Last week, on May 7, 2019, the U.S. Department of Justice (“DOJ”) announced the issuance of formal guidance to clarify the manner in which the DOJ allocates credit to defendants who cooperate with government investigations in False Claims Act (“FCA”) matters. In a press release from the Office of Public Affairs, the DOJ explained that it “has taken important steps to incentivize companies to voluntarily disclose misconduct and cooperate with [DOJ] investigations[.]” Specifically with regard to the FCA, the DOJ announced, “False Claims Act defendants may merit a more favorable resolution by providing meaningful assistance to the [DOJ] – from voluntary disclosure, which is the most valuable form of cooperation, to various other efforts, including the sharing of information gleaned from an internal investigation and taking remedial steps through new or improved compliance programs.”
The new guidance, reflected in Justice Manual Section 4-4.112, offers a number of instructive considerations for defendants in an active FCA matter, as well as companies that discover potential FCA violations through internal audits or investigations:
- Entities or individuals that proactively and voluntarily self-report misconduct in a timely fashion will receive credit during the resolution phase of an FCA matter. This cooperation credit is available even if the Government has already initiated an FCA inquiry. If results of an internal investigation reveal additional misconduct beyond the scope of the Government’s known concerns, voluntary self-disclosure of the additional misconduct would qualify for cooperation credit.
- Entities or individuals may also receive credit by cooperating with an ongoing FCA investigation. Although the DOJ did not delineate a specific list of actions that could result in cooperation credit, it did provide examples of the kind of activities that would likely be taken into account. These examples included: identifying the specific individuals substantially involved or responsible for the misconduct and any witnesses who may have information relevant to the Government’s investigation; disclosing evidence relevant to the Government’s investigation that is not already in possession of the target of the investigation; making employees with knowledge or evidence that could assist the Government in its investigation available for interviews; identifying potential misconduct by third-party individuals or entities; admitting liability or accepting responsibility for the misconduct; and assisting in the determination or recovery of losses.
- Entities or individuals may receive credit whether they have taken remedial measures in response to the discovery of an FCA violation to ensure that future FCA violations do not occur. Remedial measures may include: conducting a thorough analysis of the underlying conduct and implementing measures to address the cause; implementing or improving compliance programs; or disciplining those employees or directors responsible for the misconduct.
In addition to these factors, the guidance clarifies that DOJ also may, in its discretion, take into consideration “the nature and seriousness of the violation, the scope of the violation, the extent of any damages, the defendant’s history of recidivism, the harm or risk of harm for the violation, whether the United States’ interests will be adequately served by a compromise, the ability of a wrongdoer to satisfy an eventual judgment, and litigation risks presented if the matter proceeds to trial” when determining whether to award cooperation credits or increase or decrease an individual’s or entity’s potential liability for an FCA violation.
To earn the maximum cooperation credit available for an FCA defendant, the DOJ explained that the defendant “generally should undertake a timely self-disclosure that includes identifying all individuals involved in or responsible for the misconduct, provide full cooperation with the government’s investigation, and take remedial steps designed to prevent and detect similar wrongdoing in the future.” Even “if an entity or individual does not qualify for maximum credit, they may receive partial credit if they have meaningfully assisted the government’s investigation by engaging in conduct qualifying for cooperation credit.”
This official guidance expands on numerous memoranda issued over the last several years and represents the clearest picture yet that the DOJ will permit individuals and entities alleged to have committed misconduct to reduce their potential liability under the FCA for cooperating with the Government’s investigation. The guidance also serves as a reminder to government contractors to implement effective internal controls and compliance mechanisms to ensure that any potential misconduct that could result in a violation of the FCA is identified early; to report discoveries of wrongdoing in a timely and appropriate manner; and to implement remedial measures to prevent future potential wrongdoing. If companies implement these safeguards, they will be in the best position to reduce any potential liability to the Government in the event of an FCA investigation or litigation.
For advise on the False Claims Act, including how to put your business in the best position to avoid a False Claims Act investigation or lawsuit, the attorneys in PilieroMazza’s False Claims Act practice group are available to assist you. Please contact Matthew Feinberg at [email protected].