The U.S. Department of Justice has announced a new Mergers & Acquisitions Safe Harbor Policy for companies that voluntarily and timely self-report misconduct discovered during the due diligence of an acquisition target or the integration of an acquired entity. The policy offers substantial benefits—including the presumption of a declination of prosecution—to acquiring companies that self-report misconduct, regardless of whether the misconduct was discovered pre- or post-acquisition. This policy will likely have a significant impact on how companies engage in diligence and how they allocate risks associated with disclosure of misconduct to the DOJ.

The policy has several important requirements about which companies need to be aware, including:

• Voluntary self-disclosure to the DOJ must occur within six months from the date of the transaction closing, regardless of whether the misconduct is discovered pre- or post-acquisition.
• Only misconduct of a target or acquired entity that is discovered by the acquiring company during the preacquisition due diligence phase or during the post-closing integration process is eligible for a declination of prosecution.
• Following disclosure, companies need to cooperate with the ensuing DOJ investigation and engage in timely and appropriate remediation, restitution, and disgorgement. Remediation must be completed within one year from the date of closing the M&A transaction.
• The Safe Harbor Policy does not apply if the misconduct was otherwise required to be disclosed, already public, known to DOJ, or involves civil merger enforcement.
• Moreover, if the misconduct "threatens national security or involv[es] ongoing or imminent harm," it must be disclosed immediately upon discovery (and not within the six-month closing window).

The benefits of voluntary self-disclosure to the DOJ under the policy are intended to encourage companies with effective compliance programs to be more willing to acquire companies with ineffective compliance or a history of misconduct, and include:

• The ability to obtain a full declination of prosecution despite the presence of aggravating factors at the acquired entity (e.g., involvement of company executives in the misconduct, significant profits to the company from the misconduct, misconduct that is egregious or pervasive within the company, or repeated misconduct); and
• The DOJ will not consider the disclosing company a "recidivist" in future enforcement actions, whether misconduct is detected in the future at the acquiring company or the acquired company.

While due diligence prior to acquisitions has been a part of DOJ's guidelines for Evaluation of Corporate Compliance Programs for some time, one obvious impact of the Safe Harbor Policy is likely to be an elevated focus on due diligence regarding the target company's compliance program. Companies likely will be incentivized to invest more resources into identifying any compliance issues pre-closing, or shortly after closing, to be eligible for the policy's protections. The DOJ's position is that "good companies—those that invest in strong compliance programs— will not be penalized for lawfully acquiring companies when they do their due diligence and discover and self-disclose misconduct." The new policy thus serves as a reminder that acquiring companies should have in place a robust due diligence and post-closing integration process reasonably designed to detect potential violations of law.