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The Department of Justice is busy developing new initiatives to incentivize self-disclosure. Most recently, on April 15, 2024, DOJ unveiled its Pilot Program on Voluntary Disclosures for Individuals, which grants fully-cooperating individuals who self-disclose “original information about criminal misconduct, including the complete extent of their own role in the misconduct” the prospect of a non-prosecution agreement.
This follows in the footsteps of an announcement last month by Deputy AG Lisa Monaco, who introduced a DOJ-run whistleblower rewards pilot program, which DOJ will be conducting a “90-day sprint” to implement. Whistleblower rewards programs – especially with this breadth – are rare globally. With this initiative, the US is likely to hold onto its leadership position vis-à-vis its global peers in the fight against corporate misconduct using financial incentives. Businesses in the US and abroad should take this into account for their compliance programs and voluntary disclosure decisions.
Whistleblower rewards are nothing novel in the US. For example, whistleblower rewards have been central to the enforcement of the False Claims Act. The SEC, too, has a whistleblower rewards program and awards can be staggering (the largest so far, issued in May 2023, was nearly $279 million). What these programs do not do, is cover the “full range of corporate and financial misconduct” that DOJ prosecutes. DOJ’s new program will fill these gaps.
According to DOJ: “The premise is simple: if an individual helps DOJ discover significant corporate or financial misconduct – otherwise unknown to us – then the individual could qualify to receive a portion of the resulting forfeiture.” DOJ explained that it would only offer payments (1) after all victims have been properly compensated, (2) if truthful information is submitted that is not already known to the government, (3) if the whistleblower is not involved in the criminal activity itself, and (4) in cases where there is no other existing financial disclosure incentive. DOJ is particularly interested in information about criminal abuses of the US financial system, foreign corruption causes outside the SEC’s jurisdiction, and domestic corruption.
The use of whistleblower rewards remains quite rare, especially among the world’s major economies. Only a handful of nations have adopted such programs, most of which are limited in scope. For example, the UK’s HM Revenue & Customs office provides rewards in tax fraud cases, and Canada’s Offshore Tax Informant Program focuses on international tax non-compliance. Lithuania (through its Law on the Protection of Whistleblowers) and South Korea (through its Protection of Public Interest Whistleblowers Act) have adopted some of the broader programs we’ve seen.
Why the resistance? A 2014 Bank of England report suggests that financial incentives could “create a number of moral and other hazards,” including malicious reporting and entrapment, among others. (Though these assumptions have been disputed.) A recent consultation in Australia canvasses similar concerns. Reluctance may also stem from historical or cultural considerations (e.g., Germany).
The US is clearly moving full steam ahead in adopting whistleblower rewards programs and we suspect other major jurisdictions may follow suit. The UK, for example, may be next.
Rewards are likely to increase the number of companies and individuals reporting criminal conduct, which, of course, increases the risk of getting caught. This means two key things for companies based in the U.S. or operating here: first, that compliance programs should be robust, capable of preventing misconduct, and aligned with DOJ requirements; and second, companies should be taking proactive efforts to quickly detect corporate misconduct if and when it occurs, to ensure they are well placed to make a voluntary disclosure as needed.
As Deputy AG Lisa Monaco emphasized in her speech, “the clearest path for a company to avoid a guilty plea or an indictment is voluntary self-disclosure.” With increased odds of discovery, it is more important than ever to voluntarily disclose – and quickly – with protection restricted to those first in the door.