U.S. Deputy Attorney General Lisa Monaco recently made an announcement that will significantly impact the way corporations approach merger and acquisition (M&A) transactions. The Department of Justice (DOJ) is introducing a new safe harbor policy, designed to motivate corporations to voluntarily disclose any criminal misconduct discovered during M&A transactions. This policy could have far-reaching implications for the way corporations work through mergers and acquisitions, and how they handle any uncovered misconducts.
Monaco’s announcement, as reported by Foley & Lardner LLP, described the forthcoming policy that outlines how an acquiring company can avoid criminal charges for misconduct that happened prior to its acquisition. However, the details leave several open questions that will undoubtedly need to be addressed in the future.
Some of the potential implications of the DOJ’s new safe harbor policy are:
- The acquiring company will need to establish new frameworks for due diligence during M&A transactions. The necessity of uncovering any potential criminal activity to qualify for the safe harbor policy could potentially increase the time and resources spent on due diligence.
- Companies may be more inclined to self-disclose any wrongdoing found during M&A transactions. This change may foster an environment of increased transparency and compliance.
- Legal teams and counsels will need to stay up-to-date with the new policy’s guidelines and navigate through any resultant ambiguities. A critical aspect will be to understand the ‘timeliness’ requirement set forth in the policy for disclosure of misconducts.
Even though the policy is anticipated to bring about significant changes, there remain uncertainties and questions in terms of practical implementation. Legal professionals should closely follow the developments related to this policy to provide informed guidance to their clients or employers during the M&A transactions.