DealLawyers.com Blog

Last week, John blogged about the DOJ’s new “Mergers & Acquisitions Safe Harbor Policy” intended to incentivize voluntary self-disclosure of wrongdoing uncovered during the M&A process, which Deputy AGs had previewed in a speech and multiple prior comments. This Wilson Sonsini alert describes how acquirers can apply the policy and gives five practical suggestions:

1. Compliance Diligence Is Critical for M&A Transactions: Deputy AG Monaco made clear that the DOJ expects an acquiring company’s legal and compliance team to “have a prominent seat at the deal table.” Companies must involve outside counsel and legal and compliance personnel to conduct pre-acquisition diligence on target companies.

2. Pre-Acquisition Due Diligence Enhancements: Acquirers should review or adopt a mergers and acquisitions policy with accompanying procedures that help identify and mitigate compliance risks early in the deal process. Acquirers that do not perform effective due diligence or self-disclose misconduct may be exposed to successor liability.

3. Ensure Prompt Post-Closing Remediation: Six months is not a lot of time for an acquirer to identify misconduct, investigate it, and decide whether to self-disclose. Twelve months is not a lot of time to conduct a root cause analysis, integrate the target entity into the acquirer’s compliance program, and implement full remediation. Companies must be thinking ahead to this post-closing clock, even with the DOJ’s offers of flexibility.

4. Consider Increasing Pre-Acquisition Timing: Since the Safe Harbor Policy’s clock begins running on the date of closing, firms should consider proactively expanding the amount of time allotted for investigating and developing compliance measures to ensure timely disclosure. Because this is a DOJ-wide policy, all federal criminal violations are on the table.

5. Deciding Whether (and When) to Self-Report: If the acquiring company is unsure whether the target company’s previous conduct is illegal, it has to weigh the risks of self-reporting. If the company does not self-report and solves the problem internally, the DOJ could learn about the misconduct another way, and the company would not get credit under the Safe Harbor Policy. On the other hand, if the company self-reports, the DOJ could find that it did not meet the Safe Harbor Policy’s requirements, expand its investigation into other areas, or even alert other U.S. or foreign government agencies of the misconduct. This analysis is highly fact- and circumstance-specific.

– Meredith Ervine