DealLawyers.com Blog

Earlier this month, I blogged about comments made by Principal Deputy AG Marshall Miller on the relevance of the DOJ’s voluntary self-disclosure policy for companies engaged in M&A transactions.  During the course of those comments, Deputy AG Miller promised further guidance on this topic in the near future. He was a man of his word, because just a day after my blog, Deputy AG Lisa Monaco announced the initiation of a “Mergers & Acquisitions Safe Harbor Policy” intended to incentive voluntary self-disclosure of wrongdoing uncovered during the M&A process.  This excerpt from Cozen O’Connor’s recent memo on the announcement provides an overview of the new policy:

In her speech at the Society of Corporate Compliance and Ethics’ 22nd Annual Compliance & Ethics Institute, DAG Monaco touted the new policy as a way to “incentivize the acquiring company to timely disclose misconduct uncovered during the M&A process.” To obtain a presumption of a declination, the acquiring company must disclose the misconduct discovered at the acquired company within six months from the date of closing, whether the misconduct was discovered pre- or post-acquisition. The acquiring company must also fully remediate the misconduct within one year of the date of closing. DAG Monaco acknowledged that no transaction is the same, noting that these deadlines can be extended by prosecutors, subject to a reasonableness standard.

DAG Monaco also explained that aggravating factors (e.g., executive involvement, significant profit, egregiousness of the misconduct) will be treated differently in the context of mergers and acquisitions. Where aggravating factors are present at the acquired company, they will not affect the acquiring company’s ability to receive a declination. On the other hand, where aggravating factors are not present at the acquired company, the acquired company itself can also qualify for voluntary self-disclosure benefits, including a possible declination.

Finally, any misconduct disclosed under the policy will not be a factor in any future recidivism analysis for the acquiring company.

The memo notes that DAG Monaco was very clear about the bottom line of the DOJ’s new policy: “Good companies — those that invest in strong compliance programs — will not be penalized for lawfully acquiring companies when they do their due diligence and discover and self-disclose misconduct.”  It says that this new, concrete policy puts companies in “entirely new territory” and provides them with guidance and predictability that had previously been lacking.  We’re posting memos on the DOJ’s new safe harbor policy in our “Due Diligence” Practice Area.

– John Jenkins