In a groundbreaking announcement, the U.S. Department of Justice (DOJ) unveiled a new policy on Wednesday to foster transparency and accountability within the corporate world. This policy empowers companies to self-report violations identified in acquisition targets and avoid criminal charges. Deputy Attorney General Lisa Monaco introduced this transformative shift during a compliance conference in Chicago.
The Key Components of the Policy
Under this new directive, the DOJ will refrain from prosecuting companies if they meet specific criteria. Companies must self-disclose any misconduct discovered within six months of finalizing an acquisition deal, take corrective actions within a year, and commit to repaying any illegally gained profits. These stringent yet reasonable conditions set the framework for companies looking to avoid legal repercussions.
Monaco emphasized that prosecutors would retain the flexibility to extend these deadlines if warranted, ensuring fairness and adaptability in applying the policy.
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Expanding on Existing Efforts
This policy change builds upon the DOJ’s earlier endeavors to inform businesses that they might receive “declinations” when providing evidence of wrongdoing during Mergers and Acquisitions (M&A) due diligence. By formalizing and expanding this approach, the department hopes to create a robust pipeline of cases.
Jim McGovern, a white-collar partner at Vinson & Elkins, hailed this initiative, noting that it effectively turns acquiring companies into whistleblowers. This shift aligns with the Biden administration’s broader strategy of encouraging companies to step forward when identifying potential wrongdoing, thus enhancing prosecutors’ access to critical evidence for white-collar cases against executives.
Mitigating Geopolitical Risks
Monaco presented the policy as a means to reduce the geopolitical risks associated with corporate acquisitions. She stressed that the DOJ’s intention was not to deter companies with effective compliance programs from acquiring those with a history of misconduct and ineffective compliance measures.
As part of the policy, Monaco has directed all DOJ offices to establish individualized “safe harbor” policies tailored to their specific enforcement regimes. This codification formalizes a principle that has already been applied in select cases.
Distinctions Between Acquiring Companies and Targets
One policy aspect raised concerns among legal experts during a conference panel immediately following Monaco’s announcement. While acquiring businesses are not subject to aggravating factors, such as the severity of the crime underlying the disclosed misconduct, there remains a possibility that the DOJ may charge the acquired company under such scenarios.
Katy Choo, Vice President and Chief Counsel of Global Investigations at GE pointed out that, ultimately, the acquired entity becomes part of the acquiring company, potentially creating complications.
Reluctance to Disclose
Despite the assurance of avoiding criminal charges, some companies may still hesitate to disclose potential misconduct to the DOJ. William Devaney, co-chair of Baker McKenzie’s global investigations and compliance practice, noted that the presumption of a declination with disgorgement already existed before this policy change. He considered this shift as an incremental one.
Companies may still be wary of the reputational hit they could face when voluntarily disclosing wrongdoing. The fear of losing control of the process to prosecutors, who possess discretion in applying loosely defined parameters, continues to limit the policy’s efficacy.
A Warning to the Hesitant
Monaco sent a clear warning in response to companies’ concerns about losing control of the disclosure process. She cautioned that if companies failed to perform adequate due diligence or self-disclose misconduct at an acquired entity, they would be liable for that misconduct under the law.
Tarsha Phillibert, a white-collar defense partner at Duane Morris, emphasized the compelling reasons businesses should opt for disclosure rather than risking silence. She highlighted the government’s sophisticated tools for uncovering wrongdoing, including data analysis and whistleblower reports, which could lead to heavy fines and guilty pleas, impacting shareholders and the public.
In conclusion, the DOJ’s new policy represents a significant step towards fostering corporate transparency and accountability. By incentivizing companies to self-disclose violations, the department aims to strengthen its arsenal of evidence against white-collar crime while providing a pathway for acquiring companies to avoid legal repercussions. While challenges and concerns persist, the potential benefits of this policy shift could reshape corporate compliance and the prosecution of corporate wrongdoing in the United States.
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