Recent Developments in Department of Justice Voluntary Self-disclosure Programs Create Opportunities and Risks for Clients

• Publication year: 2024
• Citation: Vol. 4 No. 3

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David E. Carney ^*

Abstract: The Department of Justice has transformed the enforcement landscape during the previous 18 months by implementing a series of initiatives to increase the incentives for culpable and nonculpable individuals and entities to report misconduct. Recent returns from these programs have led the Department of Justice to conclude that the programs are working. In this environment, it is important for practitioners to understand the features and requirements of these programs and the risks and opportunities that they present for clients. This article summarizes the newly adopted programs, identifies what these programs teach practitioners about the current government enforcement context, and suggests how practitioners and clients can best navigate this context to take advantage of the programs while avoiding the potential pitfalls.

During the previous 18 months, the Department of Justice (DOJ) has transformed the enforcement landscape by implementing a series of initiatives to increase the incentives for culpable and nonculpable individuals and entities to report misconduct. In early 2023, various DOJ components issued their voluntary self-disclosure (VSD) policies to encourage culpable entities to disclose misconduct in exchange for a range of outcomes from a declination to a non-prosecution agreement (NPA) to a deferred prosecution agreement (DPA). In October 2023, the DOJ announced the Mergers & Acquisitions Safe Harbor Policy that incentivizes nonculpable

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acquiring entities that discover misconduct during due diligence of target companies to make disclosure to the DOJ in exchange for, under certain conditions, a presumptive declination. In January 2024, the U.S. Attorney's Office (USAO) for the Southern District of New York (SDNY) launched its Whistleblower Pilot Program that offers certain individuals culpable for certain misconduct a pathway to an NPA. (At least one other U.S. Attorney's Office has since adopted a similar pilot program.) In March 2024, Deputy Attorney General Lisa Monaco announced the DOJ's pilot program to provide financial rewards to nonculpable whistleblowers who report certain corporate and financial misconduct. And on April 15, 2024, the DOJ announced its own version of the SDNY USAO's Whistleblower Pilot Program for culpable individuals.

The DOJ documented and expanded these programs to "provide transparency" and "a strong incentive . . . to bring to . . . law enforcement's attention actionable, original information about criminal conduct that might otherwise go undetected or be impossible to prove." ¹ In March 2024, Acting Assistant Attorney General Nicole Argentieri shared the DOJ's perspective that these programs were having the desired effect. She told attendees at a government enforcement-focused conference, "When you see these declinations, . . . they are just a fraction of the self-reports we are getting . . . . [O]ur policies are working." ² She also noted that the DOJ received twice as many VSDs in 2023 as it did in 2021. ³

The expansion of these programs and the DOJ's perception that they are efficacious hold lessons for government-enforcement and white-collar practitioners about the current environment. In addition, they highlight the need to re-evaluate how clients are counseled in that environment. And, finally, these programs hint at potential future developments to monitor.

Recent Developments in VSD and Whistleblower Programs

VSD Programs of the Various DOJ Components

During fall 2022, DAG Monaco issued "Further Revisions to Corporate Criminal Enforcement Policies Following Discussions

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with Corporate Crime Advisory Group." ⁴ In these revisions, she directed each DOJ component to create and publish a VSD policy. Each DOJ component, ⁵ except the Antitrust Division, rolled out its policy in early 2023. ⁶ The Antitrust Division did not revise its Leniency Policy and Procedures, ⁷ last updated in April 2022, because they complied with the directive.

These VSD policies of various DOJ components articulate leniency programs with largely common qualification criteria. The criteria include:

1. Disclosure Recipient. A company must disclose to the relevant DOJ component or USAO.
2. Voluntariness. The disclosed matter must be unknown by both the public and the DOJ, and not required to be otherwise disclosed by the company, for example, pursuant to a regulatory obligation.
3. Timing. A company must disclose the misconduct to the government prior to imminent threat of disclosure by another and reasonably promptly upon discovery.
4. Completeness and Preservation. A company must include in its disclosure all relevant, non-privileged information regarding the misconduct, including facts about relevant individuals inside and outside of the company. The DOJ will expect a company making a disclosure to have preserved relevant documents.
5. Absence of Aggravating Factors. To qualify for the most favorable outcome, a company must not have aggravating factors such as the conduct having a serious adverse impact, pervasiveness of the conduct, concealment/obstruction to avoid discovery of the conduct, lack of cooperation or remediation, executive involvement, and recidivism.
6. Proactive Cooperation. A company must cooperate with government investigations against involved individuals and de-conflict its own work (e.g., avoid actions during ongoing internal investigation that will adversely impact a government investigation). Notably, the DOJ does not require companies to waive privilege.

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7. Remediation. A company will likely experience financial impacts like disgorgement, forfeiture, and restitution, take personnel actions against involved individuals, and conduct compliance enhancements after a root-cause analysis.

While DOJ components' policies share largely the same elements for qualification, the policies themselves, as Monaco acknowledged, "differ from each other in approach." ⁸ The U.S. Attorneys' Offices, in an apparent nod to some inconsistency in qualifying criteria under the former approach to self-disclosures, adopted a policy under which an individual US. Attorney's Office "will coordinate with, or, if necessary, obtain approval from, the Department component responsible for the VSD policy specific to the reported misconduct" and specifically reserved that it could "choose to apply any provision of an alternative VSD policy in addition to, or in place of, any provision of this policy." ⁹ While these differences are not material to the discussion here, a practitioner must be aware of the variation in the criteria because it could have material impacts on a decision about making a VSD and to which DOJ component it should be directed.

If an entity or individual qualifies for VSD credit, there are three presumptive outcomes across the DOJ components that will not include a guilty plea: declination, an NPA, and a DPA. In a declination, likely the least impactful outcome, the DOJ states that it will not pursue an action against the company. An NPA is a contract between the company and the government setting forth the terms of a resolution of suspected criminal conduct without the DOJ filing a criminal case, provided that the company complies with specific sanctions and conditions. A DPA is analogous to the NPA except that the government files criminal charges and holds the prosecution in abeyance for a period of time, provided that the company complies with specific sanctions and conditions. Compliance over the term of the DPA results in dismissal of the charges, while non-compliance results in the DOJ prosecuting the deferred criminal charges.

The specific resolution could vary by the DOJ component involved in the matter and, for those policies that do not identify

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a single presumptive resolution, by other facts and circumstances that may or may not be in the control of a company or its counsel.

■ The Criminal Division policy provides for the "presumption of a declination in accordance with and subject to the other requirements of this Policy." ¹⁰
■ The Consumer Protection Branch policy articulates "a presumption against a guilty plea in accordance with and subject to the other requirements of this policy." ¹¹
■ The National Security Division policy declares "a presumption of a non-prosecution agreement or, where circumstances so warrant, a declination in accordance with and subject to the other requirements of this Policy." ¹²
■ The Environmental Crimes Section of the Environment and Natural Resources Division policy provides that the Division "will not seek a guilty plea." ¹³
■ The Tax Division policy states that the Tax Division "will not seek a guilty plea." ¹⁴
■ The U.S. Attorneys' Offices policy allows that the resolution of a VSD "could include a declination, non-prosecution agreement, or deferred prosecution agreement." ¹⁵
■ The Antitrust Division provides that, in general, "an organization . . . that meets the criteria for leniency will not be charged criminally for the illegal activity." ¹⁶

The Environmental Division, Civil Division, Tax Division, and US. Attorneys' Offices do not articulate precise guidance about how the disclosing party can receive any particular possible outcome.

These VSD programs offer leniency, not amnesty. A VSD resolution, even a declination, likely will come with criminal fines. These may be calculated as a percentage of the fines under the Sentencing Guidelines or as an element of disgorgement, forfeiture, or restitution. Noteworthy, some VSD policies provide that, while criminal fines may be limited, civil fines may not be impacted by the VSD resolution. In fact, in some contexts, prosecutors consider the availability of civil sanctions as an element of whether to grant the most favorable VSD outcome. (A company resolving a matter through a VSD likely will avoid the appointment of a monitor or independent compliance consultant, which could result in...