Deputy U.S. Attorney General Lisa O. Monaco Announced that the DOJ will implement a new policy for the handling of voluntarily, self-disclosed misconduct in the mergers and acquisitions setting. The new M&A safe harbor will harmonize existing policies across DOJ and give both acquiring and acquired companies an opportunity to obtain declinations. The new M&A safe harbor also reflects some of the trends Monaco said have emerged in corporate cases, especially those that intersect with geopolitical events and national security.
But Monaco suggested that the overarching theme among the several corporate guidelines the DOJ has published in recent years, including the new M&A safe harbor, is to empower GCs and CCOs to push their companies to invest in compliance programs. Monaco reiterated this point later, and more directly: “Some of the examples I’ll share today make this case: Invest in compliance now or your company may pay the price—a significant price—later.”
M&A safe harbor. According to Monaco, the new M&A safe harbor is intended to harmonize how the safe harbor is applied across DOJ. The safe harbor had its origins in a company-specific decision not to bring an enforcement case against Halliburton in 2008. Monaco explained that the safe harbor since then had been applied differently by multiple DOJ units.
The new policy also is not intended to punish acquiring companies that self-disclose and remediate compliance problems at acquired companies. “In a world where companies are on the front line in responding to geopolitical risks—we are mindful of the danger of unintended consequences,” said Monaco. “The last thing the Department wants to do is discourage companies with effective compliance programs from lawfully acquiring companies with ineffective compliance programs and a history of misconduct. Instead, we want to incentivize the acquiring company to timely disclose misconduct uncovered during the M&A process.”
As a result, the new M&A safe harbor policy will apply across all DOJ. Specifically, Monaco said that “…acquiring companies that promptly and voluntarily disclose criminal misconduct within the Safe Harbor period, and that cooperate with the ensuing investigation, and engage in requisite, timely and appropriate remediation, restitution, and disgorgement—they will receive the presumption of a declination.”
Monaco then detailed how the M&A safe harbor will work in practice. In essence, the policy has two main components:
- The acquiring company must disclose misconduct at the acquired company within six months of the transaction closing date, regardless of whether the misconduct was discovered pre- or post-merger.
- The acquiring company must fully remediate the misconduct within one year of the transaction closing date.
With respect to aggravating factors, Monaco said that an acquiring company can get a declination despite the presence of aggravating factors at the acquired company. Moreover, an acquired company, like its acquirer, will be eligible for voluntary self-disclosure benefits, provided that there are no aggravating factors at the acquired company. As a result, an acquired company could potentially still obtain a declination.
Monaco further explained that an acquiring company’s disclosure under the new M&A safe harbor would not influence that company’s recidivist analysis.
However, Monaco noted, the new M&A policy will be limited to criminal conduct in “bona fide, arms-length M&A transactions” and would not apply in the case of information required to be disclosed or information that is in the public domain or otherwise known to the DOJ. Monaco added that the policy will not apply to civil merger enforcement. Monaco said DOJ wants the compliance persons involved in transactions and to have “a prominent seat at the deal table.” The failure to conduct due diligence or to self-disclose misconduct, Monaco said, can result in “full successor liability” for the acquiring company.
Enforcement and compliance trends. In addition to the announcing the M&A safe harbor, Monaco discussed several areas of DOJ interest. First, Monaco said that corporate criminal enforcement increasingly happens at the intersection of business and national security (e.g., sanctions evasion and export controls). In response to the uptick in these cases, Monaco said the DOJ would add 25 attorneys to its National Security Division and create a Chief Counsel for Corporate Enforcement position. Monaco also said DOJ plans to increase the number of prosecutors in the Criminal Division’s Bank Integrity Unit by 40 percent.
With respect to corporate misconduct, Monaco said that resolutions now often include terms regarding divestitures, specific performance, and compensation and compliance. The latter item regarding compensation, which is the subject of a pilot program, may award a credit to the company for any dollars it claws back or withholds from employees who engaged in wrongdoing.
Monaco closed her remarks by suggesting areas where DOJ will continue to harmonize its corporate policies across the Department, including cybersecurity, technology, and national security. Monaco said DOJ may have more to announce in the future as it expands its resolutions policies from the criminal setting to other areas, such as breaches of affirmative civil case settlements and violations of mitigation agreements or orders issued by the Committee on Foreign Investment in the United States (CFIUS).