DOJ Unveils Guidelines for Obtaining Cooperation Credit in False Claims Act Cases
Last week the U.S. Department of Justice (DOJ) issued a policy providing companies the opportunity to receive credit for cooperating in a False Claims Act (FCA) investigation. Published in DOJ's "Justice Manual," the guidance states that to receive credit companies must: (1) timely self-disclose to the government misconduct that could serve as the basis for FCA liability; (2) fully cooperate with the government's investigation; and (3) take appropriate remedial action. At last week's Annual National Institute on Health Care Fraud, DOJ officials (speaking on their own behalf, not for the government) emphasized their understanding that the policy was intended to motivate companies to engage in more proactive, as opposed to reactive, dialogue with the government on potential violations. Companies should be aware, however, that the published guidance contains many caveats, so its application in a particular case will require careful analysis.
Voluntary Self-Disclosure. The policy's discussion of what constitutes voluntary disclosure is brief. In essence, the government wants companies to proactively and timely notify DOJ about "previously unknown false claims." DOJ is also interested in learning about any additional misconduct that is uncovered during a corporate internal investigation into the government's concerns. Notably, the new guidelines do not change a company's preexisting self-reporting obligations, such as the mandatory disclosure rule that applies to government contractors under the Federal Acquisition Regulation. And credit does not depend on waiver of the attorney-client privilege or work product protection.
Other Forms of Cooperation. Because there are myriad ways in which FCA issues arise, the policy does not set out an exhaustive list of activities that constitute cooperation. DOJ instead provides examples of activities "that will be taken into account" when determining whether and how much cooperation credit a company should receive. Those activities include:
- Identifying individuals substantially involved in or responsible for the misconduct, as well as individuals who are "aware of relevant information or conduct";
- Disclosing relevant facts not otherwise known to the government, including those learned during the company's internal investigation (with attribution of facts to specific sources rather than a general narrative, timely updates on the company's investigation, and rolling disclosures of relevant information);
- Making corporate officers and employees with relevant knowledge available for interviews;
- Preserving, collecting, and disclosing relevant documents, as well as information relating to the documents' provenance "beyond existing business practices or legal requirements";
- Providing facts relevant to potential misconduct by third parties;
- "Admitting liability or accepting responsibility for the wrongdoing or relevant conduct"; and
- Assisting in determining or recovering the losses caused by the company's misconduct.
Remedial Measures. DOJ also wants companies to take "remedial steps designed to prevent and detect similar wrongdoing in the future." Such actions might include:
- Thoroughly analyzing the cause of the underlying conduct;
- Implementing or improving an effective compliance program;
- "[A]ppropriately disciplining or replacing those identified by the entity as responsible for the misconduct either through direct participation or failure in oversight, as well as those with supervisory authority over the area where the misconduct occurred"; and
- Other steps demonstrating that the company understands the seriousness of its misconduct and accepts responsibility for it, and that the company has implemented appropriate risk-based controls.
The Benefits of Cooperation
Satisfying the policy's factors does not necessarily earn a company a free pass. According to the policy, "[t]he maximum credit that a defendant may earn may not exceed an amount that would result in the government receiving less than full compensation for the losses caused by the defendant's misconduct (including the government's damages, lost interest, costs of investigation, and relator's share)." In other words, a company that timely self-discloses, fully cooperates with the government's investigation, and takes appropriate remedial action could be liable as a "defendant" and remain on the hook for damages it caused—along with interest and other potentially considerable costs.
Aside from reducing a company's financial liability, which the policy indicates will be the path most often taken by DOJ, the agency will also in "appropriate circumstances" consider "additional avenues" to recognize a company's cooperation. Those include:
- Notifying a relevant agency about the company's compliance with the FCA policy so that the agency may, in its discretion, consider those factors "in evaluating its administrative options, such as suspension, debarment, exclusion, or civil monetary penalty decisions";
- Publicly acknowledging the company's disclosure, other cooperation, or remediation; and
- Assisting the company in resolving qui tam litigation initiated by a relator.
Even so, the policy does not explain how a company qualifies for the maximum benefit (or "partial credit" or the "additional avenues" listed above). To the contrary, the policy makes clear that even if a company satisfies all of the factors, nothing is guaranteed—because "the value of credit awarded to an entity or individual will vary depending on the facts and circumstances of each case."
This is the point at which the FCA policy diverges most significantly from DOJ's cooperation policies under other statutes. For example, both the FCA policy and the Foreign Corrupt Practices Act (FCPA) Corporate Enforcement Policy require voluntary self-disclosure, full cooperation, and timely and appropriate remediation. But, absent aggravating factors, a company that lives up to its end of the bargain in an FCPA case is entitled to a presumption that DOJ will decline to prosecute it. Under the FCA policy, there is no such presumption. Instead, in assessing the value of a company's voluntary disclosure or other cooperation, DOJ will consider the timeliness and voluntariness of the company's assistance, the "truthfulness, completeness, and reliability of any information or testimony provided," the nature and extent of the company's assistance, and "the significance and usefulness of the cooperation to the government."
Considerations Going Forward
The new FCA policy reflects a broader effort by DOJ to incentivize companies to cooperate in agency investigations. For almost two decades, certain incentives have been incorporated into the DOJ's approach to corporate criminal matters. Aside from those general principles, DOJ also has a corporate amnesty program specific to criminal antitrust cases as well as its corporate enforcement policy tied to FCPA investigations.
But only much more recently has attention shifted to formalizing the benefits of cooperation in civil cases. In September 2015, then-Deputy Attorney General Sally Yates published her memorandum addressing "Individual Accountability for Corporate Wrongdoing." The so-called "Yates memo" stated that companies hoping to qualify for cooperation credit were required to provide DOJ with all relevant facts relating to individuals responsible for misconduct—including in civil corporate matters.
Although the FCA includes a statutory provision addressing cooperation (31 U.S.C. § 3729(a)(2)), those factors are applied by the federal courts when assessing damages against a defendant. With the newly announced FCA policy, DOJ is not only adding to its stable of statute-specific corporate cooperation programs, but also providing affirmative guidance on civil enforcement matters outside the purview of the courts.
That guidance reflects several common-sense actions that companies should undertake when they discover misconduct that could serve as the basis for a False Claims Act allegation, regardless of whether the company ultimately seeks cooperation credit from DOJ under the new policy:
- Initiate an internal investigation that is sufficiently thorough to enable the company to timely disclose to the government any previously unknown false claims, the identity of potentially culpable company employees or third parties, and relevant documents;
- Carefully analyze the cause of the underlying conduct to inform any potential remediation; and
- Review the relevant aspects of the company's compliance program and implement necessary risk-based controls.
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