DOJ’s New Incentives: Shaping the Future of Mergers and Acquisitions

In a significant move that is poised to draw increased attention to the landscape of mergers and acquisitions, the Department of Justice (DoJ) recently announced that companies may now be offered incentives for uncovering and voluntarily disclosing malfeasance during M&A transactions. This approach means to codify and strengthen ‘unofficial’ leniency offerings that the DOJ had been extending to certain companies that discovered unlawful business practices while in the process of M&A dealings.

A Friendlier DOJ

The DOJ’s announcement, detailed in a speech by Deputy Attorney General Lisa Monaco, aims to foster transparency, compliance, and accountability in the business world, signaling a shift towards a more cooperative and self-regulatory model. The move was introduced as a ‘Safe Harbor’ policy as part of a broader strategy to encourage companies to come forward with information about potential violations of antitrust and other laws when they are found during a merger and acquisition. The announcement’s timing is fortuitous in relation to the Department’s current focus on compliance, as regulatory bodies are increasingly scrutinizing M&A activities to ensure fair competition, consumer protection, and a level playing field in the marketplace.

One of the key elements of this Safe Harbor policy is the introduction of prosecutorial declinations as incentives. Companies that voluntarily self-disclose wrongdoing in connection with M&A transactions are likely to be eligible for said declination, sparing them from certain penalties or enforcement actions in exchange for voluntary cooperation. This approach is a departure from the traditional enforcement-focused stance of the DOJ and signals an official preventive stance to a means to ensure legal compliance.

A Greater Emphasis on Mutual Research

The motivation behind this policy shift of sorts is clear – to create a more effective and efficient enforcement mechanism by encouraging companies to proactively address and rectify potential violations. By offering incentives such as declinations, the DOJ hopes to foster a culture of self-disclosure and active assistance rather than relying solely on sniffing out wrongdoing and punishing with punitive measures.

The Safe Harbor policy, as described by the DOJ, will encourage companies to place a stronger emphasis on thorough due diligence of their acquiree during the M&A process, identifying and addressing potential legal issues or worrisome alarm bells. This careful cross-checking means to not only protect the buyers involved but also align with the DOJ’s broader mission to safeguard fair competition and consumer protection.

A Safe Harbor for All, or a Safe Harbor for Some?

As win-win as this policy may appear, not all industry insiders are on board. Critics of the policy argue that some buyers might misuse the promise of incentives to their advantage, allowing them to escape with minimal consequences for serious violations on the part of the acquired company that they may have been aware of before their M&A transaction. There is also the possibility that the DOJ may order a declination with ‘disgorgement’ in certain cases, or the repayment of ill-gotten profits that may have been unfairly earned by the acquired or partner company before the transaction. In these instances, while the buyer would be spared the severest of legal repercussions, they would still be made to take a financial – as well as reputational – hit. However, proponents emphasize that the policy means to encourage cooperation, ultimately fostering a more transparent and responsible business environment, which in turn will lead to greater accountability for all.

Indeed, as the compliance landscape for M&A transactions is so complex, supporters of the Safe Harbor policy contend that the challenge of navigating the intricate web of regulations often leads to accidental compliance violations that were never intended by either party. The announced policy shift acknowledges these complications and works to position the DOJ as a partner in compliance, rather than an unbending enforcer.

Know Thy Enemy Partner

For businesses, this policy shift sends a strong signal towards the necessity of strong compliance programs and due diligence processes being firmly set in place. Comprehensive pre-transaction reviews are crucial in ensuring that any potential legal issues are identified and addressed before diving too deeply into the M&A process. In the long run, simply emphasizing careful research can lead to more seamless transactions and protect companies from the legal and financial repercussions of undisclosed malfeasance.

If you’re currently working through an M&A transaction for your business – or expect to in the near future – and you have questions about how you should handle crucial steps in regard to this recent announcement, Richards Rodriguez & Skeith’s business and transactional team may be able to help you! Contact us today to discuss your options.