DOJ chooses not to prosecute private equity firm following self-disclosure regarding acquired company

The Department of Justice’s National Security Division (NSD) updated its Enforcement Policy for Business Organizations last year, focusing on voluntary self-disclosures related to acquisitions. This policy outlines that if an acquiror completes a lawful acquisition, voluntarily self-discloses potentially criminal violations, fully cooperates with the investigation, and remediates the misconduct, there is a presumption that the NSD will decline prosecution.

While the acquired entity doesn’t benefit from this presumption, the NSD will take the acquiror’s self-disclosure into account and evaluate if the acquired entity meets the specified requirements to reap the policy’s benefits.

Recently, private equity firm White Deer Management LLC made headlines as the DOJ decided not to prosecute them even after the firm self-disclosed criminal violations of U.S. sanctions and export laws concerning a acquired company, Unicat Catalyst Technologies LLC. Assistant Attorney General for National Security John A. Eisenberg emphasized that White Deer’s proactive actions in stopping and reporting the misconduct led to the successful prosecution of a senior executive, highlighting the NSD’s commitment to recognizing responsible corporate leadership.

The case involved Unicat’s former CEO, Mani Erfan, and other employees conspiring to violate U.S. economic sanctions by conducting business with countries like Iran, Venezuela, Syria, and Cuba. Erfan and Unicat employees went to great lengths to falsify documents and deceive about their dealings, prompting White Deer to take action upon discovering the misconduct post-acquisition.

White Deer’s swift response to canceling a deal with an Iranian customer upon learning of Unicat’s illicit transactions led them to investigate and submit a voluntary self-disclosure to the NSD. The NSD commended White Deer and Unicat for their timely and thorough cooperation during the investigation, aiding in the successful prosecution of Unicat’s former CEO.

Upon evaluation, the NSD determined that White Deer’s acquisition of Unicat was lawful, the self-disclosure was timely, and the cooperation greatly assisted the investigation, leading to effective remediation steps taken within a year of discovering the misconduct.

Key takeaways from this situation include the importance of due diligence in acquisitions, with the M&A policy allowing acquirors to uncover misconduct shortly before or after the transaction. White Deer’s case exemplifies the significance of self-disclosure, timely cooperation, and effective remediation in potentially avoiding prosecution and promoting responsible corporate behavior.