On February 22, 2023, the US Department of Justice (DOJ) announced a Voluntary Self-Disclosure Policy (VSD Policy) to formalize DOJ’s efforts to incentivize companies to voluntarily self-report criminal misconduct to the government. The VSD Policy, which is effective immediately and applies to all US Attorney’s Offices (USAO) nationwide, standardizes how DOJ defines corporate voluntary self-disclosure and offers significant benefits to companies that meet the VSD Policy’s exacting criteria.
Coming months after Deputy Attorney General Lisa Monaco directed all USAOs that prosecute corporate crime to draft or review their corporate self-disclosure policies, the VSD Policy aims to make good on Monaco’s stated goal of increasing transparency and predictability for companies considering whether to voluntarily report wrongdoing to the government. At the same time, however, the VSD Policy continues to vest USAOs with broad discretion to determine the fate of companies that self-disclose, and it remains to be seen how the VSD Policy will be applied in practice.
Below, we discuss the newly announced VSD Policy and its implications for companies that may find themselves grappling with whether to come forward and make a voluntary self-disclosure.
Voluntary Self-Disclosure, Defined
To qualify as a voluntary self-disclosure under the VSD Policy, a company’s disclosure must meet all of the following criteria:
- Voluntariness – Disclosures must be truly voluntary, meaning the company had no “preexisting obligation to disclose” the misconduct. As such, disclosures made pursuant to a regulation, contract, or prior DOJ resolution (for instance, a non-prosecution or deferred prosecution agreement) are not considered voluntary under the VSD Policy, nor is disclosure made by a corporate whistleblower.
- Timeliness – Disclosures must be made promptly, meaning:
- Prior to an “imminent threat of disclosure or government investigation”;
- Prior to the misconduct being “publicly disclosed or otherwise known to the government”; and
- “Within a reasonably prompt time after the company becomes aware of the misconduct, with the burden being on the company to demonstrate timeliness.”
- Completeness – Disclosures must include “all relevant facts concerning the misconduct” of which the company has knowledge at the time. If a company does not yet know all relevant facts, the company should inform the USAO that the disclosure is “based upon a preliminary investigation or assessment,” but must nonetheless “provide a fulsome disclosure” of known facts.
The company should also “move in a timely fashion” to preserve, collect, and produce relevant documents and information to the USAO, and must provide the USAO with timely factual updates, including updates based on any internal investigation the company may conduct.
Notably, although these criteria seemingly provide clear (albeit strict) guidance, ultimately USAOs retain significant discretion under the VSD Policy to decide whether to credit a company’s self-disclosure. To that end, the VSD Policy provides that “[d]ecisions about whether a disclosure constitutes a VSD will be made by the USAO based on a careful assessment of the circumstances of the disclosure on a case-by-case basis and at the sole discretion of the USAO.”
The Benefits of Voluntary Self-Disclosure
Companies that fully satisfy the VSD Policy can reap substantial benefits:
- No aggravating factors – Absent any aggravating factors, the USAO will not seek a guilty plea where a company has (a) voluntarily self-disclosed in accordance with the VSD Policy, (b) fully cooperated, and (c) timely remediated the criminal conduct, including by agreeing to pay all disgorgement, forfeiture, and restitution resulting from the misconduct.
In addition, when a company satisfies the VSD Policy, the USAO will not impose a criminal penalty greater than 50% below the low end of the US Sentencing Guidelines (USSG) fine range, and may choose not to impose a criminal penalty at all.
- Aggravating factor(s) – If a company has satisfied the VSD Policy but a guilty plea is nonetheless warranted due to an aggravating factor, the USAO will still recommend a 50% to 75% reduction off of the low end of the USSG fine range. Aggravating factors that may lead the USAO to seek a guilty plea include, for example, “deeply pervasive” misconduct; misconduct that poses a grave threat to national security, public health, or the environment; or misconduct involving a company’s current executive management.
As an additional benefit, the VSD Policy also provides that the USAO will not require a qualifying company to appoint an independent monitor if the company has demonstrated that it has implemented an effective compliance program.
- Devote sufficient resources to legal and compliance functions – Companies should provide sufficient resources and training to their legal and compliance teams. Arming corporate legal and compliance departments with the tools to promptly detect misconduct could be critical to reaping the benefits of the VSD Policy, should the company decide to come forward and report that misconduct to DOJ.
- Implement a robust compliance program – In addition to ensuring that their legal and compliance departments have sufficient resources, companies should take steps to implement a robust compliance program throughout the organization. Companies should ensure, for example, that they have in place internal mechanisms to report wrongdoing, and should encourage employees to use them if they have concerns. Employees who know there are meaningful internal channels to report concerns may be more likely to voice complaints that way, at least initially, rather than blowing the whistle to the government — which would in turn disqualify the company from reaping the benefits of the VSD Policy, as self-disclosure of misconduct already known to DOJ is not credited.
- Preserve relevant evidence – To reap the benefits of the VSD Policy, a company must provide the USAO with the relevant facts and information known to the company at the time of the self-disclosure. Companies that uncover potential wrongdoing should therefore take prompt steps to preserve documents and evidence for potential production.
- Investigate promptly, but carefully consider whether to self-disclose – To be credited under the VSD Policy, disclosure must be made before the government knows of the criminal misconduct at issue, and within a “reasonably prompt time” after the company becomes aware of the misconduct. Given this, if a company uncovers possible misconduct, it is in the company’s interest to investigate quickly. Companies should thoroughly document all steps in the investigatory process.
Following any such investigation, however, companies should carefully consider whether to self-disclose any misconduct to the government. Various factors could be significant in that decision-making calculus. For instance, companies should bear in mind that the VSD Policy contains exceptions that prevent companies from reaping the VSD Policy’s full benefits, even where misconduct is disclosed promptly — including “deeply pervasive” wrongdoing or wrongdoing involving current management. Given how quickly disclosure must be made to receive VSD Policy credit, it might be difficult for a company to know how pervasive any misconduct was, or whether current management was involved, at the time the company is facing the self-disclosure decision. Companies may therefore find themselves balancing the need to thoroughly investigate against the need to promptly self-report and ensure that any disclosure is deemed timely pursuant to the VSD Policy. And companies should bear in mind that USAOs retain discretion to decide whether a company should receive credit under the VSD Policy in the first place. Finally, companies may also grapple with the financial implications of any self-disclosure: even with full credit under the VSD Policy, companies are still required to pay disgorgement, forfeiture, and restitution attributable to the misconduct.
- Take appropriate remedial measures – The VSD Policy provides that the USAO will not seek a guilty plea where a company has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated the criminal conduct. The VSD Policy further states that the USAO will not require an independent compliance monitor for a company that has taken appropriate remedial measures, if the company demonstrates it has implemented an effective compliance program. Remediation is therefore a key to reaping the full benefits of the VSD Policy. Appropriate remediation under the VSD Policy “must include, but is not necessarily limited to” the company agreeing to pay all disgorgement, forfeiture, and restitution resulting from the misconduct at issue. Depending on the circumstances, other remedial measures could conceivably include, for instance, terminating the individual employees responsible for the misconduct or implementing improved controls or an enhanced compliance program.
Ultimately, only time will tell how the VSD Policy will be applied, whether it will make outcomes more predictable for companies that self-report, and whether the steep incentives it codifies will in fact drive an uptick in self-disclosures. What is clear, however, is that companies that do uncover misconduct should carefully and deliberately weigh the benefits and consequences of coming forward and self-reporting to the government.
Anne E. RailtonPartner
Courtney D. OrazioPartner