by Joshua A. Naftalis, Matt Getz, and Tracey Dovaston
From left to right: Joshua A. Naftalis, Matt Getz, and Tracey Dovaston. (Photos courtesy of Pallas Partners LLP).
In the past two weeks, the U.S. Department of Justice (DOJ) and the U.K. Serious Fraud Office (SFO) each made announcements about paying financial bounties to whistleblowers. On March 7, 2024, U.S. Deputy Attorney General Lisa Monaco announced a new DOJ whistleblower program that will compensate individual whistleblowers for reporting corporate or financial misconduct previously unknown to DOJ. This announcement followed a February 13, 2024 speech by SFO Director Nick Ephgrave, who said that he supported the idea of paying whistleblowers.
DOJ’s New Whistleblower Program
Speaking at the American Bar Association’s 39th National Institute on White Collar Crime, Deputy Attorney General Monaco announced that over the next 90 days, DOJ will develop and implement a whistleblower reward program. She explained, “The premise is simple: if an individual helps DOJ discover significant corporate or financial misconduct — otherwise unknown to us — then the individual could qualify to receive a portion of the resulting forfeiture.”
The Deputy Attorney General said that the program will have “some basic guardrails”: DOJ will offer payments (a) “[o]nly after all victims have been properly compensated”; (b) “[o]nly to those who submit truthful information not already known to the government”; (c) “[o]nly to those not involved in the criminal activity itself”; and (d) “only in cases where there isn’t an existing financial disclosure incentive — including qui tam or another federal whistleblower program.”
The Deputy Attorney General noted that the program will “create new incentives for individuals to report misconduct to the Department” and “drive companies to invest further in their own internal compliance and reporting systems.” She said that DOJ is “especially interested in information about: (a) “[c]riminal abuses of the U.S. financial system”; (b) “[f]oreign corruption cases outside the jurisdiction of the SEC, including FCPA violations by non-issuers and violations of the recently enacted Foreign Extortion Prevention Act”; and (c) “[d]omestic corruption cases, especially involving illegal corporate payments to government officials.”
Acting Assistant Attorney General for the Criminal Division, Nicole Argentieri, spoke further about the program on March 8, 2024. She said that DOJ’s Money Laundering and Asset Recovery Section (MLARS), together with the Criminal Division, “will be at the forefront” of designing and launching the new program, including because DOJ’s statutory authority for paying financial bounties is tied to DOJ’s forfeiture authority. She explained that the program is intended to “fill gaps” in the whistleblower programs operated by the SEC, the CFTC, and FinCen. As would be expected, DOJ “will only provide rewards to whistleblowers who submit original, non-public, truthful information not already known to the department, and only when that information is provided voluntarily and not in response to any government inquiry, preexisting reporting obligation, or imminent threat of disclosure.” And like the SEC and the CFTC, DOJ expects to set a monetary threshold for enforcement actions that make a whistleblower eligible for an award.
DOJ’s roll out of this policy dovetails with its recent policies designed to encourage and incentivize voluntary self-disclosure by corporations of misconduct. DOJ’s policy notably follows the announcement by the U.S. Attorney’s Office for the Southern District of New York (SDNY) of a pilot whistleblower program aimed at individuals on January 10, 2024, which we predicted in our earlier article. Unlike the DOJ’s new policy, the SDNY program does not provide for the payment of financial awards to tipsters. Instead, it offers individuals who self-report financial fraud and public corruption a path to a non-prosecution agreement. DOJ’s announcement came the day after the U.S. Attorney’s Office for the Northern District of California (NDCal) said it was launching its own whistleblower program, which will be similar to the SDNY’s and will focus on intellectual property cases. With DOJ’s announcement that it will pay whistleblowers, it will be interesting to watch whether the SDNY and NDCal will add a financial incentive component to their programs. SDNY’s and NDCal’s programs are not true whistleblower programs, but rather amnesty programs. In contrast, DOJ’s program is not available to individuals involved in the wrongdoing.
SFO’s Consideration of Paying Whistleblowers
During his inaugural speech as SFO Director, Nick Ephgrave indicated that the SFO too is considering a program that would pay whistleblowers for tips and referenced DOJ as a template for criminal enforcement.
Director Ephgrave explained that under his leadership, the SFO will continue to be focused on investigating and prosecuting fraud; the SFO will increase its collaboration with its law enforcement partners; and the SFO will become an organization that is characterized by “its strength, its dynamism, its confidence and its pragmatism.” He continued that if the SFO is “serious” about moving its investigations “quicker,” then “we need to focus on intelligence, and the information that we gather at the outset.”
In order to get access to “‘smoking gun’ evidence,” Director Ephgrave proposed two possible solutions. First, he said, “I think we should pay whistleblowers,” noting the success that DOJ has had in civil settlements and the fact that since 2012, over 700 U.K. whistleblowers have gone to U.S. law enforcement. Second, he referenced the U.K.’s “fantastic legislation,” the Serious Organised Crime and Police Act, which would allow the SFO “to encourage assisting offenders to progress our investigations” with “a reasonably decent reduction in sentence.” “Put those two things together, the incentivisation of witnesses and better use of the assisting offenders legislation, and we have the building blocks for a much quicker and more efficient way of dealing with big cases.”
Shortly after delivering this speech, Director Ephgrave visited senior officials at DOJ’s Criminal Division, the SDNY, and the U.S. Attorney’s Office for the Eastern District of New York. He said, “I aspire for us to be the collaboration partner of choice, both in this country and abroad.”
Director Ephgrave’s announcement should be viewed in the context of the ongoing whistleblower conversation in the United Kingdom. The UK government has been examining its whistleblowing framework generally, and its findings are expected to be published at the end of March 2024. Notably, the Financial Conduct Authority (FCA), which has previously rejected the idea of incentivization of whistleblowers, may also be reconsidering the idea. Recent reporting suggests that Therese Chambers and Steve Smart, Joint Executive Directors of Enforcement and Market Oversight at the FCA, will be making a decision on incentivization following discussion with Director Ephgrave.
Conclusion
DOJ’s new whistleblower policy and the SFO’s consideration of paying whistleblowers are potentially watershed moments in white collar enforcement. Until now, criminal authorities in both countries have not had formal programs or policies that allow for the payment of financial bounties. With these potentially coordinated policy changes, we expect an increase in the number of individuals and companies reporting fraud and white collar offenses, and further coordination between U.S. and U.K. criminal authorities.
Joshua A. Naftalis, Matt Getz, and Tracey Dovaston are Partners at Pallas Partners LLP. The post was first distributed by the firm as a memo.
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