Beginning at noon on August 1, whistleblowers can now submit information about certain types of corporate crime through a dedicated DOJ webpage. The program guidance requires that information submitted by whistleblowers relate to one of the following areas: (1) certain crimes involving financial institutions, from traditional banks to cryptocurrency businesses; (2) foreign corruption involving misconduct by companies; (3) domestic corruption involving misconduct by companies; or (4) health care fraud schemes involving private insurance plans.
In doing so, DOJ hopes to expand on and “fill the gaps” in a “patchwork” of existing whistleblower programs at the Securities Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Internal Revenue Service (IRS), the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), and for qui tam actions in False Claims Act suits alleging fraud against the U.S. government. The program is the latest in DOJ’s efforts to generate more corporate criminal investigations and follows a time-tested pattern of offering monetary rewards to encourage whistleblowers to come forward.
What’s new
The new program targets misconduct and companies not already covered by other whistleblower programs, with a particular focus on matters involving the Foreign Corrupt Practices Act (FCPA) and non-issuer, foreign corporations. The program will now extend to international commodity trading companies, who historically have been out of reach for the SEC and its whistleblower program. Other matters the new program will cover include those involving obstruction or defrauding of financial regulators, corrupt conduct and bribery of U.S. government officials, and fraud against private healthcare insurers, which DOJ estimates to be on the order of tens of billions of dollars each year.
The stakes
The program is designed to pay out victims of misconduct before the whistleblower. Any awards will be calculated based on the “net proceeds forfeited” – the value of any assets forfeited after victims are compensated and costs are paid. DOJ may then award up to 30% of net proceeds between US$1 and US$100 million, or up to 5% of net proceeds between US$100 million and US$500 million, to eligible whistleblowers who provide DOJ, in writing, with non-public, original information that was previously unknown to DOJ or that materially adds to information DOJ already possesses. The program notably does not offer an award for the portion of any claims exceeding a net forfeiture of over US$500 million, a decision that has already been met with scrutiny by certain stakeholders. The program will be managed by the Criminal Division’s Money Laundering and Asset Recovery Section and will last for three years. If the program is successful, then it likely will be made permanent.
The catch
Already, critics have raised a number of concerns with DOJ’s pilot program. They have pointed to DOJ’s sole discretion in weighing the amount of each award on a case by case basis, as well as the lack of any mechanism for whistleblowers to ensure that DOJ complies with its commitments. In addition, they note, the program goes further than the SEC, CFTC, and FinCEN whistleblower programs in prohibiting payments to any whistleblower who meaningfully participated in the reported criminal activity. Furthermore, individuals who obtain the reported information from their role in compliance or audit functions of a company or who work for a firm conducting internal investigations will be ineligible for an award. Notwithstanding concerns about certain elements of the pilot program, these limitations and the preservation of DOJ’s discretion are modest limitations that are necessary to ensuring payment of awards to bona fide whistleblowers who did not play significant roles in the misconduct.
The strategy
Companies responding to allegations of misconduct, including through internal whistleblower reports, must carefully account for the pilot program’s timelines. Under the program, individuals are encouraged to report misconduct internally before reporting to the DOJ, and doing so may increase the amount of their award. But those who report internally can still seek an award if they also submit the information to DOJ within 120 days of submitting their internal report. Meanwhile, DOJ announced on August 1 that it has amended its corporate enforcement and voluntary self-disclosure policy in conjunction with this provision of the whistleblower awards program; now under the amendment, a company that receives an internal whistleblower report may be eligible to receive a presumption of declination if it reports the misconduct to DOJ within 120 days of receipt of the internal report and before DOJ contacts the company. This change is potentially very significant because, up to this point, DOJ’s Corporate Enforcement and Voluntary Disclosure Program required companies to be the first reporter. As before, the company must also fully cooperate with the government and remediate any issues to secure the presumption of declination.
Looking ahead
Given the fixed timelines to disclose misconduct created by the whistleblower program and recent amendments to the voluntary disclosure policy, companies’ incentives to self-identify compliance incidents – or to prevent such misconduct from occurring in the first place – have never been higher. Likewise, corporate compliance investigations teams must have the resources and focus to evaluate whistleblower complaints promptly. Compliance hotline intake procedures that allow for efficient review and escalation of reported compliance concerns could assist in expediting review of such allegations and assessing their veracity. If an internal investigation reveals potentially significant breaches, companies must be positioned to promptly assess their strategy, including whether to pursue the path of self-disclosure. Given the 120-day timeframe within which companies must escalate whistleblower complaints to DOJ to potentially receive a presumption of declination, any compliance system should also be thoughtful about who makes the decision to voluntarily disclose and how such disclosure will be made. In addition, companies will need to weigh the likelihood that a whistleblower – faced with the enhanced incentives offered by the pilot program – will already have made a disclosure and drawn the attention of DOJ.
Authored by Stephanie Yonekura, Peter Spivack, Shelita Stewart, Matthew Sullivan, and Anjali Baliga,
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