US DOJ's National Security Division Updates Enforcement Policy For Criminal Sanctions And Export Control Violations With New Focus On Mergers & Acquisitions - Export Controls & Trade & Investment Sanctions

On March 7, 2024, the US Department of Justice's National Security Division (NSD) released a revised Voluntary Self-Disclosure (VSD) Policy (the "VSD Policy"). The VSD Policy substantially tracks the language of the previous VSD Policy (dated March 1, 2023) but makes a few notable updates, mostly to implement last year's announcement by the Deputy Attorney General of a Department-wide Safe Harbor Policy in connection with mergers and acquisitions:

NSD has added an "M&A Policy" to the end of the prior VSD Policy that expands on its footnote 9. Pursuant to the M&A Policy, acquirors that voluntarily and timely disclose potentially criminal misconduct by an acquired company are afforded even more leniency than other disclosing parties, namely the presumption they will qualify for a declination of prosecution (not merely a non-prosecution agreement, with its attendant obligations); assurance (not merely a presumption) the acquiror "will not be required to pay a criminal fine" (or forfeit assets); and the disclosed misconduct by the acquired entity will not impact the acquiror's record of recidivism in future matters.
To qualify, acquiring companies must (1) complete a bona fide acquisition of another company, (2) voluntarily self-disclose within 180 days of completing the transaction, (3) fully cooperate with NSD's investigation, and (4) remediate the misconduct within one year of completing the transaction. Note, however, that in cases of continuing or prospective criminal violations or current and ongoing threats of harm to persons or property, the disclosure must be made "at the earliest reasonable opportunity."
The M&A Policy sets forth the factors that NSD evaluates to assess whether a transaction qualifies as a bona fide acquisition, including whether it resulted in a true change of control, and how and when the acquiror discovered the misconduct of the acquired entity.
Acquirors will not be disqualified from receiving the additional protections of the M&A Policy in the presence of aggravating factors at the acquired entity so long as those aggravating factors cease to affect the transaction parties after the VSD.
If, following acquisition, the acquired company remains legally distinct, it will benefit by receiving credit from NSD for the acquiror's timely disclosure. Further, NSD will consider whether the acquired entity qualifies for potentially substantial mitigation through VSD credit, cooperation credit, and remediation under the VSD Policy.
The prior version of the VSD Policy encouraged voluntary disclosure of violations of the statutes implementing the US export control and sanctions regimes and provided for the applicability of its principles to other corporate criminal matters handled by NSD under other US national security laws. This revision explicitly adds Team Telecom to the list of other national security proceedings to which the principles would apply and encourages disclosure of violations of purely criminal statutes that "affect national security" because they relate to enforcement of sanctions and export control laws, including money laundering, bank fraud, smuggling, fraudulent importation, and false statement offenses.

Conclusion. Companies engaged in M&A activity are exposed to liability for historical and ongoing violations of the sanctions and export controls by their acquired targets. The updated VSD Policy offers important incentives to promptly disclose any potential criminal violations of acquired targets in order to mitigate criminal liability exposure. However, acquirors will need to ensure the timely detection and remediation of any potential violations through their due diligence and post-acquisition integration efforts to benefit from these protections.

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