On May 6, 2019, the Justice Department issued new policies establishing how defendants in False Claims Act (FCA) matters can earn credit for voluntary self-disclosure, cooperation, and remediation, possibly reducing what might otherwise be treble damages to single damages plus a relator's share and costs of the investigation. The new guidelines, added as section 4-4.112 of the Justice Manual, draw on other Justice Department initiatives to reward cooperation and reduce excessive sanctions. They offer important guidance about the considerations Justice Department attorneys should weigh in determining settlement multipliers and amounts. And, in a significant footnote, they indicate that "the Department may take into account the prior existence of a compliance program in evaluating a defendant's liability under the False Claims Act . . . by consider[ing] the nature and effectiveness of such a compliance program in evaluating whether any violation of law was committed knowingly."
The new guidelines "identify factors that will be considered and the credit that will be provided by Department of Justice attorneys when entities or individuals voluntarily self-disclose misconduct that could serve as the basis for False Claims Act (FCA) liability and/or administrative remedies, take other steps to cooperate with FCA investigations and settlements, or take adequate and effective remedial measures."
Voluntary Disclosure. The guidelines explain that "[e]ntities or individuals that make proactive, timely, and voluntary self-disclosure to the Department about misconduct will receive credit during the resolution of a[n] FCA case. During the course of an internal investigation into the government's concerns, moreover, entities may discover additional misconduct going beyond the scope of the known concerns, and the voluntary self-disclosure of such additional misconduct will qualify the entity for credit."
Cooperation. The guidelines provide that an individual or entity can also "earn credit by taking steps to cooperate with an ongoing government investigation," including by:
- identifying individuals substantially involved in or responsible for the misconduct;
- disclosing relevant facts and identifying opportunities for the government to obtain evidence relevant to the government's investigation that is not in the possession of the entity or individual or not otherwise known to the government;
- preserving, collecting, and disclosing relevant documents and information relating to their provenance beyond existing business practices or legal requirements;
- identifying individuals who are aware of relevant information or conduct, including an entity's operations, policies, and procedures;
- making available for meetings, interviews, examinations, or depositions an entity's officers and employees who possess relevant information;
- disclosing facts relevant to the government's investigation gathered during the entity's independent investigation (not to include information subject to attorney-client privilege or work product protection), including attribution of facts to specific sources rather than a general narrative of facts, and providing timely updates on the organization's internal investigation into the government's concerns, including rolling disclosures of relevant information;
- providing facts relevant to potential misconduct by third-party entities and third-party individuals;
- providing information in native format, and facilitating review and evaluation of that information if it requires special or proprietary technologies so that the information can be evaluated;
- admitting liability or accepting responsibility for the wrongdoing or relevant conduct; and
- assisting in the determination or recovery of the losses caused by the organization's misconduct.
The Justice Department will determine the amount of the credit accorded for cooperation based on "(1) the timeliness and voluntariness of the assistance; (2) the truthfulness, completeness, and reliability of any information or testimony provided; (3) the nature and extent of the assistance; and (4) the significance and usefulness of the cooperation to the government."
Remediation. The guidelines also instruct Department attorneys to "consider whether an entity has taken appropriate remedial actions in response to the FCA violation," including:
- demonstrating a thorough analysis of the cause of the underlying conduct and, where appropriate, remediation to address the root cause;
- implementing or improving an effective compliance program designed to ensure the misconduct or similar problem does not occur again;
- appropriately 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
- any additional steps demonstrating recognition of the seriousness of the entity's misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.
Reduced Damages and Penalties. The Justice Department will normally reward qualifying disclosure, cooperation, and remediation by "reducing the penalties or damages multiple sought by the Department," up to a maximum of "the government receiving . . . full compensation for the losses caused by the defendant's misconduct (including the government's damages, lost interest, costs of investigation, and relator share)." The Department may also consider other forms of rewards, including:
- notifying a relevant agency about an entity's or individual's disclosure, other cooperation, or remediation, so that the agency in its discretion may consider such factors in evaluating its administrative options, such as suspension, debarment, exclusion, or civil monetary penalty decisions;
- publicly acknowledging the entity's or individual's disclosure, other cooperation, or remediation; and
- assisting the entity or individual in resolving qui tam litigation with a relator or relators.
Compliance as Undercutting Proof of Scienter. One of the guidelines' most striking statement is that "[i]n addition to considering a company's decision to implement or improve a compliance program after an alleged violation, the Department may take into account the prior existence of a compliance program in evaluating a defendant's liability under the False Claims Act." The guidelines explain that, for example, "the Department may consider the nature and effectiveness of such a compliance program in evaluating whether any violation of law was committed knowingly." In making such an evaluation, "the criteria to be considered may include those set forth in" the section on compliance programs in the Department's Principles of Federal Prosecution of Business Organizations.
Other Factors Considered in Settlement. The guidelines also provide a public statement of other factors the Department relies on "when evaluating the appropriate resolution of FCA matters," including:
- the nature and seriousness of the violation;
- the scope of the violation;
- the extent of any damages;
- the defendant's history of recidivism;
- the harm or risk of harm from the violation;
- whether the United States' interests will be adequately served by a compromise;
- the ability of a wrongdoer to satisfy an eventual judgment; and
- litigation risks presented if the matter proceeds to trial.
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