CURRENT MONTH (October 2023)
US Department of Justice’s Announcement of a New Safe Harbor Policy for Voluntary Self-Disclosure in M&A Transactions
By Nastassia Merlino (NYU School of Law) and Malcolm Deisz (University of St. Thomas School of Law)
On October 4, 2023, within her speech delivered at the Society of Corporate Compliance and Ethics’ 22nd Annual Compliance & Ethics Institute, Deputy Attorney General (DAG) Lisa O. Monaco announced a new US Department of Justice (DOJ) Safe Harbor Policy for voluntary self-disclosure in mergers and acquisitions (M&A).
The new M&A Safe Harbor policy applies DOJ-wide and aims to promote transparency and encourage timely disclosure of misconduct during M&A transactions. The overarching goal of the policy is to combat corporate crime, which increasingly intersects with national security, cybersecurity, and tech (e.g., terrorist financing, sanctions evasion, cyber-crime, and crypto-crime).
The policy, specific to criminal conduct discovered in bona fide M&A deals, offers acquiring companies a presumptive declination to prosecution should these companies promptly and voluntarily disclose the conduct, cooperate with investigations, and “engage in requisite, timely and appropriate remediation, restitution, and disgorgement.”
To qualify for the presumption, the acquired entity’s misconduct must have occurred during the pre-acquisition due diligence, or during the integration of the newly acquired entity. Additionally, the acquiring entity must make the requisite self-disclosure within six months of the closing date, irrespective of when the misconduct is discovered. Cases of national security or imminent harm must be reported without delay. Lastly, the company must fully rectify the criminal misconduct within a year of the closing date, although an extension may be available based on deal complexity.
The policy does not affect civil merger enforcement, and acquiring companies can still face successor liability for failure to disclose or perform due diligence. Further, the voluntary self-disclosure of corporate misconduct will not affect recidivist analysis.
Overall, while the new M&A Safe Harbor Policy aims to promote self-disclosure and cooperation, the full extent of its impact and benefits remains uncertain. For example, some legal experts have concerns over how issues related to Medicare and Medicaid payments could complicate disclosure eligibility. Some uncertainty surrounding the policy’s implications stems from the fact that it was announced in a speech and has yet to be published in a writing that officially documents the precise nature of the “reward” for disclosure. Lastly, it is unclear whether acquiring companies will consistently seek to comply under the M&A Safe Harbor Policy, as evaluating the potential risks and benefits of making a voluntary disclosure is a complex process with numerous secondary implications and consequences.