On March 7, 2024, the Department of Justice (DOJ) announced a new department-wide whistleblower pilot program. This program aims to incentivize whistleblowers to come forward with information related to corporate misconduct. By offering monetary rewards to whistleblowers, the program seeks to enhance enforcement efforts and promote transparency in the business world. Here’s what you need to know about the new program:
- DOJ’s New Pilot Program: The DOJ’s new pilot program is designed to complement existing programs. While other agencies like the Securities and Exchange Commission (SEC) and the Treasury Department already have whistleblower programs for specific types of misconduct under the jurisdictions of those agencies, the DOJ’s focus will be on significant corporate fraud and financial misconduct of which the government is not already aware and which is not covered by those programs.
- Interim Period: The program is currently in a 90-day interim period for development and implementation. During this time, the DOJ will define specific details and procedures. The formal program is expected to take effect later this year.
- Qualification for Payments: Whistleblowers can qualify for payments under the program by meeting four separate criteria:
- Non-Involvement in Criminal Activity. Whistleblowers must not have been directly involved in the criminal conduct they report. This ensures that individuals with firsthand knowledge can come forward without fear of reprisal.
- No Financial Incentives from Other Programs. Those who receive financial incentives through existing federal whistleblower programs (such as the SEC’s program under Dodd-Frank) are ineligible for rewards under the DOJ’s program.
- Information Must Not Be Known to the Government. The whistleblower must voluntarily provide truthful information to the government that is not already known to the government.
- Victims Must Be Properly Compensated. A payment will only be made to a whistleblower after all victims have been compensated. The funding for the whistleblower reward will be carved out of asset forfeiture funds captured by the government based on the evidence provided to it by the whistleblower, but the whistleblower must stand in line behind the victims to receive compensation. Because the statutory authority for the program is based on the government’s ability to obtain forfeiture, the Money Laundering and Asset Recovery Section (MLARS) is expected to play a significant role in developing the pilot program.
The DOJ’s pilot program seeks to promote accountability in the criminal justice system by deterring abuses in the financial system, including accountability for corporate misconduct, stiffer penalties for corporate recidivists, and the use of “a mix of carrots and sticks to promote responsible corporate citizenship.” While existing whistleblower programs generally target fraud against the government or violations of securities rules and regulations, DOJ seeks to expand the scope of whistleblower programs to include corporate and individual misconduct related to bank fraud, corporate espionage, embezzlement, domestic corruption, and foreign corruption cases outside the jurisdiction of the SEC, including non-issuer Foreign Corrupt Practices Act cases and violations of the Foreign Extortion Prevention Act, which prohibits foreign government officials from demanding bribes.
Prior to the announcement of the new whistleblower program, DOJ’s enforcement activity has been consistent with its statements that it seeks to promote increased accountability, most notably in its convictions of the chief executive officers of FTX and Binance, two of the world’s largest cryptocurrency platforms, and its insistence that the Swedish company Ericsson, a corporate recidivist, plead guilty to FCPA violations following the revelations that it failed to disclose all evidence relating to a foreign bribery scheme that resulted in a 2019 deferred prosecution agreement.
The details of how the new whistleblower program will work have not yet been finalized, but already there are certain considerations of which corporate compliance officers and in-house counsel should take note:
- It is not yet clear whether a whistleblower will be required to make internal disclosures through the company’s hotline or other reporting mechanism before reporting to DOJ; however, the existence of the program may accelerate the timeline for companies to conduct internal investigations and, if appropriate, report any wrongdoing uncovered by the investigation.
- Minor corporate transgressions which, in the past, may have just been remediated and not disclosed after weighing reputational risk to the company, may now be viewed more seriously with the specter of a corporate whistleblower looming over the organization.
In response to this new program, organizations should be assessing their own internal compliance procedures and investigatory protocols to make determinations about whether they should make changes to internal processes based on these new developments. As more details are announced about the new program, we will provide additional updates and commentary.
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