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What Businesses Need to Know About Government Investigations in 2019

TerraLex Connections

  • February 13, 2019

The article below was published in TerraLex Connections, the newsletter for one of the world's leading international legal networks. Parker Poe is TerraLex's only North Carolina law firm. Through its network, businesses worldwide rely on our attorneys for responsive and seamless service.

The U.S. Justice Department (DOJ) is still in the early days of applying a significant change to how companies get credit for cooperating during government investigations.

In a speech delivered on November 29, 2018, Deputy Attorney General Rod Rosenstein announced that the DOJ was walking back guidance from the Obama administration, commonly known as the Yates Memo. The Yates Memo previously required companies to provide everything they knew about every individual involved in misconduct in order to be eligible for mitigation credit in criminal investigations. Citing the need to create workable and practicable policies, Rosenstein significantly amended this requirement so that companies now only need to identify every individual who was “substantially involved in or responsible for the criminal conduct.”

This new “substantially involved” language is a welcome change that allows prosecutors to engage in more meaningful and targeted investigations that focus less on tangential persons and conduct. As importantly, it allows companies to garner credit for internal inquiries that uncover reasonably identifiable and substantial individual culpable conduct; in other words, not all questionable conduct, unless significant, must be uncovered for a company to receive credit.

While this is a major step forward in the white-collar world, it is only one of several things that corporations and their compliance officers should be aware of this year. Specifically, corporations should be aware of the increase in investigations and lawsuits tied to the False Claims Act, which can be extremely damaging to a company’s reputation and bottom line. Moreover, as companies continue to navigate an ever-evolving enforcement framework, it remains critical to have corporate compliance programs that successfully mitigate risks before – and after – anything goes wrong.

The U.S. Justice Department’s New Guidance on Cooperation

In 2015, then-Deputy Attorney General Sally Yates laid out a guiding principle for both criminal and civil investigations involving the U.S. Justice Department: “To be eligible for any cooperation credit, corporations must provide to the department all relevant facts about the individuals involved in corporate misconduct.”

From then on, the government would theoretically not enter into any sort of settlement agreement or final plea negotiations with a company unless that company provided information on every individual involved in the illegal activity. Many companies found this “all or nothing” approach difficult to deal with, including companies making sincere and reasonable efforts to cooperate.

A few months ago, Rosenstein said the policy was “attractive in theory, but it proved to be inefficient and pointless in practice.” 

“In response to concerns raised about the inefficiency of requiring companies to identify every employee involved regardless of relative culpability, however, we now make clear that investigations should not be delayed merely to collect information about individuals whose involvement was not substantial, and who are not likely to be prosecuted,” Rosenstein said at an international conference where he announced the softening of the policy.

He emphasized that the U.S. Justice Department will be focused on individuals “who play significant roles” in misconduct. “If we find that a company is not operating in good faith to identify individuals who were substantially involved in or responsible for wrongdoing, we will not award any cooperation credit,” he said.

Rosenstein repeatedly used the phrase “good faith,” which is arguably the heart of the new policy and a significant departure from the previous “all or nothing” approach. Based on our conversations with investigators and clients since the change, many view this as a positive development. However, it is still too early to know how prosecutors will use their newfound discretion and whether there could be uneven application of the policy between and among U.S. Attorneys’ Offices.

The Increasing Trend With False Claims Act Cases

In announcing the new policy, Rosenstein made clear that fighting white-collar crime will continue to be “a top priority” for the DOJ. One area where you can see that playing out is with investigations under the False Claims Act (FCA). The FCA imposes liability on companies who defraud federal government programs and can be initiated by the government or by individual whistleblowers, known as “qui tam” plaintiffs or “relators.” Whistleblowers are incentivized by potential payouts of between 10 to 30 percent of the government’s recovery.

Enforcement of FCA cases has been steadily rising for several years. The overwhelming majority of these cases have focused on the health care industry, although the defense and financial services industries have also been targeted. In 2018 alone, the DOJ recovered nearly $3 billion in FCA cases.

Essentially any company that receives funding through federal government programs can be a target in an FCA investigation. As such, these companies can significantly benefit from the new roadmap Rosenstein has laid out for cooperation credit.

“In a civil False Claims Act case, for example,” Rosenstein said, “a company might make a voluntary disclosure and provide valuable assistance that justifies some credit even if the company is either unwilling to stipulate about which non-managerial employees are culpable, or eager to resolve the case without conducting a costly investigation to identify every individual who might face civil liability in theory, but in reality would not be sued personally.”

In that case, Rosenstein said his attorneys “may reward cooperation that meaningfully assisted the government’s civil investigation.” 

The Importance of an Effective Compliance Program

One of the best ways to ensure a company is ready for any type of white-collar investigation is through the proactive maintenance of an effective compliance program. The key is defining “effective” in the same terms as the federal government. That way, if a company does end up having to deal with a government investigation, its compliance program is already designed to maximize available mitigation credit.

Mitigation credit is exactly what it sounds like: a credit that’s applied to mitigate an organization’s punishment for a violation of the law. The government offers it to encourage companies to self-police or risk significantly higher fines and penalties. References to mitigation credit are found in several U.S. statutes, regulations, and agency policies. It can vary based on which federal department – or even which division within a department – is running the investigation. 

However, there are consistent threads that companies can apply. These include, but are not limited to:

  • Establishing a written program with standards and procedures to prevent and deter criminal conduct.
  • Ensuring oversight of the compliance program by the board or equivalent governing authority. 
  • Training and communicating periodically with employees across the organization about compliance and ethical standards.
  • Monitoring and evaluating the program, including through a confidential mechanism for employees to report potential or actual criminal conduct without fear of retaliation.  

By taking these and other steps to build an effective compliance program, as well as staying up-to-date on how the DOJ is applying its new cooperation policy, corporations and their compliance professionals can significantly reduce the risks they face.

For additional information, please contact us or your regular Parker Poe contact.