Voluntary Self-Disclosure Policy Updates from the Department of Justice
In February 2023, the US Department of Justice (DOJ) announced a formal Voluntary Self-Disclosure Policy (the DOJ Policy) that reinforces a memorandum issued by Deputy Attorney General Lisa Monaco directing US Attorney’s Offices (USAO) to review their individual corporate self-disclosure policies. The objective of the DOJ Policy is to provide uniform standards that will incentivize timely self-disclosure and cooperation by promising more lenient resolutions and reduced penalties for companies that chose to self-disclose.
Under the DOJ Policy, companies that self-disclose wrongdoing, fully cooperate with DOJ investigators, and make efforts to appropriately remediate wrongdoing are likely to receive more favorable treatment than if the wrongdoing is discovered independently by DOJ prosecutors or an investigation is underway before the disclosure.
Factors that determine how favorably the DOJ may weigh a self-disclosure in determining penalties include the timeliness of the disclosure (both how soon after discovery the disclosure is made, and whether external pressure such as a pending DOJ investigation prompted disclosure), and certain aggravating factors such as senior leadership involvement in the reported activity and whether the company has a history of regulatory, civil, or criminal misconduct.
The timeliness of disclosures is a “key measure of cooperation.” A disclosure may be considered more favorably if the company discovers the misconduct before the DOJ has been made aware of any misconduct and makes a disclosure of all known relevant facts “prior to an imminent threat of disclosure or government investigation”. In order to receive the most favorable consideration, a company should seek to disclose as soon as evidence of misconduct is uncovered, even if “a company may not know all relevant facts at the time”. A disclosure may be based upon a “preliminary investigation or assessment of information” with more comprehensive updates as the investigation progresses. Companies seeking credit for full cooperation must make efforts to preserve, collect and produce all relevant documents and information, and provide ongoing updates to the relevant USAO.
The benefits of self-disclosure for those companies that meet all of the metrics of the DOJ Policy could be significant. Where there are no aggravating factors, the USAO may choose to not seek a guilty plea for a company that has voluntarily self-disclosed, and resolution could include a declination of charges, a non-prosecution agreement, or a deferred prosecution agreement.
Companies that voluntarily disclose could also benefit from substantially reduced penalties. Prosecutors can elect to forego imposing a criminal penalty entirely and under the DOJ Policy cannot consider a penalty that is greater than 50% of the lower end of US Sentencing Guidelines fine range. Prosecutors are also encouraged to forgo imposing a requirement for an independent compliance monitor if the company demonstrates that it has already implemented and tested an effective compliance program.
In instances where aggravating factors are present (such as the involvement of a company’s current executive management, conduct that is “deeply pervasive” in the company’s culture, or conduct that presents a threat to national security, public health, or creates toxic environmental threats) the DOJ Policy provides guidance on when and under what circumstances reduced penalties, and even a potential declination, may remain available through full and timely self-disclosure and cooperation. The DOJ Policy recommends a 50% to 75% reduction of fines where a company discloses in a timely manner and cooperates fully with investigators.
Given the significant benefits to voluntary self-disclosure, companies should ensure that internal policies foster the early detection of misconduct. Arming corporate legal and compliance departments with the tools to promptly detect misconduct could be critical to reaping the benefits of the new DOJ Policy, should the company decide to come forward and report that misconduct to DOJ.
Companies should also have strict policies in place to ensure that full cooperation with the DOJ is possible if misconduct is discovered. To fully reap the benefits of the DOJ Policy, a company must provide the USAO with all facts and information known to the company at the time of the self-disclosure. To be credited, disclosure must be made within a “reasonably prompt time” after the company becomes aware of the misconduct, and the disclosure must be thorough. Given this, if a company uncovers possible misconduct, it is in the company’s interest to investigate quickly, to take prompt steps to preserve documents and evidence for potential production, and to thoroughly document all steps in the investigatory process.
Finally, the USAO may elect to not require an independent compliance monitor for a company that has taken appropriate remedial measures, if the company demonstrates it has implemented an effective compliance program. Remediation is therefore a key to reaping the full benefits of the DOJ Policy. Appropriate remediation under the DOJ Policy “must include but is not necessarily limited to” the company agreeing to forfeiture of gains resulting from the misconduct at issue and restitution to affected parties. Depending on the circumstances, other remedial measures could include terminating the individual employees responsible for the misconduct, implementing improved controls, and implementing an enhanced compliance program.
The decision on when to provide voluntary self-disclosure and how to approach such a self-disclosure is key to successfully reaping the benefits of the new DOJ Policy. Seeking advice from attorneys experienced in voluntary self-disclosures to federal government agencies and in negotiations with the Department of Justice can be vital to obtaining the most favorable outcome in such disclosures.
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