Compliance officers will want to pay close attention to new formal guidance out of the Department of Justice’s Civil Division explaining how credit will be awarded to those who cooperate during a False Claims Act investigation.
“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,” said Assistant Attorney General Jody Hunt in announcing the new policy. She added that voluntary disclosure is “the most valuable form of cooperation.”
Under the new policy, formally included in the Justice Manual on May 7, “cooperation credit in FCA cases may be earned by voluntarily disclosing misconduct unknown to the government, cooperating in an ongoing investigation, or undertaking remedial measures in response to a violation,” the Justice Department said. “Even if the government already has initiated an investigation, for example, a company may receive credit for making a voluntary self-disclosure of other misconduct outside the scope of the government’s existing investigation that is unknown to the government.”
Other forms of cooperation credit include preserving relevant documents and information beyond existing business practices or legal requirements; identifying individuals who are aware of relevant information or conduct; and facilitating review and evaluation of data or information that requires access to special or proprietary technologies. Several other examples are identified in the policy.
Most frequently, the Justice Department said, cooperation credit will take the form of a reduction in the damages multiplier and civil penalties. If appropriate, the Justice Department may also notify a relevant agency about the company’s voluntary disclosure, cooperation, or remediation so that the agency can take those actions into account in deciding how to apply administrative remedies, and the Justice Department may publicly acknowledge the company’s cooperation.
The guidance states that the “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 share).”
Such language “suggests that maximum credit would result in a settlement for no less than single damages, plus interest, investigation costs, and relator share,” law firm Hogan Lovells explained in a client alert. “In practice, such a sum would be analogous to a damages multiplier of 1.5 or higher.”
In considering the value of any voluntary disclosure or additional cooperation, Justice Department attorneys will consider the following factors: (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 government.
Under the policy, Justice Department attorneys will also consider whether a company has taken appropriate remedial measures in response to an FCA violation. Such remedial measures may include undertaking a thorough analysis of the root cause of the misconduct; appropriately disciplining or replacing those responsible for the misconduct; accepting responsibility for the violation; and implementing or improving the compliance program to prevent a recurrence.
The policy does include a couple of caveats. “Cooperation does not include disclosure of information required by law, or merely responding to a subpoena, investigative demand, or other compulsory process for information,” the policy states. “Cooperation also does not include the disclosure of information that is under an imminent threat of discovery or investigation.”
Moreover, Justice Department attorneys will not award any credit to a company or individual that “conceals involvement in the misconduct by members of senior management or the board of directors, or to an entity or individual that otherwise demonstrates a lack of good faith to the government during the course of its investigation.”