On October 4, 2023, Deputy Attorney General Lisa O. Monaco announced the Department of Justice’s new Mergers & Acquisitions Safe Harbor Policy.[1] The policy aims to incentivize timely disclosures of misconduct uncovered during the M&A process by providing a safe harbor and a presumption of a declination to companies that comply with the new Safe Harbor Policy. This advisory addresses steps companies can take if they wish to comply with the policy and implications of the policy for companies in the M&A process.

To take advantage of the new safe harbor policy, which applies department-wide, acquiring companies should:

  • Promptly and voluntarily disclose criminal misconduct at an entity being acquired which is discovered during the M&A process within six months from the date of closing. This standard applies whether the misconduct was discovered before or after acquisition.
  • Fully remediate the misconduct within one year from the date of closing. This includes cooperation with any ensuing investigations and timely and appropriate remediation, restitution, and disgorgement.
  • Act well in advance of these deadlines when the misconduct threatens national security or involves ongoing or imminent harm.

Companies can benefit from the policy in various ways:

  • Acquiring companies can receive a presumption of declination even if there are aggravating factors at the entity being acquired. In other words, there is a presumption that the DOJ will not prosecute acquiring companies for criminal misconduct by entities they have acquired as long as acquiring companies comply with the safe harbor policy.
  • Entities being acquired that remain in existence after closing can also receive this presumption of declination, but only if they have no aggravating factors.
  • In addition, acquiring companies complying with the new policy will not have misconduct by the entities they have acquired counted against them in future analyses of their past criminal conduct.

The policy only applies to misconduct discovered in bona fide, arms-length transactions and does not apply to conduct that was otherwise required to be disclosed or already known to the DOJ. Although compliance with the policy is voluntary, companies that do not comply with these provisions can expect to be subject to full successor liability for misconduct they fail to discover and disclose to the DOJ that was committed by the entities they have acquired.

The new safe harbor policy is part of what Deputy Attorney General Monaco remarked is “an era of expansion and innovation” in corporate enforcement at the DOJ. Over the past two years, the DOJ has increasingly emphasized the importance of corporate compliance. In this new enforcement environment, the safe harbor policy is meant to encourage companies with solid compliance programs to lawfully acquire companies that have ineffective compliance programs and a history of misconduct where, historically, these issues might have otherwise prevented an acquisition from moving forward. The shift to a department-wide policy—in place of the ad hoc and division-specific policies that had existed in the past—reflects the DOJ’s efforts to enhance consistency, predictability, and transparency across the board for companies across industries and around the country.

In line with the new safe harbor policy, acquiring companies should conduct careful due diligence and develop a plan for reporting and remediating criminal misconduct discovered through the due diligence process. Acquiring companies should also be attentive to information discovered after closing to ensure that they can take advantage of the safe harbor policy. Companies should also avoid waiting until the last minute to address or report possible misconduct. Although the DOJ has set the six-month and one-year deadlines for reporting and remediation respectively, it may adjust those deadlines in individual cases, and it has noted that acquiring companies must act quickly to report misconduct involving national security or involving ongoing or imminent harm.

If you have questions about creating or reviewing compliance programs to help your company comply with the safe harbor policy, please contact a member of Wiggin and Dana’s Litigation and Regulatory Compliance team.

[1] Lisa O. Monaco, Deputy Attorney General Lisa O. Monaco Announces New Safe Harbor Policy for Voluntary Self-Disclosures Made in Connection with Mergers and Acquisitions, U.S. Dep’t of Just. (Oct. 4, 2023), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-announces-new-safe-harbor-policy-voluntary-self.