The Criminal Division of the U.S. Department of Justice (DOJ) recently announced a three-year pilot program aimed at rewarding individuals who report corporate criminal misconduct. Acknowledging the success of other whistleblower incentive programs such as those operated by the U.S. Securities and Exchange Commission (SEC) and U.S. Treasury's Financial Crimes Enforcement Network (FinCEN), Deputy Attorney General Lisa Monaco observed that these and other programs “don't address the full range of corporate and financial misconduct” that DOJ prosecutes and as a result, DOJ instituted this program to “fill the gaps in this patchwork.” The Corporate Whistleblower Awards Pilot Program's overall goal, explained Principal Deputy Attorney General Nicole Argentieri, is to provide “incentives to report corporate crime” and “motivate corporations to create more robust compliance programs that detect and deter criminal conduct by encouraging the internal reporting of complaints.” At the Pilot Program's announcement, Argentieri declared, “we are sending a message to individuals . . . our tip line is open.”
Other whistleblower incentive programs chiefly address civil violations. The Pilot Program, however, is aimed at corporate criminal misconduct. In fact, DOJ will only pay rewards if the reported information leads to a successful forfeiture of at least $ 1 million in connection with a criminal prosecution, a corporate criminal resolution (e.g., non-prosecution or deferred prosecution agreements) or with a civil forfeiture. In DOJ's “sole discretion,” successful whistleblowers may receive up to 30% of the first $100 million forfeited and up to 5% of any net proceeds forfeited between $100 and $500 million.
Though touted as being aimed at “corporate crime” generally, the Pilot Program is limited to four narrow areas of corporate crime:
- Crimes involving financial institutions or their employees, including obstruction or defrauding financial investigators
- Foreign corruption and bribery involving privately held companies and others who are not issuers of U.S. securities and who are not covered by the SEC's whistleblower program
- Bribery or payment of kickbacks to federal, state, or local government officials and
- Health care fraud schemes targeting private insurers and other non-public healthcare benefit programs.
The fourth category also includes fraud against patients, investors, and non-governmental entities in the health care industry and any other federal violations involving conduct related to health care not covered by the False Claims Act (FCA).
In part, the Pilot Program aims to incentivize whistleblowers to promptly report corporate criminal violations within these four categories. The program instructs whistleblowers that they cannot “unreasonably delay in reporting.” At the same time, it encourages employees to first report misconduct to their corporation's compliance department or internal hotline before submitting their information to DOJ. If they do so, their right to an award remains protected: an employee who reports misconduct through internal company systems can seek and obtain a whistleblower award from DOJ, provided that the person submitted their information to DOJ within 120 days of their internal report to the company.
In amending its Corporate Enforcement and Voluntary Disclosure Policy, DOJ introduced a significant incentive for companies that discover legal violations and promptly self-report. If a company receives a report from a whistleblower and it self-reports its misconduct to DOJ within 120 days and before the DOJ reaches out to the company, the company will be eligible for the greatest benefit under DOJ policy: a presumption of declination. The presumption applies so long as the reporting company fully cooperates with DOJ and remediates its wrongdoing.
The Pilot Program contains a significant amount of small print that applies to prospective whistleblowers. The program's requirements are detailed in a 14-page “guidance” manual and 5-page questionnaire that whistleblowers must fill out to make a report. Among its key requirements, the program mandates that the whistleblower:
- Provide DOJ with “original” information about the corporate misconduct — information that DOJ didn't already know and that has not been publicly disclosed — and with “very few exceptions” must be “first in the door.”
- Be an individual who submits his or her disclosure in writing, using the DOJ's form and website, and swears to the truthfulness and completeness of the submission.
- Must not lie, conceal, or mischaracterize their role in the misconduct they report and must not have “meaningfully participated” in the misconduct they are reporting.
- Cannot be an employee who works in a company's compliance department or internal audit.
- Cannot be an officer, partner, or director who was informed of the allegations of the corporate misconduct.
- Should not have a management role or oversight of corporate officers and personnel involved in the misconduct and
- Cannot use or rely on privileged information or information obtained illegally in violation of state or federal law.
Key Takeaways
- The Pilot Program is designed to fill in gaps in conduct not covered by other agencies' whistleblower programs. These gaps are narrow and the program does not have wide application to most corporations.
- The Pilot Program's appeal and incentives to whistleblowers may be limited. Payments to whistleblowers depend on DOJ obtaining and collecting a forfeiture in conjunction with a criminal resolution. This process can be lengthy and uncertain, with no guarantee that a report will lead to prosecution.
- DOJ appears to have learned from other whistleblower programs by trying to prevent opportunists from profiting. Corporate compliance or internal audit personnel, whose job is to ferret out and prevent corporate misconduct, are ineligible to participate. So too are whistleblowers who are “meaningfully involved” in the misconduct they report. Plus, whistleblowers must provide “original” information from their independent knowledge or analysis — not something they learned from the press, disclosed in a lawsuit, or obtained from speaking with the company's lawyers.
- Defense counsel in False Claims Act cases have long complained: Why didn't the whistleblower report the misconduct they have observed to the company's compliance officer? Why are they permitted to bypass internal corporate compliance programs designed to investigate complaints and correct complaints? The Pilot Program addresses this by encouraging whistleblowers to report misconduct to corporate compliance first, giving them an additional 120 days to report the information to DOJ.
- DOJ continues to emphasize the importance of effective compliance programs for corporations and seeks to incentivize companies to self-report. The presumption that DOJ will decline to prosecute reported misconduct is a significant incentive.
- The Pilot Program could significantly impact the prosecution of private pay/non-governmental health care fraud. Unlike the False Claims Act, which covers federal healthcare programs, there has been no compatible whistleblower program for fraud on private health insurers. Yet, as Argentieri recognized, that is an area where “estimates show tens of billions of dollars of fraud each year.”
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