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DOJ Extends Voluntary Disclosure Benefits to Merger and Acquisitions

As part of its continuing effort to encourage corporate voluntary disclosures, the Department of Justice announced revised voluntary disclosure policies applicable to mergers and acquisitions.  In a speech at the recent annual Society of Corporate Compliance and Ethics annual meeting in Chicago, Lisa Monaco, Deputy Attorney General,  outlined the new voluntary disclosure policies.

DAG Monaco described the importance of DOJ’s policy promoting corporate commitment to implementing a culture of compliance.  To that end, she noted that DOJ has been seeking to empower general counsels and compliance officers to convince the c-suite and corporate boards of the need to invest in strong compliance programs. 

DAG Monaco observed that corporate enforcement is in “an era of expansion and innovation.”  In particular, she noted that “[DOJ has] engaged in corporate enforcement actions to protect national security in unprecedented numbers and unexpected industries.” DOJ has been emphasizing the rapid intersection between corporate crime and national security interests, from terrorist financing, and sanctions and export controls evasion, to cyber- and crypto-crime.   DAG Monaco also stated that DOJ continues to prosecute FCPA violations since such corrupt activities present national security dimensions in fostering stable, democratic institutions.

As examples of these DOJ enforcement actions, DAG Monaco cited the Lafarge guilty plea for material support of terrorism and paid $775 million in penalties; the British American Tobacco deferred prosecution agreement for violating U.S. sanctions against North Korea and paid $635 million in penalties; and the first-ever criminal resolution for sanctions violations from illicit sales and transport of Iranian oil by Suez Rajan Ltd, and the seizure of one million gallons of contraband Iranian oil.

To continue these aggressive enforcement efforts, DAG Monaco cited DOJ’s decision to add 25 new criminal prosecutors in the National Security Division, and to increase by 40 percent the number of prosecutors in the Criminal Division’s Bank Integrity Unit to prosecute financial institutions that violate U.S. sanctions and the Bank Secrecy Act.

In light of these aggressive corporate criminal enforcement efforts, DAG Monaco outlined efforts by DOJ to increase the benefits to companies that voluntary disclose corporate misconduct rather than those companies that decide not to disclose misconduct.

To this end, DAG Monaco outlined the new Mergers & Acquisitions Safe Harbor Policy.  DOJ’s interest is to avoid discouraging companies with strong compliance programs from acquiring companies with ineffective compliance programs and/or a history of misconduct.  To the contrary, DOJ is seeking to incentivize an acquiring company to timely disclose misconduct uncovered during the M&A process.

Under this new Policy, which will apply across the Department of Justice, companies that promptly and voluntarily disclose criminal misconduct with the Safe Harbor period, and then cooperate with the resulting investigation, engage in timely and appropriate remediation and pay applicable restitution and disgorgement, will receive a presumption of a declination.

DOJ announced the following timelines governing the Safe Harbor Policy:

  • Companies must disclose misconduct discovered (whether pre-or post-acquisition) at the acquired entity within six (6) months from the date of closing.
  • Companies will then have one year from the date of closing to fully remediate the misconduct.

The 6 month and one-year deadlines are subject to modification depending on the specific circumstances and complexity of the transaction.  The acquired company can also qualify under the Safe Harbor Policy for voluntary self-disclosure benefits.  interestingly, DOJ clarified that any misconduct disclosed under the Safe Harbor Policy will not implicate or be counted in any future potential recidivist analysis. 

DOJ is encouraging companies to conduct robust pre-acquisition due diligence and post-acquisition integration.  DAG Monaco specifically advised that [c]ompliance must have a prominent seat at the deal table if an acquiring company wishes to effectively de-risk a transaction.”

Companies that do not perform effective due diligence or self-disclose misconduct at an acquired entity will be subject to full successor liability. DOJ’s objective is clear — they do not want to penalize companies with strong compliance programs from acquiring companies with weak compliance programs when they conduct proper due diligence and discover and self-disclose misconduct.

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