New DOJ Whistleblower Pilot Program places corporate compliance programs under more scrutiny

At a glance

• The Department of Justice has launched a Whistleblower Awards Pilot Program to incentivize reporting of corporate misconduct, particularly in areas not covered by existing federal whistleblower programs.
• Companies must report misconduct within 120 days of receiving an internal whistleblower complaint to be eligible for a presumption of declination under the  Voluntary Self-Disclosure Policy.
• Whistleblowers can receive awards if their information leads to a successful forfeiture of at least USD1,000,000 in net proceeds, with awards being discretionary and subject to various considerations, including the whistleblower’s role in the misconduct.

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On August 1, 2024, the US Department of Justice (DOJ) launched its Corporate Whistleblower Awards Pilot Program (DOJ Whistleblower Program, or Pilot Program) along with detailed program guidance outlining requirements for eligibility. This announcement comes on the heels of Deputy Attorney General Lisa Monaco’s keynote remarks earlier this year during the American Bar Association’s 2024 National Institute on White Collar Crime, where she previewed the Pilot Program and indicated that it would be developed and launched within 90 days, with a formal start date later this year (see our alert here).

The Pilot Program builds on DOJ’s prior efforts to incentivize reporting of corporate misconduct to the government, and it was designed to fill in the gaps left by existing whistleblower reward programs run by other government agencies. It provides DOJ with a new "powerful" investigative tool to uncover corporate misconduct, and, as Monaco highlighted in her speech announcing the launch, complements DOJ’s Criminal Division Voluntary Self-Disclosure Policy (VSD Policy), incentivizing both companies and individuals to report corporate misconduct by extending significant benefits to those who are 'first in the door.'

Notably, in a subsequent speech on August 1, 2024, Principal Deputy Assistant Attorney General Nicole Argentieri also previewed an upcoming amendment to the VSD Policy. Under that amendment, a company that receives an internal report from a whistleblower will only be eligible for a presumption of declination if it comes forward and reports the misconduct within 120 days of the internal whistleblower complaint, and before DOJ reaches out to the company, thereby creating a de facto 120-day reporting period. As Argentieri highlighted, these recent DOJ pronouncements aim to incentivize companies to "invest in strong internal reporting structures and to report crimes when they learn about it."

In this alert, we provide an overview of the new DOJ Whistleblower Program and its practical implications for companies.

I. DOJ Whistleblower Program fills gaps in existing federal whistleblower programs

Pilot Program focuses on four areas not historically covered by federal whistleblower programs.

The new DOJ Whistleblower Program is a three-year initiative managed by the Criminal Division’s Money Laundering and Asset Recovery Section and is effective August 1, 2024. The Pilot Program is aimed to incentivize the reporting of misconduct in areas that have not historically been covered under existing federal whistleblower programs. Specifically, the Pilot Program requires information provided by whistleblowers to fall into one of the four following subject matter areas:

• Violations by financial institutions, their insiders, or agents, including schemes involving money laundering, anti-money laundering compliance violations, registration of money transmitting businesses, and fraud statutes, and fraud against or non-compliance with financial institution regulators. In her remarks, Argentieri highlighted instances where (i) a cryptocurrency exchange with operations in the US fails to register with financial regulators and comply with US law, or (ii) a foreign financial institution misrepresents the nature of their anti-money laundering controls in order to access services from US financial institutions.
• Violations related to foreign corruption and bribery by, through, or related to companies, including violations of the Foreign Corrupt Practices Act (FCPA), violations of the Foreign Extortion Prevention Act (FEPA), and violations of the money laundering statutes. While the guidance is silent on this point, the Fact Sheet specifies that the Pilot Program only targets foreign corruption involving privately held companies, and others that are not issuers of US securities, and which would otherwise fall within the existing whistleblower program administered by the US Securities and Exchange Commission (SEC).
• Violations committed by or through companies related to the payment of bribes or kickbacks to domestic public officials, including but not limited to federal, state, territorial, or locally elected or appointed officials, and officers or employees of any government department or agency.
• Violations related to (a) federal healthcare offenses and related crimes involving private or other non-public healthcare benefit programs, where the overwhelming majority of claims are submitted to private or other non-public health care benefit programs, (b) fraud against patients, investors, and other non-governmental entities in the healthcare industry, where the overwhelming majority of the actual or intended loss was to patients, investors, and other non-governmental entities, and (c) any other federal violations involving conduct related to healthcare not subject to qui tam recovery under the False Claims Act (FCA). As Argentieri pointed out, "fraud on federal health care benefit programs is already covered by the Civil Division’s qui tam program […] but there is no comparable whistleblower program for fraud involving private insurers, even though estimates show tens of billions of dollars in fraud each year."

The Pilot Program creates a de facto 120-day reporting period for companies to be eligible for the full benefits under the VSD Policy.

The new DOJ Whistleblower Program illustrates DOJ’s efforts to incentivize prompt reporting of corporate misconduct. As outlined in the guidance, 'providing individuals with incentives to report corporate crime may also motivate corporations to create more robust compliance programs that detect and deter criminal conduct, including by encouraging internal reporting of complaints.'

To encourage prompt reporting, the Pilot Program creates a narrow window for both whistleblowers and companies to report the same misconduct and remain eligible for potential benefits. Specifically, as Argentieri highlighted in her remarks, under the new amendment to the VSD Policy, companies that receive an internal report from a whistleblower are eligible for a presumption of declination only if they report the misconduct to DOJ within 120 days of receiving such internal report and before DOJ’s outreach to the company.

Award eligibility is conditioned upon providing information that is prompt, new, and leads to a successful forfeiture of at least USD1,000,000 in net proceeds.

Whistleblowers may be eligible for an award pursuant to the Pilot Program when they voluntarily provide original and truthful information about criminal misconduct relating to one or more of the designated subject areas that leads to forfeiture. Specifically, the information must:

• be derived from the individual’s independent knowledge or analysis;
• be non-public and previously not known to DOJ;
• materially add to the information DOJ already possesses; and
• be reported to DOJ within 120 days of reporting it internally where the whistleblower also used the company’s internal reporting mechanisms. 

The Pilot Program expressly excludes information that is:

• subject to the attorney-client privilege;
• obtained in connection with the legal representation of a client;
• contained in an allegation made in a hearing, government report, investigation, or news media unless the individual was the source of the information; or 
• obtained because the individual was a fiduciary of the company (ie officer, director, trustee, or partner, employees/contractors with compliance or internal or external audit responsibilities).

The guidance also specifies that the individual’s submission must be voluntary – in other words, it must be provided:

• before any request from DOJ;
• independent from any preexisting obligation; and
• in the absence of any government investigation or threat of imminent disclosure to the government or the public. Note that where an individual reported the information through a company’s internal reporting system, their report will qualify as 'voluntary' if they provide the information in response to a government’s request within 120 days of their internal reporting.

Lastly, the information must lead to forfeiture of USD1,000,000 in net proceeds. Such requirement highlights DOJ’s goal of using asset forfeiture to the fullest extent possible to investigate, identify, seize, and forfeit the assets of criminals and their organizations.

Awards are subject to several payment considerations, including a whistleblower’s participation in or interference with internal compliance systems or internal reporting.

The guidance stresses that awards are entirely discretionary and not guaranteed. Individuals who meaningfully participated in the criminal activity, including by directing, planning, initiating, or knowingly profiting from that criminal activity are not eligible for an award. Likewise, individuals who would be eligible for an award through another US government or statutory whistleblower, qui tam, or similar program, had they reported the same original information to that other program, are not eligible for payment from the Pilot Program.

In exercising its discretion to determine the appropriate award percentage, DOJ will consider the unique facts and circumstances of each case. The guidance also directs that DOJ may consider several factors in determining whether to increase or decrease an award. In determining whether to increase an award, DOJ will consider:

• the significance of the information provided by the whistleblower;
• the extent of the assistance provided by the whistleblower to DOJ, including the timeliness of the whistleblower’s report, the resources conserved as a result of the whistleblower’s assistance, any efforts undertaken by the whistleblower to remediate the harm caused by the violations reported, or any unique hardships experienced by the whistleblower as a result of his reporting; and
• the whistleblower’s participation in internal compliance systems or internal reporting, including the extent to which the whistleblower reported and assisted in any internal investigations surrounding the reported misconduct.

Significantly, when evaluating whether to increase an award due to the whistleblower’s participation in internal compliance reporting and investigations mechanisms, DOJ will also consider whether the company in question had adequate channels available to the whistleblower to report internally. Conversely, individuals who were delayed in reporting the misconduct or sought to interfere with the company’s internal reporting or investigation processes may see decreases in potential awards. DOJ will also assess an individual’s role in the misconduct. While those who meaningfully participated in the criminal activity will be ineligible for an award, individuals who may have taken part in the misconduct, but are 'plainly among the least culpable of those involved in the conduct of the group,' may still be eligible for a reduced award.

Those with management or oversight roles of the individuals involved in the misconduct may also be subject to a reduced award, particularly if they (i) had decision-making authority related to the misconduct at issue, (ii) contributed to failures in the company’s compliance system that would have allowed the company to detect and prevent the misconduct, (iii) created or contributed to a corporate culture that undermined the importance of the company’s compliance controls, or (iv) ignored red flags regarding actual or potential misconduct.

II. The new Pilot Program places corporate compliance programs under more scrutiny, and increases the need to assess and strengthen their whistleblowing and investigation processes

In her remarks, Argentieri pointed out that, through the Pilot Program, DOJ is both incentivizing “individuals to come forward and report corporate crime” and “companies to invest in strong internal reporting structures and to report crimes when they learn about it.”

Practically speaking, companies may now consider whether to take a fresh look at their reporting and investigation functions. This review could include:

• reviewing existing policies and processes to ensure that they align with these new expectations;
• evaluating prior communications efforts and testing employee awareness of internal reporting mechanisms;
• updating policies and procedures to ensure that whistleblower reports are investigated, and, if necessary, reported to DOJ within 120 days of receiving an internal whistleblower complaint to be eligible for a presumption of declination; and / or
• refreshing compliance training to ensure employee awareness of reporting mechanisms. 

Establishing the credibility of the whistleblowing and investigation process with employees may be even more critical in light of the new Pilot Program guidance. On a more macro level, DOJ is reminding companies of its prior guidance which sets the expectation that effective compliance programs are continuously assessed and improved. As Argentieri highlighted, DOJ is “using more tools than ever before to identify corporate misconduct so now is the time to make the necessary compliance investments to help prevent, detect, and remediate misconduct.”