On October 4, 2023, the US Department of Justice announced a new policy known as the Safe Harbor Policy. Deputy Attorney General Lisa Monaco made the announcement, aligning the new policy with the DOJ’s Corporate Enforcement Policy that seeks to uncover criminal conduct within corporate entities.

Here’s a quick breakdown of what the Safe Harbor Policy is, what it means for business entities, and how to remain in compliance with the new protocols should you undertake a merger or acquisition of a subsidiary business.

What is the DOJ Safe Harbor Policy?

The DOJ Mergers & Acquisitions Safe Harbor Policy is a voluntary self-disclosure that aims to provide greater clarity for acquiring companies. The policy outlines benefits to acquiring companies who uncover criminal conduct by the target company during the acquisition phase.

Acquiring companies can use the Safe Harbor Policy to minimize any legal consequences for their corporate stakeholders if misconduct by the target company is identified. Legal protection is granted if the acquiring company:

• Self reports the criminal conduct within the safe harbor period
• Fully complies with the DOJ during the investigation
• Engages in timely, requisite, and appropriate disclosure of financial fraud

Acquiring companies that voluntarily self-disclose such information will be granted a presumption of declination by the DOJ. Essentially, this means that the federal government will not lay any charges against the acquiring company should they cooperate with the DOJ.

What’s the timeframe to comply with the Safe Harbor Policy?

The DOJ has mandated specific timeframes for acquiring companies to comply with and benefit from the Safe Harbor Policy. Acquiring companies have up to six months after a merger or acquisition deal closes to voluntarily self-disclose any discovered financial malpractice by the acquired company.

Additionally, acquiring companies have up to one year after the closing date to remediate any ill-gotten gains in a timely and appropriate manner. The DOJ may extend both of these timeframes on a case-by-case basis under what they describe as a “reasonableness analysis.”

Purpose of the Safe Harbor Policy and similar legislation

Legislation like the Safe Harbor Policy, the Corporate Enforcement Policy, and other DOJ protocols are part of a broader effort to crack down on white-collar crime. North American society incurs serious consequences from white-collar crimes like money laundering, corporate fraud, and other examples.

Innocent people end up paying the price for these corporate crimes, impacting the health and well-being of people who fully comply with jurisdictional laws. The Safe Harbor Policy is designed to incentivize cooperation with authorities when mergers or acquisitions uncover examples of misconduct, fraud, and other criminal activities.

Other prominent legislation, such as the Corporate Transparency Act, requires corporate entities to provide diligent records about beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This is another example of the government mandating greater transparency and accountability amongst the country’s largest business entities.

Use legal technology to conduct in-depth M&A due diligence

As an acquiring company leading the merger or acquisition process, it’s incumbent upon your team to conduct diligent due diligence of the target company. After all, if you detect any signs of shady or nefarious conduct by the target company, you may decide to pull out of the process before a deal can be finalized.

To assist with the due diligence process, it’s best to use legal technology like entity management software. Entity management software is a platform built by legal professionals for legal professionals that functions as a single source of truth for all corporate reporting data.

Simply upload reporting data supplied by the target company’s legal, compliance, financial, HR, and other departments into the entity management platform. The platform’s intuitive nature organizes all reporting data into structured minute book records that offer a holistic overview of the target company’s fiscal, legal, and compliance positions.

While nothing is fool-proof, there may be data that’s missed during the due diligence process that could cause problems with the DOJ post-acquisition. The Safe Harbor Policy will protect your stakeholders should this occur, provided you voluntarily disclose your discovery to them.

Ready to modernize mergers & acquisitions while shielding yourself from legal or financial consequences? Join the MinuteBox revolution today and remain in compliance with the laws, no matter what subsidiaries you bring under your corporate umbrella.