DOJ Issues Status Report on Pilot Programs for Corporate Whistleblowers and Compensation Clawbacks and Supplements its Guidance for Evaluating Corporate Compliance Programs

Two U.S. Department of Justice (“DOJ”) announcements this week will have a significant impact on corporate compliance programs. DOJ provided a status report on how its Corporate Whistleblower Awards and Compensation Incentives and Clawbacks Pilot Programs are shaping DOJ’s investigations and resolutions of enforcement actions. DOJ also announced important revisions to guidance for criminal prosecutors evaluating corporate compliance programs (the Evaluation of Corporate Compliance Programs (“ECCP”)).

Speaking at the Society of Corporate Compliance and Ethics 23rd Annual Compliance & Ethics Institute, Nicole M. Argentieri, the Principal Deputy Assistant Attorney General for DOJ’s Criminal Division, provided an update on the Pilot Programs and announced the revisions to the ECCP. Argentieri emphasized that all of these tools are central to DOJ’s stated mission of “prevent[ing] and deter[ring] corporate crime” and are critical to DOJ’s determination, when a company does find itself under investigation, as to whether that company should be given leniency based on its compliance efforts. Argentieri’s remarks underscore DOJ’s continued focus on: (1) prompting investigations by encouraging reports from whistleblowers, (2) incentivizing companies to claw back compensation from wrongdoers, and (3) the importance of sufficient resources for compliance programs.

Update on DOJ’s Corporate Whistleblower Awards Pilot Program

As explained in prior O’Melveny alerts here and here, DOJ’s Corporate Whistleblower Awards Pilot Program is designed to incentivize individuals and companies to report alleged corporate misconduct to DOJ and to spur criminal investigations, specifically in four areas: (1) foreign corruption and bribery; (2) crimes involving financial institutions or their agents; (3) corrupt conduct in the United States involving public officials; and (4) federal health care fraud.

Although DOJ formally instituted the Corporate Whistleblower Awards Pilot Program just a few weeks ago, Argentieri said that DOJ had already received tips from more than 100 individuals under the Program. She explained that the Program imposes an obligation on corporate compliance departments to implement and provide training on policies that incentivize the reporting of misconduct and that protect employees who in fact report such misconduct. Alongside the Program, under a temporary three-year amendment to the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy (effective August 1, 2024), DOJ will presumptively decline to prosecute a company that reports alleged misconduct to DOJ within 120 days of receiving a whistleblower complaint, provided the company demonstrates full cooperation and remediation.

Argentieri said, by way of an update to the Program, that DOJ will penalize companies that retaliate against whistleblowers, including by revoking credit earned for cooperation and remediation and seeking potential sentencing enhancement or prosecution for obstruction of justice. Argentieri emphasized that DOJ “will protect whistleblowers’ identities to the fullest extent allowable under law” and will “closely monitor any actions a company takes against whistleblowers who try to do the right thing by raising an alarm within the company.”

Update on DOJ’s Compensation Incentives and Clawbacks Pilot Program

DOJ’s Compensation Incentives and Clawbacks Pilot Program provides for reduced criminal fines for companies that make good faith attempts to recoup compensation from employees who have engaged in wrongdoing, and requires companies resolving claims brought by DOJ to implement compliance-related criteria in their compensation systems.

The Compensation Incentives and Clawbacks Pilot Program, announced in March 2023, is currently halfway through its three-year pilot period, and Argentieri advised that two companies have received fine reductions when they resolved Foreign Corrupt Practices Act (“FCPA”) cases pursuant to the Program. Albemarle Corp.―which froze bonuses for employees who were potentially involved in or aware of misconduct related to bribing foreign officials for business at state-owned oil refineries in Vietnam, Indonesia, and India―received a fine reduction equal to the amount of withheld bonuses ($763,453) and a 45% reduction from the low end of the applicable penalty range, paying more than $218 million. SAP SE―which withheld compensation from employees who were potentially involved in bribing South African and Indonesian government officials and which, DOJ noted, engaged in “substantial litigation” to effectuate the compensation holds―received a fine reduction equal to the amount of withheld compensation ($109,141) and a 40% reduction off the tenth percentile above the low end of the applicable penalty range, paying more than $220 million.

Additionally, Argentieri noted that nine companies across five industries have, through resolution of DOJ enforcement actions, implemented compliance-related criteria in their compensation systems. According to Argentieri, this change is having positive, concrete effects on corporate and employee behavior. Argentieri said, for example, that one company that revised its annual review process to take into account adherence to compliance standards and reporting of misconduct (and also engaged in a company-wide messaging campaign promoting this change) is now seeing more reports of potential compliance issues.

Revisions to the ECCP

DOJ’s ECCP sets forth the principles that the government uses to evaluate the strength of companies’ compliance programs when DOJ is assessing the range of penalties they might face when resolving a criminal investigation. Argentieri announced several supplements to the ECCP that are consistent with DOJ’s focus on ensuring companies are implementing robust corporate compliance programs and are not discouraging whistleblowers.

First, prosecutors will now consider a company’s use of generative artificial intelligence and other new and disruptive technologies to conduct business or in its compliance program, including whether the company (1) has assessed the risk of using the technology, (2) has taken steps to mitigate any known or anticipated risks, and (3) has controls in place for monitoring and testing the technology to ensure its trustworthiness and reliability, that it is functioning as intended, and is consistent with the company’s code of conduct.

Second, prosecutors will assess the effectiveness of a company’s reporting mechanism, including whether a company encourages and incentivizes its employees to report misconduct or “chills” such reporting. Prosecutors will assess whether the company’s policies and training show a commitment to whistleblower protection and anti-retaliation, and will consider how educated and comfortable employees are with the reporting process, as well as how the company treats employees who report misconduct.

Third, in line with DOJ’s stated goal of ensuring that corporate compliance programs have adequate access to data, resources, and technology, prosecutors will also consider whether a company is devoting the same or similar assets and resources for compliance purposes as they are to further the company’s business objectives, effectively demonstrating that compliance is a priority and not an afterthought to the company. It remains to be seen how DOJ will evaluate the extent to which companies have―in DOJ’s view―sufficiently deployed business-oriented technologies in the compliance area, and to what extent DOJ penalizes companies for falling short in that regard. Argentieri’s remarks did not provide any detail about how DOJ plans to approach this issue.

Implications

These developments show that DOJ continues to refine its standards regarding compliance programs, demonstrating an expectation that all aspects of compliance will be at the forefront of corporate consciousness and decision-making.

Companies should expect that whistleblowing activity may increase and should ensure policies and procedures are in place to handle reports of misconduct. Such measures include an effective hotline and protocols to ensure that reports of potential misconduct are elevated appropriately and quickly, so that companies can determine whether self-reporting is appropriate and preserve the possibility of a declination under Criminal Division policies. These new developments make it even more important that companies evaluate their procedures for reporting misconduct to assess whether they invite or chill reporting of alleged misconduct and whether they protect whistleblowers from retaliation. Companies should also assess compensation policies and their ability to claw back various forms of compensation in the event of wrongdoing. Finally, companies should evaluate whether their compliance programs are robust and well-resourced, and include a strategy to identify and mitigate risks associated with the technology they use to conduct business.

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; Andrew Churchill, an O'Melveny counsel licensed to practice law in New York; 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 Casey Matsumoto, an O'Melveny associate licensed to practice law in 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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