The U.S. Department of Justice (“DOJ”) has announced a new policy pertaining to mergers and acquisitions (“M&A”). Under this policy, the DOJ pledges to not prosecute companies that acquire other companies involved in wrongdoing, provided that the acquiring company appropriately self-discloses the misconduct, cooperates fully, and rectifies the situation.
Acquisition processes can often uncover misconduct by the acquired entity that the acquiring business was entirely unaware of at the time of the deal. This can leave the newly post-acquisition entity vulnerable to prosecutorial action. The new DOJ policy aims to mitigate this and has been welcomed by many businesses and legal professionals.
Under the terms of the new policy, acquiring companies are given a certain level of assurance that they will not be prosecuted post-acquisition, as long as they promptly and voluntarily divulge any discovered wrongdoing, fully cooperate with any subsequent inquiries from the DOJ, and take remedial actions to address and rectify the misconduct.
It needs to be noted, however, that the policy will not offer protection from prosecution if the acquiring company or any of its affiliates were involved in the wrongdoing, or if they played a part in continuing the misconduct post-acquisition.
This policy manifests the DOJ’s acknowledgement of the challenges faced by companies navigating the M&A landscape and the complexities that may emerge during the acquisition due diligence process.
Experts suggest that this policy provides an additional incentive for acquiring companies to voluntarily disclose any wrongdoing discovered during the acquisition process. Moreover, the policy could potentially drive a more comprehensive and rigorous approach to due diligence during the acquisition process, with acquiring companies likely becoming more proactive in uncovering, reporting and rectifying any misconduct by the acquired entity.
For more specific details on this policy, refer to this article by Jones Day, a global law firm with significant expertise in the area of mergers and acquisitions: DOJ Announces Safe Harbor Policy for Voluntary Self-Disclosures in Mergers and Acquisitions.