Announcement of new DOJ Whistleblower Policy

While the DOJ intends to provide details of its new program over the next 90 days, the Deputy Attorney General explained that this incentive program will be paid to whistleblowers who:

• are the first to report truthful information not already known to the government
• are not involved in the criminal activity itself
• report criminal activity that is not covered by an existing federal program
• and only after all victims have been properly compensated.

The DOJ has emphasized that while the program will be open to those reporting information concerning any violation of federal law that is not already covered by a whistleblowing program, the DOJ is hoping to attract whistleblowers concerning criminal abuses in the financial system, foreign corruption cases outside the jurisdiction of the SEC, including Foreign Corrupt Practices Act violations by non-issuers and violations of the recently enacted Foreign Extortion Prevention Act, and domestic bribery, especially involving illegal corporate payments to government officials. The focus on bribery, whether the conduct is domestic or foreign, is a continuation of the Biden administration’s focus on eradicating bribery, as a “national security” interest.  In her remarks, Deputy Attorney General Monaco provided two examples of potential whistleblowers under this new regime. First, a whistleblower from a private startup who discovers that the company is paying bribes for regulatory approvals and obscuring the books to mask the payments. Second, an employee at a private equity firm that discovers that their CFO is forging documents to obtain loan approvals.

This whistleblower pilot program follows on the DOJ’s recent efforts to increase incentives for companies to voluntarily self-disclose corporate misconduct with a goal of obtaining some leniency in the outcome or penalty. Also, the U.S. Attorney’s Offices in the Southern District of New York and the Northern District of California announced their own pilot whistleblower programs in recent months.

If the DOJ approves an incentives payment regime similar to existing federal programs, whistleblowers who qualify can expect to receive a potentially lucrative payout. The ranges of payouts under existing programs span from 10% to 30% of the funds recovered and have resulted in hundreds of millions of dollars in bounties.

Building on the Deputy Attorney General’s announcement, on March 8, 2024, Acting Assistant Attorney General Nicle M. Argentieri announced that the DOJ’s Money Laundering and Asset Recovery Section (MLARS) “will be at the forefront” of this new pilot program. Acting Assistant AG Argentieri explained that MLARS will be working closely with US Attorneys, the FBI, and other DOJ Offices to develop the guidelines for the DOJ pilot program given that the statutory authority under 28 U.S.C. § 524 is tied to the DOJ’s forfeiture program and MLARS has invoked this authority sporadically, “but never as a part of a targeted program.”

Existing federal whistleblowing incentive programs

Under existing federal law, the SEC, CFTC, IRS, and FinCEN have whistleblowing programs provided by statute and regulations, covering laws under their respective jurisdictions. In addition, private parties who report fraud against the Government, such as Medicare, Medicaid, or government contracts, can proceed under the qui tam framework.

SEC whistleblower program

• The SEC’s whistleblowing program allows individuals to report information about violations of the federal securities laws or the SEC’s rules or regulations, such as fraud, insider trading, market manipulation, accounting irregularities, and foreign corrupt practices involving public issuers. The program is widely used as the SEC received over 18,000 whistleblower complaints in FY 2023 alone.
• The program provides for anti-retaliation protections for whistleblowers, including the right to sue employers for adverse actions and to report anonymously through an attorney.
• Under the SEC’s program, whistleblowers may receive monetary awards ranging from 10% to 30% of the monetary sanctions collected by the SEC or related actions by other authorities. The sanctions must exceed USD1m and the information has to be original, voluntary, and significant. In recent years, whistleblowers have received significant awards, including a $279 million award in May 2022, a $114 million award in October 2022, and a USD110m, award in September 2022.
• While FCPA tips tend to be a small number relative to the pool of whistleblower tips, the number of tips that come from foreign countries continues to increase, in total number, as do the number of countries from where those tips originate.

CFTC whistleblower program

• The CFTC’s whistleblowing program allows individuals to submit information about violations of the Commodity Exchange Act or the CFTC’s rules or regulations, such as fraud, manipulation, or insider trading in the derivatives markets. The CFTC received a record total of 1,530 tips in FY 2023.
• The CFTC’s program provides anti-retaliation protections for whistleblowers, including the right to sue employers for adverse actions and to report anonymously through an attorney.
• The CFTC’s monetary awards range from 10% to 30% of the monetary sanctions collected by the CFTC or related actions by other authorities, if the sanctions exceed USD1m and the information is original, voluntary, and significant.

IRS whistleblower program

• The IRS’s whistleblower program allows individuals to submit information about violations of the internal revenue laws or related laws, such as tax evasion, fraud, or the under-reporting of income or assets. In FY 2022, the IRS received 5,084 submission and paid whistleblowers 132 awards totaling USD378m from proceeds collected of USD172m.
• The IRS’s whistleblower program provides for limited anti-retaliation protections, such as the right to sue employers for adverse actions under certain conditions and to request confidentiality from the IRS.
• Under the IRS’s whistleblower program, individuals who file successful reports can receive monetary awards based on two categories: (1) awards of 15% to 30% of the collected proceeds, if the tax, penalties, and interest in dispute exceed USD2m or the taxpayer is an individual with gross income over USD200,000 per annum; or (2) awards of up to 15% of the collected proceeds, capped at USD10m, for other cases. 

FinCEN whistleblower program

• The Department of Treasury, Bureau of Financial Crimes Enforcement Network (FinCEN)’s whistleblower program allows individuals to report information about violations of the Bank Secrecy Act or related laws or regulations, such as money laundering, terrorist financing, sanctions evasion, or evasion of reporting or recordkeeping requirements. FinCEN’s program is a recent addition, and in FY 2023 received over 100 tips, resulting in a single referral for further prosecution.
• FinCEN’s program also provides anti-retaliation protections for whistleblowers, including the right to sue employers for adverse actions and to report anonymously through an attorney.
• Successful whistleblowers under FinCEN’s Program can receive monetary awards ranging from 10% to 30% of the monetary sanctions collected by FinCEN or related actions by other authorities, if the sanctions exceed USD1m and the information is original, voluntary, and significant.

False Claims Act – Qui Tam actions

• The False Claims Act (FCA) imposes civil liability on any person who knowingly submits or causes to be submitted a false or fraudulent claim for payment or approval to the government, or who knowingly makes or uses a false record or statement material to such a claim, or who conspires to do so. The FCA is enforced by the DOJ and its Civil Division, as well as by various U.S. Attorneys’ Offices and other federal agencies and provides for treble damages and civil penalties of up to USD23,331 per claim for violations.
• For whistleblowing, the FCA authorizes private citizens, known as relators, to file qui tam lawsuits on behalf of the government and themselves against the alleged fraudsters. The relators must have direct and independent knowledge of the fraud and must be the first to voluntarily disclose it to the government before filing suit. The relators must file their complaints under seal in a federal district court and serve a copy of the complaint and any supporting evidence on the Attorney General and the local U.S. Attorney. The government then has 60 days to investigate the allegations and decide whether to intervene and take over the prosecution of the case, or to decline and allow the relator to proceed on their own. Relators also enjoy statutory protections from retaliation.
• If the government intervenes, it has the primary responsibility for litigating the case and may settle or dismiss it over the relator’s objections, subject to judicial review. The relator is entitled to receive 15% to 25% of the proceeds of the action or settlement, including reasonable attorneys’ fees and costs, depending on their contribution to the case and the extent of their involvement in the fraud.
• If the government declines to intervene, the relator has the right to conduct the action and may settle or dismiss it with the government’s consent. The relator is entitled to receive 25% to 30% of the proceeds of the action or settlement, plus reasonable attorneys’ fees and costs.

Goals and Incentives of the Pilot Program

The DOJ hopes that its new policies will encourage whistleblowers to step forward, and from some of the recent successes with the SEC and CFTC programs, in particular, this may well spur new enforcement actions. The SEC, for example, received more than 18,000 whistleblowing tips in FY 2023, over a 50% increase from the 12,300 tips received in FY 2022. While there was a decline from FY 2022, the SEC whistleblower program still awarded nearly USD600m during FY 2023, with a record award of USD279m to a single whistleblower in May 2023. In that case, the SEC was able to reach a USD1.1b settlement with a Swedish telecommunications company arising out of a bribery case, where the company purportedly secured USD427m worth of contracts from foreign governments such as China, Vietnam, Kuwait and Indonesia from 2000 to 2016.

On the other hand, there are potential risks for whistleblowers under the proposed new DOJ pilot program. Any involvement in the problematic conduct by would-be whistleblowers will render them ineligible for recovery and expose them to possible prosecution. And, as in the case with the SEC and CFTC programs, payouts for those eligible are not guaranteed, and even when they do occur, it can take years between the reporting of information to the DOJ and a payout. And here, there could be even longer delays as there are no dedicated funds to underpin this program, which may lengthen the delay between the initial report and the award. Further, anonymity to reporters cannot be guaranteed due to the procedural rights of defendants under the applicable rules of procedure and the Sixth Amendment. While this concern exists across the other regimes, it may be more pronounced under the DOJ’s proposed pilot program because the reporter does not have the explicit protection of any specific anti-retaliation laws.

On balance, privately held companies, such as private equity firms or tech startups that do not often face the federal government in their business dealings, should take particular note of the DOJ’s announcement. Developing and strengthening internal compliance and audit programs will be essential for these companies to detect fraud before any action by a would-be whistleblower, enabling the company to potentially take advantage of existing corporate incentive programs.