This week, the Department of Justice (“DOJ”) released formal guidelines (“the Guidelines”) for awarding credit to entities that cooperate in False Claims Act (“FCA”) investigations. Frequently hinted at by DOJ officials in recent speeches and public statements, the Guidelines have been eagerly anticipated by practitioners in the FCA space.
Despite the build-up, the Guidelines are hardly revolutionary in many respects, as they largely memorialize existing discretionary practices for awarding cooperation credit that are well familiar to practitioners in the area. Nonetheless, the codification of the Guidelines in the Justice Manual may prove to be a significant development, especially if this more formal policy statement results in greater transparency and consistency in settlement discussions with DOJ. Unfortunately, the Guidelines leave unresolved certain key questions, and whether DOJ ultimately achieves its objective of promoting increased disclosure and cooperation will depend substantially on the manner in which the Guidelines are implemented.
Summary of DOJ Guidelines
The Guidelines outline three ways in which organizations facing potential FCA liability can earn cooperation credit: (1) voluntarily self-disclosing misconduct giving rise to FCA violations; (2) cooperating with existing government investigations; and (3) implementing meaningful remedial actions. Although these are traditional measures of cooperation, the Guidelines offer illustrative details about DOJ’s expectations with respect to each of these categories.
First, the Guidelines provide that entities “will receive credit” for providing a timely, voluntary self-disclosure to the government of misconduct leading to the submission of false claims. Additionally, even after a government investigation is underway, the guidelines recognize that voluntary disclosure of additional misconduct “will qualify the entity for credit.” As discussed further below, however, the Guidelines’ definitive statements about circumstances in which entities “will receive credit” are in tension with later statements in the same document that impose conditions on circumstances in which a disclosure might earn cooperation credit, particularly for government contractors subject to the Federal Acquisition Regulation.
Second, the Guidelines include an illustrative list of additional cooperative measures that may result in the receipt of cooperation credit. For example, organizations may obtain credit by:
- identifying individuals substantially involved in or responsible for the misconduct or who are aware of relevant information, such as policies, procedures, and operations;
- making key employees available for interviews, depositions, or other meetings during the investigation;
- preserving, compiling, and disclosing documents and information concerning their significance that goes beyond existing business practices or legal requirements;
- providing additional relevant facts, such as those related to potential misconduct by third parties, and relaying opportunities for the government to obtain further evidence that the organization does not itself possess or that the government does not already know;
- apprising the government of relevant facts obtained through the organization’s independent investigation and providing timely updates regarding that investigation, for example, through rolling admissions; or
- admitting liability or accepting responsibility for the misconduct.
Notably, however, the Guidelines provide that disclosure of information that is required by law—i.e., information submitted in response to a subpoena, investigative demand, or other compulsory disclosure or in response to a threat of imminent investigation—is not eligible for credit.
Third, appropriate remedial measures, such as the implementation or improvement of corporate compliance programs and the institution of disciplinary actions against individuals responsible for the misconduct, also may generate cooperation credit. Although the Guidelines do not expressly reference it, DOJ’s recently updated “Evaluation of Corporate Compliance Programs” presumably would inform any analysis of whether a compliance program is deserving of cooperation credit.
Not Groundbreaking. Much of the DOJ Guidelines address practices that already are common among companies facing the prospect of an FCA investigation. For example, companies often provide DOJ with relevant facts, results of internal investigations, and opportunities to interview witnesses. Likewise, through these disclosures or otherwise, companies often identify individuals involved in the alleged conduct, as well as individuals with relevant knowledge. Similarly, the Guidelines’ discussion of remedial measures also largely tracks existing practice. To address issues of potential exclusion, suspension, or debarment from federal programs or contracts, companies have long had a strong interest in implementing or improving compliance programs and in taking appropriate disciplinary actions against individuals involved in misconduct.
The Guidelines’ discussion of cooperation also tracks DOJ’s existing policy on individual accountability, as famously set forth in the 2015 Yates Memorandum and given a new gloss in revised guidance announced by then-Deputy Attorney General Rod Rosenstein last fall. The Guidelines’ requirement that organizations identify “individuals substantially involved” in misconduct to receive maximum credit reinforces DOJ’s revised policy on individual accountability, but it does not break new ground or alter expectations for earning cooperation credit.
Potential for Significant Reduction in Multiplier. One aspect of the Guidelines may break new ground, depending on how it is implemented in practice. The Guidelines provide that maximum cooperation credit “may not exceed an amount that would result in the government receiving less than full compensation” for its asserted losses caused by the organization. Thus, where a company demonstrates its full cooperation, the Guidelines suggest that the company’s liability may be limited to single damages—i.e., less than the double-damages multiplier the statute currently contemplates for cases involving self-disclosure. If DOJ in practice is willing to forgo application of any damages multiplier in exchange for a defendant’s cooperation, this would represent a significant and welcome change from current practice and would go a long way towards achieving DOJ’s goal of promoting self-disclosure and cooperation. However, this change almost certainly will place even greater emphasis on negotiations over how to calculate damages in the first instance. Additionally, while the prospect of a resolution with single damages may be enticing in the abstract, it remains to be seen whether the Guidelines provide a sufficiently concrete assurance to prompt companies to voluntarily inform the Government of hitherto undisclosed misconduct.
Key Questions Unresolved. The focus in the Guidelines on voluntary self-disclosure represents a more pronounced shift in practice, but the Guidelines leave significant questions unanswered on this subject. As the Guidelines recognize, DOJ has a “strong interest in incentivizing companies . . . to voluntarily disclose” misconduct, but the Guidelines’ discussion of cooperation credit for self-disclosures is equivocal. For example, the Guidelines specifically reference the continuing mandatory disclosure obligation imposed on government contractors under FAR 52.203-13 immediately before declaring that “[c]ooperation does not include disclosure of information required by law.” Although it surely cannot be the case that DOJ intends to deprive government contractors of the opportunity to pursue cooperation credit available to every other industry, the language of the Guidelines does raise questions about the circumstances in which government contractors can receive cooperation credit for self-disclosures. Presumably, a contractor’s choice to disclose any information beyond the mere fact of a potential FCA violation—which is all that is required under the FAR—will entitle the contractor to cooperation credit under the Guidelines.
In addition, even outside the government contracts context, it is unclear how broadly DOJ will interpret the prohibition on granting credit for disclosure of information that is compelled by law or “under an imminent threat of discovery or investigation.” This is an important issue because much of the cooperative conduct outlined in the Guidelines—proffering facts, identifying individuals, etc.—often is undertaken only after the receipt of a government subpoena or CID, even though the conduct itself may not be directly required by the subpoena. Again, DOJ surely does not intend for receipt of a subpoena to foreclose the possibility of earning cooperation credit for subsequent disclosures of relevant information, but the ambiguity in the Guidelines may not be particularly reassuring for companies weighing a self-disclosure.
These questions are substantial, and so long as they remain unresolved they will dampen industry enthusiasm for providing disclosures and cooperation in the FCA context. But to the extent that DOJ clarifies the intent of the Guidelines, whether through additional policy statements or course of dealing in the field, the Guidelines might fulfill DOJ’s apparent hope of kick-starting a new era of transparency and cooperation between FCA defendants and their regulators.