Last month, Deputy Attorney General Lisa Monaco announced a new policy which would allow firms who commit crimes to get amnesty as long as they are acquired and then disclose wrongdoing within six months of the merger.

“In a world where companies are on the front line in responding to geopolitical risks – we are mindful of the danger of unintended consequences,” Monaco said. “The last thing the Department wants to do is discourage companies with effective compliance programs from lawfully acquiring companies with ineffective compliance programs and a history of misconduct. Instead, we want to incentivize the acquiring company to timely disclose misconduct uncovered during the mergers and acquisitions process.”

Nick Bunch is a partner at Haynes and Boone in Dallas.

“It’s just another step in a series of efforts by the Department over the last couple of years to really encourage corporate cooperation, to get companies to come forward and voluntarily self-disclose conduct,” Bunch told Corporate Crime Reporter in an interview last month. “That message started shortly after she took office. It continued with the several memos that she’s put out.” 

“The latest is this mergers and acquisitions policy. And basically what it says is that when a company acquires another entity and discovers in the due diligence process, either prior to the merger, or even within a reasonable amount of time after the merger, that the acquired entity was engaged in some misconduct, then the acquiring company can obtain the benefits of this safe harbor. And that includes a presumption of a declination and prosecution of the entity if it voluntarily self discloses that conduct within a reasonable amount of time.” 

“The contours of the policy are a little unclear still at this point. There is some suggestion that you have to disclose that conduct within six months. And it applies whether you discovered that conduct prior to or after the acquisition six months from closing.” 

“You’d have about a year to remediate. But all of those deadlines are subject to some level of reasonableness analysis. Certainly the push within the Deputy Attorney General’s comments were that if this conduct threatens national security or involves ongoing or imminent harm, there can’t be any effort to wait for these deadlines to accrue. You need to remediate that conduct and disclose that conduct immediately.” 

“One of the things that the Department announced about a year or so ago was that in making any determinations about a corporate resolution, they would look at recidivism issues. Has the company been involved in wrongdoing in the past?” 

“And one of the things that the safe harbor policy announced was that if the acquired company had aggravating factors – that would not have an impact on the acquiring company’s ability to receive a declination of prosecution should they go forward and make these voluntary disclosures. And those types of violations would not be factored into future recidivism analysis for the acquiring company.” 

Is the Department going to announce the declinations or will these be declinations that won’t be announced? Do you have a sense?

“I don’t think there’s anything in the Deputy Attorney General’s comments to know one way or the other. They have announced declinations in the past so it’s possible that those will be announced.” 

“But there are a lot of considerations that play into that, including whether the acquiring company that self discloses even wants some kind of public announcement.”

There have been a number of announcements from the Biden Justice Department on corporate leniency. Is there a general trend toward more corporate leniency? 

“I don’t know that I would describe it as more leniency coming from the Department toward corporate criminal actors. I think that it’s probably more geared toward self disclosure issues.” 

“The government is trying to create mechanisms, incentives, carrots for companies to come forward to disclose conduct that’s going on. But more so than just that – to put into place the policies and procedures, the compliance programs to try to ferret that conduct out and to take it really seriously within the corporate structure and within the corporate culture.” 

“I don’t know that I would describe it as leniency toward companies. But certainly there is a push toward getting companies to take their compliance obligations even more seriously than many of them are.”

What are going to be the real life consequences of this safe harbor policy?

“Anytime we are representing an entity that’s acquiring some other entity, there’s going to have to be some greater emphasis on compliance related diligence. Some of that’s going on, but I think that there has to be more of it.” 

“The real question to me is – if in the course of the due diligence process certainly preclosing and there is something uncovered, the reality is that most times the acquiring entity may just back away from the deal altogether.” 

“And so if the deal doesn’t close, then the acquiring entity isn’t going to go self disclose someone else’s conduct at that certain point in time. If the acquired company is involved in something that is close to the line, they’re not going to go self disclose any of that conduct.”

“So I’m wondering whether this policy has any real teeth behind it or if there’s any real benefit to anybody.” 

“There’s also a lot of risks that come with self disclosure. It may shield you from criminal prosecution, but it’s not clear that it shields you from anything else. In fact it doesn’t.”

“Does it open you up to private civil litigation? Does it open you up to some state attorney general’s office investigation? I don’t know that the benefits of declinations on the criminal side are all that significant.”

Corporate self disclosure and self reports were more common ten years or so ago, but now overall corporate criminal defense counsel seem to be leaning more against self disclosure than in previous years. 

Are you finding that to be the case and if it is the case, why is it happening?

“I think that’s definitely generally the trend – companies are leaning against self-disclosure. Once you go down that path of disclosure to the Department, you lose all control over what’s gonna happen in that situation.”

“You can’t control the time, the cost, the inquiry. You might self disclose as to one thing, but suddenly the government starts looking around and they find something else that you don’t want to talk about.” 

“It’s a very complex situation. And then there’s the issue of – what is a reasonable resolution? You might be thinking we’re going in and we’re going to self disclose, we’ll get a declination and we’ll limit our exposure to something fairly small. And the Department takes a very different view and suddenly the thing spirals significantly out of control. When you are weighing those costs and benefits of disclosure, it’s not always an easy analysis.”

[For the complete Interview with Nick Bunch, 37 Corporate Crime Reporter 41(13), October 23, 2023, print edition only.]