Honesty is the Best Policy: Navigating the DOJ’s M&A Safe Harbor

The recent announcement of the Department of Justice’s (DOJ) M&A Safe Harbor policy has significant implications for companies involved in mergers and acquisitions (M&A) within the healthcare industry. This new policy incentivizes companies to be transparent about potential misconduct discovered during due diligence or post-acquisition.

To gain deeper insights into the M&A Safe Harbor policy, watch our video featuring Amanda Johnston, Partner at Gardner Law.

What is the M&A Safe Harbor Policy?

The DOJ’s M&A Safe Harbor policy encourages companies to voluntarily disclose misconduct to the DOJ within six months of closing an acquisition. By doing so, companies may avoid prosecution if they fully remediate the misconduct within 12 months. This policy aims to promote transparency and accountability within the industry.

The Benefits and Risks of Self-Disclosure

While self-disclosure can offer certain benefits, it also carries inherent risks.

Benefits:

• Reduced Penalties: Companies that voluntarily disclose misconduct and cooperate with the DOJ may face reduced penalties or even avoid prosecution altogether.
• Improved Reputation: Proactive disclosure can demonstrate a company’s commitment to ethical business practices and corporate responsibility.
• Streamlined Remediation: By disclosing misconduct early, companies can develop a more focused and efficient remediation plan.

Risks:

• Expanded Investigation: The DOJ may expand its investigation beyond the disclosed misconduct.
• Reputational Damage: Even if the DOJ declines to prosecute, public disclosure of misconduct can still harm a company’s reputation.
• Increased Scrutiny: Self-disclosure may lead to increased regulatory scrutiny in the future.

Key Considerations for M&A Participants

When considering whether to self-disclose under the M&A Safe Harbor policy, companies should carefully weigh the following factors:

• Nature and Severity of Misconduct: The seriousness of the misconduct will significantly impact the potential consequences.
• Widespread Nature of Misconduct: The extent of the misconduct and the number of individuals involved will influence the decision.
• Risk of Discovery: If the misconduct is likely to be discovered by regulators or whistleblowers, self-disclosure may be the best course of action.
• Remediation Feasibility: Companies must assess their ability to fully remediate the misconduct within the 12-month timeframe.
• Reputational Impact: The potential impact on the company’s reputation should be carefully considered.

Conclusion

The DOJ’s M&A Safe Harbor policy presents a complex landscape for companies involved in M&A transactions. While self-disclosure can offer benefits, it is crucial to weigh the risks and make informed decisions. 

As Amanda Johnston, a partner at Gardner Law, advises, “The M&A Safe Harbor policy is a double-edged sword. While it offers the potential for leniency, it also carries significant risks. Companies must carefully consider the specific circumstances of each deal and weigh the potential benefits against the potential drawbacks. By working closely with legal counsel, companies can make informed decisions that protect their interests and mitigate potential liabilities.”

By understanding the factors involved and seeking expert legal advice, companies can navigate this policy effectively and mitigate potential risks.

Want to learn more about how to navigate the complex landscape of healthcare compliance? Contact Gardner Law today to schedule a consultation.

This is the second article in our 5-part series, "Due Diligence Decoded: M&A Success in FDA-Regulated Industries.”