Buying a medical practice or healthcare related business? An acquisition may be a great way to grow one’s business and increase capacity to reach new clientele. However, when purchasing a business, a buyer is also purchasing some level of risk. For example, what happens if the company being acquired, unbeknownst to the buyer, had been engaged in illegal activity prior to your engagement? This is especially likely in the field of healthcare, which is highly regulated and in which possible violations of law like the Anti-Kickback Statute can carry both civil and criminal penalties.
To encourage the discovery and disclosure of criminal activity by purchasers, the Department of Justice has announced new safe harbors for the voluntary disclosure of criminal misconduct discovered during mergers and acquisitions. On October 4, 2023, Deputy Attorney General Lisa O. Monaco announced a new opportunity to protect purchasers who discover criminal activity in the course of pursuing an acquisition. Now, companies engaged in a merger or acquisition will be rewarded with a presumption against criminal prosecution if any misconduct is discovered as the result of thorough due diligence and is promptly reported to prosecutors.
The safe harbor requires that criminal misconduct be reported at least six months before a deal closes. In addition to reporting requirements, the parties must take remedial action, which may include remediation of illicit conduct, restitution, and disgorgement of illegally gained funds. These remedial actions must be completed within one year of closing. Therefore, the safe harbor’s time requirements mean that any potential merger must include an investigation into potential criminal misconduct early in the process. If any misconduct is found, voluntary self-disclosure of misconduct can save the disclosing party from expensive fines and penalties that they would otherwise be subject to, while failure to conduct a complete investigation into the actions of the acquisition target could result in successor liability for the purchasing party.
Mergers and acquisitions can be a technical process, requiring a deep understanding of many different regulatory regimes. Our experienced mergers and acquisitions team can assist in avoiding regulatory pitfalls and protecting from criminal and civil liability.
This article contains general advice that is not designed to apply to the reader’s specific situation and does not constitute the formation of an attorney-client relationship.
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