U.S. Justice Department Implements Safe Harbor Policy for Companies Disclosing Wrongdoing in Mergers and Acquisitions

The U.S. Justice Department will not take action against companies that disclose wrongdoing by companies they buy to encourage self-reporting, the deputy attorney general said Wednesday.

The Justice Department wants to encourage disclosure of wrongdoing found in mergers and acquisitions with a new safe harbor policy and avoid penalizing responsible companies that acquire firms with a history of wrongdoing, Lisa Monaco said at a compliance conference Industry regulations in Chicago.

“Good companies that invest in strong compliance programs will not be penalized for legally acquiring businesses if they do their due diligence and uncover and self-report wrongdoing,” Monaco said in prepared remarks, noting that this can help to identify and prosecute those who do not.

To receive credit, the companies must disclose the wrongdoing discovered at the other firm within six months of closing the deal, and they have one year after closing to fully fix it, Monaco said.

The new program is the latest in a series of policy changes announced by President Joe Biden to boost corporate compliance while holding bad actors more accountable.

Earlier this year, the Justice Department launched a new payback program aimed at making executives pay for wrongdoing. Monaco on Wednesday referred to the settlement with Albemarle Corp. last week, in which the company received a refund credit for withholding bonuses from employees involved in the misdeeds.

The agency has increased resources for prosecuting companies, Monaco said when asked about a slowdown in enforcement.

Large company dissolutions and resulting penalties have been declining since 2019, according to recent data from the DOJ’s Fraud Division.

“The big cases continue to come,” she said.