Earlier this month, the Department of Justice (DOJ) announced the latest tool in corporate enforcement—the DOJ whistleblower awards pilot program. The pilot program leverages the US Attorney General’s statutory discretion to distribute “awards for information or assistance leading to a civil or criminal forfeiture” in order to incentivize whistleblowers to disclose corporate misconduct.
This initiative seeks to address gaps in existing whistleblower programs, including those run by the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), IRS, and Financial Crimes Enforcement Network (FinCEN). The new pilot offers potential awards for information relating to specific federal criminal activities, such as crimes involving financial institutions, domestic and foreign corruption involving companies, and health-care violations involving private actors.
One of the goals of the program, as stated by the DOJ, is to “incentivize companies to invest in strong internal reporting structures and to report crime when they learn about it.” Consequently, the pilot program is expected to impact corporate compliance and risk functions in a variety of ways, beginning with an anticipated increase in internal whistleblower reports. The DOJ has explicitly “designed the pilot program to encourage employees to report misconduct internally before submitting information.”
The program permits awards to whistleblowers who report internally first, provided they also disclose the same information to the DOJ within 120 days of the internal report. Additionally, the DOJ will consider whether whistleblowers reported potential misconduct internally and cooperated with any resulting internal investigation as positive factors, potentially increasing the amount of any award. This combination of features offers a clear incentive for whistleblowers to report internally prior to escalating the matter to the DOJ.
Corporations are advised to ensure they have effective mechanisms—such as anonymous hotlines or submission portals—to handle the expected increase in internal reports. Ensuring their compliance functions are adequately prepared to process these new reports is crucial for making informed decisions about whether to self-report to the DOJ, a decision now subject to the 120-day deadline.
The pilot program also creates a race to disclose corporate misconduct. Under an amendment to the DOJ’s corporate voluntary self-disclosure policy, companies that receive internal whistleblower reports must disclose allegations to the DOJ within 120 days to be eligible for the full benefits of voluntary disclosure. This amendment effectively sets a 120-day reporting requirement, creating a scenario where whistleblowers and companies are competing to be the first to notify the DOJ.
The narrow 120-day window puts significant pressure on companies to review potential reports quickly. Since whistleblowers must report their allegations within the same timeframe to be eligible for awards, companies can expect that the DOJ will become aware of allegations irrespective of self-disclosure. To capitalize on the benefits of the self-disclosure policy, companies must efficiently process and evaluate internal whistleblower reports within this tight timeline.
Moreover, the new program invites additional multi-agency inquiries into the same underlying conduct. Although it generally covers types of misconduct not addressed by other whistleblower programs, some overlap exists, especially with the SEC’s whistleblower program, which covers certain foreign corruption violations under the Foreign Corrupt Practices Act. Given potential confusion over which program applies, whistleblowers may choose to file with multiple agencies, as the DOJ’s guidance explicitly encourages multi-agency submissions where such confusion exists.
This multi-agency approach increases the likelihood that companies will need to coordinate responses to inquiries from multiple federal bodies regarding the same misconduct. As a result, companies are under greater pressure to implement robust compliance procedures capable of efficiently and effectively processing internal complaints and potentially reporting misconduct to the government within the 120-day period.
Adjustments in resource allocation and internal compliance procedures may be necessary. While these adjustments could incur additional costs, they must be weighed against the risks of increased DOJ scrutiny and the potential loss of benefits under the government’s self-disclosure policies.
For further reading on the DOJ whistleblower awards pilot program, please refer to the original article by Walter Hawes and Caleb Hayes-Deats.