On November 16, the Criminal Division of the U.S. Department of Justice (DOJ) issued a declination letter to Lifecore Biomedical Inc. (Lifecore), stating that DOJ would not prosecute Lifecore for violations of the Foreign Corrupt Practices Act that occurred at a company Lifecore had acquired. This latest decision under the DOJ's Corporate Enforcement and Voluntary Self-Disclosure Policy illustrates how timely discovery, disclosure, and remediation of criminal conduct at an acquired company can earn lenient treatment from the Feds.

According to the declination letter, employees of Yucatan Foods L.P. (Yucatan) and its manufacturing facility bribed Mexican government officials through third-party intermediaries, both before and after Lifecore acquired Yucatan in December 2018. These bribes were paid to secure a wastewater discharge permit and to obtain signatures on fraudulent documents concerning wastewater delivery.

At least one Yucatan official reportedly tried to conceal the misconduct from Lifecore and its auditor at the time of pre-acquisition diligence. Lifecore, however, identified misconduct during its post-acquisition integration and launched an internal investigation. According to the declination letter, Lifecore voluntarily self-disclosed the misconduct to DOJ "within three months of first discovering the possibility of misconduct and hours after an internal investigation confirmed that misconduct had occurred."

Lifecore also "timely and appropriately" remediated, including by terminating the Yucatan officer engaged in the misconduct and withholding that officer's bonus and other compensation. In addition, Lifecore provided "full and proactive cooperation" to DOJ and has agreed to disgorge the benefits it derived from the bribery scheme.

The Lifecore declination highlights the value of post-acquisition integration (including audits and investigations), especially where the acquiring company was not able to conduct sufficient pre-acquisition diligence. As readers of Enforcement Edge may recall, in October, DOJ issued a new Mergers & Acquisition Safe Harbor Policy, which created a declination presumption for acquiring companies that identify and voluntarily disclose misconduct within six months of closing and fully remediate the misconduct within one year of closing.

The declination further shows how DOJ is recognizing efforts to tie executive compensation to compliance. In March, DOJ updated its guidance on Evaluation of Corporate Compliance Programs and launched a Pilot Program Regarding Compensation Incentives and Clawbacks, both of which emphasize the importance of tying employee compensation systems to compliance including through compensation clawbacks. (For more on DOJ's guidance on compensation clawbacks, check out our Critical Compliance series clips on DOJ's guidance and its intersection with employment law.)

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