On May 7 the Department of Justice (DOJ) released long awaited guidance on how it will evaluate and credit self-disclosures and cooperation in False Claims Act (FCA) cases.
The new guidelines, codified in the DOJ’s Justice Manual, is the department’s latest attempt to drive consistency in its handling of FCA matters. It follows recent updates to the Justice Manual memorializing 2018’s “Granston Memo” (encouraging DOJ attorneys to dismiss meritless qui tam complaints) and “Brand Memo” (limiting the use of agency guidance in affirmative civil enforcement cases), and November 2018 changes to the “Yates Memo” approach on the pursuit of individuals in civil investigations.
Recognizing that the government has a “strong interest in incentivizing companies and individuals” to self-report misconduct, the DOJ announced it would give “credit” to defendants who self-disclose, cooperate, and remediate.
“Credit” will most often take the form of reduced penalties or a lower damages multiplier in FCA settlements but may also include public acknowledgement of a defendant’s self-disclosure and cooperation or assistance in the resolution of qui tam litigation with relators.
To receive “maximum credit,” a defendant must:
- Self-Disclose: Voluntarily self-disclosure misconduct that could violate the FCA;
- Cooperate: Fully cooperate with the government’s investigation; and
- Remediate: Take remedial steps designed to prevent and detect similar wrongdoing in the future.
Defendants may receive partial credit if they have “meaningfully assisted” the government’s investigation, even if they do not qualify for “maximum credit” because they failed to self-disclose the underlying conduct prior to the onset of a government investigation.
Self-Disclosures & Cooperation
Self-disclosures should be “proactive, timely, and voluntary” and identify “all individuals substantially involved in or responsible for the misconduct.” If an entity fails to self-disclose misconduct before a government investigation, they may still obtain self-disclosure credit, and potentially qualify for “maximum credit,” if they voluntarily self-disclose additional misconduct “beyond the scope of the known concerns.”
In addition to self-disclosures, a company can earn cooperation credit by “taking active steps to cooperate with an ongoing government investigation.” Cooperation does not include merely responding to a subpoena or other government demand for information, nor will the government credit a defendant who only discloses information once it is under imminent threat of discovery.
Actions that would qualify for cooperation credit include:
- identifying individuals “substantially involved” in or responsible for the misconduct;
- disclosing relevant facts and identifying opportunities for the DOJ to obtain evidence not in the defendant’s possession and not already known to the government;
- preserving, collecting, and disclosing relevant documents and information;
- identifying individuals who are aware of relevant information;
- making company officers and employees available for interviews;
- disclosing facts uncovered during a defendant’s internal investigation;
- providing facts relevant to misconduct by third-parties;
- giving technological expertise and assistance to the government in their review of relevant information;
- admitting liability or accepting responsibility for the wrongdoing; and
- assisting in the determination or recovery of damages.
The guidelines emphasize the need for companies to disclose wrongdoing by high-level individuals, noting that the DOJ will not award any credit “to an entity or individual that conceals involvement in the misconduct by members of senior management or the board of directors.”
Importantly, defendants are not required to waive the attorney-client privilege or work-product protection to get cooperation credit.
When considering the value of self-disclosures and other cooperation, DOJ attorneys shall weigh the following factors:
- the timeliness and voluntariness of the assistance;
- the trustfulness, completeness and reliability of information provided;
- the nature and extent of the assistance; and
- the significance and usefulness of the cooperation.
Government lawyers will also consider whether defendants have taken appropriate “remedial actions,” including:
- A root cause analysis of the underlying conduct;
- Implementing or improving an effective compliance program;
- Disciplining responsible employees, including supervisors who failed to provide adequate oversight; and
- “Any additional steps” that demonstrate that a defendant recognizes the seriousness of the misconduct and accepts responsibility for it.
While this new guidance still leaves many questions, it formalizes the approach the DOJ has taken on these cases for years and provides defendants with a roadmap to reduce their financial exposure in these high-profile, high-risk matters.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Richard (Rick) Hosley, a partner in Perkins Coie’s White Collar & Investigations Practice, served as an assistant U.S. Attorney and chief of major crimes for the Denver U.S. Attorney’s Office, as well as associate general counsel, chief litigation counsel, and head of investigations for a publicly-traded, Fortune 200 health-care company.
Chandra K. Westergaard, a senior counsel in Perkins Coie’s White Collar & Investigations Practice, was assistant general counsel and head of investigations for a publicly-traded, Fortune 200 health-care company.