Department of Justice Formally Adopts New Policies to Encourage Corporate Whistleblowers
August 6, 2024
The Department of Justice (“DOJ”) recently has introduced two separate policy initiatives designed to incentivize individuals and corporations to report corporate crime to DOJ. These policies mark a significant departure from how DOJ previously approached enforcement of criminal law as to companies. With these changes, companies are now at heightened risk that DOJ will be alerted to alleged misconduct and will initiate an investigation. As a consequence, companies will now face greater pressure to internally investigate issues and report any misconduct to DOJ before DOJ learns of it from an individual whistleblower seeking a windfall.
Specifically, on August 1, 2024, DOJ provided the details of its new Corporate Whistleblower Awards Pilot Program (the “Program”)—the general terms of which Deputy Attorney General Lisa Monaco announced in April 2024. The Program is designed to incentivize whistleblowers to disclose corporate or financial misconduct by offering potentially significant monetary rewards.
The Program covers four areas of corporate crime not covered by other federal whistleblower programs: (1) foreign corruption and bribery, (2) crimes involving financial institutions or their agents (including money laundering, money transmitter, and compliance violations), (3) corrupt conduct in the United States involving public officials, and (4) federal health care fraud. DOJ has already begun to implement the Program via a three-year initiative administered by the DOJ section that leads its asset forfeiture and anti-money laundering enforcement efforts: the Criminal Division’s Money Laundering and Asset Recovery Section.
To incentivize corporate self-reporting, DOJ also announced an amendment to its Corporate Enforcement and Voluntary Self-Disclosure Policy. Under the amendment, if a company receives an internal whistleblower report and reports the misconduct to DOJ within 120 days and DOJ doesn’t first reach out to the company, the company will receive a presumption of a declination—provided they fully cooperate and remediate.
As explained below, under the Program, whistleblowers are free to report the alleged misconduct to DOJ without first notifying the company’s own whistleblower, legal, or compliance functions. Although whistleblowers are not required first to raise internally any alleged misconduct, the Program includes additional financial incentives to whistleblowers who do so. And the Program gives companies a window—albeit a relatively narrow one—to shield themselves from penalties if they voluntarily disclose any misconduct to DOJ even if the whistleblower has done so before the company.
The Program’s Requirements and Exclusions
To be eligible, a whistleblower must be an individual (not a corporate entity) who voluntarily discloses original information related to one of the four categories listed above, and that information must be truthful and complete. The whistleblower must cooperate with DOJ in its investigation, and the information must lead to a successful forfeiture from the company exceeding US$1,000,000 in net proceeds.
The Award
Whistleblowers may be awarded:
- Up to 30% of the first US$100 million in net proceeds forfeited; and
- Up to 5% of any net proceeds forfeited between US$100 million and US$500 million (but they would not receive an award on net proceeds forfeited above US$500 million).
The Program includes a presumption that DOJ will award a qualifying whistleblower the maximum 30% of the first US$10 million in net proceeds forfeited, but DOJ retains the right to increase or decrease the appropriate award percentage based on a variety of factors—including a possible upward adjustment for whistleblowers who also report to their company’s internal reporting systems.
Considerations that may decrease the award amount include the whistleblower’s culpability, any unreasonable delay, interference with internal compliance and reporting systems, and whether the whistleblower held a management role over the personnel or offices involved in the misconduct.
Original Information
The Program defines “original information” as information that is derived from the individual’s independent knowledge or analysis, is not public and not known to DOJ, and that materially adds to information DOJ already possesses.
With certain exceptions, information is not considered original if it is obtained: in violation of criminal law; through attorney-client privileged communications (unless exceptions to privilege apply); in connection with a client’s legal representation; or by an individual who learned of the information through the entity’s reporting processes for identifying legal violations and the intended whistleblower is the entity’s officer, director, trustee, or partner or is an employee of an investigative or outside accounting firm engaged by the entity.
Financial Incentive for Internal Reporting
The Program does not require whistleblowers first to report any alleged misconduct to a company before going to DOJ with their information, but as noted above, DOJ may in its discretion increase the award if the whistleblower first makes a report pursuant to the company’s internal whistleblower, legal, or compliance procedures. In addition, if the individual reports to DOJ within 120 days of reporting the information to the company, he or she will still be eligible for a reward even if the company also reports the information to DOJ.
The net impact of these provisions is that companies will be under pressure to investigate alleged misconduct very quickly and to report any misconduct to DOJ within that 120-day window to benefit from the presumption against prosecution.
Ineligible Individuals
DOJ listed several categories of individuals who are not eligible for an award under the Program, including:
- Individuals who would be eligible for an award through a different reward program for the same scheme reported;
- Individuals who were employed by DOJ, its contractors, or any other law enforcement organization at the time the information was acquired or were a spouse, parent, child, or sibling of such persons and resided in the same house;
- Elected or appointed foreign government officials;
- Individuals who meaningfully participated in the unlawful activity reported;
- Individuals who made a false or fraudulent statement in the whistleblower submission; and
- Individuals who acquired the information from a person made ineligible by categories 2 through 5 unless the report involves that person’s culpable conduct.
While the Program is intended to exclude individuals who were involved in the misconduct that is reported, the August 1 memorandum clarified that someone may still receive an award if they played a “minimal role” in the scheme and if they were “plainly among the least culpable of those involved in the conduct of a group.”
Individuals who are represented by counsel may submit whistleblower reports to DOJ anonymously. Although counsel is not required, an unrepresented whistleblower may not submit a report anonymously.
Although the amount of the award and the whistleblower’s eligibility are in the sole discretion of DOJ, DOJ is required to provide notice to Congress of awards over US$500,000.
Open Questions and Corporate Implications
While the August 1 memorandum answers many questions about the Program, many details about its operation remain unclear and will need to be resolved as it is implemented. For instance:
- The window within which a company must investigate and report any misconduct to DOJ is 120 days after receiving a whistleblower report. But what if the whistleblower does not internally report the allegation to the company? When does the clock then start?
- What, exactly, must the company report within 120 days? That it received an allegation of misconduct and that the company is continuing to look into it? Or must the company conduct a full-scale investigation and reach conclusions about whether misconduct took place within that time? Depending on the nature of the allegations and the company’s access to relevant witnesses and evidence, 120 days may be a tight timeframe within which to conduct a full investigation.
- What if the information reported to DOJ by the whistleblower is slightly different from (e.g., broader than) what the company self-reports to DOJ? Will the company still receive credit? By what metrics will that credit be assessed?
Regardless of these open questions, companies should consider preparing for these policy changes by reviewing their internal whistleblower policies and corporate compliance programs to see whether they are sufficiently robust to catch potential wrongdoing early.
See O’Melveny’s March 2024 client alert about DOJ’s new whistleblower reward program for additional considerations for companies and compliance leaders here.
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. Jim Bowman, an O'Melveny partner licensed to practice law in California; Mark A. Racanelli, an O’Melveny partner licensed to practice law in New York; 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; 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; Kelly McDonnell, an O'Melveny counsel 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 Joshua Jilovec, an O'Melveny associate licensed to practice law in Texas, 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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