On May 7, 2019, the U.S. Department of Justice (DOJ) provided important new guidance addressing cooperation credit that may be available to defendants in False Claims Act (FCA) investigations (Guidance). The Guidance – issued in the form of an update to DOJ’s Justice Manual – explains how defendants in an FCA investigation may be awarded credit by DOJ for certain disclosures, cooperation, and remedial activities.
The Guidance is intended to incentivize companies and individuals to (i) be forthcoming with the government upon discovery of potential FCA violations, (ii) aid ongoing FCA investigations, and (iii) undertake appropriate remedial actions in response to misconduct. The Guidance provides examples of actions that FCA defendants may be able to take to reduce potential penalties under the FCA. As discussed below, DOJ’s examples appear to re-emphasize DOJ’s focus on individual accountability for corporate wrongdoing.
Acts of Cooperation Eligible for DOJ Credit
Justice Manual Section 4-4.112, which incorporates the Guidance, details how DOJ should take into account the following types of cooperation for purposes of reducing penalties:
- Voluntary Disclosure refers to the self-reporting of FCA misconduct in a “proactive, timely and voluntary” manner to DOJ, including reporting of “previously unknown false claims and fraud” or of additional misconduct discovered during the course of an internal investigation that may be outside the scope of DOJ’s initial inquiry.
- Other Forms of Cooperation refer to other acts that FCA defendants can undertake to earn credit, including without limitation:
- Identifying responsible or substantially involved individuals in misconduct;
- Disclosing relevant facts or opportunities to obtain evidence not known to the government;
- Preserving and disclosing relevant documents “and information relating to their provenance beyond existing business practices or legal requirements”;
- Identifying individuals aware of relevant information or conduct, including the operations, policies, and procedures of an entity;
- Making officers and employees with relevant information available to DOJ for interview, deposition, or other types of fact-gathering;
- Disclosing relevant facts obtained during internal investigations, and updates on the progress of investigations, provided that this shall not include disclosure of information subject to attorney-client privilege;
- Disclosing facts relevant to misconduct by third parties;
- Providing information to DOJ in a form and manner that facilitates review;
- Admitting to, or taking responsibility for, misconduct; and
- Assisting in determining losses and recovery of such losses attributable to the organization.
- DOJ attorneys will consider the value of voluntary disclosure and other cooperation in light of: “(1) the timeliness and voluntariness of the assistance; (2) the truthfulness, completeness, and reliability of any information or testimony provided; (3) the nature and extent of the assistance; and (4) the significance and usefulness of the cooperation to the government.”
- Remedial Measures refer to remedial actions undertaken by an entity that may merit the awarding of credit by DOJ, including without limitation:
- Root cause analyses and remediation of the root cause;
- Implementation or improvement of a compliance program to prevent reoccurrences;
- Disciplining and replacing individuals identified as responsible for misconduct, “either through direct participation or failure in oversight”; and
- Additional measures undertaken that demonstrate an understanding of the seriousness of FCA misconduct, acceptance of responsibility, and proactive measures to prevent a reoccurrence.
Determination of Credit by DOJ
The Guidance continues to explain how credit for the foregoing actions will be determined and applied by DOJ. For example, maximum credit may be warranted where an entity self-discloses misconduct, identifies culpable individuals, fully cooperates with DOJ’s investigation, and undertakes remedial steps to prevent future issues. While all three types of cooperation discussed above are generally required for maximum credit, the Justice Manual contemplates the awarding of partial credit for certain types of meaningful assistance.
According to DOJ, the primary form in which credit would be awarded is through a reduction in penalties and/or the FCA damages multiplier. DOJ cautions that such reduction may not exceed an amount which would prevent the full recuperation of losses by the government (which can include damages, interest, investigation costs, and relator fees). Furthermore, the DOJ has discretion to credit cooperation in other ways, including by (a) notifying other agencies of the cooperation to enable such cooperation to be considered in administrative actions, (b) public acknowledgment of such cooperation, and (c) assisting defendants in resolving qui tam litigation brought by relators.
The Guidance also indicates that cooperation credit will not be granted for compliance with any preexisting legal duties to “report or cooperate with the federal government,” or for the disclosure of information that is under threat of discovery or investigation. This caveat is important for entities already subject to the 60-Day Rule, which requires disclosure and return of overpayments of federal funds, and which can create FCA obligations where a known overpayment is retained in excess of 60 days.
This Guidance provides participants in federal programs and other government contractors with essential direction on how such entities may potentially mitigate exposure to FCA penalties in a proactive manner through self-disclosure and cooperation with DOJ. Of note, however, since the information is presented in the form of guidance and not regulation, it can be modified by DOJ in the future without notice or an opportunity for comment.
The examples provided in the Justice Manual may provide a basis for defendants in FCA actions to show good faith, as well as to guide certain internal compliance efforts and investigations. That said, the Guidance is notable for its focus on disclosures to the government concerning individual wrongdoing with companies, and for the apparent credit that may be earned (i) by making potentially culpable individuals available to DOJ for interview, and (ii) through discipline or replacement of parties involved and their supervisors.
The Guidance is also careful to distinguish the types of internal investigation information that would be provided to DOJ from information protected by attorney-client privilege, but in practice it may be difficult for entities to demonstrate cooperation while preserving the privilege. Moreover, it is important to recognize that the Guidance applies only to civil FCA cases, and not criminal health care fraud investigations. Ultimately, organizations subject to the FCA would be well-advised to study the Guidance and use it to inform ongoing compliance activities.
This post was co-authored by Michael Lisitano, legal intern at Robinson+Cole. Michael is not yet admitted to practice law.