United States: New DOJ Guidance On Cooperation In FCA Investigations Clarifies How Companies Can Receive Leniency In Exchange For Voluntary Disclosures, But Leaves Unanswered Questions

Earlier this week, the Department of Justice released guidance identifying the circumstances in which the Department would award credit to companies that voluntarily disclose or otherwise cooperate during False Claims Act ("FCA") investigations. While the new guidance leaves some unanswered questions, it is a step in the right direction because it provides greater transparency by identifying the types of cooperation that may result in leniency.

Cooperation credit is not an entitlement. The new guidance leaves the DOJ significant discretion to reduce or withhold cooperation credit based on considerations such as the "nature and seriousness of the violation," "the extent of any damages," and the "litigation risks presented if the matter proceeds to trial." When companies are eligible for cooperation credit, the DOJ may reduce the penalties or damages multiplier sought by the government.

The guidance is a major step toward transparency, and it manages expectations by setting a ceiling for how much credit or leniency can be given. The guidance explains that "[t]he maximum credit that a defendant may earn may not exceed an amount that would result in the government receiving less than full compensation for the losses caused by the defendant's misconduct (including the government's damages, lost interest, costs of investigation, and relator share)." The guidance confirms that the government may only seek single damages (plus interest, costs of investigation, and relator share) in appropriate instances, such as when a company has made a timely self-disclosure that identifies "all individuals substantially involved in or responsible for the misconduct, provide[s] full cooperation with the government's investigation, and takes remedial steps designed to prevent and detect similar wrongdoing in the future."

The guidance does not provide a formula for calculating cooperation credit, and while the new guidance still leaves some unanswered questions (such as how much of a benefit companies can expect for their cooperation), that may be an unavoidable consequence of the government's need to retain some discretion in how to handle particular cases.

When assessing the value of any self-disclosure or cooperation, government counsel may consider factors such as the timeliness of a company's disclosures, "the truthfulness, completeness, and reliability of any information or testimony provided," "the nature and extent of the assistance," and the "usefulness of the cooperation to the government." Furthermore, the DOJ will also consider whether the company has taken appropriate remedial actions in response to the FCA violation, including conducting a thorough analysis of the causes of the underlying conduct, implementing or modifying an effective compliance program, and disciplining or replacing individuals responsible for the misconduct. Similarly, the guidance recognizes that companies may uncover additional misconduct during an internal investigation into the government's concerns; therefore, the new guidance provides that "voluntary self-disclosure of such additional misconduct will qualify the entity for credit."

The guidance identified ten types of cooperation or voluntary self-disclosure eligible for credit:

  • Identifying individuals substantially involved in or responsible for the misconduct;
  • Disclosing relevant facts and identifying opportunities for the government to obtain evidence relevant to the government's investigation that is not in the possession of the entity or individual or not otherwise known to the government;
  • Preserving, collecting, and disclosing relevant documents and information relating to their provenance beyond existing business practices or legal requirements;
  • Identifying individuals who are aware of relevant information or conduct, including an entity's operations, policies, and procedures;
  • Making available for meetings, interviews, examinations, or depositions an entity's officers and employees who possess relevant information;
  • Disclosing facts relevant to the government's investigation gathered during the entity's independent investigation (not to include information subject to attorney-client privilege or work product protection), including attribution of facts to specific sources rather than a general narrative of facts, and providing timely updates on the organization's internal investigation into the government's concerns, including rolling disclosures of relevant information;
  • Providing facts relevant to potential misconduct by third-party entities and third-party individuals;
  • Providing information in native format and facilitating review and evaluation of that information if it requires special or proprietary technologies so that the information can be evaluated;
  • Admitting liability or accepting responsibility for the wrongdoing or relevant conduct; and
  • Assisting in the determination or recovery of the losses caused by the organization's misconduct.

The list is not exhaustive, and companies do not have to satisfy all of them to qualify for partial cooperation credit. As the list indicates, eligibility for credit does not depend on waiver of the attorney-client privilege or work product protection.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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