DOJ Extends Leniency Incentives to Corporate Wrongdoers Who Disclose Criminal Misconduct

In brief

On April 15, 2024, the DOJ launched the Individual Voluntary Self-Disclosures (VSD) Program, extending incentives for individual wrongdoers to self-report criminal activities. This follows similar initiatives in the SDNY and NDCA. Traditionally, the DOJ incentivized corporate self-disclosure of wrongdoing. The new program aims to encourage individuals to disclose their misconduct and cooperate fully in exchange for non-prosecution agreements, potentially heightening the pressure on corporations to self-disclose swiftly. The program covers white-collar crimes and fraud but excludes violent crimes, high-ranking executives, and government officials. Companies should update compliance policies to mitigate risks and streamline internal reporting, while individuals must weigh the risks and benefits of self-disclosure under this untested program.

Key Takeaways

  • The Individual VSD Program incentivizes individuals involved in misconduct to come forward in exchange for leniency, allowing the DOJ to uncover and prosecute additional instances of corporate wrongdoing.
  • Subject to certain exceptions, under the new program, individual wrongdoers who disclose information to the government will be eligible to receive a non-prosecution agreement if the disclosing individual fully cooperates with the resulting investigation and the information disclosed related to qualifying criminal violations, was original, truthful, and complete, and voluntarily disclosed.
  • The Individual VSD Program further increases the risks and time pressure for voluntary self-disclosure decision-making by corporations – a delay in corporate disclosure now runs the elevated risk of other reporters coming forward before the corporation.
  • In light of these new disclosure avenues and incentives for wrongdoers to benefit from reporting corporate misconduct, companies should review their compliance policies, reporting mechanisms, and internal investigation procedures. They should ensure that employees can freely and easily report their concerns internally within the company without fear of retaliation.
  • At the same time, it is still crucial for companies to refrain from taking any action that the government may view as obstructing or interfering with an individual’s right or ability to make their voluntary disclosure (including under the Individual VSD Program).

In depth

On April 15, 2024, the Criminal Division of the US Department of Justice (DOJ) announced the rollout of a Pilot Program on Voluntary Self-Disclosures (VSD) for Individuals (“Individual VSD Program”)[1]. The DOJ’s announcement followed the rollout of similar programs in two individual federal districts, the Southern District of New York (SDNY) and the Northern District of California (NDCA), in February and March. The DOJ has long offered incentives (in the structure of any criminal resolution and amount of penalties) to corporations that voluntarily disclose criminal wrongdoing by the company or its staff and cooperate with the subsequent investigation, including providing information regarding implicated individuals.[2] Those incentives have become increasingly formalized in recent years, though the government seems to have yet to receive the avalanche of corporate voluntary self-disclosures it may have anticipated.

Upping the ante, the DOJ’s new Individual VSD Program extends incentives to individual wrongdoers to voluntarily share original information with the Criminal Division relating to their own and others’ misconduct in exchange for amnesty from prosecution. These individuals would not have previously been eligible for leniency or other benefits under nearly all existing corporate-focused programs (but would have had that cooperation taken into account at the time of charging and sentencing). The Individual VSD Program appears designed to both open a new channel for the DOJ to receive case-leads and place additional pressure on a corporation’s decision regarding whether and when to voluntarily self-disclose its own misconduct to the government under existing programs. This essentially sets up a race between the corporation and implicated individuals to disclose information first. The DOJ will consider extending, modifying, or terminating the Individual VSD Program depending on how well it works during the Pilot period.

The key provisions of the Individual VSD Program and its practical implications are summarized below.

In Summary

Criteria

Under the Individual VSD Program, individual wrongdoers who disclose information to the government will be eligible to receive a Non-Prosecution Agreement (NPA) rather than face criminal prosecution or conviction where the following criteria are met:

  • The information is voluntarily disclosed.
  • The information disclosed is original, truthful, and complete.
  • The information disclosed relates to qualifying criminal violations.
  • The disclosing individual fully cooperates with any resulting investigation.

Voluntary disclosure

For a disclosure to be voluntary, an individual must offer the information without a preexisting or pending regulatory obligation, request, or inquiry. Information provided to the Criminal Division in response to a civil, administrative, or federal enforcement request will not be considered voluntary. Moreover, the disclosure cannot be made in anticipation of a government investigation or under threat of an imminent disclosure to the government or public. Though this is far from settled, a corporation may have room to argue that an individual subject of an internal investigation where the company intends to self-disclose may not be eligible under this Program. However, it may be difficult for prosecutors to determine whether a company was considering disclosure in such a scenario, further complicating the analysis of whether an individual’s disclosure is genuinely voluntary and putting increased pressure on the timing of the corporate disclosure decision.

Original, truthful, and complete

For the disclosure to be considered original, the information provided must be non-public and not previously known to any division of the DOJ. Moreover, the disclosure must encompass all information the individual knows, including the full extent of the individual’s role in the criminal conduct. Otherwise, the disclosure is not considered “complete and truthful” and will not qualify under the Program.

Related to qualifying misconduct

Reflecting the Criminal Division’s enforcement jurisdiction, the Individual VSD Program limits the categories of misconduct that qualify to white-collar criminal conduct, fraud (including healthcare fraud and securities fraud), financial crimes, and bribery.

Notably, the Individual VSD Program does not explicitly cover matters that fall under the jurisdiction of other divisions of the DOJ, such as tax, antitrust, or national security-related crimes. However, the Individual VSD Program allows the Criminal Division to cooperate with other enforcement divisions to negotiate NPAs for misconduct falling under those other jurisdictions.[3]

Cooperation

The Individual VSD Program provides that after disclosure, the individual must agree to cooperate to the fullest extent possible in the course of the DOJ’s investigation and prosecution. This could include requiring the individual to testify either in court or in interviews, produce additional evidence, and otherwise collaborate closely at the direction of enforcement agents. Finally, the reporting individual must agree to forfeit any proceeds from the criminal conduct, pay restitution, and make all victims whole.

Exceptions

Even if an individual’s disclosure meets all of the above criteria, the reporting individual will not be eligible for an NPA if they:

  •  Engaged in criminal conduct involving violence, force, threats, a sex offense, or terrorism.
  • Acted as the corporation’s Chief Executive Officer, Chief Financial Officer, or otherwise acted as “the organizer/leader of the scheme”.
  • Served as an elected or appointed foreign government official.
  • Served as a domestic government official, including as an employee of a law enforcement agency.
  • Have a previous felony conviction or any other conviction for conduct involving fraud or dishonesty.

Despite these exceptions, prosecutors in the Criminal Division maintain the discretion to offer NPAs to individuals who disclose under the Program but fail to meet all relevant qualifications, so long as the offer is made in accordance with the Justice Manual and other DOJ procedures.

Takeaways

  • Individual incentives for those involved in the criminal misconduct

The Individual VSD Program is the latest of several new DOJ initiatives focused on corporate criminal conduct, the individuals who perpetrate it and those who witness it, and can thus provide information to the government to assist in their investigations. The new Individual VSD Program further demonstrates the DOJ’s interest in obtaining information about potential corporate misconduct from any possible sources, even if that means potentially giving certain wrongdoers a free pass. Although DOJ also recently announced its intent to roll out a separate initiative to provide financial rewards to whistleblowers not involved in criminal conduct[4] , that whistleblower program will not be available to individuals involved in misconduct. The Individual VSD Program effectively expands the DOJ’s reach to both whistleblower categories by incentivizing individuals involved in misconduct to come forward in exchange for leniency, allowing the DOJ to uncover and prosecute additional instances of corporate wrongdoing.

  • Individual VSD program affects the calculus of the timing and forum for corporate disclosure

The Individual VSD Program further increases the risks and time pressure for voluntary self-disclosure decision-making by individuals and corporations. On the one hand, if a whistleblower or the implicated corporation provides non-public information to the government before a criminal wrongdoer does, the information disclosed by the individual may not qualify as “original” under the Individual VSD Program. Similarly, if an individual involved in misconduct reports to the government before a company does, corporations may not be able to reap the voluntary disclosure benefits in resolution. A delay in corporate disclosure now runs the elevated risk of other reporters beating the company to the punch, either to obtain a whistleblower award or to limit their exposure. Decision-making on corporate voluntary disclosure and its timing, already a complex calculus, is more challenging due to these additional individual incentives.

Similar programs announced this year by the Northern District of California (NDCA) and Southern District of New York (SDNY) also offer amnesty in exchange for individual wrongdoers’ provision of substantial assistance to the government regarding corporate crimes involving fraud, internal control failures, or bribery involving government funds. These various programs add further complexity depending on the type of misconduct and the relevant jurisdiction. These regional programs differ slightly in the types of misconduct that qualify, potentially inviting forum shopping by individuals intending to disclose. Namely, the SDNY policy expressly excludes FCPA violations as misconduct qualifying for amnesty. Meanwhile, the NDCA policy does not explicitly exclude such conduct but clarifies that its policy is directed to disclosures regarding intellectual property theft and related violations.

  • New timing considerations for compliance programs and internal controls

In light of these new disclosure avenues and incentives for wrongdoers to benefit from reporting corporate misconduct, companies should review their compliance policies, reporting mechanisms, and internal investigation procedures. They should ensure that employees can freely and easily report their concerns internally within the company without fear of retaliation. These elements still offer companies the best prospect of learning about and remediating an issue before it becomes a significant criminal problem or is reported to the government by others.

During internal investigations, companies will need to carefully consider how to communicate with subjects and witnesses where criminal activity is suspected and may need to accelerate the corporate voluntary disclosure calculus in an appropriate case.

At the same time, it is still crucial for companies to refrain from taking any action that the government may view as obstructing or interfering with an individual’s right or ability to make their voluntary disclosure (including under the Individual VSD Program), even as the company weighs its options. Though the DOJ has yet to opine whether sanctions may apply for preventing or dissuading individuals from coming forward under the Individual VSD Program or the whistleblower program, such penalties currently exist under the Securities and Exchange Commission’s whistleblower protection program for those subject to its regulation and the DOJ will likely view obstruction in the same way.

  • Considerations for Individuals

For individuals considering disclosing criminal activity to the government, the calculus is also challenging. The Individual VSD Program is untested and involves significant risks in essentially turning oneself in to obtain leniency in exchange for cooperation against others, including the corporation. However, one thing is clear: if an investigation is suspected or underway and the conduct seems likely to be uncovered, individual self-disclosure under the Individual VSD Program offers a previously unavailable prospect of a much more beneficial path forward than waiting to defend or cooperate in an eventual government investigation.


[1]        The Criminal Division’s Pilot Program on Voluntary Self-Disclosures for Individuals

[2]        9-47.120 – Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy

[3]        The Criminal Division’s Pilot Program on Voluntary Self-Disclosures for Individuals, fn. 2.

[4]        Deputy Attorney General Lisa Monaco Delivers Keynote Remarks at the American Bar Association’s 39th National Institute on White Collar Crime

Author

Geoff Martin is a partner in the Litigation and Government Enforcement practice group in Washington, DC. Geoff started his career in Baker McKenzie's London office in 2007 and moved to Washington DC in 2012. Geoff represents clients in matters before the federal government arising out of anti-corruption, trade sanctions, fraud, anti-money laundering, national security, and related enforcement actions. He also represents clients in civil and criminal matters in federal court. Geoff has extensive experience conducting internal investigations relating to such matters around the world. Mr. Martin advises clients on corporate ethics and compliance issues including, anti-bribery and corruption, fraud, financial crime, anti-money laundering, and trade sanctions in connection with federal investigations. Mr. Martin has extensive experience managing multinational fraud, corruption and sanctions investigations for client facing federal enforcement or regulation in the US. This includes experience conducting investigations in the UK, Europe, Africa, the Middle East, Asia and North and South America. He has advised clients before federal enforcement authorities, regulators, and prosecutors in the US, the UK and elsewhere. He writes extensively about compliance and investigations issues, best practices and developments in English and US law. Mr. Martin's practice also includes commercial disputes, and federal litigation including contract disputes with suppliers, subcontractors, and government departments.

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Jess is a technology investigations partner practicing at the forefront of government enforcement in the technology industry. Jess leads Baker McKenzie's investigations and compliance practice on the West Coast. For more than two decades, Jess has defended companies and individuals in government investigations and conducted internal investigations involving cutting-edge technology issues including AI, cybersecurity, and alleged misuse of all kinds of data. Jess has defended companies and individuals across the Asia Pacific region since the first DOJ Antitrust cartel investigations in 2003, and has a deep understanding of cultural issues impacting investigations in that region and across the globe. Jess's defense practice focuses on the intersection of government enforcement and emergent technology and geo-political issues including artificial intelligence, cyber security, economic espionage, and the use of technology for anti-competitive purposes. Jess has defended the most complex and high-profile cybersecurity federal investigations to date, including the historic SEC and SDNY investigation into the cyber security breach at Yahoo, Inc. involving the theft of login credentials for over three billion users. More recently, Jess has defended clients in SDNY's investigation of FTX Trading, Ltd. and a related cyber-breach leading to the theft of USD 477 Million from FTX by an unknown threat actor. In 2022, Jess defended the very first Securities and Exchange Commission (SEC) enforcement action alleging misrepresentations as to the operation of AI models and data inputs into them. Jess is presently defending clients in some of the seminal federal criminal and regulatory investigations of AI companies and systems. Jess has also defended clients in some of the highest profile trade secrets/economic espionage, national security, and sanctions/export enforcement cases in the nation, including the first economic espionage case brought under the DOJ and National Security Division's "China Initiative." Jess also defended the first case brought by the U.S. Antitrust Division alleging use of an algorithm in support of price collusion. Clients appreciate Jess for her practicality, her quick mastery of complex and emergent technology issues, her strategic thinking, and her deft ability to assemble effective defense and internal investigations teams domestically and across the globe.

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Maria Grenader is an associate in the Litigation and Government Enforcement Practice Group and a member of the Compliance and Investigations Group in our Washington, DC office. Maria advises clients on managing anti-corruption compliance risks stemming from operating businesses in global markets. She handles internal investigations and related interactions with law enforcement authorities and international financial institutions. Maria focuses her practice on global corporate compliance and cross-border investigations. She represents domestic and international companies in a broad range of compliance matters, including conducting due diligence reviews for M&A transactions, risk assessments for company compliance programs, internal investigations, and criminal investigations before government agencies. Maria has worked on various matters in representing foreign and domestic clients in the face of bribery and fraud allegations.

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Maria Piontkovska is an associate in Baker McKenzie's Los Angeles office. Maria advises clients on reducing anti-corruption compliance risks stemming from operating business in emerging markets and handles internal investigations and related interactions with law enforcement authorities. Maria’s practice focuses on global corporate compliance and investigations, as well as white collar criminal matters. She represents domestic and international corporate clients in a broad range of compliance matters, including criminal investigations, before the US Department of Justice, the US Securities and Exchange Commission, and other government agencies.