The DOJ recently restored prior guidance requiring that, to be eligible for cooperation credit, companies must provide the DOJ with all non-privileged information about individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority. With this change in policy, it is important to outline what actions corporations must take to receive cooperation credit from the DOJ, what reductions the DOJ may implement in return, and whether self-disclosure and cooperation are really worth it.
Who earns cooperation credit in an FCA investigation?
The Justice Manual, which contains a set of internal guidelines that must be considered by DOJ attorneys, identifies three factors that the DOJ considers for purposes of potential “credit that will be provided by [DOJ] attorneys”: “when entities and or individuals” (1) “voluntarily self-disclose misconduct that could serve as the basis for False Claims Act (FCA) liability and/or administrative remedies”; (2) “take other steps to cooperate with FCA investigations and settlements”; or (3) “take adequate and effective remedial measures.”1 A closer examination of the contours and impacts of voluntary self-disclosure and cooperation follows.
Voluntary self-disclosure
Companies will receive credit for truly voluntarily disclosures of wrongdoing unknown to the government. When false claims and fraud are “previously unknown” to the government, companies can receive credit for “proactive, timely, and voluntary” self-disclosure of misconduct. According to the guidance in the Justice Manual, disclosure of misconduct2 allows “the government to make itself whole from previously unknown false claims and fraud,” and could allow the government “to preserve and gather evidence that would otherwise be lost.”3 In addition, even when the government is aware of certain allegations of potential misconduct, the Justice Manual provides that companies can still receive credit during the course of the investigation for discovering and disclosing to the government “additional misconduct going beyond the scope of the known concerns.” 4
Cooperation
The DOJ also may recognize cooperation absent a voluntary disclosure, especially where they were already investigating claims brought under the FCA qui tam provisions or if the company has not completed its internal investigation. According to the Justice Manual, there is no comprehensive list of what constitutes cooperation in the eyes of the DOJ, but they have provided the following examples of non-mandatory measures that may be “taken into account” in determining whether a company has cooperated:
- 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.5
The DOJ values this type of proactive aid because it increases DOJ efficiencies and reduces the burden on DOJ attorneys, provides access to information and witnesses otherwise not known to the government, and assists the DOJ in identifying the root causes of potential violations and the individuals responsible.
Regarding the first measure – identifying individuals responsible or involved – on October 28, 2021, Deputy Attorney General (DAG) Lisa O. Monaco gave a speech emphasizing accountability and announcing the DOJ’s restoration of prior guidance that requires companies to provide the DOJ with all non-privileged information about individuals involved in or responsible for the misconduct at issue, regardless of their position, status, or seniority, in order to be eligible for cooperation credit.6 This is in contrast to the May 7, 2019, guidelines released by the DOJ during the Trump administration, which previously eased the threshold for receiving cooperation credit to allow for it where a company disclosed information about individuals “substantially involved.”7
DAG Monaco explained that companies must once again provide “all non-privileged information about individuals involved in or responsible for the misconduct at issue” because the previous guidelines were “confusing” and allowed cooperating companies too much latitude and discretion with reporting requirements. Of course, there is an argument that the constantly changing policies and reintroduction of broad, undefined cooperation expectations are creating confusion as well. DAG Monaco further justified the policy shift by noting that “[t]he department’s investigative team is often better situated than company counsel to determine the relevance and culpability of individuals involved in misconduct.” While that may be true in certain situations, it does suddenly expand the scope of disclosures to include those employees who were merely “involved” in but were not “responsible” for the misconduct, which may put a number of potentially innocent or non-culpable – from a legal perspective – employees in the DOJ’s crosshairs with marginal benefit to the investigation.
Strategic considerations of cooperation in the Biden Era
The changes announced by DAG Monaco revert back to the spirit of the Yates Memo and its focus on individual responsibility and accountability. It also removes some of the discretion companies previously had to determine who was substantially involved in wrongdoing. Given the new heightened standards for receiving DOJ cooperation credit, companies may want to recalibrate how they make decisions about disclosures and cooperation.
In making that calculus, it is helpful to consider what credit is potentially available for cooperation. The DOJ has always been somewhat opaque about this, but its view is that civil fraud cases are about returning money lost to the government – to compensate the government for its damages. Consistent with this view, the Justice Manual states that “[t]he 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,8 lost interest, costs of investigation, and relator share).” Those amounts are referred to as “single damages,” which are often themselves significant and contested. But the FCA authorizes damages up to treble the amount of single damages alongside significant penalties for each false claim filed, and DOJ typically settles FCA cases for “double damages” even where cooperation is absent. Because the Justice Manual prevents cooperation credit from reducing the single damages amount, the incentive under DOJ policy for a company to cooperate is limited to reducing the damages multiplier used to arrive at an appropriate settlement figure and the per claim penalties. This raises the question of whether a defendant who earns cooperation credit actually benefits significantly compared to defendants who settle FCA claims without a cooperation credit.
Another consideration in FCA cases is that the settlement value for the government should reflect its own litigation risk in any given case. Depending on the strength of the government’s case, the settlement value of an FCA claim could be at single damages – even without application of a cooperation credit. Where that is the case, cooperation credit may be of little value to a defendant. In fact, there is a risk that a defendant’s cooperation lowers the government’s litigation risk and therefore raises the settlement value in a way that could fully off-set any cooperation credit in some cases.
On the other hand, there can be intangible and non-monetary value in self-disclosure and cooperation. Cooperation can give companies influence or a voice in the course of the investigation and potential settlement, which could lead to a more favorable and earlier resolution of any claim. Likewise, true cooperation can lend more credibility to advocacy presentations or papers provided to DOJ and engender trust in the agencies tasked with oversight of the company, such as the Centers for Medicare and Medicaid (CMS) or the U.S. Dep’t of Health and Human Services-Office of Inspector General (HHS-OIG).
Although the recent change in policy announced by DAG Monaco represents a departure from the more flexible approach of identification of individuals for purposes of cooperation, the monetary and intangible benefits to voluntary self-disclosure and cooperation in most cases likely remain unchanged. In some investigations, however, the strategic considerations underpinning the decision to voluntarily self-disclose and fully cooperate will require careful consideration in light of what a company may have to provide to meet the new stringent cooperation standard.
References
1. Justice Manual, 4-4.112 - Guidelines For Taking Disclosure, Cooperation, And Remediation Into Account In False Claims Act Matters, U.S. Dep’t of Justice (updated April 2018) https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112.
2. Id.
3. Id.
4. Id.
5. Id.
6. Lisa Monaco, Deputy Attorney General, U.S. Dep’t of Justice, Keynote Address at ABA’s 36th National Institute on White Collar Crime (Oct. 28, 2021), available here: https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th-national-institute. The restored DOJ policy on cooperation is a nod to the September 2015 Memorandum from then-Deputy Attorney General Sally Q. Yates titled “Individual Accountability for Corporate Wrongdoing” (the Yates Memorandum), where DOJ required companies seeking credit or leniency for cooperation to provide “all relevant facts about the individuals involved in corporate misconduct.” Memorandum from Sally Q. Yates, Deputy Attorney General, U.S. Dep’t of Justice, to All United States Attorneys (Sep. 9, 2015), available at https://www.justice.gov/archives/dag/file/769036/download.
7. Justice Manual, 4-4.112.
8. As Jamie Yavelberg, the Director of the Civil Division Fraud Section, stated, “a credit will earn you a reduction, but the government is not going to take less than its losses; the government needs to be made whole.” Jamie Yavelberg, Director, Fraud Section, Civil Division, U.S. Dep’t of Justice, Keynote Address at the Twenty-Second PCF Virtual Pharmaceuticals and Medical Device Ethics & Compliance Congress and Best Practices Forum (Nov. 3, 2021).