The Race to Report: Regulators Announce New Whistleblower Programs Aimed at Increasing Voluntary Self-Disclosure from Companies

Telling on yourself is not an intuitive defense. But federal regulators and prosecutors at last week’s ABA National Institute on White Collar Crime urged companies and executives to consider doing so or risk being beat to the punch by employees and competitors. With their announcements of new whistleblower policies, the Department of Justice and the United States Attorney’s Office for the Northern District of California have intensified an already tough decision facing a company that becomes aware of misconduct: whether to voluntarily disclose to regulators.

New Whistleblower Programs

At the ABA National Institute on White Collar Crime, the United States Attorney for the Northern District of California, Ismail Ramsey, announced that his office is rolling out a new whistleblower policy designed to incentivize employees to report misconduct at their workplace. The next day at the same conference, Deputy Attorney General Lisa Monaco announced the Department of Justice was “launching a 90-day sprint to develop and implement a pilot program, with a formal start date later this year,” for a “DOJ-run whistleblower rewards program.”¹ These policies are similar in purpose to one adopted by the U.S. Attorney’s Office for the Southern District of New York on February 13.² The SEC and CFTC already have well-established whistleblower rewards programs for original information that leads to a successful enforcement action yielding sanctions over $1 million.

The Northern District of California’s program will be most similar to the Southern District of New York’s program since they both will offer non-prosecution agreements to certain categories of criminally liable individuals in exchange for new information. In contrast, the Department of Justice’s new program will operate more like the traditional whistleblower programs at the SEC and CFTC, offering a financial reward to those that come forward with then-unknown misconduct. 

Regulators hope that these programs will encourage a culture of corporate compliance and reporting. Deputy Attorney General Monaco explained that DOJ’s new program “will create new incentives for individuals to report misconduct to the Department. And it will drive companies to invest further in their own internal compliance and reporting systems.” This program will further the government’s interest in increasing the rate of self-reporting of potential violations. On the other hand, defense attorneys like Zuckerman Spaeder’s Aitan Goelman acknowledged that, even with these new programs, companies still face a very difficult decision before “crossing the Rubicon” of voluntary self-disclosure. There is no going back after the misconduct has been disclosed, opening the door to costly and lengthy government investigations. 

So, what is the mechanism these programs use to further the government’s interest in corporate self-reporting? They are pitting companies and employees against each other in the race to report. Each of the new programs incentivizes employees to blow the whistle on corporate misconduct by dangling some carrot, either a financial stake in a later forfeiture or a non-prosecution agreement. At the same time, the government is encouraging companies to voluntarily self-disclose misconduct through the hope of resolution benefits, such as lighter fines. But one cannot reap these rewards if another has already beat them to the punch. The prize goes only to the party reporting information that is not already known to the government—or, in other words, the first to report.³

A whistleblowing employee is not the only risk here for a company. In this new race-to-report, one company’s self-reporting could also deny a slower-moving competitor the benefits of self-reporting when the same type of misconduct is at issue. As Acting Assistant Attorney General Nicole Argentieri explained at the ABA conference, in an industry where every company is committing the same crime, each market participant risks voluntary disclosure by another company that prompts an investigatory sweep to expose the industry’s misconduct. In that case, all who engage in such industry-wide misconduct could face government action, but only the first to report would benefit from self-disclosure. As Argentieri warned, “we’re not waiting for you to come to us.” 

Therefore, it is now very important that companies and their counsel carefully consider these new policies when completing their own internal investigations. 

Risks vs. Rewards of Voluntary Self-Disclosure

Prior to these announcements, the decision to voluntarily self-report was already eminently complicated. It is a decision that involves a highly fact-sensitive risk-benefit analysis and close consultation with counsel. 

In general, federal regulators are more likely to be lenient when considering whether to bring an enforcement action or what penalties to impose when dealing with a company that has voluntarily self-disclosed the misconduct. For example, the SEC has explained that self-reporting can be credited as cooperation in a variety of ways, “from the extraordinary step of taking no enforcement action to bringing reduced charges, seeking lighter sanctions, or including mitigating language in documents we use to announce and resolve enforcement actions.”⁴ Likewise, under existing DOJ policy, prosecutors should not seek a guilty plea where a company has voluntarily self-disclosed in accordance with DOJ criteria, fully cooperated, and remediated.⁵ As Deputy Attorney General Monaco explained in her remarks at the conference, “no matter how good a company’s cooperation, a resolution will always be more favorable with voluntary self-disclosure.”
 
Yet, many companies feel the risks of self-disclosure more intensely than the potential benefits. As a starting point, companies might believe that minor misconduct and compliance issues are unlikely to come on the regulators’ radar, so self-reporting would unnecessarily impose additional expenses and undue disruptions. Initiating a proceeding that has the potential to be both internally disruptive and expensive can be a tough pill to swallow. In an aggressive enforcement environment, companies—particularly those with prior enforcement history—may consider remediating smaller issues internally and hope regulators simply never learn about them. However, the risk of steep penalties or undesirable resolutions is higher when the misconduct involves senior personnel or egregious misconduct. If misconduct involves executives or employees in the higher echelons of the corporate structure, self-disclosure could lead to material changes in staffing and resource allocations. Additionally, in some circumstances, companies could face the prospect of having an independent monitor imposed on them. That said, the most egregious misconduct is less likely to go unnoticed forever, especially in highly regulated and monitored industries. The benefits of disclosure could be well worth it in under the right circumstances. 

The announced programs add an important new factor to the already large host of considerations at play when deciding whether to voluntarily self-report uncovered misconduct: the need to beat any whistleblowers to the punch. Both the existing voluntary self-disclosure standards and the new whistleblower policies require the reporter to provide information that the government was not already aware of to earn the benefit.⁶ Companies will need to consider the possibility that a whistleblower will bring the misconduct to the government’s attention. And they may have to do so quickly. Whistleblowers may be less incentivized to wait on the results of an internal investigation before reporting their information. A carefully measured decision to voluntarily self-disclose misconduct may be mooted by a more eager competitor or employee. 

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With the government increasing the incentives for whistleblowers, companies and their counsel must carefully consider these new policies when conducting and evaluating their own internal investigations. Without the ability to see into the future, there is no one-size-fits-all answer for a company that may face circumstances where self-reporting is an option. But with the assistance of capable counsel and a highly fact-specific risk-benefit analysis, companies can make a reasoned judgment on whether to voluntarily self-disclose corporate misconduct. 

This decision whether to self-report—difficult enough in its own right—is now all the more complicated because these newly announced programs provide employees and competitors with incentives to blow the whistle early. This new regulatory landscape accelerates the decision-making process for a company and its counsel considering whether to take the delicate, potentially risk-laden path of self-disclosure.  

¹ Deputy Attorney General Monaco’s remarks at the ABA conference are available online. See https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-keynote-remarks-american-bar-associations. The Northern District of California’s policy was announced by Mr. Ramsey on a panel at the ABA conference, but a formal statement has not yet been published by his office. 
² https://www.justice.gov/d9/2024-02/sdny_wb_policy_effective_2-13-24.pdf.
³ https://www.justice.gov/d9/2023-07/usao_voluntaryy_self-disclosure_policy_0.pdf;  https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-keynote-remarks-american-bar-associations.
⁴ https://www.sec.gov/litigation/investreport/34-44969.htm. 
⁵ https://www.justice.gov/d9/2023-07/usao_voluntary_self-disclosure_policy_0.pdf. 
⁶ For example, under the Department of Justice Guidance for United States Attorneys’ Offices, a voluntary self-disclosure must be made “prior to the misconduct being publicly disclosed or otherwise known to the government.” See https://www.justice.gov/d9/2023-07/usao_voluntary_self-disclosure_policy_0.pdf.