DealLawyers.com Blog

Last February, the DOJ announced a new corporate voluntary self-disclosure (VSD) policy that provides incentives to encourage self-disclosure of corporate misconduct, cooperation in investigations & appropriate remediation efforts. Those incentives are potentially substantial and may even include a decision not to prosecute a company.  In a recent speech, Principal Deputy AG Marshall Miller addressed the application of the VSD policy to M&A transactions. Here’s an excerpt from his speech:

One area where we’ve received lots of feedback about self-disclosure from the private sector relates to mergers and acquisitions. Encouraging corporate responsibility includes avoiding unintended consequences – like deterring companies with good compliance programs from acquiring companies with histories of misconduct. Acquiring companies should not be penalized when they engage in careful pre-acquisition diligence and timely post-acquisition integration to detect and remediate misconduct at the acquired company’s business.

The Criminal Division’s Evaluation of Corporate Compliance Programs emphasizes the importance of including compliance voices in the M&A process. The Criminal Division’s Corporate Enforcement Policy also offers the incentive of the prospect of a declination – in essence, a safe harbor – for misconduct reported to the Department that is uncovered during pre- or post-acquisition due diligence.

Deputy AG Miller pointed to the DOJ’s 2022 Safran declination as an example of the benefits of self-reporting, cooperation and remediation in the M&A context. In that case, the company voluntarily self-disclosed that two acquired companies had, prior to their acquisition, paid a consultant to help them win contracts with the Chinese government, despite knowing that some of that money would be used to bribe government officials.  In addition to its voluntary self-disclosure, the company cooperated with DOJ and took appropriate remedial actions. As a result, the DOJ opted not to prosecute it.

He went on to note that the DOJ intends to “highlight the critical importance of the compliance function having a prominent seat at the table in evaluating and de-risking M&A decisions.” He promised that as part of the DOJ’s efforts to enhance “consistency, transparency and predictability in corporate enforcement,” he expected that Deputy AG Lisa Monaco – who spearheaded the development of the VSD program – will address voluntary self-disclosure in M&A in “the near future.”

– John Jenkins