US to incentivise companies to report misdeeds at businesses they buy

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Companies that disclose misconduct committed by businesses they are buying will not face charges under a new enforcement policy from the US Department of Justice that seeks to tackle “a new era” of national security threats arising from corporate malfeasance.

Lisa Monaco, deputy US attorney-general, on Wednesday announced measures that will offer “safe harbour” to self-disclosing businesses.

Under the policy, the DoJ will not bring charges against an acquirer that voluntarily reports misconduct committed by a company it buys within six months of the deal closing, whether the illegal activity was identified before or after the purchase.

Self-disclosing companies must then rectify the misconduct within a year of the deal’s completion, although the precise timelines are subject to prosecutors’ discretion.

“We want to incentivise that type of responsible corporate behaviour,” Monaco told the Financial Times.

“We want to incentivise good companies, companies with good, strong compliance records . . . to acquire companies that may have . . . a less robust compliance programme, that may actually have a history of misconduct,” she added. “We don’t want to discourage those acquisitions.”

Companies that have been acquired and whose wrongdoing has been reported may also qualify for safe harbour, and potentially avoid charges, if there are no aggravating factors.

The measures are aimed at giving the DoJ an opportunity to spot misconduct during the due diligence and integration processes typical in mergers and acquisitions as Washington sharpens its focus on corporate malfeasance with national security implications.

Monaco said: “We are operating in a new era of greater complexity, greater geopolitical risk for corporations, multinational corporations in particular.”

“The national security risks are running the gamut in ways that we haven’t seen in the past,” she said, going beyond sanctions violations and arising in a “host of areas and across a host of industries”, such as the cryptocurrency space or foreign countries seeking to target US intellectual property.

“We’ve seen a real uptick in the number of our major corporate criminal resolutions that implicate our national security,” Monaco added. In her speech on Wednesday, she said that the number of such resolutions this year had doubled from 2022.

One such case involved British American Tobacco, which in April agreed to pay authorities $635mn after a subsidiary pleaded guilty to selling tobacco products to North Korea in violation of US sanctions. The penalty, set under a deferred prosecution agreement, was the largest to stem from North Korean sanctions violations, the DoJ said at the time.

The DoJ’s policy would enshrine measures that have so far been implemented on a case-by-case basis.

The DoJ modelled the new package on a 2008 advisory opinion it issued giving Halliburton, one of the world’s biggest oilfield services providers, six months after closing to reveal potential misconduct at a UK company it was seeking to buy. Under UK law, Halliburton would not have been able to complete due diligence prior to the deal. The DoJ agreed it would not prosecute Halliburton if it revealed any wrongdoing before that deadline.

“We’re taking the Halliburton approach that was limited to that particular case — and only sporadically implemented within specific lines of the justice department — and expanding on it by making it consistent and predictable,” said a senior DoJ official.

Since she took office in 2021, Monaco has focused on boosting companies’ voluntary self-disclosure as part of a broader set of enforcement reforms.

These also include taking into account historical misconduct during company investigations, prioritising holding individuals accountable for corporate crimes, and limiting the use of deferred prosecution agreements, which often forgo or postpone criminal charges to allow a business to prove that it can remedy the wrongdoing — typically in exchange for a financial penalty.

On Wednesday, Monaco said there could be more changes to corporate enforcement policy, for instance when it comes to orders set by the Committee on Foreign Investment in the US, an inter-agency panel that vets inbound investment for security risks.