Potentially substantial payouts to employees who risk giving incriminating evidence about their firms or other companies to the government will be offered by the US Department of Justice (DOJ).

DOJ has joined several other federal agencies in a three-year pilot program entitled Corporate Whistleblower Awards Pilot Program. It was launched last Thursday and first described in March. The program increases transparency regarding the circumstances under which prosecutors will offer leniency to cooperating witnesses and other individuals through use of a non-prosecution agreement (NPA) when they report potential criminal misconduct involving corporations.

Those who turn over original information or analysis relating to a financial crime, bribery, or healthcare fraud could be eligible for an award of up to 30% of any assets forfeited by a company as a result of that information.

“With this program we’re doubling down on a proven strategy to ferret out criminal activity that might otherwise go unreported,” said Deputy Attorney General Lisa Monaco during a speech in Washington, DC.

Filling in the gaps

A number of federal agencies offer financial awards for whistleblowers, including the SEC, CFTC, IRS, and Financial Crimes Enforcement Network (FinCEN), each of them paying awards in the tens of millions of dollars to tipsters whose disclosures lead to fines and penalties. The SEC’s program was launched as part of the Dodd-Frank Act in 2010 to reward those tipsters with specific, timely and credible information about possible federal securities laws violations, and in fiscal years 2023, the agency awarded nearly $600m to 68 individual whistleblowers.

Deputy Attorney General Lisa Monaco said those other agency programs “by their very nature — are limited in scope.”

“They only cover misconduct within those agencies’ jurisdictions … And qui tam actions, which offer their own whistleblowing incentives, are available only for fraud against the government. While these programs have proven indispensable, they don’t address the full range of corporate and financial misconduct that the Justice Department prosecutes. That’s why I asked the leaders at the Criminal Division to design a program that would fill the gaps in this patchwork,” Monaco said.

The DOJ whistleblower program will initially focus on these four areas:

1. certain crimes involving financial institutions and their employees;
2. foreign corruption involving privately held companies and others that are not issuers of US securities;
3. domestic corruption involving companies; and
4. healthcare fraud schemes targeting private insurers not subject to qui tam recovery under the False Claims Act.

Under the program launched last week, a whistleblower is only eligible for an award from the Justice Department if the person isn’t already eligible for an award from another agency. 

Whistleblower eligibility

An individual may be eligible for a whistleblower award under the DOJ’s new program if, alone or jointly with other individuals, they provide DOJ with original (non-public, not previously known to law enforcement and not privileged) information in writing pursuant to the conditions and procedures set forth below. That information must lead to criminal or civil forfeiture exceeding $1,000,000 in net proceeds forfeited in connection with a successful prosecution, corporate criminal resolution, or civil forfeiture action related to corporate criminal conduct in the areas noted above.

The information must materially add to any information the DOJ already possesses.

“Whistleblowers with any degree of culpability, however small, are likely to be discouraged from undertaking the risk of providing a tip to DOJ without the protection of a financial reward.”

Mary Inman, Partner, Whistleblower Partners LLP in San Francisco

An individual is not eligible for an award under this program if they are a company or another type of entity or would be eligible for an award through another US government or statutory whistleblower, qui tam, or similar program if they had reported the same scheme that they reported under this pilot program.

A person does not qualify if he or she “meaningfully participated in the criminal activity they reported, including by directing, planning, initiating, or knowingly profiting from that criminal activity.”

And, if in their whistleblower submission, dealings with the DOJ, or dealings with another authority in connection with a related action, the individual knowingly and willfully made or makes any false, fictitious, or fraudulent statement or representation or withholds material or significant information, uses any writing or document knowing that it contains any false, fictitious, or fraudulent statement or interfered or interferes with or obstructs the DOJ’s investigation.

Original information that an individual first reported through an entity’s internal whistleblower, legal, or compliance procedures for reporting allegations of possible violations of law where the entity later reported to DOJ the same information (even if the entity’s source of information was mostly or just that person) is considered a valid whistleblower report, provided the individual also reports their information to DOJ within 120 days of reporting internally.

Awards

If the resulting investigation and prosecution lead to a forfeiture greater than $1m, the whistleblower may be eligible in DOJ’s discretion to receive a monetary award, provided the whistleblower meets certain eligibility criteria.

Awarding whistleblowers will be based on a percentage of “net proceeds forfeited.” DOJ will calculate potential awards based on the “net proceeds forfeited,” which is the value of any assets DOJ forfeits after compensating eligible individual victims and paying other costs associated with the forfeiture. Whistleblowers may receive up to 30% of the first $100m in net proceeds forfeited, and up to 5% of any net proceeds forfeited between $100m and $500m.

DOJ will assess what percentage to pay the whistleblower based on various factors, including the usefulness of the whistleblower’s information and the level of assistance provided, with any awards made in DOJ’s discretion.

Questions on DOJ award regime

The DOJ’s program goes a step further than the ones offered by the SEC, CFTC and FinCEN by prohibiting payments to any whistleblower who meaningfully participated in the criminal activity they report.

I asked well-known whistleblower attorney Mary Inman, partner at Whistleblower Partners LLP in San Francisco, about this added hoop for whistleblowers to jump through.

“We will have to see how DOJ draws the line between someone whose participation was minimal, and therefore would be award-eligible, and those whose participation was meaningful and would be ineligible. Unfortunately, because of the ambiguity of this standard, whistleblowers with any degree of culpability, however small, are likely to be discouraged from undertaking the risk of providing a tip to DOJ without the protection of a financial reward,” Inman said.

“Companies should review their confidentiality and non-disclosure agreements to make sure they clearly say that employees can still communicate with the government about corporate misconduct and cooperate with government investigations.”

Liz Soltan, associate at Whistleblower Partners LLP in New York

Liz Soltan, an associate at Whistleblower Partners LLP in New York pointed out another reward limitation with DOJ’s program.

“Rewards are limited to cases in which there’s a forfeiture, which is a significant limitation. In many cases, the government imposes a fine but does not seek forfeiture, and in those instances whistleblowers would not be eligible for awards. So we have a Pilot Program that covers a wide range of issue areas but does not cover a wide range of case outcomes, which is an unfortunate mismatch,” Soltan said.

More corporate reporting incentives now

The DOJ’s pilot program highlights how this whistleblower initiative complements and strengthens its existing voluntary self-disclosure programs, which offer companies and individuals potential benefits when they self-report their misconduct, remediate the harm, identify responsible individuals, and fully cooperate with the government’s investigation.

The idea is that the more ways that people can report corporate misconduct, the greater the incentive for companies and individuals to report wrongdoing as soon as they learn of it.

I asked Inman and Soltan how they would advise businesses in considering this new program as another reason to develop strong, and well-advertised/leadership-supported internal reporting systems.

“The Pilot Program gives the corporate world yet another reason to make sure they have strong compliance programs that are designed to stop misconduct, and not just sweep it under the rug,” Inman said.

“The idea seems to be to incentivize everyone involved to come forward quickly.”

Mary Inman, partner at Whistleblower Partners LLP

“Companies can still get credit under the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy if they make a self-disclosure to DOJ even after a whistleblower makes a tip through the Pilot Program, so long as it’s within 120 days. The idea seems to be to incentivize everyone involved to come forward quickly, and to make sure corporations have an incentive to self-disclose when a whistleblower raises an issue to them – because they know the clock is ticking on getting credit for that disclosure as voluntary,” she said.

Soltan pointed out that the voluntary self-disclosure policy guidelines also include a warning that when it comes time for DOJ to evaluate corporate culpability and cooperation credit, DOJ will take into account any steps entities take to “impede” whistleblowers or anyone else from communicating with the government. It could even be considered obstruction of justice, which includes the use of overly broad confidentiality agreements to try to muzzle potential whistleblowers,” she says.

Soltan’s advice to businesses: “Much like they have done in response to the advent of SEC’s whistleblower protections (Rule 21F-17), companies should review their confidentiality and non-disclosure agreements to make sure they clearly say that employees can still communicate with the government about corporate misconduct and cooperate with government investigations,” she said.