Department of Justice Announces New Whistleblower Reward Program

Last week, Deputy Attorney General Lisa Monaco announced a new whistleblower monetary award program administered by the Department of Justice designed to incentivize individuals to disclose significant corporate or financial misconduct. This program is the latest in a series of recent DOJ initiatives designed to spur voluntary disclosure of corporate misconduct and penalize non-disclosure. Although DOJ said the details about how the program will work are still being developed, two immediately apparent consequences for companies, resulting from new, possibly enormous financial incentives for whistleblowers to report allegations of corporate misconduct, seem likely: the program will encourage many companies to strengthen their compliance programs; and it will force companies to confront difficult questions of voluntary disclosure of suspected misconduct both more frequently and earlier in the investigative process.

Speaking at the ABA’s National Institute on White Collar Crime, Monaco and Acting Assistant Attorney General Nicole M. Argentieri unveiled the broad contours of the pilot program, which DOJ will develop over the course of a ninety-day “sprint.” During this time, DOJ—with the Money Laundering and Asset Recovery Section playing “a leading role”—will consult with stakeholders and coordinate with other federal agencies to determine the specifics of how the program will work. The whistleblower incentives will be available to individuals who voluntarily and proactively provide information not already known to the government—those “first in the door”—and are not involved in the reported misconduct. 

The new program will be similar to whistleblower reward programs administered by various agencies such as the Securities and Exchange Commission, the Financial Crimes Enforcement Network (see prior alert), the Commodity Futures Trading Commission, and the Internal Revenue Service, as well as the qui tam regime. DOJ’s program will apply to reports of misconduct not falling within the ambit of those other programs—it aims to fill “gaps” in the existing “patchwork quilt” of other whistleblower incentives. While Monaco advised that DOJ “will always accept information about violations of any federal law,” she and Argentieri indicated that DOJ is especially interested in information regarding: 

• Abuses in the U.S. financial system
• Foreign corruption cases outside the jurisdiction of the SEC (for example, by non-issuers), and
• Domestic corruption cases—especially those involving illegal corporate payments to government officials.

Argentieri also indicated that DOJ would limit whistleblower rewards to cases where the forfeiture amount exceeds a to-be-determined monetary threshold. By setting a monetary threshold, DOJ will try to focus its efforts on more significant allegations of misconduct. One potential benchmark is the SEC’s whistleblower program, which limits rewards to cases where the enforcement action results in sanctions exceeding $1 million. Even with that threshold, however, the SEC still received more than 18,000 whistleblower tips in FY 2023 while awarding only 68 individuals under the program.

The Latest Corporate Compliance “Carrot”

The new program is the latest in a series of “carrots and sticks” DOJ has implemented to incentivize disclosure of corporate wrongdoing and to increase the consequences for failing to do so. Key among these:

• In September 2022, DOJ instructed its units to develop written policies to incentivize voluntary self-disclosure of wrongdoing by companies. It centered that push on two core principles. First, that in the absence of aggravating factors, DOJ would not seek a guilty plea from a company that voluntarily self-discloses, fully cooperates, and timely and appropriately remediates criminal conduct. Second, DOJ would not require the imposition of an independent compliance monitor for a cooperating company that establishes an effective compliance program.
• In January 2023, DOJ’s Criminal Division announced revisions to its Corporate Enforcement Policy implementing the DOJ-wide voluntary self-disclosure policy directive. The revisions established new incentives for early self-disclosure, full cooperation, and remediation. Under the revised policy, companies that promptly disclose, cooperate, and remediate would qualify for a presumption of a declination absent aggravating circumstances. And where criminal resolution is warranted, the policy provides that, as to companies following the voluntary self-disclosure policy, DOJ will generally not seek a guilty plea, recommend a greater reduction off the low end of the U.S. Sentencing Guidelines fine range, and decline to impose a compliance monitor for companies with effective compliance programs. For companies that fully cooperate and remediate but fail to self-disclose, however, DOJ would recommend only a smaller reduction in the Sentencing Guidelines fine range, and the companies would not qualify for a presumptive declination.
• In March 2023, DOJ launched a Pilot Program on Compensation Initiatives and Clawbacks. That initiative calls for reduced criminal fines for certain companies that make good faith attempts to recoup compensation from employees who have engaged in wrongdoing. It also requires companies resolving claims brought by DOJ to implement compliance-related components in their compensation systems—such as a prohibitions on bonuses for employees who do not satisfy compliance performance requirements or incentives for employees who demonstrate commitment to compliance processes.
• In October 2023, Monaco announced a “Merger and Acquisitions Safe Harbor” policy which, in certain circumstances, allows an acquiring company to avoid liability for criminal violations committed by its target—so long as the acquiring company discloses the violations within six months of closing and implements remediation within a year.

Monaco indicated that the new whistleblower reward program is intended to reinforce these policy changes and “create a multiplier effect, encouraging both companies and individuals to tell us what they knew as soon as they know it.” 

Considerations for Companies and Compliance Leaders

Although the “nuts and bolts” of the new whistleblower program are still in the works, Monaco’s announcement suggests several considerations that corporate compliance leaders should keep at top of mind, in anticipation of the program roll-out.

The Conduct of Internal Investigations. The possibility that any employee who learns of wrongdoing may quickly report the misconduct in order to obtain a financial reward from DOJ could have implications for how companies approach internal investigations. For instance, employees who are consulted or questioned in early stages of internal investigations may race to put their marker down with DOJ. Although it remains to be seen whether certain categories of employees are excluded from the program, the possibility of a race to be first in the door may influence how early internal reporting and fact gathering is conducted. Moreover, employees may now be incentivized to bypass a company’s internal whistleblowing procedures and not cooperate with any internal investigation a company conducts, and instead take their information to DOJ. Companies therefore should assess their internal investigation and compliance procedures. 

The Timing of Internal Investigations. New incentives for individual whistleblowers to be the “first in the door” may increase pressure on companies to act very quickly on information regarding potential wrongdoing. If a company self-reports after a whistleblower comes forward to DOJ, it may lose the benefits of federal voluntary self-disclosure programs—in Monaco’s words, “when everyone needs to be first in the door, no one wants to be second.” Companies will need to dedicate sufficient resources to enable prompt and accurate factfinding so that they can respond quickly to suspected wrongdoing. 

Considerations Surrounding Voluntary Self-Disclosure. Over the past two years, DOJ has given companies robust incentives to voluntarily self-disclose potential wrongdoing. Yet in many circumstances, companies have deemed these incentives insufficient to warrant disclosure to DOJ—including because they consider misconduct to be minor or because they believe DOJ would not discover the misconduct. By further incentivizing disclosure, the new whistleblower reward program could alter that calculus. Therefore, companies considering self-disclosure decisions will need to carefully assess the benefits of disclosure and the risks and likelihood of preemption by a whistleblower. 

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Although many key details have yet to be announced, DOJ’s new whistleblower reward program represents a significant initiative in DOJ’s efforts to investigate alleged corporate wrongdoing, and should be taken into account by companies when conducting internal investigations and structuring their compliance protocols. 

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Sharon M. Bunzel, an O’Melveny partner licensed to practice law in California; Jorge deNeve, an O'Melveny partner licensed to practice law in California; Andrew J. Geist, an O'Melveny partner licensed to practice law in New York; Mia N. Gonzalez, and O'Melveny partner licensed to practice law in New York; David N. Kelley, an O'Melveny partner licensed to practice law in New York and Connecticut; Michele W. Layne, an O'Melveny of counsel licensed to practice law in California; Rebecca Mermelstein, an O’Melveny partner licensed to practice law in New York and New Jersey; Greta L. Nightingale, an O'Melveny partner licensed to practice law in the District of Columbia; Steven J. Olson, an O'Melveny partner licensed to practice law in California; Mark A. Racanelli, an O’Melveny partner licensed to practice law in New York; Benjamin D. Singer, an O'Melveny partner licensed to practice law in the District of Columbia and New York; Damali A. Taylor, an O'Melveny partner licensed to practice law in California and New York; AnnaLou Tirol, an O'Melveny partner licensed to practice law in the District of Columbia and California; Michael Tubach, an O'Melveny partner licensed to practice law in the District of Columbia and California; James K. Rothstein, an O'Melveny counsel licensed to practice law in California; and Jordan Peter Ascher, an O'Melveny associate licensed to practice law in New York and the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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