Justice Department Announces New Safe Harbor Policy for Mergers and Acquisitions

On October 4, Deputy Attorney General Lisa Monaco announced a new Justice Department-wide safe harbor policy for voluntary self-disclosures made in connection with mergers and acquisitions (M&A), placing an “enhanced premium on timely compliance-related due diligence and integration.”

“Going forward, acquiring companies that promptly and voluntarily disclose criminal misconduct within the Safe Harbor period, and that cooperate with the ensuing investigation, and engage in requisite, timely and appropriate remediation, restitution, and disgorgement — they will receive the presumption of a declination,” Monaco said.

The Safe Harbor period will be:

• Six months from the date of closing to disclose misconduct at the acquired entity, regardless of whether the misconduct was discovered pre- or post-acquisition
• One year from the date of closing to fully remediate the misconduct

Monaco noted that “depending on the specific facts, circumstances, and complexity of a particular transaction, those deadlines could be extended by Department prosecutors.” The safe harbor will not apply, however, to misconduct otherwise required to be disclosed or already public or known to the Justice Department.

Acquirers that do not perform effective due diligence, self-disclose misconduct at an acquired entity, and remediate the misconduct, may be subject to full successor liability. Monaco emphasized that compliance should have “a prominent seat at the deal table.”

The new safe harbor policy builds on the DOJ Criminal Division’s Corporate Enforcement Policy updated earlier this year, which “recognizes the potential benefits of corporate mergers and acquisitions, particularly when the acquiring entity has a robust compliance program in place and implements that program as quickly as practicable at the merged or acquired entity.”

Previous DOJ cases and opinions suggest that integration steps may include adapting compliance policies and procedures, providing compliance training, ensuring adequate compliance resources for the acquired entity, and performing audits and transaction testing.

In addition to announcing the new M&A safe harbor policy, Monaco’s October 4 speech addressed:

• The “dramatic expansion” of DOJ’s efforts to hold corporations accountable for violations of national security laws
• DOJ’s use of new tools and remedies in corporate resolutions such as divestiture of lines of business, specific performance, and tailored compensation and compliance requirements (including clawbacks)
• Further opportunity for innovation and expansion in areas implicating cybersecurity, technology, and national security

For questions on these or any other subject, please reach out to the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations practice group.

* Junghyun Baek contributed to this blog. Junghyun is a graduate of Harvard Law School and is employed at Arnold & Porter's Seoul office. Junghyun is admitted to the practice of law in Washington, D.C.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.