Credit Where It’s Due: New Guidance from DOJ on Cooperation in FCA Cases

By. Jason Lynch and Andy Liu.

On May 8, 2019, the Department of Justice’s Civil Division announced the release of formal guidelines for taking disclosure, cooperation, and remediation into account in False Claims Act matters.  The new guidelines are codified in Section 4-4.112 of the Justice Manual, available here.

Background

This new DOJ policy is the latest to adopt a “carrot” approach to encouraging disclosure of misconduct.

In September 2015, then-Deputy Attorney General Sally Yates issued a memorandum identifying six key steps to enable prosecutors and civil litigators “to most effectively pursue the individuals responsible for corporate wrongs.”  The first step provided a rigid cooperation credit policy that required corporations to provide the Department with “all relevant facts” relating to the individuals “involved in” the misconduct in order to be eligible for any cooperation credit, in both criminal and civil cases.  That guidance was revised in December 2018, when Deputy Attorney General Rod Rosenstein announced modifications to the so-called Yates memorandum that backed away from this all-or-nothing approach to cooperation credit.  For criminal cases, companies could receive credit for identifying just those individuals who “authorized” the misconduct or played “significant roles in setting a company on a course of criminal conduct.”  For civil cases, at least some cooperation credit would be available where a company identified wrongdoing by senior officials, and maximum credit where it identified every individual who was substantially involved in or responsible for the misconduct.  This abrogated the “binary choice” between all credit or none in civil cases; instead, DOJ would “now have discretion to offer some credit even if the company does not qualify for maximum credit.”

On June 14, 2018, Acting Associate Attorney General Jesse Panuccio announced three policy initiatives to reform FCA enforcement, including cooperation credit.  DOJ reaffirmed its discretion in structuring settlements and that discounts can be offered, depending on the nature of the cooperation—which could come in the form of voluntary disclosure, sharing information gleaned from an internal investigation, or making witnesses available.

The Department of Justice hinted that yet more FCA-specific guidelines were in the works in January 2019, when Deputy Associate Attorney General Stephen Cox concluded his remarks at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement by telling the attendees that “The Department has significant discretion under the False Claims Act to resolve cases in a way that provides a material discount based on cooperation while still making the government whole.  Stay tuned on this front.”

A month later, Michael Granston, Director of the Civil Fraud Section told another audience that DOJ was “in the process of considering whether to issue further guidance on cooperation credit that is specific to the False Claims Act.”

FCA-Specific Guidelines

In announcing the latest policy on May 8, Assistant Attorney General Jody Hunt said, “The Department of Justice has taken important steps to incentivize companies to voluntarily disclose misconduct and cooperate with our investigations; enforcement of the False Claims Act is no exception.”  Under the policy, cooperation credit can be earned through (1) voluntary self-disclosure of misconduct; (2) taking other steps to cooperate with FCA investigations; or (3) taking adequate and effective remedial measures.

In order to receive credit for voluntary disclosures, entities or individuals must “make proactive, timely, and voluntary self-disclosure to the Department about misconduct.”  Importantly, however, a disclosure will not be deemed to be voluntary – and thus will not qualify for cooperation credit – if disclosure of the information was required under mandatory reporting requirements, such as the FAR’s mandatory disclosure obligations.

Additional credit can be earned by taking “other steps” to cooperate with the government’s investigation.  The policy provides a non-exclusive list of such steps:

1. Identifying individuals substantially involved in or responsible for the misconduct;
2. 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;
3. Preserving, collecting, and disclosing relevant documents and information relating to their provenance beyond existing business practices or legal requirements;
4. Identifying individuals who are aware of relevant information or conduct, including an entity’s operations, policies, and procedures;
5. Making available for meetings, interviews, examinations, or depositions an entity’s officers and employees who possess relevant information;
6. 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;
7. Providing facts relevant to potential misconduct by third-party entities and third-party individuals;
8. 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;
9. Admitting liability or accepting responsibility for the wrongdoing or relevant conduct; and
10. Assisting in the determination or recovery of the losses caused by the organization’s misconduct.

Lastly, some cooperation credit may be earned if appropriate remedial actions have been taken, including:

1. demonstrating a thorough analysis of the cause of the underlying conduct and, where appropriate, remediation to address the root cause;
2. implementing or improving an effective compliance program designed to ensure the misconduct or similar problem does not occur again;1
3. 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
4. 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.

Takeaways

Maximum credit is available to those who timely self-disclose and identify all individuals substantially involved in or responsible for the misconduct, provide “full cooperation” with the government’s investigation, and take remedial steps designed to prevent and detect similar wrongdoing in the future.  Partial credit is available to those who “meaningfully assisted” the government’s investigation through cooperation in any of the three categories described above.

The policy never prescribes, nor has DOJ ever defined, however, just how cooperation is “valued.”  It thus remains unclear how valuable it will be to cooperate.  While the policy provides that cooperation credit will “most often” entail reduced penalties or a reduced damages multiplier, it also provides that the Department will not settle for less than full compensation for the losses suffered by the government, which includes damages, interest, costs of investigation and the relator’s share.  Given that the relator’s share is 15-30% of the total recovery, the Department presumably would insist on at least 115% of single damages, plus interest and investigation costs.  Although not codified in any formal policy, in our experience DOJ typically seeks, as a starting point for negotiations, double damages and reduced penalties in settlements, with parties typically settling for less.  With this in mind, it is not entirely apparent what dollar value will flow from “full cooperation credit.”