Next: New False Claims Act Guidance

Another day, another piece of guidance from the Justice Department about corporate compliance programs — this time, explaining how companies might win cooperation credit when facing violations of the False Claims Act.

The Civil Division of the Justice Department posted the guidance Tuesday afternoon. The the material hews closely to what the Criminal Division has been saying for the last 18 months: if a company wants cooperation credit, it should voluntarily disclose its trouble to the government, cooperate in ongoing investigations, and undertake remedial actions as necessary to fix whatever issues caused the trouble in the first place.

One shade of distinction with this policy for the False Claims Act: a company can win some credit for undertaking any of those three steps. That’s different from the FCPA Corporate Enforcement Policy announced in November 2017, which says a company facing trouble under the Foreign Corrupt Practices Act must undertake all three steps if it wants to avoid criminal prosecution.

“False Claims Act defendants may merit a more favorable resolution by providing meaningful assistance to the Department of Justice,” assistant attorney general Jody Hunt said in a statement announcing the guidance. That assistance can range from “voluntary disclosure, which is the most valuable form of cooperation; to various other efforts, including the sharing of information gleaned from an internal investigation and taking remedial steps through new or improved compliance programs.”

Those remedial steps might include “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 compliance programs to prevent a recurrence,” the Justice Department said.

None of this should surprise compliance officers who have been watching the Justice Department. Its leadership has repeatedly said they want to pursue individual wrongdoers within a company rather than the corporation itself, and issued one policy statement after another promising more leniency to companies that confess, cooperate, and remediate.

This False Claims Act guidance follows that pattern. Even the examples of remediation, such as root cause analysis or disciplining offending employees, can be found in the Justice Department’s guidelines for evaluating effectiveness of a compliance program, updated just last week.

More Details

The new FCA guidance actually takes the form of amendments and updates to the U.S. Attorneys Manual, as most Justice Department guidance now does. You can find it in Section 4.112, blandly titled, “Guidelines for Taking Disclosure, Cooperation, and Remediation Into Account in False Claims Act Matters.”

One big hurdle compliance officers face is simply getting your organization to disclose misconduct voluntarily in the first place. Sometimes that can be a hard choice, and other times your general counsel may veto self-disclosure even if that seems like the right move to you.

Even without self-disclosure, the new guidance allows for at least some cooperation credit if the company takes other steps to help once the feds do knock on your door. Those steps can include:

• Identifying individuals substantially involved in, or responsible for, the misconduct;
• 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 a company’s operations, policies, and procedures;
• Making officers and employees who possess relevant information available for meetings, interviews, examinations, or depositions;
• Providing facts relevant to potential misconduct by third-party entities and third-party individuals.

The updated Attorney’s Manual has more examples. Meanwhile, two items are worth noting from our list above.

First, in the very first bullet point about identifying wrongdoers — note that you only need to identify persons “substantially involved in, or responsible for” the misconduct. That’s directly from the Justice Department’s policy announcement last November retreating from the Yates Memo, which pushed for identifying all wrongdoers.

Second, in the last bullet point about disclosing facts relevant to potential misconduct by third parties — yet again, this is why strong third-party due diligence matters. It gives your company a greater ability to call out misconduct wherever that behavior may be, including among other businesses; and that greater ability can win you credit with prosecutors when you are trying to save your own corporate neck.

The Bigger False Claims Act Picture

None of this should be interpreted as a retreat from enforcement of the False Claims Act. The law allows private citizens and federal prosecutors alike to sue government contractors if those contractors are somehow inflating their prices or providing substandard services.

FCA enforcement is a big money-maker for the Justice Department. In 2018 the department secured more than $2.8 billion in settlements and judgments, and the law has powerful supporters in Congress who see it as a tool to crack down on people trying to rip off Uncle Sam.

The healthcare industry typically sees the most FCA enforcement, given the huge sums of money flowing into Medicare and Medicaid programs, so compliance officers in that sector should be paying the most attention to today’s news.

But again, fundamentally, this is not surprising news. This is the modus operandi of the Justice Department — and really, giving more incentives to confess misconduct and chase down wrongdoers is not a bad thing. We just need prosecutors with the determination to stick to it.