How can companies adequately prepare for the DOJ’s aggressive new deadlines for M&A disclosures? In this episode of All Things Investigations, Tom Fox discusses the implications of the DOJ’s new M&A Safe Harbor policy with Mike Huneke. They explore best practices for meeting the 6-month and 1-year deadlines, how to approach pre-acquisition due diligence, and whether this policy will lead to more or fewer disclosures.

Mike Huneke is a partner in Hughes Hubbard & Reed’s Washington office. He advises clients on the navigation and resolution of multi-jurisdictional criminal or Multilateral Development Bank (MDB) anti-corruption investigations. He also assists companies subject to post-resolution monitorships or other commitments and designs and executes risk-based strategies for due diligence on third parties.

You’ll hear Tom and Mike discuss:

• The 6-month post-closing deadline to disclose is extremely quick for large, complex companies. Compliance teams need to get involved very early in the M&A process to spot potential issues adequately.
• Sellers must also prepare for more scrutiny from buyers under this policy. They should proactively assess compliance programs in their portfolio companies, anticipate buyer due diligence questions, and address any issues to maximize sale value.
• The policy’s criminal liability focus means boards and senior execs must now approve disclosures. This may lead to more hesitation in disclosing, as companies lose the ability to “test run” disclosures. 
• Companies must apply an “anti-corruption mindset” to issues like sanctions and export controls now that those areas have potential criminal penalties. Cross-train compliance and trade professionals to instill this mindset.
• Pre-acquisition due diligence should identify the root causes of any issues so companies can prioritize remediation post-close. Have a detailed, documented integration plan ready.
• Managing investigations and remediation simultaneously with tight deadlines will be challenging. A strong tone from the top will be crucial for integration.
• It is unclear if other agencies like the SEC will follow the DOJ’s approach. Disclosers may hesitate if issues span multiple regulators.
• Overall, the policy adds certainty around timelines, though meeting them will be difficult. It forces compliance to have a seat at the M&A table.

KEY QUOTES

“And so the more that things are criminal and the larger the penalties, the more you’re going to have boards get involved, the more you’re going to need very senior management to be involved. And that may result in just more hesitation to make a voluntary disclosure…” – Mike Huneke.

“So sellers should be looking at this and anticipating that there will be more questions from buyers and more questions from buyers’ counsel.” – Mike Huneke.

“So identifying the root cause is absolutely key and then realistically you’re not going to be able to integrate an entire company into your compliance program in one year. Make sure you have a plan that’s well documented and based on the due diligence for prioritizing what’s coming in first.” – Mike Huneke.

Resources

Hughes Hubbard & Reed website 

Mike Huneke on LinkedIn