On Wednesday, Deputy Attorney General (DAG) Lisa O. Monaco announced a new safe harbor policy as it relates to voluntary self-disclosures (VSDs) for criminal matters, made in connection with mergers and acquisitions.¹ The policy will provide a presumption of a declination of criminal prosecution of acquiring companies when they make timely VSDs about potentially criminal activity of an acquired company.

In announcing the new policy, DAG Monaco referenced unintended consequences that may happen during M&A transactions. She noted that the Department does not seek to chill those transactions and unintentionally penalize companies with robust compliance programs from acquiring companies with “ineffective compliance programs and a history of misconduct.”² Instead, the Department seeks to encourage acquiring companies to disclose instances of misconduct identified through the M&A process in a timely manner.

There is a catch: Not only must a VSD be timely, but the acquiring company must “cooperate in the ensuing investigation, and engage in requisite, timely and appropriate remediation, restitution, and disgorgement.”³  That means that an acquiring company must not only pay for an internal investigation and for costs associated with cooperating in a government investigation, but also assume the cost of disgorging any ill-gotten gains and restitution for the acquired company’s misconduct.

As for the acquired entity, they may remain eligible to qualify for a declination, though the presumption will not apply the same as it will for self-disclosing acquirers. Certain VSD benefits may be available to acquirees as well, unless aggravating factors are at issue for their organization. Of course, those consequences will ultimately be visited on the acquiring company and its shareholders.

Timelines for voluntary disclosures in the M&A context

In terms of timeliness, disclosures must be made by the acquirer within six months of the date of the close of the acquisition. This is the case regardless of whether the misconduct was discovered ahead of or after closing. From there, companies are provided a year to fully remediate the misconduct. DAG Monaco noted a caveat that in cases of threats to national security or imminent harm, reasonableness should govern as opposed to the disclosure deadline outlined in the policy. These timelines further incentive robust due diligence prior to closing of M&A transactions and prompt disclosure of misconduct by the acquired company.

VSDs under the Safe Harbor not factored into recidivist policies

In this announcement, DAG Monaco also tied this change in policy to the recidivist policy changes announced by Assistant Attorney General Kenneth Polite earlier this year.⁴ DAG Monaco stated that misconduct disclosed under this Safe Harbor Policy would not be factored into future recidivist analysis for the acquirer. Furthermore, if an acquirer has aggravating factors present, presumably independent of the misconduct of the acquiree, those factors will not affect the acquirer’s ability to benefit from a declination.

Potential implications for Antitrust Division leniency policy

It remains to be seen whether, and how, the recently-announced safe harbor will be applicable in cases brought by the DOJ Antirust Division. The Antitrust Division utilizes its own Leniency Program (providing leniency to the first company to voluntarily self-report to the agency) when making leniency determinations in criminal antitrust cases.⁵ Given this uncertainty, parties should not assume that prosecutors in the Antitrust Division will automatically apply the newly-announced M&A Safe Harbor Policy to VSDs related to violations of the antitrust laws, and should seek experienced antitrust counsel to assess the potential intersection of this new policy with the existing DOJ Antitrust Division Leniency Program.

Emphasis on voluntary self-disclosure in export control and sanctions cases

Prior to DAG Monaco’s most recent announcement, DOJ has on several occasions in 2023 emphasized VSDs in the context of export control and sanctions matters. On July 26, 2023, DOJ – joined by the U.S. Departments of Commerce Treasury issued a “Tri-Seal” Compliance Note (the Tri-Seal Note) that, among other things, highlighted DOJ’s March 1 update to the VSD policy of DOJ’s National Security Division (NSD).⁶ Under that policy, NSD will not pursue a guilty plea and the company will not be required to pay a fine when (i) aggravating factors are not present and (ii) the company “voluntarily self-discloses potentially criminal violations, fully cooperates, and timely and appropriately remediates the violations.” Companies considering disclosure, with the support of counsel, should scrutinize NSD guidance – and assess potential disclosure to other agencies responsible for export control and sanctions matters – in parallel to their review of the Safe Harbor Policy.    

In addition, each of the agencies administering export control and sanctions laws and regulations has issued specific guidance and expectations regarding voluntary self-disclosures as well as assessing liability in the context of mergers and acquisitions. The U.S. Departments of Commerce, State and Treasury have set forth detailed compliance frameworks and recommendations for export control and sanctions due diligence and compliance audits. As part of corporate transactions, companies should conduct robust due diligence on potential export control and sanctions violations and the adequacy of the target’s trade compliance program. Equally important is integrating the business fully into any new compliance procedures and quickly identifying any additional compliance risks.

Next steps

DAG Monaco emphasized the risk of acquiring companies who choose to not disclose potentially criminal activity by acquired companies uncovered during the M&A process or forego comprehensive due diligence activities for acquisitions. Companies who do not self-disclose or fail to undergo sufficient due diligence during M&A transactions may otherwise be subject to the full successor liability permitted under law. The DOJ and SEC 2020 FCPA Resource Guide includes further guidance on successor liability.⁷