DOJ Announces New Safe Harbor Policy for Voluntary Self-Disclosures in M&A

The U.S. Department of Justice (DOJ) has unveiled a new Safe Harbor policy designed to encourage voluntary self-disclosures of criminal misconduct made in connection with mergers and acquisitions (M&A). The policy aims to promote transparency, predictability, and incentives for companies to disclose wrongdoing during M&A processes.

Deputy Attorney General Lisa O. Monaco announced the new policy during her speech at the Society of Corporate Compliance and Ethics' 22nd Annual Compliance & Ethics Institute. The policy offers a significant shift in the DOJ's approach to corporate compliance and enforcement, with a focus on promoting good corporate citizenship.

Expanding National Security-Related Corporate Crime

Deputy Attorney General Monaco emphasized the growing intersection of corporate crime with national security concerns. She noted that corporate crime now extends to various areas, including terrorist financing, sanctions evasion, cybercrime, and crypto-crime. In this complex geopolitical landscape, many companies have responded by implementing advanced compliance controls to mitigate risks. Still, some have fallen behind.

The DOJ has increased its efforts to address corporate misconduct that poses national security threats. Monaco cited examples of recent corporate resolutions that implicated national security concerns, highlighting that such cases have doubled in number compared to the previous year.

To meet these challenges, the DOJ is expanding its team of corporate crime prosecutors in the National Security Division and the Criminal Division's Bank Integrity Unit. Monaco's message to companies is clear: national security compliance risks are widespread and should be a top priority.

Innovative Tools and Remedies for Corporate Misconduct

The Deputy Attorney General outlined various tools and remedies the DOJ is using to punish and deter corporate misconduct effectively. These tools include divestiture of lines of business, specific performance as part of restitution and remediation, and tailored compensation and compliance requirements.

Monaco pointed out that a monetary penalty alone might not be sufficient in certain cases. She highlighted a recent case where two pharmaceutical companies were required to divest a widely used cholesterol medicine as part of their resolution, marking the first time such a remedy was used.

In terms of compensation, Monaco discussed a pilot program aimed at designing innovative compensation systems to promote compliance. Companies are now required to add compliance-promoting criteria to their existing compensation systems. The program also incentivizes companies to claw back or withhold incentive compensation from executives responsible for misconduct.

New Mergers & Acquisitions Safe Harbor Policy

A major announcement during the speech was the introduction of the Mergers & Acquisitions Safe Harbor policy. Recognizing that companies are on the front line in responding to geopolitical risks, the DOJ aims to encourage companies to disclose misconduct uncovered during M&A transactions promptly.

Under this policy:

• Companies that disclose misconduct within six months from the date of closing and fully remediate within one year will receive the presumption of a declination.
• Clear timelines and flexibility will be applied, considering the specific circumstances of each transaction.
• Aggravating factors at the acquired company will not impact the acquiring company's ability to receive a declination.
• Misconduct disclosed under the Safe Harbor Policy will not affect future recidivist analysis for the acquiring company.

The Deputy Attorney General stressed that this policy would only apply to criminal conduct discovered in bona fide, arms-length M&A transactions and would not affect civil merger enforcement.

What's Next?

Deputy Attorney General Monaco concluded her speech by highlighting that the DOJ's corporate enforcement principles would extend across the entire department, particularly in areas related to cybersecurity, technology, and national security. The department will continue to focus on holding corporate and individual wrongdoers accountable, incentivizing compliance, and deterring repeat bad actors.

Monaco's message to corporate executives is clear: in this new era of corporate enforcement, compliance programs, compensation policies, and due diligence on acquisitions must be top priorities. The DOJ aims to protect both companies and national security by promoting good corporate governance.

The Safe Harbor policy and the broader corporate enforcement principles signal a significant shift in how the DOJ approaches corporate compliance and enforcement, emphasizing transparency, predictability, and incentives for companies to disclose wrongdoing.