DOJ Fine-Tunes Self-Disclosure Policy

The Department of Justice’s continued efforts to incentivize self-reporting and cooperation by companies have been fine-tuned and codified in the USAO VSD Policy. This policy follows Assistant Attorney General Kenneth Polite, Jr.’s January 17, 2023 announcement of a new set of revisions to the Criminal Division’s Corporate Enforcement Policy as we discussed in a prior alert. While corporations have long understood that penalties for corporate malfeasance will be less severe if they voluntarily disclose the issue and cooperate with the government, the new VSD Policy provides specific criteria that the USAO will use in determining appropriate resolutions. It describes what actually constitutes voluntary self-disclosure, and most importantly, it sets forth more clear and predictable benefits for companies that voluntarily self-disclose. Accordingly, while a company’s decision to cooperate is still going to require a careful analysis of the facts and circumstances, this new and more transparent policy provides corporations with the ability to make a more informed decision.

The VSD Policy was promulgated in response to Deputy Attorney General Lisa Monaco’s September 15, 2022 Memorandum (the Monaco Memo), which was one of the most wide-ranging updates in years to the DOJ’s approach in combating corporate criminal conduct. The Monaco Memo instructed each DOJ component to review its policies on corporate voluntary self-disclosure and, if there is no formal written policy to incentivize self-disclosure, it must draft and publicly share such a policy. Following that instruction, a Corporate Criminal Enforcement Policy Working Group prepared the VSD Policy for all USAOs.

If a company meets the standards for self-disclosure under the new policy, it may avoid a guilty plea and the imposition of a compliance monitor. Communication with the USAO, however, is key. DOJ understands that companies may not know all the facts and thus may be hesitant to disclose an issue promptly. In those circumstances, companies should disclose what is known at the time, while making it clear that the disclosure is based upon a preliminary investigation or assessment of information.

The VSD policy applies to all companies, including those that have been the subject of prior resolutions. Even when a company has aggravating factors, it can still receive benefits of voluntary self-disclosure, and the policy specifies those benefits. For example, if the USAO imposes a criminal penalty due to an aggravating factor, it will not be greater than 50% below the low end of the U.S. Sentencing Guidelines fine range. In addition, if a guilty plea is still warranted due to an aggravating factor, but the company otherwise meets the VSD requirements, the USAO will recommend to a sentencing court at least a 50% reduction, and up to a 75% reduction, off the low end of the Guidelines fine range.

Standards of Voluntary Self-Disclosure

According to the DOJ, the following are the standards for voluntary self-disclosure under the VSD Policy:

1. Voluntary: VSDs only occur when the disclosure of misconduct is made voluntarily by the company. A disclosure will not be deemed a VSD under this policy where there is a preexisting obligation to disclose, such as pursuant to regulation, contract, or a prior Department resolution (e.g., non-prosecution agreement or deferred prosecution agreement).
2. Timing of the Disclosure: A disclosure will only be deemed a VSD when the disclosure is made to the USAO:
   

   a. prior to an imminent threat of disclosure or government investigation;

   b. prior to the misconduct being publicly disclosed or otherwise know to the government; and

   c. within a reasonably prompt time after the company becoming aware of the misconduct, with the burden being on the company to demonstrate timeliness.

3. Substance of the Disclosure and Accompanying Actions: For a disclosure to be deemed a VSD under this policy, the disclosure must include all relevant facts concerning the misconduct that are known to the company at the time of the disclosure.

As set forth above, if a company does not know all the relevant facts at the time of a VSD, because the company disclosed reasonably promptly after becoming aware of the misconduct, it should make that clear to the USAO.

The USAO further expects that the company will move in a timely fashion to preserve, collect, and produce relevant documents and/or information, and provide timely factual updates to the USAO. Should the company conduct an internal investigation, the USAO expects appropriate factual updates as that investigation progresses.

Credit for Voluntary Self-Disclosure, Full Cooperation, and Timely and Appropriate Remediation

Under the VSD Policy, the USAO will not seek a guilty plea where a company has (a) voluntarily self-disclosed in accordance with the criteria set forth above; (b) fully cooperated; and (c) timely and appropriately remediated the criminal conduct. Instead, the USAO may offer a declination, non-prosecution agreement, or deferred prosecution agreement.

However, the USAO has flagged the following aggravating factors that may result in the USAO seeking a guilty plea despite a company’s voluntary self-disclosure:

1. The misconduct poses a grave threat to national security, public health, or the environment;
2. The misconduct is deeply pervasive throughout the company; or
3. The misconduct involved the current executive management of the company.

Under the VSD Policy, the USAO will also require appropriate remediation, including but not limited to, disgorgement, forfeiture, and restitution resulting from the misconduct at issue. Additionally, the USAO may not require an independent compliance monitor for a cooperating company that voluntarily and timely self-discloses and engages in remedial conduct, if the company demonstrates at the time of resolution that it has implemented and tested an effective compliance program.

Conclusion

The new VSD Policy provides some additional insight for companies into what, how, when, and why they should disclose corporate misconduct. It is essential that companies conduct prompt internal reviews and full investigations of all whistleblower cases, so that they can identify misconduct, quickly gather relevant facts, and begin remediation. The policy further emphasizes the need for companies to amplify their compliance procedures and practices to ensure their ability to self-disclose misconduct to the USAO. A company that promptly discloses an issue to the government and demonstrates that it remediated the problem will put itself in the best position to negotiate a favorable resolution. 

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