On October 4, 2023, Deputy Attorney General Lisa Monaco (DAG Monaco) announced the U.S. Attorney General’s Office of the Attorney General (DAG Monaco), which aims to encourage voluntary and timely self-disclosure of criminal activity discovered in connection with mergers and acquisitions. Announced the Department of Justice (DOJ)’s new “Safe Harbor” policy (the “Safe Harbor Policy”).1 U.S. enforcement guidance has long clarified successor liability risks related to the U.S. Foreign Corrupt Practices Act (FCPA) and the Department of Justice’s fundamental expectations regarding risk-based M&A due diligence and integration activities. . This latest Department of Justice announcement provides welcome consistency across the Department’s components, including criminal antitrust and sanctions enforcement, with policies such as those already applied by the Department’s FCPA Division. It builds on recent efforts to encourage and codify voluntary self-disclosure and corporate interests. Cooperation, including recent updates to DOJ’s Corporate Enforcement Policy.2
A new path to estimated decline.
The new safe harbor policy applies department-wide to criminal activity discovered by acquirers during the course of M&A transactions. Going forward, acquiring companies that promptly and voluntarily disclose criminal misconduct within the safe harbor period (described below), cooperate with subsequent investigations, and work toward timely and appropriate remediation, restitution, and tax relief will be required to receive a presumption of withdrawal. Targeted. . Although the specific standards described below are consistent, each component of the Department of Justice retains discretion to tailor application to its own particular enforcement regime.
Safe Harbor Policy Standards. An acquiring company must meet several prerequisites to qualify for constructive withdrawal.
- Genuine independent trading. The safe harbor policy applies only to criminal activity discovered by the acquirer in a bona fide arm’s length M&A transaction. This does not apply to illegal activities that must be disclosed or that have already been disclosed or known to the Department of Justice, and does not affect the enforcement of civil mergers.
- Timeline for disclosure (6 months) and remediation (12 months). The timeline for meeting safe harbor requirements is short. To qualify, companies must disclose any criminal activity discovered at the acquired company within six months of the date of closure. This deadline applies regardless of whether the fraud was discovered before or after the acquisition. He sets a standard of one year from the date of closure for companies to fully rectify any wrongdoings. However, DAG Monaco warned that companies must disclose and correct any wrongdoing that “endangers national security or involves continuing or imminent harm” more quickly than these deadlines. As explained in a previous Mayer Brown warning, the Department of Justice recently emphasized that companies must promptly disclose violations of national security laws.3
- Exceptions are available in certain situations. Recognizing that each M&A transaction is different, these deadlines are subject to a reasonableness analysis and may vary depending on the specific facts, circumstances and complexity of the particular transaction.
- Aggravating factors and recidivism. Aggravating factors in the acquired company (e.g., involvement of senior management in fraud, significant profits derived from fraud, widespread or pervasive fraud) do not affect the buyer’s ability to receive a rejection. yeah. If no aggravating factors are involved, the acquired entity itself may also be entitled to the benefits of voluntary self-disclosure, including potential withdrawal. Finally, misconduct disclosed under a safe harbor policy cannot be part of the acquiring company’s future recidivism analysis.
Focus on integrated due diligence and compliance processes.
DAG Monaco made this latest policy announcement to General Counsel and Compliance Officers attending the Society for Corporate Compliance and Ethics’ 22nd Annual Compliance and Ethics Institute, reminding buyers that compliance has an “important seat at the deal table.” He emphasized the need to account for the To effectively assess and address the risks of future transactions.
DAG Monaco emphasized the Ministry of Justice’s “enhanced premium for timely compliance-related due diligence and integration” to these advisory boards and transaction teams. Consistent with DOJ’s emphasis on strong corporate compliance programs, the earlier fraud is identified and potential targets are addressed, the more options are available to informed buyers. Masu. The new policy affirms the importance of prompt post-closure information gathering and integration activities, with potential safe harbor benefits counted from the date of closure.
Assessing disclosure risks and rewards.
Despite the welcome clarity provided by this announcement, a company’s decision to voluntarily self-disclose to the Department of Justice requires a full assessment of the risks and potential benefits in each case. There is no doubt that this is an act that emphasizes facts. Companies should carefully weigh the benefits of disclosure against the costs and impact of potential damages, disgorgement, publicity, reputational and brand damage, even if the Department of Justice ultimately declines to prosecute. . The analysis is further complicated by the fact that if aggravating factors are present, only the acquirer, and not the acquired company under new ownership, may be subject to disapproval.
1 Remarks prepared for presentation by Deputy Attorney General Lisa O. Monaco at the Society for Corporate Compliance and Ethics’ 22nd Annual Compliance and Ethics Institute (October 4, 2023). https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-announces-new-safe-harbor-policy-voluntary-self
2 See previous client alert regarding revisions to the Department of Justice Criminal Division’s Corporate Enforcement Policy: https://www.mayerbrown.com/en/perspectives-events/publications/2023/01/dojs-criminal-division-announces -revisions-to-dojs-corporate enforcement policies, including new paths to potential disapproval
3 See https://www.mayerbrown.com/en/perspectives-events/publications/2023/07/justice-commerce-and-treasury-emphasize-relevance-of-voluntary-disclosures-of-violations.