In recent weeks, the United States Department of Justice (“DOJ”) published guidance in the Justice Manual at Section 4-4.112 on how it will award cooperation credit to entities and individuals that are being investigated for False Claims Act (“FCA”) violations. The guidance includes the type of actions eligible for cooperation credit and how much credit can be obtained. Although the guidance provides significant transparency into the DOJ’s process for determining cooperation credit awards and significant potential rewards for cooperating (i.e., a reduction in penalties or the damages multiple), it leaves much to the discretion of the individual prosecutor assigned to the case, creating uncertainty that may undermine the intended incentive effect of the guidance. In addition, for those situations in which reporting is not mandatory, it is not clear whether the potential credit to be gained from cooperation under the guidance outweighs the sure costs of any voluntary disclosure.
Cooperation and Credit Defined
The DOJ’s guidance creates three general categories of cooperation: (1) disclosure, (2) cooperation, and (3) remediation. Disclosure can involve misconduct that is central to the government’s investigation or “additional misconduct going beyond the scope of the known concerns.” (Justice Manual § 4-4.112). Cooperation can take many forms. As the government notes, “[a] comprehensive list of activities that constitute such cooperation is not feasible because of the diverse factual and legal circumstances involved in FCA investigations.” (Id.) However, some common types of cooperation include (1) identifying individuals substantially involved in or responsible for the misconduct, (2) making officers and employees available for government interviews, (3) disclosing facts relevant to the government’s investigation gathered during the entity’s independent investigation, (4) admitting liability or accepting responsibility for the conduct, and (5) assisting in the determination or recovery of the losses caused by the conduct. Finally, remediation involves taking appropriate and meaningful remedial actions in response to the conduct. Remedial actions will include a detailed analysis of the root cause, disciplining or replacing the bad actors involved in the conduct, and implementing or improving upon the compliance program to prevent a recurrence.
To obtain full cooperation credit, one must fully engage in all three cooperation categories. Specifically, one must timely and voluntarily self-disclose “all individuals involved in or responsible for the misconduct, provide full cooperation with the government’s investigation, and take remedial steps designed to prevent and detect similar wrongdoing in the future.” (Justice Manual § 4-4.112). Even where full credit is awarded, the guidance makes clear that FCA violators will still be required to make the government whole for any damages sustained as a result of their misconduct. Accordingly, the credit amount may not reduce the defendant’s liability such that the government would receive less than full compensation for its losses including damages, lost interest, investigation costs, and the relator’s share.
While meaningful cooperation that falls short of full cooperation can earn an entity or individual partial cooperation credit, it appears that all forms of cooperation are not equal in value. The DOJ highlighted voluntary disclosure of misconduct as the “most valuable form of cooperation.” (Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (2019)). It also specifically noted that actions such as sharing findings from internal investigations and improving the company’s compliance program are important forms of cooperation. In contrast, while the guidance does not address it specifically, disclosures made pursuant to FAR 52.203-13, which requires government contractors to disclose credible evidence of FCA violations to the Office of Inspector General and the contracting officer, are likely insufficient for cooperation credit. This raises questions about what must be disclosed and to whom to earn credit.
Further, the amount of credit an entity or individual receives for cooperation may be reduced or negated depending on a variety of factors related to the quality of the cooperation, the nature of the violation and/or damages, litigation and recovery risks to the government, the entity or individual’s history, and ability to satisfy a judgment. Sometimes, the DOJ will take action that affords the cooperating entity or individual the opportunity to reap some other benefit, such as notifying a separate agency about the cooperation so that the agency may consider the cooperation in evaluating consequences to the cooperator, publicly acknowledging the cooperation, or assisting the cooperator in resolving qui tam litigation with a relator(s).
A more detailed discussion of the various forms of cooperation and factors determining the amount of credit awarded is available in the Justice Manual, available here.
Strong Compliance Programs and Adherence to Them Remain Valuable
The DOJ continues to emphasize the value of “robust” compliance programs and is willing to reward companies that invest in them. As the new guidance emphasizes, evidence that a compliance program was in place and/or of improvements to a compliance program after an alleged violation will be taken into account when evaluating a defendant’s liability.
Earlier this year, at the Advanced Forum on False Claims and Qui Tam Enforcement, Stephen Cox, Deputy Associate Attorney General, stated that the DOJ “is committed to rewarding companies that invest in strong compliance programs.” (Deputy Associate Attorney General Stephen Cox, Deputy Assistant Attorney General Stephen Cox Delivers Remarks at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement (January 28, 2019)).
Further echoing this sentiment, Claire McCusker Murray, Principal Deputy Associate Attorney General noted in her speech at the annual Compliance Week conference that the DOJ will “take into account the nature and effectiveness of the company’s compliance program in evaluating whether the violation of law was committed knowingly and therefore whether the False Claims Act is the appropriate remedy in the first instance.” (Principal Deputy Associate Attorney General Claire McCusker Murray, Remarks of Principal Deputy Associate AttorneyClaire McCusker Murray at the Compliance Week Annual Conference (May 20, 2019)). She further noted that the mere existence of a compliance program is not enough; rather, evidence that the company follows the compliance program and timely addresses potential problems that are identified “could demonstrate good faith and lack of scienter or otherwise be a strong mitigating factor in the government’s assessment of liability.” (Id.)
Guidance Impact
Over the past several years, the DOJ has worked to incentivize corporations, in particular, to cooperate with their investigations, including relaxing its cooperation credit requirements in the context of corporate prosecutions last year. Consistent with that initiative, the DOJ’s publication of the new guideposts regarding what it considers cooperation and how it will be rewarded in FCA cases is an attempt to provide risk-reducing transparency to the entities and individuals involved that the DOJ clearly hopes will encourage cooperation.
The guidance also provides defense counsel with a foundation from which to negotiate cooperation credit awards with the government. However, it is unclear how entities and individuals will respond. Notably, it provides no formula for calculating credit awards and leaves the ultimate decision of whether to award credit (and how much credit) to the discretion of the DOJ attorneys. This will likely lead to inconsistency and creates unpredictability surrounding when and how credit is awarded in practice. It also leaves to chance that a company or individual can engage in significant cooperation activity and not be given meaningful, or any, cooperation credit because both cooperation and credit are subjectively decided by the individual prosecutor assigned to the case.
While the new guidelines are a genuine step in the right direction, they fail to provide the transparency and uniformity that most defendants will want before giving over to the government the very evidence it can use against them. Defense counsel will need to do a thorough facts and circumstances analysis, including an evaluation of the prosecutor assigned to their case, when guiding their clients on whether and how to cooperate.
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