DOJ Unveils Corporate Whistleblower Awards Pilot Program Targeting Uncovered Corporate Crimes

The Department of Justice (DOJ) has unveiled the details of its highly anticipated corporate whistleblower awards pilot program, aimed at prioritizing reporting in areas of corporate crime not currently covered by existing whistleblower programs. According to guidance published Thursday, the new pilot program is modeled on successful whistleblower initiatives offered by the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), addressing reporting gaps in those programs.

In a speech delivered Thursday in Washington, D.C., Principal Assistant Attorney General Nicole Argentieri outlined the four areas where the DOJ believes its whistleblower program will provide new pathways for corporate insiders to report misconduct. These areas are foreign corruption, crimes involving financial institutions, U.S.-based corruption, and fraud involving private insurers not covered by qui tam recovery under the False Claims Act.

Argentieri highlighted that companies not issuing securities in the U.S. are not covered by the SEC’s whistleblower program. “Our whistleblower program would reach that type of foreign corruption and help ensure accountability for corporate wrongdoers,” she said. This is particularly relevant as the DOJ will “vigorously enforce” the newly enacted Foreign Extortion Prevention Act, which allows the agency to prosecute foreign officials who accept bribes.

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

The DOJ pilot program will offer rewards of up to 30 percent on enforcement actions ranging from $1 million to $100 million, and up to 5 percent of net proceeds forfeited between $100 million and $500 million, according to a fact sheet. This differs from the SEC and CFTC programs, which offer 10 to 30 percent of enforcement actions over $1 million, with no cap. The SEC funds its whistleblower payments through an investor protection fund financed entirely by monetary sanctions paid by securities law violators, while CFTC awards are drawn from the CFTC Customer Protection Fund.

Responses to the DOJ’s pilot program were mixed among whistleblower advocates. Mary Inman, partner at Whistleblower Partners, stated, “With today’s launch of its corporate whistleblower award program, the DOJ is catching up with SEC, CFTC, and IRS, who have been successfully leveraging tips from whistleblowers to give them the edge in prosecutions. Taking a page from the SEC’s book, starting today, DOJ has given itself a real edge in prosecutions by empowering and incentivizing whistleblowers to provide them with critical information about corporate wrongdoing.”

Jane Norberg, former chief of the Office of the Whistleblower at the SEC and now a partner at Arnold & Porter, noted that the DOJ modeled much of their program after the SEC’s whistleblower program, “right down to the graphic on their website depicting ‘The Whistleblower Process’ from tip submission to award.”

However, others felt the DOJ’s program fell short. Stephen Kohn, founding partner of Kohn, Kohn & Colapinto and chairman of the board of directors of the National Whistleblower Center, criticized, “The DOJ missed the target. They failed to follow the proven best practices of the Dodd-Frank and False Claims Acts by not making awards mandatory to qualified whistleblowers who risk their jobs, careers, and even lives in the public interest.”

Whistleblower attorney Erika Kelton, partner at Phillips & Cohen, called the DOJ pilot program a “game changer in the war against foreign corruption and financial fraud” but criticized the program’s cap on awards. “Whistleblowers with information about massive frauds should be the people DOJ wants to attract. By putting limits on their recovery, they risk losing them as whistleblowers,” she said.

The DOJ pilot program has several significant differences from more established whistleblower programs. For instance, the DOJ’s program will reward whistleblowers on “net proceeds forfeited”—that is, what remains after victims have been compensated and investigation-related costs have been paid. In contrast, the SEC and CFTC pay whistleblowers a percentage of the fine without such deductions. Additionally, the DOJ program prohibits payments to any whistleblower who meaningfully participated in the criminal activity they report, whereas the SEC, CFTC, and FinCEN allow awards to participants in the misconduct under certain conditions.

Norberg pointed out another difference: the company must contact the DOJ within 120 days of receiving an internal whistleblower tip to be eligible for the presumption of a declination. “Depending on the nature of the investigation, this timeline puts immense pressure on companies to conduct an internal investigation and make a decision to contact the DOJ in a relatively short period of time,” she said. “This 120-day race also puts pressure on ensuring proper training for employees, managers, and board on internal reporting channels at the company so the appropriate parties get the information quickly to begin the investigation.”

Kohn criticized the DOJ’s pilot program for not guaranteeing confidentiality or anonymity for whistleblowers, not providing a guaranteed award, and not excluding participants in misconduct or “minimally culpable whistleblowers.” “The drafters of the False Claims Act understood that awards were necessary to induce insiders, who may have participated in the frauds, to turn on their fellow fraudsters,” Kohn said.

The pilot program aims to enhance other DOJ tools for uncovering corporate misconduct, such as voluntary self-disclosure programs, which offer incentives like lower penalties or nonprosecution agreements (NDAs) if companies self-report misconduct, remediate harm, identify responsible individuals, and fully cooperate with government investigations.

The DOJ also aims to encourage employees to report misconduct internally before contacting the DOJ. For example, an employee who reports misconduct through internal company systems can still seek and obtain a whistleblower award from the DOJ, according to the fact sheet. “Corporations should take note that now more than ever they ignore internal whistleblower complaints about corporate malfeasance at their peril,” Inman said.

By fLEXI tEAM