DOJ’s prior efforts to incentivize self-disclosure and cooperation
Recent DOJ efforts to adopt or enhance policies that incentivize cooperation took root when Assistant Attorney General, Leslie Caldwell, of the Criminal Division announced in April 2016, that the Fraud Section’s Foreign Corrupt Practices Act (FCPA) unit was launching a one-year pilot program “designed to motivate companies to voluntarily self-disclose FCPArelated misconduct, fully cooperate with the Fraud Section and, where appropriate, remediate flaws in their controls and compliance programs.”1 The pilot program promised that companies that did all three of these things would be eligible for a fine reduction of up to 50% off the low end of the U.S. Sentencing Guidelines fine range. These companies also would not suffer the imposition of a compliance monitor. Significantly, the FCPA unit would also consider declination of prosecution. The pilot program further provided that if a company did not voluntarily disclose, but eventually fully cooperated and timely and appropriately remediated, it could still be eligible for a 25% fine reduction from the bottom of the Sentencing Guidelines range.
After a year, the Criminal Division determined that the FCPA unit received 22 voluntary self-disclosures (an increase of nine from the prior year). After a year and a half, the FCPA unit received 30 voluntary disclosures (an increase of 12 from the prior 18-month period). In response, on November 29, 2017, Deputy Attorney General, Rod Rosenstein, announced that a modified version of the program, now known as the FCPA Corporate Enforcement Policy, would be made permanent.2 The permanent policy, incorporated into the Justice Manual, made two significant changes to the pilot program.3 First, when a company voluntarily self-discloses, cooperates, and remediates, there is (absent aggravating circumstances) a presumption that the DOJ would conclude the matter with a declination, rather than consideration of declination. Second, if a company self-discloses, but aggravating circumstances preclude declination, the DOJ will recommend a 50% reduction from the guidelines range, rather than a reduction of up to 50%.
Indications that principles of self-disclosure and cooperation credit could apply more broadly
The DOJ has repeatedly indicated that the principles underlying the FCPA Corporate Enforcement Policy could apply more broadly. In an October 6, 2017 speech Deputy Attorney General Rosenstein explained, “The Department of Justice is working to incentivize, reward, and even partner with companies that demonstrate a commitment to combating corporate fraud. That coordination may occur at the highest levels, when C-suite executives and major law firms engage with the Department.”4 Consistent with that messaging, in a March 2018 speech, the Acting Assistant Attorney General of the Criminal Division, John P. Cronan, announced that the FCPA Corporate Enforcement Policy would be “nonbinding guidance” in all criminal cases, not just FCPA cases.5
Cooperation credit in FCA matters before the May 2019 guidance
The FCA typically requires defendants to pay three times the damages the government sustained as a result of false claims.6 However, absent a trial, treble damages are rare. The FCA statute itself allows for double damages when a violator timely self-discloses and fully cooperates.7 It is also not unusual that, even when there has been no self-disclosure and varying degrees of cooperation, an agreed-upon settlement will amount to double damages.
Prior to the May 2019 guidance, the DOJ provided little guidance on how to earn cooperation credit in FCA cases. In the September 9, 2015 Yates Memorandum on individual culpability, then-Deputy Attorney General stated that, in the FCA context, “[t]o be eligible for any cooperation credit, corporations must provide all relevant facts about the individuals involved in corporate misconduct.” Her successor, Rosenstein, subsequently recognized the need for more discretion in FCA actions, stating on November 29, 2018, “[w]hen criminal liability is not at issue, our attorneys need flexibility to accept settlements that remedy the harm and deter future violations, so they can move on to other important cases.”8 While recognizing the need for flexibility, Rosenstein’s statement did little to clarify the actual benefits of cooperation in the FCA context.
May 7, 2019 FCA cooperation credit guidance
On May 7, 2019, the Civil Division released cooperation credit guidance for FCA cases that echoed the Criminal Division policies and, ostensibly, the flexibility Rosenstein noted in his public comments. The guidance provides that the DOJ will award credit for defendants for “voluntarily disclosing misconduct unknown to the government, cooperating in an ongoing investigation, or undertaking remedial measures in response to a violation.” As to selfdisclosure and cooperation, the guidance both identifies factors that should be considered by government counsel and preserves prosecutorial discretion: “(1) the timeliness and voluntariness of the assistance; (2) the truthfulness, completeness, and reliability of any information or testimony provided; (3) the nature and extent of the assistance; and (4) the significance and usefulness of the cooperation to the government.”9
reduction to the damages multiplier applied to any settlement. The DOJ may also publicly acknowledge a company’s cooperation and notify relevant agencies so that the cooperation may be taken into account when applying administrative remedies.10 Even if the multiplier is reduced, however, the government must still receive the full actual damages, as well as lost interest, costs of the investigation, and the relator’s share. These additional costs are significant and, when added to the base damages figures, may already reflect a significant multiplier.11
Open questions regarding FCA cooperation credit
In most settled FCA cases, defendants attempt to cooperate and often remediate. The real question then is what benefit, if any, a company gains by selfdisclosing. While the FCPA Corporate Enforcement Policy provides for declination or up to a 50% reduction in penalties if a company self-discloses, cooperates and remediates, the recent FCA guidance offers little concrete benefit for a self-disclosure. Putting aside the lack of certainty in the level of reduced multiplier, the Civil Division is also unwilling to provide declinations to FCA defendants in exchange for self-disclosure. In the government’s view, regardless of who brought the matter to its attention, it is entitled to recover single damages (i.e., actual government overpayment), interest, and several additional costs and expenses. Therefore, the policy’s maximum benefit provides for a reduced multiplier that will not reduce these inclusive costs/expenses. The resulting damages, costs and expenses may collectively reflect a multiplier that is not significantly below the double damages amount defendants commonly pay in settled FCA cases.
Given the four factors defining voluntary disclosure and cooperation, awarding any credit under the FCA guidance is also highly discretionary. For example, it is unclear what constitutes a “timely” disclosure. Since it takes time to conduct an internal investigation and determine whether a self-disclosure is appropriate, companies will lag in engaging the DOJ. Will a disclosure made after a qui tam complaint has been filed qualify as “timely”? As the first to file bar incentivizes relators to bring qui tam actions as quickly as possible, relators often bring qui tam actions at the same time they raise concerns internally.12 Because of this “race against the clock,” one could argue that cooperation and remediation, rather than disclosure, should be given a heavier weight in the FCA context than in the FCPA or other criminal contexts.
It is possible, of course, that over time and as the guidance is implemented, a clearer picture will emerge as to substantive benefits of cooperation. For now, though, the ambiguity and discretion inherent in the FCA policy makes it a more uncertain, and thus less attractive, proposition for corporations.
References
1. United States Dep’t of Justice, Criminal Division Launches New FCPA Pilot Program (April 5 2016), https://www.justice.gov/archives/opa/blog/criminal-divisionlaunches- new-fcpa-pilot-program.
2. Rod Rosenstein, United States Dep’t of Justice Deputy Attorney General, Remarks at the 34th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2017), https://www.justice.gov/opa/speech/deputy-attorney-general-rosensteindelivers- remarks-34th-international-conference-foreign.
3. United States Dep’t of Justice, Justice Manual, 9-47.120 – FCPA Corporate Enforcement Policy, https://www.justice.gov/jm/jm-9-47000-foreign-corruptpractices- act-1977#9-47.120
4. Rod Rosenstein, United States Dep’t of Justice Deputy Attorney General, NYU Program on Corporate Compliance and Enforcement Keynote Address (Oct. 6, 2017), https://wp.nyu.edu/compliance_enforcement/2017/10/06/nyu-program-oncorporate- compliance-enforcement-keynote-address-october-6-2017/.
5. John P. Cronan, United States Dep’t of Justice Principal Deputy Assistant Attorney General, Criminal Division, Remarks at the Latin Lawyer/Global Investigations Review Anti-Corruption and Investigations Conference (Oct. 18, 2018), https://www.justice. gov/opa/speech/principal-deputy-assistant-attorney-general-john-p-cronan-justicedepartment- s-criminal-0.
6. 31 USC § 3729(a)(1).
7. 31 USC § 3729 (a)(2).
8. Rod Rosenstein, United States Dep’t of Justice Deputy Attorney General, Remarks at American Conference Institute’s 35th International Conference on Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorneygeneral- rod-j-rosenstein-delivers-remarks-american-conference-institute-0.
9. Justice Manual, 4-4.112 – Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters, https://www.justice.gov/jm/ jm-4-4000commercial-litigation#4-4.112.
10. United States Dept. of Justice, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (May 7, 2019), https://www.justice. gov/opa/pr/department-justice-issues-guidance-false-claims-act-matters-andupdates- justice-manual.
11. For example, if just the relator’s share is added on top of single damages, that would add anywhere from 15-25% to the single damages figure, reflecting a 1.15 to 1.25 multiplier (before any other costs are added).
12. 31 U.S.C. § 3730(b)(5).