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October 06, 2023

DOJ Emphasizes Focus on Self-Disclosure in New Safe Harbor Policy for Mergers & Acquisitions

At a Glance

  • DOJ will provide the presumption of a declination to companies that self-report corporate misconduct discovered during the M&A process. To qualify for this safe harbor, the acquiring company must promptly and voluntarily report misconduct within six months from the date of closing.
  • Companies that clawback, withhold, or make a good-faith effort to claw back or withhold compensation incentives from wrongdoing employees can have their criminal fines reduced by that same amount. To qualify under the program, all corporate resolutions entered into between the corporation and the criminal division must include certain compliance-promoting criteria, including prohibiting bonuses to employees who do not satisfy compliance requirements, disciplining wrongdoing employees or their supervisors, and incentivizing employee commitment to the compliance process.

During a speech on October 4, 2023, Deputy Attorney General Lisa Monaco addressed the Department of Justice’s (DOJ) continued focus on incentivizing corporate compliance through self-disclosure and announced DOJ’s new safe harbor policy for reporting misconduct discovered during the M&A process. Keeping with previous speeches from September 22, 2022 and October 28, 2021, Deputy Attorney General Monaco continued the Biden administration’s focus on corporate compliance and corporate criminal enforcement, highlighting both DOJ’s new policies incentivizing clawbacks from employees found to have engaged in misconduct, and DOJ’s investment of additional corporate prosecutors within its National Security Division and the Criminal Division’s Bank Integrity Unit.

First, Deputy Attorney General Monaco announced DOJ’s new department-wide M&A safe harbor policy, which provides that companies will have six months from the date of closing to self-report potential misconduct discovered within an acquisition target’s business. Companies that promptly and voluntarily report misconduct within the safe harbor period, cooperate with any investigations, and engage in timely and appropriate remediation, restitution and disgorgement will receive the presumption of a declination. And misconduct disclosed under this new safe harbor policy will not be factored into future recidivist analysis for the acquiring company. Acquiring companies will qualify for this presumption of declination if:

  • Acquiring companies disclose misconduct discovered by the acquired entity within six months from the date of closing (regardless of whether the misconduct was discovered pre- or post-acquisition).
  • The misconduct is discovered as part of a bona fide, arms-length M&A transaction.
  • The misconduct was not already disclosed, public or known to DOJ.

Under the policy, acquiring companies will then have one year from the date of closing to fully remediate the misconduct. DOJ noted that the six-month deadline for disclosure and one-year deadline for remediation could be extended by DOJ depending on the individual facts, circumstances, and complexities of each transaction.

In the announcement, Deputy Attorney General Monaco emphasized DOJ’s takeaway for companies engaged in M&A activity — corporate compliance programs should play a key role in M&A transactions and related due diligence in order to ensure that the acquiring company discovers misconduct, makes the appropriate disclosures, and takes advantage of DOJ’s safe harbor policy.  

Second, Monaco highlighted DOJ Criminal Division’s previously announced pilot program on compensation incentives and clawbacks. This program requires that all corporate resolutions entered into by the Criminal Division include compliance-promoting criteria, including but not limited to prohibiting bonuses to employees who do not satisfy performance requirements, disciplining offending employees or their supervisors, and incentivizing employees to demonstrate commitment to the compliance process. Under the program, companies who clawed back, withheld or attempted in good faith to claw back incentive-based compensation from individual wrongdoers may reduce their criminal fines by the same amount. 

We will keep you apprised of further developments when they occur. Until such time, please do not hesitate to contact us if you have any questions.

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