U.S. DOJ first declination for sanctions violation since creation of M&A safe harbor

The watershed announcement marks the first application of the voluntary self-disclosure safe harbor provision from the DOJ’s Mergers and Acquisitions Policy (M&A Policy) adopted in March 2024.

Post-acquisition investigation reveals misconduct

In 2020, White Deer Management LLC (White Deer) acquired Unicat Catalyst Technologies LLC (Unicat), a portfolio company. During post-acquisition integration, White Deer and Unicat’s new CEO came to suspect that Unicat had engaged in apparent violations of U.S. sanctions and export control laws. 

In June 2021, White Deer and new Unicat management launched an internal investigation and uncovered several transactions involving the sale of chemical catalysts used in oil refining and steel production with counterparties subject to different U.S. sanctions programs in Iran, Venezuela, Syria, and Cuba from approximately 2014 to 2021. Some of the sales were effectuated through exports from the United States and further violated U.S. export control laws. Many of the transactions were hidden through the use of falsified export documents and, in total, amounted to approximately USD3.3 million in illegal sales, further giving rise to tariff avoidance violations.  

Disclosure to U.S. National Security Division ten months after acquisition

After uncovering this information as part of its internal investigation and diligence, and before the internal investigation was complete, White Deer disclosed the potential misconduct to NSD approximately ten months after finalizing its acquisition of Unicat.

In its press release announcing the declination, the DOJ highlighted, in support of its decision to decline prosecution, White Deer’s (i) timely disclosure to the DOJ, (ii) full cooperation with the DOJ’s investigation, and (iii) remedial actions—including the termination of employees involved in the misconduct and enhancement of Unicat’s compliance program.

Acquired entity gets non-prosecution agreement, forfeits proceeds and pays penalties

In addition to the declination to prosecute White Deer, the DOJ entered a non-prosecution agreement with the acquired entity, Unicat, which agreed to forfeit approximately USD3.3 million, representing the proceeds of the sanctions and export control violations.  

Separately, Unicat agreed to pay approximately USD3.8 million to satisfy administrative penalties imposed by OFAC, of which OFAC agreed to deem USD3.3 million as satisfied by the forfeiture money judgment. Unicat further agreed to pay approximately USD391,183 in administrative penalties to the United States Department of Commerce’s Bureau of Industry and Security Office of Export Enforcement (OEE) for export control violations, to which OEE agreed to credit Unicat’s payment to OFAC. Finally, Unicat paid approximately USD1.6 million in restitution to the U.S. Department of Homeland Security, Customs and Border Protection for the tariff avoidance violations. 

Additionally, Unicat’s former Chief Executive Officer agreed to plead guilty to sanctions and money laundering violations and pay a money judgment of USD1.6 million. 

M&A safe harbor 

Under the M&A Policy, the DOJ may have a presumption in favor of declination for an acquired company’s misconduct when the acquiring company: (i) voluntarily and timely self-discloses the acquired company’s potential criminal violations; (ii) fully cooperates with NSD’s investigation; and (iii) timely and appropriately remediates the misconduct.  

This presumption applies to a full range of corporate criminal offenses, including antitrust, FCPA, and sanctions and export control violations. This declination provides a clear example of how acquiring companies can benefit from prompt self-disclosure and cooperation in line with the DOJ’s M&A policy, especially when the misconduct involves national security interests.

Takeaways

The DOJ’s decision underscores several key takeaways for companies involved in M&A transactions:

• Due diligence remains critical: while the Safe Harbor Policy offers protection for acquiring companies, robust pre- and post-acquisition due diligence remains essential to identify potential misconduct and ensure timely disclosure.
• Prompt disclosure is key: companies should have processes in place to quickly identify and report potential violations.
• Remediation and cooperation matter: full cooperation with government investigations and prompt, effective remediation are necessary to qualify for declination under the policy.