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DOJ spotlights voluntary self disclosure in M & A as it adapts to new national security threats
By Seth D . DuCharme , Esq ., and Margaret B . Beasley , Esq ., Bracewell LLP * JANUARY 12 , 2024
The past few months have seen numerous high-profile enforcement actions highlighting an increasing trend , what Deputy Attorney General Lisa Monaco called “ the biggest shift in corporate criminal enforcement that I ’ ve seen during my time in government : the rapid expansion of national security-related corporate crime .”
From the first-ever criminal resolution for sanctions violations from illicit sales and transport of Iranian oil by Suez Rajan Ltd . to guilty pleas and $ 4.3 billion in penalties by Binance and CZ related to sanctions and anti-money laundering , the Department of Justice has been on a roll , and it doesn ’ t appear to be slowing down any time soon . The good news for corporations is that even as the stakes rise to implicate national security , the Department continues to incentivize and reward corporate responsibility .
In a pair of recent speeches , Deputy Attorney General Lisa Monaco 1 and Principal Associate Deputy Attorney General Marshall Miller 2 highlighted the Department ’ s latest actions and plans to address the rise in national security related crimes , such as terrorist financing , sanctions evasion , circumvention of export controls , cyber- and crypto-crime , FCPA violations , and intellectual property theft that affects critical supply chains and involves disruptive technologies .
Even as the stakes rise to implicate national security , the Department continues to incentivize and reward corporate responsibility .
The Department has rolled out several initiatives aimed at expanding enforcement , enhancing deterrence , and increasing punishment ; chief among these strategies is an increased emphasis on voluntary self-disclosures ( VSD ).
Voluntary self-disclosure policy
In March , DAG Monaco ordered every Department component engaged in corporate criminal enforcement to adopt a voluntary self-disclosure policy . Under that policy , 3 if a company makes a qualifying VSD , it may receive resolutions under more favorable terms than if the government had learned of the misconduct through other means .
In November 28 , 2023 remarks 4 at the New York City Bar Association ’ s International White Collar Crime Symposium , PADAG Miller emphasized that the “ value proposition of voluntary self-disclosure extends with particular force to the mergers and acquisitions ( M & A ) space , where the disclosing company is essentially operating as a corporate whistleblower , diming out illegal conduct that took place at a different entity — the M & A target .”
To that end , speaking at the Society of Corporate Compliance and Ethics ’ 22nd Annual Compliance & Ethics Institute on October 4 , 2023 , DAG Monaco announced a Mergers & Acquisitions Safe Harbor Policy . 5
The policy will only apply to criminal conduct discovered in bona fide , arms-length M & A transactions .
She explained that “[ i ] n a world where companies are on the front line in responding to geopolitical risks — we are mindful of the danger of unintended consequences . The last thing the Department wants to do is discourage companies with effective compliance programs from lawfully acquiring companies with ineffective compliance programs and a history of misconduct . Instead , we want to incentivize the acquiring company to timely disclose misconduct uncovered during the M & A process .”
Highlights of the Safe Harbor Policy include :
• Timing : companies must disclose misconduct discovered at the acquired entity within six months from the date of closing , whether the misconduct was discovered pre- or post-acquisition .
• Remediation : companies will have a baseline of one year from the date of closing to fully remediate the misconduct . Recognizing that not all deals are the same , both baselines are subject to a reasonableness analysis and , depending on the specific facts , circumstances , and complexity of a particular transaction , those deadlines could be extended by prosecutors .
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