The US Department of Justice’s (DOJ) Criminal Division on August 1 announced the details of its much-anticipated Corporate Whistleblower Awards Pilot Program. This three-year initiative aims to incentivize individuals to report corporate wrongdoing and enhance DOJ’s ability to detect and prosecute corporate crime.
Previewed in a speech earlier this year (see our March 8 LawFlash), the whistleblower pilot program supplements—and expressly does not displace—other whistleblower programs, such as the robust qui tam False Claims Act whistleblower regime or the whistleblower programs of the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission, and Internal Revenue Service. Instead, the new whistleblower program focuses exclusively on corporate crime that falls outside the scope of existing programs.
The program is open to individuals who voluntarily provide original, truthful, and complete information about criminal misconduct related to designated subject areas. To collect a whistleblower award, the whistleblower’s information must lead to forfeiture exceeding $1 million in net proceeds, cannot be publicly available, and must be accompanied by full cooperation from the whistleblower.
DOJ’s pilot program imposes an important 120-day period on both whistleblowers and companies. Under the pilot program, a whistleblower may be eligible for an award even if they first report the information through their employer’s internal reporting procedures. However, the whistleblower must also report the same information to DOJ within 120 days of the internal report to be eligible.
Separately, the Criminal Division amended its Corporate Enforcement and Voluntary Self-Disclosure Policy the same day it announced the pilot program. The amendment provides that companies may qualify for a presumption of a declination if they self-disclose within 120 days of an internal whistleblower report, even if the whistleblower already made a report to DOJ. Companies must still meet all other voluntary self-disclosure requirements.
Eligible reports of misconduct must pertain to one of the following key subject areas: (1) violations by financial institutions involving money laundering, anti-money laundering compliance, fraud, or registration of money transmitting businesses; (2) foreign corruption and bribery violations under the Foreign Corrupt Practices Act, the Foreign Extortion Prevention Act, or money laundering statutes; (3) violations related to the payment of bribes or kickbacks to domestic public officials; and (4) certain federal health care offenses not covered by the False Claims Act, including federal health care offenses and related crimes involving private or other nonpublic health care benefit programs and health care fraud schemes involving private insurance plans.
Under the program, whistleblowers may receive up to 30% of the first $100 million in net proceeds forfeited, and up to 5% of net proceeds between $100 million and $500 million. There is no award on net proceeds forfeited above $500 million. The maximum potential award is set at $35 million. Factors that may increase award amounts include the significance of the information provided and the level of assistance to DOJ’s investigation. The whistleblower’s culpability, delay in reporting, and interference with internal compliance may decrease award amounts.
As it relates to employee whistleblowers, the DOJ warned that it will consider any alleged retaliation in assessing whether the employer (or any individual) cooperated with the DOJ or obstructed an investigation and may institute appropriate enforcement actions in response to retaliation. Similarly, it directed whistleblowers to alert it if someone tries to prevent communications with the DOJ, including by enforcing or threatening to enforce a confidentiality agreement, stating that this too could impact its assessment of the company’s (or any individual’s) cooperation and remediation of the reported misconduct.
PROGRAM’S TIES TO FORFEITURE
Several aspects of the program are significant, including its narrowness—it is limited to specific areas not covered by other programs. But perhaps most interesting is that the program is expressly tied to monetary forfeiture and will be administered by the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS). While DOJ’s Criminal Division has focused extensively on individual criminal culpability and corporate criminal liability in recent years, it has not demonstrated an explicit interest in monetary forfeiture.
The choice of MLARS as the administering section reflects MLARS’s increasingly prominent profile in recent years. MLARS has been involved in prosecuting foreign corruption cases in the wake of the 1Malaysia Development Berhad scandal, and this new guidance indicates that MLARS may assume a greater role in investigations surrounding domestic corruption, health care fraud, and national security issues.
SPECIAL RISKS FOR NONISSUERS
The new whistleblower program poses special risks for companies whose shares are not traded on US exchanges: foreign corporations and privately held US companies. Public companies, or issuers, have long understood that misconduct, including in the domestic and foreign public corruption spaces, is subject to the SEC’s robust whistleblower program. But the new DOJ program throws down a new gauntlet for nonissuers: whistleblowers are now incentivized to report issues directly to DOJ, instead of to company ethics hotlines. Through this program, the companies are expressly subject to a significant crosswind in the enforcement space: the ability of a US enforcement agency to financially incentivize disaffected or concerned employees to report misconduct or wrongdoing.
These companies would be advised to ensure their compliance programs are robust and conspicuous, and to try to incentivize whistleblowers to come forward internally before approaching DOJ. Additionally, these companies should ensure that all employee-facing agreements—such as nondisclosure, employment, and separation agreements—contain appropriate language advising employees of the ability to report information on a confidential basis to a government agency, such as the DOJ. And they should expect increased attention from DOJ as whistleblowers engage directly with the government.
NEXT STEPS
This comprehensive pilot program is another step in DOJ’s yearslong initiative to combat corporate crime. The substantial financial incentives provided to individuals who come forward with valuable information increases the likelihood of reports of corporate misconduct. Although the potential impacts will reverberate across all industries, financial institutions, companies in the healthcare industry, and companies that operate internationally may particularly feel the effects most.
Companies that invest in robust compliance programs have the opportunity to address potential misconduct before it escalates. Through enhanced internal reporting mechanisms, companies can address potential misconduct early on and mitigate the risk of external whistleblowing. If companies receive internal whistleblower reports, it is important that they make timely self-disclosure decisions within the 120-day period to maintain eligibility for the presumption of a declination.
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