Deputy Attorney General Lisa Monaco announced a new safe harbor policy for voluntary self-disclosures made in connection with mergers and acquisitions on Wednesday. Pursuant to this new policy, the DOJ will not prosecute companies that self-report potential violations occurring within an acquisition target's business. Here are the key parameters of the M&A self-disclosure policy:

• The self-disclosure must be made within six months of a deal's closing.
• The six-month threshold applies whether the misconduct was discovered pre- or post-acquisition.
• The acquirer will have one year after the close to fix the issues.
• These deadlines could be extended “depending on the specific facts, circumstances and complexity of a particular transaction.” (Conversely, the deadlines do not apply to companies that detect misconduct threatening national security or involving ongoing or imminent harm. Those companies must disclose and remediate immediately.)
• Disclosure must be coupled with cooperation in the ensuing investigation, appropriate remediation and potentially, payment of certain fines, restitution or disgorgement.
• The safe harbor applies across the Department of Justice. (However, it would not be binding if the company is investigated by other agencies or the Securities and Exchange Commission.)
• Misconduct disclosed under the policy will not be factored into future recidivist analysis for the acquiring company.

Beyond offering this self-disclosure carrot, Monaco also reiterated DOJ’s willingness to use the stick, warning that “if your company does not perform effective due diligence or self-disclose misconduct at an acquired entity, it will be subject to full successor liability for that misconduct under the law.”

More generally, Monaco emphasized the importance of corporate compliance. She highlighted that well-designed compliance programs should “align executives’ financial interests with the company’s interest” by tying compensation systems to the compliance program (including through executive compensation clawbacks).

This is a good reminder for companies that their compliance programs must be effective, tested and designed to address the DOJ’s recent recommendations. Effective compliance programs and strong corporate governance are important tools to help mitigate against enormous financial risks and penalties. 

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