White Collar Crime Prof Blog

Criminal Division Corporate Whistleblower Awards Pilot Program

Using civilians outside DOJ to assist in the fight against crime is not new.  We have seen it with the addition of Civil RICO in 1970 (18 U.S.C. 1964), and of course the government partnership with those outside the government under the False Claims Act.  We have also seen government calls to the public for information related to criminal acts, and the government's use of cooperating witnesses to secure information and testimony against other perpetrators of crimes. That said, the Criminal Division Corporate Whistleblower Awards Pilot Program has some unique aspects that could incentivize individuals to assist the government in reducing criminality.

The program guidance limits the applicable areas to:  (1) certain crimes involving financial institutions, from traditional banks to cryptocurrency businesses; (2) foreign corruption involving misconduct by companies; (3) domestic corruption involving misconduct by companies; or (4) health care fraud schemes involving private insurance plans.  The foreign corruption by companies is particularly intriguing as it can be an area difficult to obtain accurate information.  Likewise, this may be another way to infiltrate misconduct in the cryptocurrency world.

The DOJ provides FAQs for Potential Whistleblowers and also for Companies here. But is also notes that "A whistleblower award is made in the Department’s sole discretion." Finally, the DOJ announcement reminds companies that voluntary "self-report within 120 days of receiving an internal whistleblower report may be eligible for a presumption of a declination under the Criminal Divisions's Corporate Enforcement and Voluntary Self-Disclosure Policy if the company reports to the Department before the Department contacts the company." (Note -Temporary Amendment to the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy)

It is good to see the government exploring new methods to achieve corporate compliance.  In the future evaluation of this program, it is hopeful that there will be a cost-benefit analysis to ascertain whether the program proves to be an administrative challenge for the government in comparison to the rewards of achieving compliance.  But it will be important to factor into that analysis the intangible factors of how many companies step into line just on the mere threat of possibly being caught up in this new whistleblower program. 

(esp)

NYU Conference - Deterring Corporate Crime: Effective Principles for Corporate Enforcement

I had the privilege of being at an NYU Conference titled, Deterring Corporate Crime: Effective Principles for Corporate Enforcement.  Hats off to Professor Jennifer Arlen for bringing together folks with some different perspectives on corporate crime. Individuals presented data, and I heard different positions presented (corporate, government, industry, judicial) on a host of topics.  The individual constituent (CEO, CFO, employee) within the corporation was not a key focus, unless it was a discussion of their wrongdoing or prosecution.   

From this conversation it was clear that deterring corporate wrongdoing is not easy.  Penalties have increased, yet we continute to see corporate criminality.  So the question is, how do we encourage corporations not to engage in corporate wrongdoing?

This is my top ten list of what I think exists and what needs to be changed -

1. Most companies try to abide by the law.

2.  Complying with the law is not always easy for corporations. In some instances the law and regulations are unclear, making it difficult to discern what is legal.  The array of different laws and regulations (e.g., state, federal, and international), as well as their complexity  makes corporate compliance problematic.

3.  Companies resort to internal investigations to get information of wrongdoing within the company. In some instances companies will threaten individuals with the possible loss of their jobs if they fail to cooperate with a corporate internal investigation. Individuals who provide information to their employers sometimes do not realize that the company may provide that information to the government and the information may then be used against them.

4.  If a company is criminally charged, it typically is financially beneficial for the company to fold, work with the government, and provide information to the government of alleged individual wrongdoing within the company.

5. DOJ's incentives to a corporation that causes it to fold and provide evidence to the government against alleged individual wrongdoers may be causing more harm because it pits corporations against its individual constituents.

6. We need a stronger regulatory system.  Our system is broken and one just can't blame agencies like the SEC.

7. If we expect agencies like the SEC to work, Congress needs to provide them with more money to engage in real regulatory enforcement.

8. There are many good folks in DOJ, including AG Holder, who look longterm at stopping corporate wrongdoing. But there are also individuals in DOJ who fail to see the ramifications of what may seem like short-term benefits.   

9. Corporate crime can be reduced if everyone - the corporation, government, and also the individual constituents would work together.

10. It would be beneficial in reducing corporate crime if there was more transparency.  We all need to hear what works - when there are declinations of prosecutions, or when an agency decides not to fine a company. We can learn from the good things companies do (anonymously) and when DOJ declines to proceed against the company.   

(esp)

Fourth Circuit Extends Required Records Exception to Foreign Bank Accounts

Yesterday, in U.S. v. Under Seal (4th Cir. 2013), the Fourth Circuit, joining several other federal circuits, extended the Fifth Amendment's Required Records Exception to records of foreign bank accounts required to be maintained pursuant to the Bank Secrecy Act ("BSA"). John and Jane Doe received a subpoena to turn over records of their Swiss bank accounts. They responded that complying with the subpoena compelled them to testify against themselves, as they were required to create and maintain such records pursuant to the BSA. They also argued that the long-standing, judicially-created, Required Records Exception did not apply in this case, because the BSA's record-keeping provisions are essentially criminal, rather than regulatory, in nature. The district court disagreed, the Does took civil contempt, and an appeal ensued. Unsurprisingly, the Fourth Circuit sided with the government, accepting its argument that the BSA's record-keeping provisions are essentially regulatory in nature. You are shocked? There's not exactly a strong constituency, public or judicial, for foreign bank account tax evasion. 

(wisenberg)

IRS Whistleblower Birkenfeld Hits The Jackpot

Reuters reports here on the astounding award. Yours truly and other luminaries are quoted.

(wisenberg)

Dodd-Frank FCPA Whistleblowers: The Coming Wave

Take the FCPA, add in expansive new whistleblower protections, start employing the willful blindness doctrine with abandon, and presto! You've got a real growth industry on your hands.

The new whistleblower provisions in the Dodd-Frank Act should significantly increase federal civil and criminal fraud enforcement actions in the coming years. Whistleblowers will now be able to reap potentially huge monetary rewards for the timely reporting of corporate fraud to the SEC and CFTC, if recoveries of over a million dollars are made by those entities, the DOJ, or other regulators. Under Dodd-Frank, the pool of qualified whistleblowers has been enlarged and there is no requirement that whistleblowers file qui tam actions in order to be compensated for their information.

Expect to see exponential growth in the already burgeoning area of FCPA enforcement, fueled by new whistleblower activity. Recall that the FCPA is a creature of the securities fraud statutes, and is therefore within the SEC's purview. 

All of this and more is detailed in my friend Michael E. Clark's excellent new article in the September issue of ABA Health eSource, Publicly Traded Health Care Entities at Risk from New SEC Whistleblower Incentives and Protections in Dodd-Frank Act. Clark is with Duane Morris's Houston office. As with all ABA publications, Mike's article may not be copied or disseminated, in whole or in part, in any form or by any means, or downloaded or stored in an electronic database or retrieval system, without the express written consent of the American Bar Association.

(slw)

Settlement in Merck Drug Case

A press release of the DOJ reports that "Merck & Company has agreed to pay more than $650 million to resolve allegations that the pharmaceutical manufacturer failed to pay proper rebates to Medicaid and other government health care programs and paid illegal remuneration to health care providers to induce them to prescribe the company’s products..." "The allegations were brought in two separate lawsuits filed by whistleblowers under the qui tam, or whistleblower, provisions of the False Claims Act."

(esp)