United States: DOJ Announces New Safe Harbor Policy For Self-Disclosures In Connection With M&A Transactions And Additional Resources For Corporate Enforcement

Key Takeaways:

• DOJ's new M&A safe harbor policy places even more emphasis on effective due diligence and the voluntary self-disclosure of corporate wrongdoing to obtain the presumption of a declination of criminal prosecution.
• DOJ establishes a baseline six-month post-closing window to make the self-disclosure and will require effective remediation including disgorgement.
• DOJ's National Security Division announced its first-ever Chief Counsel and Deputy Chief Counsel for Corporate Enforcement, signaling the deployment of more resources to the intersection of national security and corporate criminal enforcement.

On October 4, 2023, the U.S. Department of Justice ("DOJ") announced a new Mergers & Acquisitions ("M&A") Safe Harbor Policy to further encourage self-disclosures and provide companies with additional predictability in the M&A context. Recognizing the net compliance benefit that can occur when a company with an effective compliance program acquires and remediates a company with an ineffective program and a history of misconduct, the DOJ's newly-announced policy is that an acquirer who (a) promptly and voluntarily discloses criminal misconduct within the Safe Harbor period, (b) cooperates fully with the ensuing investigation, and (c) carries out appropriate remediation, will receive a presumption of declination of criminal prosecution. For more than 15 years, the DOJ has been attempting to promote the benefits of voluntary disclosure of Foreign Corrupt Practices Act violations in the M&A context on a case-by-case basis; this new policy is intended both to create predictability and require consistent implementation across all divisions within the DOJ. Essentially, the DOJ is attempting to provide acquirers with more of an ability to reduce the overall risk profile of an M&A transaction by conducting effective diligence and making a disclosure.

The DOJ will use a period of six months from the acquisition closing date as the baseline Safe Harbor period, but also warned that, especially in the national security context, a company should not "wait for a deadline to self-disclose." The DOJ will expect remediation to occur within one year of closing, noting that in particularly complex circumstances that period could be extended. From the DOJ's perspective, full cooperation should include disclosure of individual culpability, and appropriate remediation should include restitution/disgorgement of any ill-gotten gains. The policy applies whether the misconduct is discovered pre- or post- closing, although there is obvious benefit to discovering misconduct during pre-acquisition diligence. And the DOJ was careful to stress that the presence of aggravating factors at the acquired entity will not affect the benefit afforded to the acquirer. However, the DOJ also indicated that the presence of aggravating factors at the acquired entity may mean that the acquired entity itself may not benefit from voluntary self-disclosure benefits but left room for the possibility of a declination for even the acquired entity if aggravating factors are not present. Finally, the policy makes clear that an acquirer that fails to conduct effective diligence will remain subject to full successor liability.

This new policy follows on the heels of the DOJ's announcement last month of the hiring of the first-ever Chief Counsel and Deputy Chief Counsel for Corporate Enforcement in the DOJ's National Security Division to "coordinate and oversee the Division's investigation and prosecution of corporate crime relating to the national security of the United States." Ian C. Richardson will be taking on the role of Chief Counsel, while Christian J. Nauvel will serve as Deputy Chief Counsel—both of whom have significant prosecutorial experience. These appointments reinforce the DOJ's commitment to investigating and prosecuting corporate crime viewed through a national security lens, which often—as described below—may involve interagency collaboration.

Deputy Attorney General ("AG") Lisa Monaco's remarks earlier this year made clear that the DOJ would be committing a "surge of resources" to addressing the connection between national security and corporate crime. A couple of months later, another DOJ official noted that between October 2022 and May 2023 "roughly two-thirds of the department's major corporate criminal resolutions have implicated United States national security" and went on to describe how—particularly given ever-evolving technology—concerns about U.S. adversaries using innovative methods requires companies to "pay a new level of attention to a wider range of national security compliance issues than ever before." The official recommended that companies be especially sensitive to "high-risk actors, high-risk areas, and high-risk internal activity" and conveyed a simple message: "national security laws must rise to the top of your compliance risk chart." The DOJ announced that 25 new prosecutors would be hired in support of this effort.

The DOJ is also committed to collaborating with other agencies to, among other things, prevent the "illegal export of sensitive technology" because it "is a direct threat to our national security." As covered in our prior alert, the Disruptive Technology Strike Force ("DTSF") was established earlier this year in a collaboration between the FBI, Homeland Security and multiple U.S. Attorney's Offices, headed jointly by the DOJ and the Department of Commerce. Notably, the DTSF seeks to work with entities in the private sector to identify national security issues—for example, by asking companies to provide leads to the DTSF—and address them. It would not be surprising if the new Chief and Deputy Chief Counsel leveraged collaborative efforts between private entities and initiatives like the DTSF to meet their objective of addressing the connection between corporate crime and national security.

In sum, the DOJ's new M&A Safe Harbor Policy and its deployment of additional resources to address corporate crime with national security implications reinforce the need for private sector actors—particularly those in industries that historically have not been associated with national security concerns—to start paying closer attention to compliance risks that come with advanced technology and innovation and strengthen their compliance programs. Attorneys at Foley Hoag have years of experience with evaluating and improving corporate compliance programs, as well as with representing individuals and entities in DOJ investigations.

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