The DOJ’s New “Corporate Whistleblower” Program Will Be a Colossal Failure

Overview

The Internet was abuzz when, on August 1, 2024, the DOJ released its guidance on its brand-new crime fighting program - the “Corporate Whistleblower Awards Program.” This program had previously been announced by DAG Lisa Monaco in her keynote remarks at the ABA’s 39th National Institute on White Collar Crime, held on March 7, 2024 in San Francisco, a city with no shortage of crime itself. DAG Monaco’s address promised - “our message to whistleblowers is clear: the Department of Justice wants to hear from you.”

But this promise was short-lived. Far from designing a program conducive to encouraging and protecting whistleblowers, the “devil is in the details” guidance makes clear that any whistleblower relying on the DOJ’s “pilot program” should think long and hard about whether it is worth it to participate, given the numerous traps that are in the guidance issued by the DOJ for whistleblower program participants.

The DOJ has complete and total discretion as to whether to issue a whistleblower an award. The DOJ’s guidance uses the word “discretion” 18 separate times. This is not by accident. The DOJ’s guidelines make clear that any award, even at the end of a long drawn-out battle, will be “issued in the Department’s sole discretion.” Any award, the DOJ states, “is discretionary” and the DOJ even notes that awards are “entirely discretionary and an award is not guaranteed,” and the DOJ has guidelines that it will use when “assessing whether to make a discretionary award ….”. In other words, whistleblowers are guaranteed nothing. This is a major error and is a significant contrast with other whistleblower programs. For example, the SEC’s whistleblower program states that the SEC “shall pay an award” (it is mandatory and not discretionary) although the amount of the award can vary between 10 to 30% of the total monetary sanctions imposed.

This discretion is likely to have a massive impact on participation in the program. DAG Monaco, in her San Francisco speech, gave the example of an employee of a private equity firm, who discovers that the CFO is “forging underlying loan documents.” If this employee “reports it, a portion of the recovery could be hers.” The word “could” is important here. The employee gets nothing if the DOJ decides, in its sole discretion, not to give the employee anything. Now imagine that you are that same employee, and you learn that you if you whistleblow you will likely jeopardize your career not only at your current firm, but also going forward if you apply to work at competing firms. You will be in for a long slog as you turn from loyal employee to government snitch. Your name may get splashed in the press; you may lose your income for years on end; and you will undoubtedly be called a liar and a fraud by your company. You’re still tempted to blow the whistle but at the last second you learn that after devoting years of your life to making things right, the DOJ is under no obligation to fulfill its end of the bargain after you risk your career. Are you really going to whistleblow when, at the end of the day, some low-level DOJ employee makes the decision, in her “sole discretion,” not to pay you? Is the juice worth the squeeze? No, it is not.

Now, imagine that you’re that same employee who is willing to take that risk but you want a wise lawyer by your side to guide you through the process for the next few years and pave the way for your success. You need a lawyer to gather documents, liase with the DOJ and prepare you for testimony. You don’t have a lot of money, but you’ve heard that whistleblower attorneys do these types of things on contingency. Wrong you are. Few attorneys will risk 100s or even 1000s of hours of their own time if, at the end of the day, any award is committed to the sole discretion of the DOJ. That is a bargain few attorneys are willing to make. You can do everything right but walk away with nothing.

If an award is given, the size of the award will be drawn from the “net proceeds” of the total forfeiture obtained by the DOJ. Sounds fair, this use of the term “net proceeds.” But what are “net proceeds”? It turns out that “net proceeds” if you are a whistleblower are your worst enemy. This is because individual victims are first compensated before any monetary award is paid to the actual whistleblower. For example, say the Government recovers $50 million in forfeiture funds, but out of that, $49 million is paid first to individual victims. Only $1 million is “net proceeds” available to the whistleblower, who then will recover only a portion of that (10 to 30%). Thanks again DOJ! This is especially problematic because it is the DOJ’s determination (in a plea bargain) as to how much to order for forfeiture, and generally, forfeiture will be geared to the amount owed to individuals. So any whistleblower award is at the mercy of how much the DOJ attorney - who may or may not care about the case - asks in forfeiture, how much individual victims (who get priority) are owed, and how money the malfeasors have to give.

The DOJ’s whistleblower program requires complete and total cooperation by the whistleblower (with the DOJ). While the whistleblower program requires the DOJ to pay the whistleblower exactly nothing, the whistleblower, on the other hand, owes the DOJ everything. The guidelines state that the whistleblower “must cooperate” with the DOJ, including by “providing truthful and complete testimony and evidence, whether in interviews, before a grand jury, or at any trial or other court proceeding; producing documents, records, and other evidence when called upon by the Department; and, if requested, working in a proactive manner under the supervision of, and in compliance with, United States law enforcement officers and agents.” In other words, even if the whistleblower is guaranteed nothing, the whistleblower still must, if asked, wear a wire or do other undercover work for the DOJ. Who would sign up for that? (“Can I please risk my career and safety in exchange for nothing DOJ? Don’t make me ask twice”). This language, as any experienced white-collar practitioner knows, mimics that used in 5K agreements, where a defendant is required to testify and cooperate (and go undercover) and then it is in the DOJ’s discretion as to whether to move for a 5K motion at the end of the day. This language makes sense in the criminal defendant context, where the defendants are trying to get reduction in their sentence. This makes zero sense in the whistleblower context (people who are, by definition not criminal defendants). Why would anyone enter into what is, in effect, a voluntary plea agreement with the DOJ which binds you (as an ordinary citizen) to work on their behalf but binds the DOJ to nothing.

The DOJ will refuse to provide an award if the whistleblower is “eligible for an award through another US government or statutory whistleblower, qui tam, or similar program if they had reported the same scheme that they reported under this pilot program.” This one is extremely confusing and will lead even most lawyers to throw up their hands in, wait for it, confusion. So in order to be eligible to be a whistleblower, you can’t be eligible to be a whistleblower with any other agency or even eligible to file a qui tam action. The key word is “eligible.” How are people (i.e. non-lawyers) supposed to know if they are “eligible” under another agency’s programs? There are many different whistleblower programs. Are people first supposed to go to law school, read all the statutory whistleblower regulations, and then, and only then, file a complaint with the DOJ? Who knows. Even worse is that if a person can file a “qui tam,” (an action filed by a private person on behalf of the government, usually fraud related) , they are ineligible for participation. New qui tam theories are being trotted out every week, it seems. Just this week, the DOJ intervened in a qui tam filed against the Georgia Institute of Technology that asserted claims that the school failed to meet cybersecurity requirements in connection with Dept. of Defense contracts. That’s one of the most convoluted qui tam actions out there and I give credit to the whistleblower attorneys who thought it up. But this just illustrates the perils of the DOJ’s own whistleblower program. If the whistleblower, instead of filing a qui tam had reported it to the DOJ, he would not be eligible for an award. This needs to change.

These are just a few of the many serious issues with the DOJ’s corporate whistleblower program. It makes one wonder if the drafters of the guidelines had ever talked to or represented a whistleblower. It certainly does not appear that way. Back to the drawing board on this one.