumption of Declination to Prosecute
Disclosure and remediation requirements to receive the presumption of declination are as follows:
Prompt Self-Disclosure: Acquiring companies must promptly and voluntarily disclose any criminal misconduct discovered at the acquired entity within six months from the date of closing, whether discovered before or after closing, provided, however, that where discovered misconduct threatens national security or involves “ongoing or imminent harm”, disclosure must be made immediately upon discovery.
Cooperation and Remediation: Companies must fully cooperate with the DOJ’s investigation and engage in timely and appropriate remediation, restitution, and disgorgement with respect to disclosed misconduct, and acquiring companies must “fully remediate” disclosed misconduct within one year from the date of closing of the transaction giving rise to its discovery and disclosure. The DOJ may, at its discretion, extend these deadlines where facts dictate that such an extension is reasonable in light of the circumstances.
Additional Potential Benefits of Disclosure
Importantly, an acquiring company’s eligibility for a declination will not be influenced by the presence of aggravating factors, such as misconduct posing serious threats to national security, public health, or the environment, pervasive misconduct throughout the company, or involvement of current executive management. Additionally, unless aggravating factors are identified at the acquired company, that company may also qualify for benefits under the DOJ’s Voluntary Self-Disclosure Policy, potentially leading to a declination.
Any misconduct revealed under the Safe Harbor Policy will not be considered in future recidivist analyses for the acquiring company. This protection encourages voluntary disclosures without the fear of being labeled a repeat offender in subsequent DOJ enforcement actions.
Limitations
Importantly, the Safe Harbor Policy only applies to criminal conduct discovered in bona fide, arms-length M&A transactions, and does not apply to (i) misconduct that was otherwise required to be disclosed, (ii) misconduct that was already public, or (iii) misconduct already known to the DOJ. Disclosure to the DOJ will not remove disclosure obligations to other state or federal agencies, and counsel should be consulted to ensure that disclosure obligations are handled appropriately, as the Safe Harbor Policy is not binding on other federal or state agencies. Additionally, the Safe Harbor Policy solely pertains to criminal investigations and does not exert any influence on civil merger enforcement.
Conclusion
The introduction of the DOJ’s M&A Safe Harbor Policy provides acquiring companies with a valuable tool to navigate potential criminal prosecution arising from misconduct discovered during or after the M&A process. While not a substitute for thorough due diligence, this policy offers a level of protection and confidence to acquirers, emphasizing the importance of prompt self-disclosure, cooperation, and timely remediation. Acquiring companies should carefully adhere to the specified conditions and limitations, recognizing that compliance with the Safe Harbor Policy could be a decisive factor in avoiding punitive measures and securing a declination of prosecution from the DOJ.
DOJ Announces New Mergers & Acquisitions Safe Harbor Policy
14 NOVEMBER 2023 | Zac Soto
On October 4, 2023, Deputy Attorney General Lisa Monaco announced the new Mergers & Acquisitions (M&A) Safe Harbor Policy of the Department of Justice (“DOJ”). Under the new policy, acquiring companies that discover and disclose misconduct in a target or recently acquired company may, subject to certain conditions and limitations, enjoy the presumption of a declination to prosecute (that is, a formal statement that the DOJ will not prosecute the company) by the DOJ.
Requirements for Presumption of Declination to Prosecute
Disclosure and remediation requirements to receive the presumption of declination are as follows:
Prompt Self-Disclosure: Acquiring companies must promptly and voluntarily disclose any criminal misconduct discovered at the acquired entity within six months from the date of closing, whether discovered before or after closing, provided, however, that where discovered misconduct threatens national security or involves “ongoing or imminent harm”, disclosure must be made immediately upon discovery.
Cooperation and Remediation: Companies must fully cooperate with the DOJ’s investigation and engage in timely and appropriate remediation, restitution, and disgorgement with respect to disclosed misconduct, and acquiring companies must “fully remediate” disclosed misconduct within one year from the date of closing of the transaction giving rise to its discovery and disclosure. The DOJ may, at its discretion, extend these deadlines where facts dictate that such an extension is reasonable in light of the circumstances.
Additional Potential Benefits of Disclosure
Importantly, an acquiring company’s eligibility for a declination will not be influenced by the presence of aggravating factors, such as misconduct posing serious threats to national security, public health, or the environment, pervasive misconduct throughout the company, or involvement of current executive management. Additionally, unless aggravating factors are identified at the acquired company, that company may also qualify for benefits under the DOJ’s Voluntary Self-Disclosure Policy, potentially leading to a declination.
Any misconduct revealed under the Safe Harbor Policy will not be considered in future recidivist analyses for the acquiring company. This protection encourages voluntary disclosures without the fear of being labeled a repeat offender in subsequent DOJ enforcement actions.
Limitations
Importantly, the Safe Harbor Policy only applies to criminal conduct discovered in bona fide, arms-length M&A transactions, and does not apply to (i) misconduct that was otherwise required to be disclosed, (ii) misconduct that was already public, or (iii) misconduct already known to the DOJ. Disclosure to the DOJ will not remove disclosure obligations to other state or federal agencies, and counsel should be consulted to ensure that disclosure obligations are handled appropriately, as the Safe Harbor Policy is not binding on other federal or state agencies. Additionally, the Safe Harbor Policy solely pertains to criminal investigations and does not exert any influence on civil merger enforcement.
Conclusion
The introduction of the DOJ’s M&A Safe Harbor Policy provides acquiring companies with a valuable tool to navigate potential criminal prosecution arising from misconduct discovered during or after the M&A process. While not a substitute for thorough due diligence, this policy offers a level of protection and confidence to acquirers, emphasizing the importance of prompt self-disclosure, cooperation, and timely remediation. Acquiring companies should carefully adhere to the specified conditions and limitations, recognizing that compliance with the Safe Harbor Policy could be a decisive factor in avoiding punitive measures and securing a declination of prosecution from the DOJ.