See Something, Say Something: DOJ Launches Corporate Whistleblower Awards Pilot Program

On August 1, 2024, the Department of Justice’s Criminal Division (DOJ) launched its highly anticipated whistleblower awards program. As we previously covered, Deputy Attorney General (DAG) Lisa Monaco unveiled the anticipated program in March at the ABA’s White Collar Crime Conference, after which DOJ commenced a “policy sprint” to develop the program’s bounds. The details have now arrived: a three-year pilot program, called the “Corporate Whistleblower Awards Pilot Program” (Pilot Program), that will compensate whistleblowers who provide original information to DOJ about certain types of corporate misconduct if that information leads to a successful forfeiture. According to DOJ, the Pilot Program fills gaps in existing whistleblower programs, including those maintained by other federal agencies, by addressing certain areas of corporate misconduct those programs do not cover. The Pilot Program goes into effect immediately.

Alongside the Pilot Program’s launch, DOJ also announced an amendment to its Corporate Enforcement and Voluntary Self-Disclosure Policy (VSD Policy). Under the amendment, where a company receives an internal report of misconduct from a whistleblower and reports that misconduct to DOJ within 120 days, the company will be eligible for a presumption of a declination as long as DOJ has not contacted the company first. The company also must cooperate fully and remediate the wrongdoing. This amendment strengthens DOJ’s efforts to entice companies to build strong internal reporting structures and to encourage voluntary self-disclosure of corporate misconduct.

The announcement of the Pilot Program and the VSD Policy amendment puts an exclamation point on the message DOJ has been repeating to companies and their employees recently: if you see something, say something.

VSD Policy Amendment

We start with the most significant issue for companies — the amendment to the VSD Policy. The amendment provides that, if a whistleblower makes both an internal report to a company and a report to DOJ, the company may still qualify for a presumption of declination under the VSD Policy (even if the whistleblower reports to DOJ first) provided that the company reports the conduct to DOJ within 120 days of receiving the internal report. In practice, that period may be even shorter than 120 days, because the company must reach out before DOJ contacts them about the matter, as the Criminal Division’s leader, Principal Deputy Assistant Attorney General (PDAAG) Nicole Argentieri, made clear in her remarks on the Pilot Program. Among the key takeaways that we discuss below, the VSD Policy amendment paired with the Pilot Program puts significant pressure on corporations to promptly investigate and disclose misconduct reported internally by whistleblowers.

The Pilot Program’s Four Focus Areas

One of the primary aims of DOJ’s Pilot Program is to incentivize reporting of criminal misconduct not already covered by the existing whistleblower landscape, which consists of existing federal whistleblower programs that, according to DAG Monaco, are indispensable yet resemble a “patchwork quilt that doesn’t cover the whole bed.” To that end, the Pilot Program targets four areas of corporate misconduct outside the scope of whistleblower programs maintained by the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), and DOJ’s Civil Division’s False Claims Act (FCA) qui tam program.

Specifically, the Pilot Program covers the following areas of corporate crime:

• Violations by financial institutions, their insiders, or agents, including schemes involving money laundering, anti-money laundering compliance violations, registration of money transmitting businesses, and fraud statutes, and fraud against or non-compliance with financial institution regulators
• Violations related to foreign corruption and bribery by, through, or related to companies, including violations of the Foreign Corrupt Practices Act (FCPA), violations of the Foreign Extortion Prevention Act, and violations of the money laundering statutes
• Violations committed by or through companies related to the payment of bribes or kickbacks to domestic public officials, including but not limited to federal, state, territorial, or local elected or appointed officials and officers or employees of any government department or agency
• Violations related to (1) federal health care offenses and related crimes involving private or other non-public health care benefit programs, where the overwhelming majority of claims are submitted to private or other non-public health care benefit programs, (2) fraud against patients, investors, and other non-governmental entities in the health care industry, where the overwhelming majority of the actual or intended loss was to patients, investors, and other non-governmental entities, and (3) any other federal violations involving conduct related to health care not covered by the FCA

DOJ’s Pilot Program guidance provides that individuals are not eligible for an award under the Pilot Program if they would be eligible for an award through another U.S. government or statutory whistleblower, FCA qui tam, or similar program if they had reported the same scheme that they reported under this Pilot Program. Because individuals may be unsure about the specific program covering the tip, DOJ encourages individuals to submit information to multiple programs to allow DOJ to decide whether the individual qualifies under the Pilot Program.

PDAAG Argentieri noted that the Criminal Division has been actively pursuing corporate cases in the first two areas — violations by financial institutions and foreign corruption schemes — for years. Regarding the second two — domestic corruption schemes and federal health care offenses — she pledged that the Criminal Division is looking to expand its corporate enforcement efforts in those areas. PDAAG Argentieri acknowledged that fraud on federal health care benefit programs is already covered by DOJ’s Civil Division FCA qui tam program, and stated that the Criminal Division “ha[s] no intention of interfering with that highly successful program.” Rather, the Pilot Program addresses the lack of any whistleblower program covering fraud involving private health care insurance programs. As with the Criminal Division’s previously announced Pilot Program on Voluntary Self-Disclosures for Individuals, each of these four areas correlate with specialized Criminal Division components, including the Public Integrity Section and the Fraud Section’s FCPA Unit, Market Integrity and Major Fraud Unit, and Health Care Fraud Unit.

The Pilot Program’s Eligibility Requirements

Generally, an individual may be eligible for an award under the Pilot Program if, alone or jointly with other individuals, the individual provides DOJ with original information, in writing, that leads to criminal or civil forfeiture exceeding $1,000,000 in connection with a successful prosecution, corporate criminal resolution, or civil forfeiture action within the four areas outlined above.

DOJ’s Pilot Program guidance details several eligibility requirements for whistleblower awards. These requirements largely mirror the eligibility requirements under the SEC’s program and include:

• Original Information. An individual must provide DOJ with original information, in writing, to be eligible for an award. Original information means: (1) information that is derived from the individual’s independent knowledge or independent analysis, not from publicly available sources; (2) information that is non-public and not previously known to DOJ; and (3) information that materially adds to the information DOJ already possesses, if it already possessed information about a matter.
  
  Information is still considered “original” if the individual first reported it through the company’s internal whistleblower, legal, or compliance procedures where the entity later reported to DOJ the individual’s information, provided that the individual reports the information to DOJ within 120 days of reporting internally.
  
  An individual’s information is not “original” if, among other things, it was obtained through a communication that was subject to the attorney-client privilege, it was contained entirely in an allegation made in a judicial or administrative hearing, or if it was obtained by a means or in a manner that violates federal or state criminal law.
  
  Individuals who learn of misconduct allegations because of their position, such as officers, directors, trustees, or partners, or whose duties involved compliance or audit functions are not considered to have “original” information (with certain exceptions, including if disclosure of the information is necessary to prevent criminal conduct likely to lead to imminent physical, financial, patient, or national security harms).

• Subject Area. An individual’s information must pertain to one of the four subject areas identified above.
• Voluntariness. An individual’s information must be reported voluntarily, meaning it must be reported: (1) before any request, inquiry, or demand related to the subject matter of the report is directed to the individual or anyone representing them; (2) where the individual has no preexisting obligation to an agreement in connection with a criminal prosecution or civil enforcement action to report the information to DOJ, any DOJ component, or any federal law enforcement or civil enforcement agency; and (3) in the absence of any government investigation or threat of imminent disclosure to the government or the public.
• Truthful and Complete. An individual’s information must be truthful and complete. According to DOJ, this means the individual must provide all information of which the individual has knowledge relating to any misconduct, including misconduct in which they participated or of which they are aware. To make a report, the individual must use DOJ’s intake form and declare under penalty of perjury that the information is true and correct.
• Cooperation. An individual must cooperate with DOJ in its investigation of the reported misconduct and related criminal or civil actions. This could include, for example, providing testimony or evidence, producing documents, or working with law enforcement officers.
• Leading to Forfeiture. An individual’s information must lead to successful forfeiture exceeding $1,000,000 in net profits forfeited in connection with a prosecution, corporate criminal resolution, or civil forfeiture action related to the corporate misconduct. In assessing whether an individual’s information led to a successful criminal or civil forfeiture, DOJ will consider whether the individual’s information caused DOJ to open an investigation, reopen a previously closed investigation, or assisted in an existing investigation.
  
  No award will be available if there is no successful forfeiture.

The Pilot Program’s Payment of an Award

DOJ makes clear that the payment of an award is subject to DOJ’s discretion and will be managed by the Criminal Division’s Money Laundering and Asset Recovery Section. Should DOJ choose to make an award to a whistleblower, it will determine an award amount based on the net proceeds of the forfeiture and certain other considerations, as detailed below. Any award will be based on the net proceeds forfeited, meaning the value of any assets DOJ forfeits after compensating eligible individual victims and paying other costs associated with the forfeiture.

DOJ placed the following cap on whistleblower awards: the whistleblower may be eligible for an award of up to (1) 30% of the first $100 million in net proceeds forfeited; (2) 5% of any net proceeds forfeited between $100 million and $500 million; and (3) no award on net proceeds forfeited above $500 million. This cap is unlike the potential recovery in a FCA qui tam action, where the relator will receive a percentage of the total award.

DOJ will consider several criteria when determining the amount of any award which, again, are largely mirrored on criteria under the SEC’s whistleblower program. For example, considerations that may increase the award amount include the significance of the information provided by the whistleblower, the assistance provided by the whistleblower to DOJ, and whether the whistleblower participated in internal compliance and reporting systems. Considerations that may decrease the award amount include the whistleblower’s level of culpability, any unreasonable delay in reporting, any interference with internal compliance and reporting systems, and the whistleblower’s management role or oversight over personnel involved in the misconduct, if any.

Critically, an individual is not eligible for payment if they meaningfully participated in the criminal activity, including by directing, planning, initiating, or knowingly profiting from that criminal activity. However, DOJ can, at its discretion, deem a whistleblower eligible if the whistleblower’s minimal role in the misconduct was “sufficiently limited” such that the individual could be described as the least culpable of those involved in the conduct.

Retaliation and Whistleblowing Obstruction

DOJ makes it clear that it will take action against a company or individual for retaliating against a whistleblower and for impeding communications with DOJ, including by “enforcing or threatening to enforce a confidentiality agreement.” DOJ may decline to award a company cooperation credit and/or “institute an appropriate enforcement action” in response to retaliation and obstruction.

Key Takeaways

The Corporate Whistleblower Awards Pilot Program is effective as of August 1, 2024, so companies must familiarize themselves with its details as soon as possible. Here are some key takeaways:

Companies Have 120 Days (or Less) to Review Internal Tips and Report to Qualify for Declination. A company must contact DOJ within 120 days of the company’s receipt of an internal whistleblower tip in order to be eligible for the presumption of a declination. Depending on the nature of the investigation, this timeline puts pressure on companies to expeditiously conduct an internal investigation and determine whether to contact DOJ in a relatively short period of time. Importantly, that timeline may be even more compressed because the company will be out of luck for a presumptive declination if DOJ contacts them first.

Enforcers Want a Race to Their Doorstep. With the addition of this DOJ whistleblower program to the already existing and successful field of such programs by the SEC, CFTC, FinCEN, and the Civil Division’s FCA qui tam program, plus DOJ’s voluntary self-disclosure programs for companies and individuals, enforcement authorities have created strong incentives for companies and individuals to be the first to bring misconduct allegations to them. Companies are well-served to understand the details of these different programs, and to make certain that they have in place a rigorous and comprehensive approach to investigating misconduct allegations.

DOJ Incentivizes Internal Reporting, but Didn’t Require It. DOJ appears to have recognized that its whistleblower program could undermine a company’s internal compliance program unless they incentivized reporting to the company first. Thus, the program allows an individual to first report the alleged misconduct internally, and then report it to DOJ within 120 days. Plus, DOJ says that such internal reporting may increase the ultimate award. However, DOJ did not go so far as to require potential whistleblowers to go to the company first, meaning that an employee may choose to go to DOJ directly, sidestepping the company’s internal reporting entirely.

Partnership Between Corporate Compliance and Legal Personnel. DOJ’s creation of a race to report puts internal reporting structures and internal investigations front and center. This requires a partnership between compliance and legal. It’s critical to make sure that all internal complaints — including those reported to a direct supervisor and not just those going to an internal hotline — are captured, triaged, and investigated.

Anticipate a Focus on Whistleblower Protections. DOJ’s message that an enforcement action or obstruction charges could follow for retaliating against a whistleblower or preventing individuals from reporting possible violations of the law to them is significant, as is its specific inclusion that potentially enforcing or threatening to enforce a confidentiality agreement could constitute obstruction. The SEC has a mirror provision that allows the SEC to bring civil enforcement actions against a company for impeding communications. The SEC has brought 23 actions to date under its authority. Criminal obstruction charges increase the pressure to ensure agreements have clear government reporting allowances.

Companies Should Undertake a Compliance Review of All Employee Documents, Not Just Severance Agreements. The rules applicable to companies and individuals who impede whistleblower reporting have been applied expansively by the SEC. The SEC has brought cases against companies for language included in codes of conduct, ethics manuals, training materials, and investor materials. We anticipate DOJ will take a broader reading of its rule as well. Companies should consider reviewing these materials to make sure they are compliant with the whistleblower protection rules.

DOJ’s Focus on Private Insurance Programs Is a Significant Expansion of Its Health Care Enforcement Efforts. DOJ has long focused on criminal and civil health care enforcement, but two of its primary tools — the federal Anti-Kickback Statute and the FCA — are limited to federal programs such as Medicare, Medicaid, and Tricare (as well as federal programs that include participation by private insurers, such as Medicare Advantage). Because the FCA is limited to federal payors, so too is the government’s FCA qui tam program. This new Pilot Program may significantly expand that paradigm into the private insurance program setting, as potential whistleblowers (and their counsel) now know that DOJ is willing to potentially reward their information with significant money. The Pilot Program guidance also seeks to minimize potential overlap between criminal whistleblower and FCA qui tam cases in two key ways: (1) by focusing on health care matters where the “overwhelming majority” of claims or fraud loss involved non-governmental payors or other victims and (2) by excluding whistleblowers who could seek awards via other government programs if they report “the same scheme” and “same original information” through those other programs. That said, if a whistleblower reports allegations to the Criminal Division under the Pilot Program, nothing prevents the Criminal Division from sharing that information internally with other DOJ components, including with the Civil Division, which could open its own investigation.

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DOJ intends to regularly evaluate the Pilot Program to determine whether any modifications are necessary, and encourages feedback on the Pilot Program from a broad range of stakeholders. We will continue to follow any updates to DOJ’s Pilot Program and VSD Policy. For questions on this or any other subject, please reach out to the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations practice group.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.