EnforceMintz – DOJ Policy Developments in 2024 Seek to Motivate More Voluntary Self-Disclosures

Over the past two years, the Department of Justice (DOJ or the Department) has actively incentivized companies to voluntarily self-disclose potential civil and criminal violations. For example, in 2023, in the criminal context, DOJ issued a revised Corporate Enforcement Policy, the United States Attorneys’ Offices Voluntary Self-Disclosure Policy, and a Safe Harbor Policy for voluntary self-disclosures made in connection with mergers and acquisitions.

While each policy has its own nuances, the policies collectively stand for the proposition that a company that 1) voluntarily self-discloses its misconduct to DOJ, 2) fully cooperates with the ensuing investigation, and 3) timely and appropriately remediates misconduct, will receive the presumption of a declination (i.e., DOJ will decline to prosecute criminally). However, to obtain a declination under the policies announced in 2023, a company must generally disclose original information that is not already known to the government.

2024’s Key Criminal Enforcement Policy Developments

While a declination may be an attractive prospect for some, many companies remain hesitant to voluntarily self-report under this framework. As a result, in addition to offering the prospect of a declination as a carrot, DOJ began ratcheting up the pressure on companies in 2024 through newer and more aggressive policies that seek to force their hand.

The policies announced throughout 2024 now offer incentives to individuals who come forward to disclose corporate misconduct. This effectively creates a race—between a company and its own employees—to be first to DOJ’s door with a disclosure. If an individual employee is the first to contact DOJ, that disclosure may subsequently preclude the company from availing itself of the benefits associated with voluntary self-disclosure.

For example, on April 15, 2024, the Criminal Division issued a Pilot Program on Voluntary Self-Disclosures for Individuals. This program offers the prospect of a Non-Prosecution Agreement (NPA) to individuals who 1) voluntarily self-disclose original information about certain types of criminal misconduct involving corporations,¹ including the complete extent of their own role in the misconduct, 2) fully cooperate with the authorities, and 3) pay any applicable victim compensation, restitution, forfeiture, or disgorgement, including returning any ill-gotten gains.

While certain culpable actors, such as the organizer or leader of a criminal scheme, are not permitted to take advantage of this policy, DOJ generally offers those who were personally involved in the criminal misconduct an opportunity to avoid prosecution through self-disclosure.

Then, on August 1, 2024, DOJ issued its highly anticipated Whistleblower Awards Pilot Program (the Whistleblower Pilot Program), which introduced certain monetary incentives for reporting individuals. Under the Whistleblower Pilot Program, an individual may be eligible for a financial award (at the Department’s sole discretion) when they provide DOJ with original, truthful information about certain crimes involving 1) financial institutions, 2) foreign corruption, 3) domestic corruption, or 4) federal health care offenses not covered by the False Claims Act (FCA), if that information later results in a forfeiture exceeding $1,000,000 in net proceeds.

The fourth category—federal health care offenses not covered by the FCA—may include violations involving private or other non-public health care benefit programs, fraud against patients, investors, and other non-governmental entities in the health care industry, and any other federal violations involving conduct related to health care that is not covered by the Federal False Claims Act. DOJ explained that if a health care fraud scheme involves both federal health care programs and private health insurance providers, the Whistleblower Pilot Program will apply if the “overwhelming majority” of claims are submitted to private or other non-public health care benefit programs. Focusing on private insurance plans was intended to fill a gap that DOJ believes is not adequately addressed by the existing FCA qui tam framework.

In terms of reward eligibility under the Whistleblower Pilot Program, the whistleblower’s involvement in the conduct at issue does not necessarily bar an award. Rather, “minimal participants”² in the criminal scheme may be permissible whistleblowers, while those who meaningfully participated in the criminal activity by directing, planning, initiating, or knowingly profiting from it are barred from receiving an award.³

An eligible whistleblower may receive up to 30% of the first $100 million in net proceeds forfeited and up to 5% of any net proceeds forfeited between $100 million and $500 million.  However, DOJ may increase or decrease the award amount based on certain factors. For example, a whistleblower may receive an increased award if they report the potential misconduct internally through their company’s compliance and reporting mechanisms before approaching DOJ. Since DOJ does not require individuals to report internally first, it remains unclear whether the prospect of a higher potential award will sufficiently incentivize individuals to approach their company’s compliance function before blowing the whistle.

When a company becomes aware of potential misconduct and is deciding whether to self-disclose, it must now consider that financially motivated employees with knowledge of the misconduct and culpable individuals seeking to avoid prosecution may have already disclosed what they know to the government.

On the same day the Whistleblower Pilot Program was issued, the Criminal Division also amended its Corporate Enforcement Policy. As stated in the amendment, a company that voluntarily self-reports misconduct to DOJ within 120 days of receiving an internal whistleblower report may still be eligible for a presumption of a declination if the company voluntarily self-reports before DOJ contacts the company.

Finally, on September 23, 2024, the Criminal Division revised its Evaluation of Corporate Compliance Programs (ECCP) guidance. The revised ECCP guidance states that prosecutors will assess the effectiveness of internal reporting mechanisms and whether a company’s compliance function is adequately resourced. This update further pressures companies to ensure that their compliance function is effective in application, which, in turn, maximizes the chances that a company will become aware of, and subsequently self-report, criminal misconduct.

DOJ has already signaled that these policies are working as intended. At the Practicing Law Institute’s 2024 White Collar Crime Program, Principal Associate Deputy Attorney General Marshall Miller delivered a keynote address, stating that corporate voluntary self-disclosures are “increasing every year” and that in just the first few months of the Whistleblower Pilot Program, DOJ has already received “more than 250 tips, many of which appear to identify criminal conduct [the Department] didn’t know about.”

Civil FCA Enforcement

In the FCA context, policy guidance contained in the Justice Manual dating back to 2019, JM § 4-4.112, encourages voluntary self-disclosure, cooperation, and remediation in FCA cases. Unlike the criminal policies outlined above, the Justice Manual provides few details on incentives, but FCA settlements stemming from self-disclosures offer some clues.

Absent case-specific circumstances such as the alleged violator’s inability to pay the full penalty amount, FCA settlements crediting the company for self-disclosure in 2023 and 2024 generally utilized multipliers ranging from 1.5x to 1.75x, which is lower than the 2.0x multiplier DOJ typically seeks in FCA settlements. This signals DOJ’s apparent commitment to reward those who make civil voluntary self-disclosures.

A very small subset of self-disclosures in 2024 utilized even lower multipliers, which, overall, is rare. For example, while not a health care case, one entity received a 1.1x damages multiplier in a settlement after that entity self-disclosed that certain production technicians at a plant it operated fraudulently recorded hours on their timesheets that they did not work. In the health care context, a nonprofit health care system that allegedly submitted false claims for payments to federal health care programs for services performed by an oncologist received a multiplier of just 1.08x at settlement after self-disclosing. While these two cases may be outliers and thus hold little precedential value in future settlement negotiations, companies that disclose potential misconduct can rest assured that DOJ is generally willing to agree to a reduced damages multiplier in the 1.5x to 1.75x range to reward and incentivize corporate self-disclosure of potential FCA violations.

Conclusion

Through a new set of carrots and sticks, DOJ sought to incentivize more companies to come forward with voluntary self-disclosures in both the criminal and civil contexts in 2024.

Based on these policies, when a company receives an internal report of potential misconduct, it must take that report seriously and respond quickly because the clock to self-disclose has already begun ticking, and DOJ may already be aware of the information reported. The time pressure created by this new policy regime will require companies to conduct expedited investigations to decide as efficiently as possible whether self-disclosure is appropriate.

Accordingly, companies must evaluate the effectiveness of their internal compliance systems, particularly with respect to employee hotlines and other mechanisms that encourage internal reporting of misconduct. The ability to effectively detect misconduct at its outset will maximize a company’s ability to make an informed decision regarding self-disclosure and to begin remediating the underlying issue before it’s too late.

ENDNOTES

[1] Violations related to health care fraud or illegal health care kickbacks committed by or through public companies or private companies with 50 or more employees constitutes an enumerated area of misconduct under the program.

[2] In accordance with the definition set forth in United States Sentencing Guidelines, the Whistleblower Pilot Program defines a minimal participant as an individual who was “plainly among the least culpable of those involved in the conduct of a group.” U.S.S.G. § 3B1.2 cmt. n.4.

[3] Of note, an individual who received a financial benefit from the scheme beyond his or her ordinary compensation (e.g., a kickback or special bonus) will be deemed to have profited from it and thus constitutes a meaningful participant. However, individuals who meaningfully participated in the activity may nevertheless remain eligible for an NPA under the Pilot Program on Voluntary Self-Disclosures for Individuals. When a potential whistleblower is deemed ineligible for a financial award, DOJ will automatically assess whether the individual instead qualifies for an NPA.

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