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INSIGHT: Updated DOJ Guidance Should Spark Whistleblower Compliance Check Up

Aug. 27, 2019, 8:00 AM

Companies should take a fresh look at their whistleblower procedures in light of updated guidance from the Department of Justice on how prosecutors should assess corporate compliance programs when making charging decisions.

Announced at the end of April by Assistant Attorney General Brian Benczkowski, the updated version of the Department of Justice, Criminal Division’s Evaluation of Corporate Compliance Programs (the Updated Guidance) emphasizes the importance of “an efficient and trusted mechanism by which employees can anonymously or confidentially report allegations of a breach of the company’s code of conduct, company policies, or suspected or actual misconduct.”

In particular, the Updated Guidance urges prosecutors to assess a company’s:

  • Processes for the submission of whistleblower complaints;
  • Complaint-handling policies and procedures, including whether there are proactive measures to create a workplace atmosphere without fear of retaliation;
  • Protections for whistleblowers; and
  • Processes for handling investigation of whistleblower complaints, including routing them to proper personnel, the timely completion of thorough investigations, and appropriate follow-up and discipline.

Although drafted for prosecutors, the Updated Guidance provides compliance professionals and in-house counsel with an effective roadmap for evaluating corporate whistleblower complaints.

The focus on companies’ whistleblower policies and procedures by the DOJ resembles a similar focus by the Securities & Exchange Commission, which brought its first stand alone enforcement action for alleged whistleblower retaliation in 2016.

The SEC has brought several other enforcement actions for improper whistleblower interference and retaliation.

In addition to enforcement by the SEC, Dodd-Frank provides whistleblowers with a private cause of action in the event they are discriminated against or discharged by their employers for protected whistleblowing activity. (See 15 U.S.C. 78u-6(h).)

The SEC has stated repeatedly that whistleblowers have become an increasingly vital resource to the agency’s investigative efforts as demonstrated by the SEC’s massive whistleblower awards in recent years.

Most recently, on March 26, the SEC announced awards totaling $50 million to two whistleblowers whose information assisted the agency in bringing an enforcement action against JP Morgan Chase & Co. in 2015. The order stipulated that one whistleblower was to receive $37 million and the other $13 million. The $37 million award is the SEC’s third-highest award to date following a $50 million award in March 2018 to joint whistleblowers and a $39 million award announced in September 2018.

Section 922 of Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) makes such generous whistleblower bounties a reality by providing that the SEC shall pay awards to eligible whistleblowers who voluntarily provide original information leading to a successful enforcement action yielding monetary sanctions of over one million dollars. (15 U.S.C. 78u-6(b); 17 C.F.R. §21F-3 et seq.).

As Jane Norberg, chief of the SEC’s Office of the Whistleblower, noted when announcing the combined $50 million award in March, “Whistleblowers like those being awarded today may be the source of ‘smoking gun’ evidence and indispensable assistance that strengthens the agency’s ability to protect investors and the capital markets. These awards show how critically important whistleblowers can be to the agency’s investigation and ability to bring a case to successful and efficient resolution.”

Corporate Whistleblower Compliance Check Up

In its Updated Guidance, the DOJ re-emphasizes past guidance regarding the importance of “established corporate governance mechanisms that can effectively detect and prevent misconduct.” (Justice Manual 9-28.800; see also U.S.S.G. § 8B2.1(b)(5)(C)).

The Updated Guidance highlights four factors for prosecutors to consider in evaluating corporate compliance programs: (1) effectiveness of the reporting mechanism; (2) properly scoped investigations by qualified personnel; (3) investigation response; and (4) resources and tracking of results. We offer insights on each of those four factors below.

How effective is the company’s reporting mechanism?

Prosecutors will assess the data surrounding the company’s reporting mechanism, including its frequency of use, in order to evaluate its effectiveness. A reporting mechanism is futile if employees are unaware of its existence, and prosecutors will probe employee awareness of the reporting protocol. Correspondingly, it is important for the compliance function to have access to the hotline complaints and reports in order to be able act on specific allegations.

Is the company conducting properly scoped investigations by qualified personnel?

Prosecutors will evaluate how the company determines which whistleblower complaints merit further investigation, who conducts those investigations, and the proper scope of those investigations. The DOJ will further consider steps the company takes to ensure investigations are independent, objective, appropriately conducted, and documented.

How timely and effective is the company’s investigation response?

Prosecutors will consider whether the company is using timing metrics to ensure that the company is being responsive to complaints. Prosecutors will also assess whether the company has a process for monitoring the outcome of investigations and ensuring accountability for the response to any findings or recommendations.

How strong are the company’s resources, and procedures for tracking results?

Prosecutors will observe whether the company’s reporting and investigation functions are sufficiently funded, and whether the company collects, tracks, and analyzes complaints and the company’s response. On an aggregate level, a thorough and periodic analysis of the investigation findings for patterns of misconduct is central to identifying any systematic compliance weaknesses.

What Is Next for Companies?

Companies should use the DOJ’s evaluation criteria as further guidance for strengthening their whistleblower and internal investigation-related compliance programs. Effective receipt and investigation of whistleblower complaints are essential to any effective compliance regime, and a program that emphasizes internal reporting and has zero tolerance for retaliation against whistleblowers is of paramount importance.

A well-functioning internal reporting mechanism can serve two related compliance goals. First, it allows a company to be alerted to potential wrongdoing and take action promptly, potentially without any regulator involvement. Second, as the Updated Guidance indicates, an effective reporting mechanism is part of an overall compliance regime that regulators will look for in the event that wrongdoing has occurred.

To the extent that the company effectively addressed a whistleblower complaint internally through its compliance program, those actions should weigh in the company’s favor as prosecutors contemplate what, if any, charges to bring.

As whistleblower awards and publicity continue to increase, we expect more whistleblowers to come forward both internally and to the government. Having a robust internal reporting mechanism can help thwart compliance issues early on—ideally before regulator involvement.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Arian M. June is a litigation partner based in the Debevoise & Plimpton LLP’s Washington, D.C., office and is a member of the White Collar & Regulatory Defense Group. Her practice focuses on securities enforcement defense, internal investigations, whistleblower response, sensitive investigations and white collar criminal defense.

Ryan M. Kusmin is a member of the Debevoise & Plimpton LLP’s Litigation Department based in the Washington, D.C., office. His practice focuses on government and internal investigations, SEC enforcement defense, and related compliance matters, as well as securities and white collar litigation.

The authors would like to thank Michael Geraltowski for his research and contributions to this article.