Our Recently Acquired Business Is Violating the Law—Now What?

A Recent DOJ Decision Provides Guidance to Private Equity Firms

by Lewis Zirogiannis, P.C. and Thomas F. Li

Every time a private equity sponsor acquires a new business, there is a risk of uncovering previously unknown information post-closing, regardless of how thorough due diligence was prior to closing the transaction. What happens if a private equity firm finds out after closing that its newly acquired business has been engaging in criminal conduct? Recent actions from the United States Department of Justice (DOJ) provide potential pathways to avoiding criminal charges against the private equity firm as well as the newly acquired business.

On June 16, 2025, the DOJ’s National Security Division (NSD) and the U.S. Attorney’s Office for the Southern District of Texas (SDTX) (together, the Justice Department) announced that they declined to prosecute the private equity firm White Deer Management LLC (White Deer) after White Deer discovered and self-disclosed U.S. economic sanction, export control and tariff evasion violations committed by a company it acquired, Unicat Catalyst Technologies LLC (Unicat). As part of the resolution, Unicat entered into a non-prosecution agreement (NPA).

This resolution provides guidance on the application of the NSD’s March 2024 Enforcement Policy for Business Organizations (NSD Enforcement Policy) and, in particular, the provisions that apply to Voluntary Self-Disclosures in Connection with Acquisitions (the NSD M&A Policy). It also highlights how voluntary and timely self-disclosure by a private equity firm of criminal misconduct of an acquired entity discovered post-closing can result in a decision not to prosecute.

White Deer Discovery of Unicat’s Misconduct

In June 2021, after White Deer had acquired Unicat and a separate company, Unicat’s new CEO began a process of integrating and merging Unicat with this separate company. During this process, the CEO learned that Unicat had a pending transaction with a customer in Iran – a violation of U.S. economic sanctions laws – and immediately canceled the transaction. This news surely came as a surprise given that Unicat represented and warranted in the acquisition agreement that Unicat’s operations complied with U.S. sanctions and export control laws.

White Deer and Unicat engaged counsel to investigate Unicat’s compliance with applicable U.S. economic sanctions laws. The investigation revealed that, from 2014 to 2021, Unicat made sales to customers in Iran, Venezuela, Syria and Cuba, all in violation of U.S. economic sanctions laws. Additionally, Unicat employees falsified invoices to reduce tariffs on goods imported from China, thereby avoiding certain duties, taxes and fees.

White Deer and Unicat Voluntarily Disclose to the NSD

Recognizing the gravity of these discoveries, White Deer and Unicat submitted a voluntary disclosure to the NSD. In deciding whether to prosecute White Deer or Unicat, the NSD considered the factors set forth in the NSD M&A Policy, which provides:

When a company (1) completes a lawful bona fide acquisition of another entity, (2) voluntarily and timely self-discloses to NSD potentially criminal violations of laws affecting U.S. national security committed by the acquired entity, (3) fully cooperates with NSD’s investigation and (4) timely and appropriately remediates the misconduct, NSD generally will not seek a guilty plea from the acquiror, and there is a presumption that NSD will decline to prosecute the acquiror.

The NSD M&A Policy further provides that while a presumption of declination (i.e., a decision not to prosecute) is not available to the acquired entity, NSD will credit the acquiror’s timely, voluntary self-disclosure to the NSD and will consider whether the acquired entity otherwise satisfies the NSD Enforcement Policy’s requirements to obtain the benefits of the Policy.

Unicat Receives a Non-Prosecution Agreement, and White Deer Receives a Declination

As a result of the timely, voluntary disclosure of its violations of U.S. economic sanctions and export controls laws, the Justice Department announced that it (i) entered into a Non-Prosecution Agreement (NPA) with Unicat and (ii) declined to prosecute White Deer. Pursuant to the NPA, Unicat agreed to forfeit millions in proceeds from the offending transactions and to pay certain fines, penalties, underpaid duties, taxes, and fees.

In applying the NSD M&A Policy with respect to White Deer, the Justice Department declined to prosecute White Deer for Unicat’s historical violations of U.S. economic sanctions and export control laws. Specifically, the Justice Department focused on the following factors related to White Deer:

1. The acquisition of White Deer was a lawful, bona fide acquisition.
2. White Deer had no preexisting obligation to disclose Unicat’s misconduct.
3. The disclosure was timely. White Deer immediately canceled a pending transaction with the Iranian customer and made its disclosure just one month after discovering the misconduct.
4. White Deer provided and caused Unicat to provide exceptional and proactive cooperation with the Justice Department, including identifying, collecting and disclosing relevant evidence to investigators and responding in a timely manner to the government’s requests for information and evidence.
5. White Deer’s cooperation materially assisted the government’s investigation, leading to the successful prosecution of Unicat’s former CEO.
6. White Deer timely remediated the misconduct in less than one year from the date of its discovery, including terminating culpable employees, disciplining others, and designing and implementing a comprehensive and robust internal controls and compliance program to prevent similar misconduct in the future.

In sum, according to the Assistant Attorney General for National Security in a press release, “after acquiring a company with a hidden history of sanctions violations, this private equity firm uncovered the misconduct, stopped it, and quickly reported it to the government leading to a successful prosecution of a [former] senior executive.”

Takeaways

The Justice Department’s decision is the first time since the creation of the NSD M&A Policy that a private equity firm has received a declination for voluntary self-disclosure of criminal conduct discovered post-closing. The Justice Department’s decision not to prosecute White Deer sends a strong signal to private equity firms that timely and voluntary self-disclosure of wrongdoing and cooperation with the Justice Department are key to taking advantage of the NSD M&A Policy’s pathway to declination.

In addition to ensuring acquisition agreements include representations and warranties (and potentially specific indemnities) for undisclosed U.S. sanctions and export control violations, particularly for targets with international operations and government-facing contracts, private equity firms should establish rapid internal triage and disclosure protocols to escalate red flags, initiate investigations and assess whether to voluntarily disclose wrongdoing when it is discovered.