The Department of Justice (DOJ) has announced a pilot program to encourage potential whistleblowers to report criminal activity and cooperate with government investigations in exchange for substantial monetary payouts in the government’s effort to crackdown on white collar crime and corruption. Companies across every industry should be aware of this new program and how it may impact them.

The launch of the pilot program should remind companies of the increasing risks associated with whistleblowers reporting possible criminal conduct. Companies should maintain current and effective compliance programs, consult outside counsel about pending or potential investigations, and consider carefully, along with outside counsel, the possibility of self-disclosure when appropriate to successfully navigate any government investigations in order to mitigate the increased risks of individuals reporting possible criminal activity under government whistleblower programs like this new DOJ pilot program. Companies should also review and update their internal compliance standards, policies, and mechanisms to evaluate their effectiveness at encouraging employees to report misconduct internally, which may become even more challenging in the face of added monetary incentives from the government in exchange for disclosure of potential misconduct.

Background

While self-disclosure policies have long been established by federal acts such as the Dodd-Frank Wall Street Reform and the Consumer Protection Act of 2010, and actively utilized for years by federal agencies such as the Securities and Exchange Commission (SEC), Commodities Future Trading Commission (CFTC), Internal Revenue Service, and Financial Crimes Enforcement Network in their respective industries, those policies have been limited to cover only misconduct within those agencies’ jurisdictions. In an effort to broaden individuals’ access to similar policies across all industries, the DOJ recently announced a department-wide whistleblower award program designed to fill the gaps left by the current whistleblower federal regulatory scheme. According to the DOJ, this program is necessary because the current policies “resemble a patchwork quilt that doesn’t cover the whole bed[, and] simply don’t address the full range of corporate and financial misconduct that [DOJ] prosecutes.” The DOJ’s program is designed to reward individuals who come forward with information concerning “significant corporate or financial misconduct” as long as the government was not previously aware of that information.

DOJ issued its nationwide Pilot Program on Voluntary Self-Disclosures for Individuals on April 15, 2024. The pilot program took effect immediately, offering individuals an array of new incentives and avenues to self-disclose possible criminal activity. In exchange for assistance, cooperators may be offered a non-prosecution agreement (NPA), as well as the potential to earn monetary rewards if certain conditions regarding the disclosure are met.

But not everyone can take advantage of this new program. For example, “CEOs, CFOs, high-level foreign officials, domestic officials at any level, or individuals who organized or led the criminal scheme” are not eligible to enter into NPAs or receive rewards under the pilot program. NPAs and rewards are also unavailable to individuals who have engaged in certain types of criminal conduct or who have prior felony convictions or any conviction involving fraud or dishonesty.

The DOJ’s pilot program also requires a rigorous assessment of whether a cooperator qualifies for rewards under the program. Payments under the pilot program will only be made to cooperators: (1) after all victims of the crimes charged have been properly compensated; (2) where the information disclosed is truthful and not already known by the government; (3) where the cooperator does not have a preexisting financial disclosure incentive; and (4) in cases where there is no preexisting financial disclosure incentive, i.e., qui tam cases or matters that involve other federal self-disclosure programs—like those mentioned above.

The extent to which a cooperator qualifies for rewards under the existing SEC and CFTC whistleblower programs is directly affected by the degree of usefulness and helpfulness of the information the cooperator provides in the government’s investigation. Thus, rewards under these programs are based on proportionality, and there is no rigid criteria that must be met to enable payouts. However, the litigation these programs are aimed at aiding is civil. In contrast, the DOJ’s pilot program seeks to aid the investigation and prosecution of criminal conduct. This distinction has been used to justify DOJ’s more rigorous standard for cooperators to collect rewards for their disclosures, since criminal prosecutions are less financially profitable for the government than civil enforcement actions.

Notably, the pilot program—due to its enforcement through DOJ—can reach privately-owned and other entities not traditionally regulated by the SEC or other federal agencies. The pilot program specifically seeks to target criminal abuses of the US financial system, foreign corruption cases out of the SEC’s jurisdiction—such as violations of the Federal Corruption Practices Act by non-issuers—and violations of the recently enacted Foreign Extortion Prevention Act. The program is also geared toward incentivizing self-disclosures regarding healthcare fraud and kickback schemes, federal contract fraud schemes, and domestic corruption cases, especially those that involve illegal corporate payments to government officials, i.e., bribery. The DOJ’s Criminal Division will oversee the pilot program, with the Fraud, Money Laundering and Asset Recovery, and Public Integrity Sections of the Division handling self-disclosures that fall within each Section’s respective area of enforcement.

Key Takeaways

• Companies should consult outside counsel regarding the potential ramifications of the DOJ’s whistleblower pilot program and assess whether their internal self-disclosure policies are sufficient in light of the increasing monetary incentives offered by government programs.
• The pilot program went into effect immediately in order to crack down on high-level criminal abuses of the US financial system, healthcare fraud and kickback schemes, and bribery of government officials. The DOJ’s goal is to create a whistleblower regulatory scheme that allows individuals to report criminal conduct not covered under other federal whistleblower regulatory schemes, thereby filling in the regulatory gaps to encourage self-disclosure.
• The pilot program is not available to high-ranking officers such as CEOs and CFOs or foreign officials. The pilot program is likewise unavailable to individuals with felony convictions or convictions for crimes involving fraud or dishonesty.
• Cooperators under the pilot program are eligible to receive monetary rewards if several conditions are met, such as victim payout satisfaction, the disclosure of facts unknown to the government, and the lack of a preexisting duty on the individual to disclose the information reported.

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