DOJ Voluntary Safe Harbor Policy

Background

DOJ has previously addressed voluntary self-disclosure in the context of mergers and acquisitions transactions. In 2008, the DOJ’s Foreign Corrupt Practices Act Unit published a Notice of Procedural Opinion Regarding Halliburton (Halliburton Release), an energy company, in which the Department said it does not intend to take any enforcement action against Halliburton for its self-disclosed misconduct and has post-acquisition remediation in accordance with certain parameters set forth in the release, even though Halliburton has Failure to perform FCPA and pre-transaction anti-corruption due diligence. Ultimately, Halliburton did not proceed with the transaction. Like all opinion releases, the Halliburton Release applies only to that specific proposed transaction.

In the Halliburton Release, the DOJ outlined several steps that Halliburton would have to complete to avoid enforcement action if it continued to trade. Requirements include engaging external legal counsel and specialist third-party consultants, including forensic accountants, to conduct comprehensive due diligence on the target company and remediate any issues identified as soon as possible. The Halliburton release further states that the due diligence process should include an examination of the target company’s records, including emails, financial and accounting records, and relevant personnel interviews. It also imposes reporting obligations on Halliburton, including submitting a risk-based due diligence work plan to the DOJ, as well as periodic reports on appraisal results. Additionally, if Halliburton chooses to continue working with any of the target company’s agents and third parties after the acquisition, they will need to execute new contracts that include FCPA guarantees, anti-corruption clauses, and anti-corruption provisions. corruption and auditing rights. Finally, the release requires Halliburton to impose a code of conduct and any FCPA and anti-corruption policies on the target company immediately after the acquisition, and to conduct training for its officers and employees. target company within months of the acquisition.

In March 2023, Monaco announced that every DOJ division involved in corporate crime enforcement now has a voluntary self-disclosure policy to enhance transparency and predictability. She explained that when companies promptly and fully disclose wrongdoing, they can take advantage of the program in any case, in any Department region, and in any location. any area in the country. This year, the DOJ stood behind this policy and declined to prosecute Corsa Coal Corporation for FCPA violations because the company promptly and voluntarily disclosed its wrongdoing and cooperated with the government.

New M&A safe harbor policy

Currently, the DOJ is taking steps to formally strengthen its voluntary self-disclosure policy in the context of the mergers and acquisitions process. The M&A Safe Harbor policy will apply across the Department and each department must tailor its application to their particular enforcement regime. This means that the safe harbor framework will apply to corruption, money laundering, sanctions evasion, national security and other types of criminal conduct.

To qualify for the safe harbor, the acquiring company must:

1. Disclose misconduct at the newly acquired company within six months of the date of completion of the transaction, regardless of whether the misconduct was discovered before or after the acquisition; And
2. Completely cure the misconduct within one year from the closing date.

Time baselines are subject to analysis for reasonableness and analysis of specific events related to the transaction.

Additionally, DOJ makes clear that aggravating factors will be treated differently in the M&A context and will not affect the acquiring company’s ability to receive a recusal. Aggravating factors may include executive management’s involvement in the misconduct, its pervasiveness within the company, and the benefit to the company of the misconduct. Finally, any misconduct disclosed under the Safe Harbor Policy will not be included in future recidivism analyzes for the acquiring company.

According to Monaco, the government does not want to prevent companies with effective compliance programs from legally acquiring other companies with ineffective compliance programs or with a history of misconduct. Instead, it is intended to encourage acquiring companies to promptly disclose wrongdoing discovered during the M&A process. In addition, the government continues to emphasize the responsibility of businesses to hold individuals responsible for wrongdoing.

Lessons learned for Trading Teams and Compliance

• Perform strong due diligence: The M&A safe harbor policy emphasizes the need for thorough due diligence during the acquisition process. Make sure your due diligence can detect potential misconduct.
• Start early: Start anti-corruption due diligence early in the acquisition process. Waiting until close to closing makes it more difficult to respond appropriately and effectively to any undiscovered wrongdoing or to terminate the transaction.
• Continue appraisal after completion: Once closed and with full access to the target company’s books and records, conduct a thorough post-closing audit.
• Reveal at the right time: Although DOJ indicates that the disclosure period is flexible based on specific events, be prepared to self-report any wrongdoing within six months of the closing date.
• Review program compliance with objectives: Evaluate whether the target company’s compliance program is appropriate according to DOJ’s Assessment of Corporate Compliance Programs. Understanding the current status of your target compliance program will help you develop a remediation strategy if any wrongdoing is discovered during the acquisition process.
• Remediation and integration: A well-designed compliance program includes comprehensive due diligence of every acquisition target, as well as a process for timely and orderly integration of the acquired entity into compliance program structures and existing internal controls. You should have a formal strategy and process for getting your compliance program into the target company as quickly as possible, and the program should be specifically tailored to address any issues identified during the audit. post-transaction inspection and testing for high-risk areas.

While the application of the Safe Harbor is on a case-by-case basis, companies should feel comfortable assuming impairment through early and voluntary self-disclosure.

A copy of Deputy Attorney General Lisa O. Monaco’s October 4 speech can be found This.