The DOJ’s New Pilot Programs: A Bane for Compliance Programs
By Jaclyn Jaeger
The DOJ’s New Pilot Programs: A Bane for Compliance Programs
For years, Department of Justice officials have stressed how important chief compliance officers are as the first line of defense in fighting corporate crimes. While that’s true, compliance programs now have a competitor in the DOJ itself.
This article provides an overview of the DOJ’s new whistleblower rewards pilot program and the Criminal Division’s voluntary self-disclosure (VSD) pilot program for individuals, as well as their criteria to participate. This article further discusses what the real-world application of these pilot programs means for compliance programs.
Expected to take effect later this year, the whistleblower rewards pilot program was first announced by Deputy Attorney General Lisa Monaco in March at the American Bar Association’s 39th National Institute on White Collar Crime event.
In her remarks, DAG Monaco noted that the whistleblower rewards pilot program will expand the scope of other agencies’ whistleblower programs, including the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC). It will do so by addressing “the full range of corporate and financial misconduct that the Department prosecutes,” she said.
Monaco said the DoJ is especially interested in information on criminal abuses of the U.S. financial system; foreign corruption cases beyond the SEC’s jurisdiction, including Foreign Corrupt Practices Act (FCPA) violations by non-issuers; and domestic corruption cases, especially involving corrupt payments to government officials. In practical terms, the DOJ’s whistleblower rewards pilot program will further broaden the universe of companies that could be the subject of whistleblower reports, including privately owned companies and companies that are not U.S. issuers.
For compliance officers, the scope of the DoJ’s enforcement interests is also particularly concerning when you consider that the SEC’s Whistleblower Program received more than 18,000 whistleblower tips in fiscal year 2023, “a record number and approximately 50 percent more than the then-record 12,300 whistleblower tips received in fiscal year 2022,” according to SEC data.
Data from the CFTC’s annual report highlights that its Whistleblower Office similarly had a record year, receiving 1,530 whistleblower tips, an increase of roughly 50 percent over the number of whistleblower tips received in fiscal years 2020 and 2021.
Whistleblower eligibility
According to details shared by DAG Monaco, whistleblowers will qualify for a portion of resulting forfeitures if the following criteria have been met:
• All victims have been properly compensated;
• The whistleblower submitted truthful information previously unknown to the government;
• The whistleblower was not involved in the criminal activity; and
• No other financial disclosure incentive exists, including from other whistleblower programs.
In separate remarks, Nicole Argentieri, Principal Deputy Assistant Attorney General for the Criminal Division, commented that the DoJ expects to establish a monetary threshold similar to the SEC’s and CFTC’s whistleblower programs, limiting rewards to cases involving sanctions of at least $1 million.
Unanswered questions
Adam Studner, of counsel at law firm Covington, noted that the DoJ over the past several years has been doing everything it can to “clear a path for potential criminal misconduct to be brought to its attention — first by companies themselves and now by putative whistleblowers and individuals who engaged in wrongdoing—in exchange for potential benefits.” Whether these programs will bring forth more criminal investigations or resolutions will depend on several factors, “including what carrots the whistleblower pilot program ultimately offers and whether the benefits offered under both programs are perceived to be fairly and consistently applied,” Studner added.
Another big question mark concerns the anonymity of whistleblower claims. Martin Weinstein, a partner in Cadwalader’s Global Litigation Group and leader of the firm’s global Compliance, Investigations & Enforcement practice, commented that anonymity will not work in the criminal context as it does in the civil context, because it would be in direct opposition to this country’s system of democracy. “If you’re a witness in a case, you have to go to court,” Weinstein said. “You have to reveal your identity.”
VSD pilot program
The Criminal Division’s new pilot program on voluntary self-disclosures for individuals is yet another initiative in the DoJ’s wider effort to combat corporate crimes.
In an April 22 blog post, Argentieri explained that, under this pilot program, individuals who voluntarily come forward with information about corporate wrongdoing may be eligible for a non-prosecution agreement (NPA) if they:
• Truthfully and completely self-disclose original information about misconduct that was unknown to the DOJ in certain high-priority enforcement areas;
• Fully cooperate and provide substantial assistance against those equally or more culpable; and
• Forfeit any ill-gotten gains and compensate victims.
“NPAs will not be available under the program for individuals who have engaged in certain types of criminal conduct or who have prior felony convictions or any conviction involving fraud or dishonesty,” Argentieri wrote. Nor is the program available for CEOs, CFOs, high-level foreign officials, domestic officials at any level, or individuals who organized or led the criminal scheme, she explained.
The Criminal Division especially seeks disclosures in certain “core enforcement areas,” including its Fraud Section, Money Laundering and Asset Recovery Section, and Public Integrity Section. As Argentieri explained, the Criminal Division would like to see disclosures involving:
• Schemes involving financial institutions, including money laundering schemes;
• Schemes related to the integrity of financial markets involving financial institutions, investment advisors or funds, or public or large private companies;
• Foreign corruption schemes (e.g., FCPA violations, Foreign Extortion Prevention Act, and associated money laundering);
• Healthcare fraud and kickback schemes;
• Federal contract fraud schemes; and
• Domestic bribery or kickback corruption schemes paid by or through public or private companies.
“Company executives and leadership have an opportunity to do the right thing now and make the necessary compliance investments to help prevent, detect, and remediate misconduct,” Argentieri wrote. “And when misconduct occurs and companies are considering whether to make a self-report, know that we now have more ways than ever to uncover misconduct.”
Key compliance takeaways
Studner said, “The emergence of yet another set of programs that encourage disclosures to the Department regarding corporate misconduct that, like other voluntary self-disclosure programs, put a premium on being first in the door places pressure on companies to encourage employees to raise concerns internally and then to investigate them quickly and discreetly.”
But many companies are already doing that. Weinstein, who has helped countless companies design their compliance programs, stressed that he has seen firsthand how much effort and investment companies are putting into their compliance programs, including their global internal reporting systems. “The companies I know spend significant amounts of money hiring incredibly sophisticated staff to handle global hotline complaints,” he said.
For the government to unfairly compete with companies’ compliance programs by offering whistleblowers the potential to receive tens of millions, even hundreds of millions, of dollars, “I don’t think it’s right,” Weinstein added. As long as the government is offering significant sums of money in exchange for information, it’s going to pose a real threat to companies that people will report to the government rather than first making a report internally to the company.
Conclusion
The bottom line is this: Whether individuals with information about corporate wrongdoing report first to a company’s internal compliance program, or whether they approach the government directly, either scenario still means that the company is in a defensive position. It means that it’s likely that wrongdoing already occurred. It means that somewhere along the line, something is amiss within the compliance program or within the company’s culture that needs immediate attention and adjustment.
So, putting the whistleblowing issue aside, the best defense is a bulletproof offense in the context of a compliance program. “The enforcement playing field is only becoming more complex, as companies face more and more ways for the Department to learn of potential misconduct—whether from these pilot programs, enhanced resources at DOJ, or the use of emerging technologies—and a DOJ as intent as ever to pursue corporate enforcement,” Studner said.
He concluded, “Companies should remain vigilant and continue to invest in proactively strengthening compliance programs, particularly through undertaking compliance program assessments, routine monitoring, and testing of higher-risk transactions and engagements.”
ACI will be covering the Whistleblower Program at the upcoming FCPA Flagship Conference on Dec. 4–5 in Washington DC. For more information, please visit:www.americanconference.com/fcpa-dc/ For questions, concerns or more information about ACI Insights, please contact:
Corbin Associate Director of Marketing