New DOJ Whistleblower Rewards Policy Has Lawyers Gearing Up

The Justice Department’s upcoming program to reward whistleblowers is poised to instantly generate corporate crime tips from insiders even before policy details are known.

In the few days since department leaders announced the launch of a 90-day process to determine how it will formally start paying for leads, lawyers for whistleblowers and companies are gearing up.

They’re working to shape DOJ’s drafting by flagging concerns, considering which clients may qualify for awards, and warning companies of the need to shore up compliance procedures or possibly self-disclose before whistleblowers act.

“If what DOJ is really looking for is information from potential whistleblowers, it does not need to provide all the details before whistleblowers will start to come forward,” said Caleb Hayes-Deats, a MoloLamken partner who represents both whistleblowers and companies. “Just announcing the program itself is probably going to trigger whistleblower tips.”

Whistleblower attorneys said they’re considering presenting allegations that may not be covered by whistleblower programs run by the Securities and Exchange Commission, Treasury Department, and other agencies. Those are the types of gaps Deputy Attorney General Lisa Monaco said March 7 the initiative intends to fill when it goes live later this year.

By publicizing the policy at a preliminary stage, the department invited a range of external critiques, while former prosecutors expect internal pushback over the burdens of admitting evidence from witnesses with questionable incentives. DOJ will now meet with stakeholders as it crafts details on eligibility, funding, and other questions.

White-collar defense lawyers are starting to highlight for companies how DOJ’s offer to pay whistleblowers may present another motivating factor to self-disclose wrongdoing first. The new program will only reward whistleblowers who provide information previously unknown to the government.

Filling Gaps

Erika Kelton, a partner with whistleblower firm Phillips & Cohen, said she’s reviewing a client’s allegations of Foreign Corrupt Practices Act violations that appear to partly fall outside SEC authority. “This is a very significant corruption case, so you bet I am going to think about taking that to DOJ,” Kelton added.

Monaco said the program will be limited to individuals who weren’t involved in the criminal activity and aren’t financially incentivized to speak up through other whistleblower programs. Until those guardrails are clarified private attorneys see opportunities to at least discuss a client’s potential eligibility for the program with DOJ prosecutors.

“I would hope that their attorneys would be having those conversations with DOJ and feeling them out on what that might look like,” said Jacklyn DeMar, president of whistleblower nonprofit The Anti-Fraud Coalition. “The point is for people to come forward timely and report fraud. You would hope that DOJ would recognize that” and “wouldn’t then punish whistleblowers from coming forward early.”

Hayes-Deats, a former assistant US attorney in Manhattan, also anticipates news of the policy will present an avenue for whistleblower lawyers as part of ongoing discussions with prosecutors about investigations, such as those that originated as disclosures to the SEC or Treasury.

“Any whistleblower counsel who is currently dealing with DOJ should absolutely have a discussion with DOJ attorneys about how the new programs might apply,” he said.

Company Advice

Defense lawyers say it’ll be tough to predict how much of an impact the policy will have in convincing companies to voluntarily report misconduct—often a costly proposition. At a minimum, it reinforces their message about investing in internal systems to prevent and detect misconduct.

“We’ve been notifying clients about this new development and we’ll be working with them to help tighten up their compliance programs,” said Zane Memeger, a Morgan Lewis partner and former US attorney in Philadelphia.

That will entail a look at how the company reviews and acts upon whistleblower complaints lodged internally through supervisors or on hotlines, or learned about on social media, Memeger said.

Companies will need to drill deeper in tracking “complaints that are coming in, the outcomes, the amount of time that they’re taking,” said Preston Pugh, a partner at Crowell & Moring. “Are employees reluctant to use your internal channels? Have any voiced a fear of retaliation? If so, is that concentrated in a certain business unit?”

Once they’ve uncovered potential violations, such as through an internal investigation, outside counsel routinely speak with clients about the odds of an employee blowing the whistle. Now, they’ll be inclined to discuss the DOJ program’s implications with privately-held companies, since the department indicated interest in attracting overseas bribery tips involving companies that aren’t publicly traded and regulated by the SEC.

“The fact that the landscape has broadened in terms of companies and people that can be a viable whistleblower” and that DOJ would start a case without the SEC, will “lead to those discussions happening with companies that were not issuers, that were not publicly traded,” said Fry Wernick, a former DOJ fraud section supervisor who’s now a partner with Vinson & Elkins.

Influencing DOJ

The defense and whistleblower bars have started formulating a list of priorities, signaling thorny areas DOJ policymakers will likely have to consider.

DeMar, of The Anti-Fraud Coalition, said whistleblower lawyers hope to raise the importance of “designating a specific office that is devoted to this whistleblower program” and “hiring someone to run it so that it’s contained and controlled in one location, and that the decision to grant an award is not up to the hundreds of different DOJ attorneys working on these cases.”

Establishing minimum guaranteed payments for individuals will also be essential if the department wants to convince people to speak up about corruption in dangerous parts of the world where their lives could be imperiled, she said.

“If they’re willing to put themselves out there, there has to be some sort of guaranteed minimum that they can expect,” DeMar added.

The policy guidelines will also present an opportunity for DOJ to renew its recent emphasis on encouraging companies to self-disclose, not just employees, said Megan Mocho, a partner with Holland & Knight.

“It would make sense for any future policy to recognize a whistleblower’s opportunity to first report internally and the department’s desire for companies to self-disclose,” said Mocho, who co-chairs her firm’s white collar practice.

Perhaps the most contentious of issues likely to come up is how prosecutors can make criminal cases based on witnesses who’ve had a bounty put out for their evidence.

“There’s a reason that whistleblowers have not been a part of the fabric of criminal investigations and prosecutions before now,” Wernick said. “It’s been very difficult to think of a way to bring a case where witnesses would not be so compromised by the potential that they would be subject to such a large recovery. It makes them unusable.”