On August 1, 2024, the Department of Justice's Criminal
Division (DOJ) launched its highly anticipated whistleblower awards
program. As we previously covered, Deputy Attorney General (DAG) Lisa
Monaco unveiled the anticipated program in March at the ABA's
White Collar Crime Conference, after which DOJ commenced a
"policy sprint" to develop the program's bounds. The
details have now arrived: a three-year pilot program, called the
"Corporate Whistleblower Awards Pilot Program" (Pilot
Program), that will compensate whistleblowers who provide original
information to DOJ about certain types of corporate misconduct if
that information leads to a successful forfeiture. According to
DOJ, the Pilot Program fills gaps in existing whistleblower
programs, including those maintained by other federal agencies, by
addressing certain areas of corporate misconduct those programs do
not cover. The Pilot Program goes into effect immediately.
Alongside the Pilot Program's launch, DOJ also announced an
amendment to its Corporate Enforcement
and Voluntary Self-Disclosure Policy (VSD Policy). Under the
amendment, where a company receives an internal report of
misconduct from a whistleblower and reports that misconduct to DOJ
within 120 days, the company will be eligible for a presumption of
a declination. The company also must cooperate fully and remediate
the wrongdoing. This amendment strengthens DOJ's efforts to
entice companies to build strong internal reporting structures and
to encourage voluntary self-disclosure of corporate
misconduct.
The announcement of the Pilot Program and the VSD Policy amendment
puts an exclamation point on the message DOJ has been repeating to
companies and their employees recently: if you see something, say
something.
VSD Policy Amendment
We start with the most significant issue for companies — the amendment to the VSD Policy. The amendment provides that, if a whistleblower makes both an internal report to a company and a report to DOJ, the company may still qualify for a presumption of declination under the VSD Policy (even if the whistleblower reports to DOJ first) provided that the company reports the conduct to DOJ within 120 days of receiving the internal report. In practice, that period may be even shorter than 120 days, because the company must reach out before DOJ contacts them about the matter, as the Criminal Division's leader, Principal Deputy Assistant Attorney General (PDAAG) Nicole Argentieri, made clear in her remarks on the Pilot Program. Among the key takeaways that we discuss below, the VSD Policy amendment paired with the Pilot Program puts significant pressure on corporations to promptly investigate and disclose misconduct reported internally by whistleblowers.
The Pilot Program's Four Focus Areas
One of the primary aims of DOJ's Pilot Program is to
incentivize reporting of criminal misconduct not already covered by
the existing whistleblower landscape, which consists of existing
federal whistleblower programs that, according to DAG Monaco, are
indispensable yet resemble a "patchwork quilt that doesn't
cover the whole bed." To that end, the Pilot Program targets
four areas of corporate misconduct outside the scope of
whistleblower programs maintained by the Securities and Exchange
Commission (SEC), the Commodity Futures Trading Commission (CFTC),
the Department of the Treasury's Financial Crimes Enforcement
Network (FinCEN), and DOJ's Civil Division's False Claims
Act (FCA) qui tam program.
Specifically, the Pilot Program covers the following areas of
corporate crime:
- Violations by financial institutions, their insiders, or agents, including schemes involving money laundering, anti-money laundering compliance violations, registration of money transmitting businesses, and fraud statutes, and fraud against or non-compliance with financial institution regulators
- Violations related to foreign corruption and bribery by, through, or related to companies, including violations of the Foreign Corrupt Practices Act (FCPA), violations of the Foreign Extortion Prevention Act, and violations of the money laundering statutes
- Violations committed by or through companies related to the payment of bribes or kickbacks to domestic public officials, including but not limited to federal, state, territorial, or local elected or appointed officials and officers or employees of any government department or agency
- Violations related to (1) federal health care offenses and related crimes involving private or other non-public health care benefit programs, where the overwhelming majority of claims are submitted to private or other non-public health care benefit programs, (2) fraud against patients, investors, and other non-governmental entities in the health care industry, where the overwhelming majority of the actual or intended loss was to patients, investors, and other non-governmental entities, and (3) any other federal violations involving conduct related to health care not covered by the FCA
DOJ's Pilot Program guidance provides
that individuals are not eligible for an award under the Pilot
Program if they would be eligible for an award through another U.S.
government or statutory whistleblower, FCA qui tam, or
similar program if they had reported the same scheme that they
reported under this Pilot Program. Because individuals may be
unsure about the specific program covering the tip, DOJ encourages
individuals to submit information to multiple programs to allow DOJ
to decide whether the individual qualifies under the Pilot
Program.
PDAAG Argentieri noted that the Criminal Division has been actively
pursuing corporate cases in the first two areas — violations
by financial institutions and foreign corruption schemes —
for years. Regarding the second two — domestic corruption
schemes and federal health care offenses — she pledged that
the Criminal Division is looking to expand its corporate
enforcement efforts in those areas. PDAAG Argentieri acknowledged
that fraud on federal health care benefit programs is already
covered by DOJ's Civil Division FCA qui tam program,
and stated that the Criminal Division "ha[s] no intention of
interfering with that highly successful program." Rather, the
Pilot Program addresses the lack of any whistleblower program
covering fraud involving private health care insurance programs. As
with the Criminal Division's previously announced
Pilot Program on Voluntary Self-Disclosures for Individuals, each
of these four areas correlate with specialized Criminal Division
components, including the Public Integrity Section and the Fraud
Section's FCPA Unit, Market Integrity and Major Fraud Unit, and
Health Care Fraud Unit.
The Pilot Program's Eligibility Requirements
Generally, an individual may be eligible for an award under the
Pilot Program if, alone or jointly with other individuals, the
individual provides DOJ with original information, in writing, that
leads to criminal or civil forfeiture exceeding $1,000,000 in
connection with a successful prosecution, corporate criminal
resolution, or civil forfeiture action within the four areas
outlined above.
DOJ's Pilot Program guidance details several eligibility
requirements for whistleblower awards. These requirements largely
mirror the eligibility requirements under the SEC's program and
include:
- Original Information. An individual must
provide DOJ with original information, in writing, to be eligible
for an award. Original information means: (1) information that is
derived from the individual's independent knowledge or
independent analysis, not from publicly available sources; (2)
information that is non-public and not previously known to DOJ; and
(3) information that materially adds to the information DOJ already
possesses, if it already possessed information about a
matter.
Information is still considered "original" if the individual first reported it through the company's internal whistleblower, legal, or compliance procedures where the entity later reported to DOJ the individual's information, provided that the individual reports the information to DOJ within 120 days of reporting internally.
An individual's information is not "original" if, among other things, it was obtained through a communication that was subject to the attorney-client privilege, it was contained entirely in an allegation made in a judicial or administrative hearing, or if it was obtained by a means or in a manner that violates federal or state criminal law.
Individuals who learn of misconduct allegations because of their position, such as officers, directors, trustees, or partners, or whose duties involved compliance or audit functions are not considered to have "original" information (with certain exceptions, including if disclosure of the information is necessary to prevent criminal conduct likely to lead to imminent physical, financial, patient, or national security harms).
- Subject Area. An individual's information must pertain to one of the four subject areas identified above.
- Voluntariness. An individual's information must be reported voluntarily, meaning it must be reported: (1) before any request, inquiry, or demand related to the subject matter of the report is directed to the individual or anyone representing them; (2) where the individual has no preexisting obligation to an agreement in connection with a criminal prosecution or civil enforcement action to report the information to DOJ, any DOJ component, or any federal law enforcement or civil enforcement agency; and (3) in the absence of any government investigation or threat of imminent disclosure to the government or the public.
- Truthful and Complete. An individual's information must be truthful and complete. According to DOJ, this means the individual must provide all information of which the individual has knowledge relating to any misconduct, including misconduct in which they participated or of which they are aware. To make a report, the individual must use DOJ's intake form and declare under penalty of perjury that the information is true and correct.
- Cooperation. An individual must cooperate with DOJ in its investigation of the reported misconduct and related criminal or civil actions. This could include, for example, providing testimony or evidence, producing documents, or working with law enforcement officers.
- Leading to Forfeiture. An individual's
information must lead to successful forfeiture exceeding $1,000,000
in net profits forfeited in connection with a prosecution,
corporate criminal resolution, or civil forfeiture action related
to the corporate misconduct. In assessing whether an
individual's information led to a successful criminal or civil
forfeiture, DOJ will consider whether the individual's
information caused DOJ to open an investigation, reopen a
previously closed investigation, or assisted in an existing
investigation.
No award will be available if there is no successful forfeiture.
The Pilot Program's Payment of an Award
DOJ makes clear that the payment of an award is subject to
DOJ's discretion and will be managed by the Criminal
Division's Money Laundering and Asset Recovery Section. Should
DOJ choose to make an award to a whistleblower, it will determine
an award amount based on the net proceeds of the forfeiture and
certain other considerations, as detailed below. Any award will be
based on the net proceeds forfeited, meaning the value of any
assets DOJ forfeits after compensating eligible individual victims
and paying other costs associated with the forfeiture.
DOJ placed the following cap on whistleblower awards: the
whistleblower may be eligible for an award of up to (1) 30% of the
first $100 million in net proceeds forfeited; (2) 5% of any net
proceeds forfeited between $100 million and $500 million; and (3)
no award on net proceeds forfeited above $500 million. This cap is
unlike the potential recovery in a FCA qui tam action,
where the relator will receive a percentage of the total
award.
DOJ will consider several criteria when determining the amount of
any award which, again, are largely mirrored on criteria under the
SEC's whistleblower program. For example, considerations that
may increase the award amount include the significance of the
information provided by the whistleblower, the assistance provided
by the whistleblower to DOJ, and whether the whistleblower
participated in internal compliance and reporting systems.
Considerations that may decrease the award amount include the
whistleblower's level of culpability, any unreasonable delay in
reporting, any interference with internal compliance and reporting
systems, and the whistleblower's management role or oversight
over personnel involved in the misconduct, if any.
Critically, an individual is not eligible for payment if they
meaningfully participated in the criminal activity, including by
directing, planning, initiating, or knowingly profiting from that
criminal activity. However, DOJ can, at its discretion, deem a
whistleblower eligible if the whistleblower's minimal role in
the misconduct was "sufficiently limited" such that the
individual could be described as the least culpable of those
involved in the conduct.
Key Takeaways
The Corporate Whistleblower Awards Pilot Program is effective as
of August 1, 2024, so companies must familiarize themselves with
its details as soon as possible. Here are some key takeaways:
Companies Have 120 Days (or Less) to Review Internal
Tips and Report to Qualify for Declination. A company
must contact DOJ within 120 days of the company's receipt of an
internal whistleblower tip in order to be eligible for the
presumption of a declination. Depending on the nature of the
investigation, this timeline puts pressure on companies to
expeditiously conduct an internal investigation and determine
whether to contact DOJ in a relatively short period of time.
Importantly, that timeline may be even more compressed because the
company will be out of luck for a presumptive declination if DOJ
contacts them first.
Enforcers Want a Race to Their Doorstep.
With the addition of this DOJ whistleblower program to the already
existing and successful field of such programs by the SEC, CFTC,
FinCEN, and the Civil Division's FCA qui tam program,
plus DOJ's voluntary self-disclosure programs for companies and
individuals, enforcement authorities have created strong incentives
for companies and individuals to be the first to bring misconduct
allegations to them. Companies are well-served to understand the
details of these different programs, and to make certain that they
have in place a rigorous and comprehensive approach to
investigating misconduct allegations.
DOJ Incentivizes Internal Reporting, but Didn't
Require It. DOJ appears to have recognized that its
whistleblower program could undermine a company's internal
compliance program unless they incentivized reporting to the
company first. Thus, the program allows an individual to first
report the alleged misconduct internally, and then report it to DOJ
within 120 days. Plus, DOJ says that such internal reporting may
increase the ultimate award. However, DOJ did not go so far as to
require potential whistleblowers to go to the company first,
meaning that an employee may choose to go to DOJ directly,
sidestepping the company's internal reporting entirely.
Partnership Between Corporate Compliance and Legal
Personnel. DOJ's creation of a race to report
puts internal reporting structures and internal investigations
front and center. This requires a partnership between compliance
and legal. It's critical to make sure that all internal
complaints — including those reported to a direct supervisor
and not just those going to an internal hotline — are
captured, triaged, and investigated.
Anticipate a Focus on Whistleblower
Protections. DOJ's message that obstruction
charges could follow for preventing individuals from reporting
possible violations of the law to them is significant, as is its
specific inclusion that potentially enforcing or threatening to
enforce a confidentiality agreement could constitute obstruction.
The SEC has a mirror provision that allows the SEC to bring civil
enforcement actions against a company for impeding communications.
The SEC has brought 23 actions to date under its authority.
Criminal obstruction charges increase the pressure to ensure
agreements have clear government reporting allowances.
Companies Should Undertake a Compliance Review of All
Employee Documents, Not Just Severance Agreements.
The rules applicable to companies and individuals who impede
whistleblower reporting have been applied expansively by the SEC.
The SEC has brought cases against companies for language included
in codes of conduct, ethics manuals, training materials, and investor materials. We anticipate DOJ will
take a broader reading of its rule as well. Companies should
consider reviewing these materials to make sure they are compliant
with the whistleblower protection rules.
DOJ's Focus on Private Insurance Programs Is a
Significant Expansion of Its Health Care Enforcement
Efforts. DOJ has long focused on criminal and civil
health care enforcement, but two of its primary tools — the
federal Anti-Kickback Statute and the FCA — are limited to
federal programs such as Medicare, Medicaid, and Tricare (as well
as federal programs that include participation by private insurers,
such as Medicare Advantage). Because the FCA is limited to federal
payors, so too is the government's FCA qui tam
program. This new Pilot Program may significantly expand that
paradigm into the private insurance program setting, as potential
whistleblowers (and their counsel) now know that DOJ is willing to
potentially reward their information with significant money. The
Pilot Program guidance also seeks to minimize potential overlap
between criminal whistleblower and FCA qui tam cases in
two key ways: (1) by focusing on health care matters where the
"overwhelming majority" of claims or fraud loss involved
non-governmental payors or other victims and (2) by excluding
whistleblowers who could seek awards via other government programs
if they report "the same scheme" and "same original
information" through those other programs. That said, if a
whistleblower reports allegations to the Criminal Division under
the Pilot Program, nothing prevents the Criminal Division from
sharing that information internally with other DOJ components,
including with the Civil Division, which could open its own
investigation.
* * *
DOJ intends to regularly evaluate the Pilot Program to determine whether any modifications are necessary, and encourages feedback on the Pilot Program from a broad range of stakeholders. We will continue to follow any updates to DOJ's Pilot Program and VSD Policy.
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