DOJ’s New M&A Safe Harbor Rewards Buyers Who Speak Up Quickly

The Department of Justice continues to incentivize companies to engage in conduct that proactively demonstrates commitment to compliance with applicable laws and regulations.

Building on implementation of policies in 2022 and earlier this year, Deputy Attorney General Lisa Monaco announced on Oct. 4 a new safe harbor policy for voluntary self-disclosures made in connection with mergers and acquisitions, allowing acquiring companies to avoid successor liability.

Under the new DOJ M&A safe harbor policy, buyers that promptly and voluntarily disclose criminal misconduct; fully cooperate with the related investigation; and engage in timely and appropriate remediation, restitution, and disgorgement will receive a presumption of declination of prosecution.

The DOJ cites previous isolated examples where it exercised enforcement discretion related to voluntary disclosures of criminal activity related to M&A. This new safe harbor is the first DOJ-wide policy establishing protection for companies that voluntarily self-disclose misconduct identified related to an acquisition.

Under the policy, discovered misconduct must be disclosed within six months of the acquisition closing date and fully remediated within one year from the closing date. Recognizing that acquisitions vary in size and complexity, these stated time frames are subject to a reasonableness analysis that allows for prosecutors to extend these deadlines.

The safe harbor policy also clarifies that the presence of aggravating factors at the acquired company won’t impact its ability to receive a declination of prosecution. In addition, absent aggravating factors, the acquired company also will qualify for voluntary self-disclosure benefits, including potential declination of prosecution.

Finally, the safe harbor policy provides assurance that self-disclosed misconduct won’t affect any recidivist analysis for the acquired company at the time of disclosure or in the future.

This new policy again clearly emphasizes the DOJ’s focus on promoting effective corporate compliance programs that are designed to identify and remediate misconduct in a timely manner, including compliance-related due diligence in mergers and acquisitions.

Monaco said the DOJ is placing “an enhanced premium on timely compliance-related due diligence and integration. Compliance must have a prominent seat at the table if an acquiring company wishes to effectively de-risk a transaction.

“By contrast,” Monaco continued, “if your company does not perform effective due diligence or self-disclose misconduct at an acquired entity, it will be subject to full successor liability for that misconduct under the law.”

The clear takeaways for companies involved in M&A are that the DOJ continues to place a premium on thorough compliance, via due diligence, investment in strong compliance programs, thoughtful integration of targets, and timely disclosure and remediation of misconduct.

This new policy builds on the DOJ’s recent Corporate Enforcement and Voluntary Self-Disclosure Policy, which “recognizes the potential benefits of corporate mergers and acquisitions, particularly when the acquiring entity has a robust compliance program in place and implements that program as quickly as practicable at the merged or acquired entity.”

We recommend buyers ensure rigorous compliance-related due diligence during the pre-closing period, integrate targets quickly into buyer compliance programs, and undertake additional efforts to identify compliance issues post-closing, given the six-month reporting window.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Ty Kelly is a shareholder at Baker Donelson, defending companies in government investigations and high-stakes litigation.

Noah Kressler is a shareholder at Baker Donelson and is an experienced corporate finance and transactional attorney who advises public and private companies.

Robert Wells is a shareholder at Baker Donelson and represents clients in health-care regulatory and corporate matters.

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