Davis Polk partner Jesse Solomon was quoted in the Capitol Forum on DOJ’s new self-disclosure safe harbor policy and its potential impact on health care M&A. Under the policy, federal prosecutors will not bring charges if a company voluntarily reports criminal misconduct of the company it acquires within six months from the date of closing. This applies whether the misconduct was discovered pre- or post-acquisition. Companies will then have a baseline of one year from the date of closing to fully remediate the misconduct.

“The policy announced by DAG Monaco sets out standards for reporting by M&A buyers on broad ranges of criminal conduct by acquired businesses, which the buyers have discovered during M&A due diligence and/or integration,” Jesse explained. “Specifically from an antitrust perspective, it is worth noting that this policy is distinct from, and independent of, the Antitrust Division’s own leniency program, which is focused more narrowly on encouraging self-reporting by individuals and corporations for criminal antitrust violations, mostly cartel activity.”

When asked how this will impact M&A, Jesse noted, “From my perspective as an antitrust M&A attorney, I am skeptical whether the policy will meaningfully change how we conduct diligence and integration activities. The policy might mean that buyers seek to conduct broader and more thorough due diligence on known exposure risks, but even if the buyer identified such risks and reported them to DOJ promptly, it’s not clear to me that the buyer would benefit. This new policy extends a safe harbor to the buyer, but there is a more ambiguous and conditional standard for the target company – and criminal exposure to the target company would harm the buyer, who now owns the target and will suffer its consequences.”

“Health Care Antitrust Weekly,” Capitol Forum (October 11, 2023) (subscription required)