Recent shifts in policy from the Department of Justice (DOJ) could significantly impact how legal professionals approach negotiations and due diligence in mergers and acquisitions (M&A). The DOJ’s newly announced “Safe Harbor Policy” incentivizes voluntary self-disclosure for companies involved in these high-stakes transactions, especially for those mergers and acquisitions that could implicate national security-related regulatory and enforcement regimes.
This policy makes several important changes to how legal teams should conduct M&A due diligence. From a practical perspective, it creates a strategic opportunity for firms that can successfully navigate the DOJ’s disclosure expectations. The DOJ’s intention with this policy shift is an effort to encourage transparency during M&A transactions, a crucial consideration for firms dealing with businesses that might be subject to national security concerns.
Under the new policy, companies that voluntarily disclose potential violations of law during the course of a merger or acquisition can qualify for a “safe harbor” agreement. This agreement shields them from any enforcement action related to those violations. This departure from traditional punitive enforcement mechanisms marks a significant shift in DOJ policy. However, corporations need to conduct a meticulous due diligence process to qualify for the protections extended by the Safe Harbor Policy.
Given these new developments, acquiring companies should consider the following key strategies:
- Strengthen due diligence processes: To ensure all potential legal issues are identified and properly disclosed, legal teams must have robust due diligence methodology. This will not only make the disclosure process more efficient, but will also help qualify for the DOJ’s “safe harbor” policy.
- Increase communication with the DOJ: Regular engagement with the DOJ can help companies determine if their disclosures fall under the Safe Harbor Policy and also understand their standing in any potential enforcement proceedings.
- Improved internal compliance: A strong focus on regulatory compliance can help corporations not only withstand the scrutiny of a robust due diligence process but can also preclude the need for disclosure in the first place.
These measures are not exhaustive, but they serve as a starting point for handling the challenges and leveraging the opportunities presented by this new policy. For a full understanding of this new policy, please consult DOJ’s New Safe Harbor Policy in detail.