After announcing at the ABA White Collar Crime Conference last winter that it would engage in a months-long "policy sprint," the U.S. Department of Justice (DOJ or Department) released its Corporate Whistleblower Awards Pilot Program (Whistleblower Program or Program) last week. The much-anticipated program is intended to fill gaps in the patchwork of federal whistleblower programs currently administered by the U.S. Securities and Exchange Commission (SEC), the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN), the Commodity Futures Trading Commission (CFTC), and other agencies. Under the Program, DOJ may, in its sole discretion, award significant payments to individuals who report criminal wrongdoing in four key areas of interest to the government and whose information assists the government in successfully forfeiting ill-gotten gains.
As set forth below, the Program has been structured to incentivize employee whistleblowers to report internally first, although it is unclear whether those incentives will suffice.
DOJ also announced that for the three-year duration of the Whistleblower Program, it has amended its Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP) so that any company that receives an internal report of wrongdoing first, will qualify for a presumption of declination (i.e., nonprosecution) if the company reports to DOJ's Criminal Division within 120 days of receiving the internal report (and before the Department contacts the company) and satisfies all of the other requirements of the CEP.
According to Department officials, these changes reflect efforts to add new tools to prosecutors' "enforcement toolbox" and to further expand its efforts in the area of corporate enforcement.
Information Must Relate to One or More of Four Key Programmatic Areas
Because the Whistleblower Program is intended to fill gaps in the patchwork of already-existing whistleblower programs, qualifying information must relate to one or more of four specifically identified subject areas, namely:
- Financial Institutions. Violations by financial institutions, their insiders or agents, including schemes involving money laundering, anti-money laundering compliance violations, registration of money transmitting businesses, fraud statutes and fraud against or noncompliance with financial institution regulators
- Foreign Corruption and Extortion. Violations related to foreign corruption and bribery by, through, or related to privately held companies. These include violations of the Foreign Corrupt Practices Act, the Foreign Extortion Prevention Act and the money laundering statutes
- Domestic Corruption and Bribery. 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
- Healthcare. Violations related to 1) federal healthcare offenses and related crimes involving private or other nonpublic healthcare benefit programs where the overwhelming majority of claims are submitted to private or other nonpublic healthcare benefit programs, 2) fraud against patients, investors and other nongovernmental entities in the healthcare industry where the overwhelming majority of the actual or intended loss was to patients, investors and other nongovernmental entities, and 3) any other federal violations involving conduct related to healthcare not covered by the federal False Claims Act, 31 U.S.C. § 3729, et seq.
Information Must Be Original and Truthful and Lead to Forfeiture of Over $1 million
To qualify for a whistleblower award, individuals must provide the DOJ with 1) "original, truthful information about criminal misconduct relating to one or more of the designated program areas" that 2) leads to a successful criminal or civil forfeiture netting more than $1 million.
The Whistleblower Program defines "original" information as information that is "derived from the individual's independent knowledge or individual analysis." Notably, "original information" can include information that results from an individual's "evaluation of information that may be publicly available, but which reveals information that is not generally known or available to the public." Likewise, "original information" can include information related to information DOJ already possesses if it "materially adds" to that information. In all cases, the information provided to DOJ must be credible and truthful.
Information is not original if, among other things, it was obtained through an attorney-client privileged relationship or communication, if the individual obtained the information in connection with legal representation of a client, if the individual's information is contained entirely in an allegation made in a judicial or administrative hearing, government report, audit, investigation or in the media, if the individual obtained the information in the course of acting as a compliance professional or officer/director/employee to whom the information was provided for purposes of reporting and addressing possible violations of law, if the individual obtained the information illegally or if the individual obtained the information from someone who is otherwise excluded from the Program.
Whistleblowers May Receive Tens of Millions, But DOJ Will Exercise Sole Discretion in Making Awards and Compensate Victims First
The first step in determining whether information qualifies for an award is to ask whether the whistleblower's information led to an investigation and prosecution that lead to a forfeiture of greater than $1 million.
Thereafter, the Department will exercise its discretion in determining whether to make an award, and DOJ will do so only after compensating eligible individual victims. Among other things, DOJ will consider the following factors in making an award:
- whether the information provided by the whistleblower had a significant impact on the success of any related criminal or civil forfeiture action
- the amount and degree of assistance/cooperation the whistleblower provided to the Department during the course of its investigation, including the timeliness of the initial report
- the resources conserved as a result of the information shared
- the efforts taken by the whistleblower to remediate the harm caused by the unlawful conduct
- any unique hardships the whistleblower experienced as a result of their role in reporting and assisting the Department
- whether the whistleblower participated in any internal compliance system or internal reporting program, which may serve as a basis for increasing the size of the reward
Notably, only individuals will qualify as whistleblowers (not any company or other corporate entity) and certain individuals will be barred from participating in the Program altogether, including persons who meaningfully participated in the activity they reported, DOJ officials, employees, contractors and their family members, elected or appointed foreign officials, and any person who obtained the information through criminal wrongdoing.
DOJ has indicated that it will calculate potential awards based on the "net proceeds forfeited" – i.e., the value of any assets DOJ forfeits after compensating eligible individual victims and paying other costs associated with the forfeiture.
Generally, whistleblower(s) may be eligible for an award of "up to 30% of the first $100 million in net proceeds forfeited" or an award of "up to 5% of any net proceeds forfeited between $100 million and $500 million." DOJ will not provide awards on net proceeds forfeited above $500 million. The U.S. Attorney General will be required to approve any award of greater than $500,000 and, in all such cases, DOJ will notify Congress of the payment, as required by law.
DOJ will decide the total amount in its sole discretion, however, there will be a "presumption" under the Program that the Department "will award a whistleblower the maximum 30% of the first $10 million in net proceeds forfeited."
Program Seeks to Incentivize Internal Reporting and Self-Disclosure
For years, DOJ has stated that it is seeking to incentivize companies to invest in strong ethics and compliance programs. To that end, the Department noted that it designed the Whistleblower Program "to encourage employees to report misconduct internally before making a report to the Department." It does this in at least two ways. First, the Program allows an employee who first reports misconduct internally to seek a whistleblower award, so long as they submit the information to DOJ within 120 days of their internal report. And second, DOJ will consider whether an employee reported internally first in determining the size of the award and "may increase the amount of a whistleblower award" for persons who report internally first.
Relatedly, DOJ has announced that for the duration of the Whistleblower Program, it has amended the CEP so that any company that receives an internal report of wrongdoing and reports that information to DOJ within 120 days and before the Department becomes aware of it "will qualify for the greatest benefit under the CEP – a presumption of a declination," assuming the company "satisfies the CEP's other requirements, including the standard conditions that the company cooperate fully, identify responsible individuals, remediate any harms, and disgorge ill-gotten gains."
In assessing whether a company has met the other requirements of the CEP, DOJ will "consider, among other things, the promptness of the company's self-disclosure and the level of diligence performed by the company after receiving the whistleblower's internal report (but prior to self-disclosing the wrongdoing to the Department) to assess the report's accuracy and implement or begin to implement appropriate remedial measures."
Whistleblower Program Effective Aug. 1, 2024, for a Period of Three Years and Will Be Administered by MLARS
The Whistleblower Program became effective Aug. 1, 2024, and will last for a period of three years. Because funds will be awarded out of the Assets Forfeiture Fund (pursuant to DOJ's authority under 28 U.S.C. § § 524(c)), the program will be implemented, supervised and monitored by DOJ's Money Laundering and Asset Recovery Section (MLARS). Tips submitted to DOJ will be reviewed by prosecutors in MLARS and DOJ's Fraud and Public Integrity Sections, as well as the FBI.
According to DOJ, MLARS "will regularly evaluate the program's efforts and assess what if any additional resources, policies, or statutory authorities are needed" to support the Program.
Additional guidance, as well as an Intake Form, have been posted to DOJ's website.
Potential Effects of the Program
At this time, it is difficult to predict whether the Whistleblower Program will achieve the Department's desired effect of encouraging corporate entities to create more robust internal reporting structures or if it will encourage corporate entities to be more proactive in reporting misconduct it discovers on their own. But given the potential rewards a whistleblower could recover under this program, companies should, at minimum, reevaluate their compliance programs to help ensure that they have a system in place that allows them to identify misconduct first. The combination of the Whistleblower Program and the Department's amendment of the CEP demonstrates DOJ's commitment to "innovation and expansion" in the area of corporate enforcement and offers greater incentives to companies and individuals to self-report and self-disclose wrongdoing.
