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24 December 2018
Government attorneys now have additional discretion in False Claims Act civil cases to award cooperation credit to a corporation that meaningfully assists the government's investigation without necessarily identifying every individual person outside of senior management involved in the alleged misconduct. To earn maximum cooperation credit, in both criminal and civil cases, a corporation will still be required to identify individuals who were substantially involved or responsible for the wrongdoing. However, in civil cases, a corporation may now earn some credit for providing meaningful assistance even if it has not provided information identifying all such individuals.
Deputy Attorney General Rod J Rosenstein made the announcement, which has immediate effect, on 29 November during his keynote address at the American Conference Institute's 35th International Conference on the Foreign Corrupt Practices Act.
Increased discretion in granting cooperation credit is one piece of a larger Department of Justice (DOJ) effort to reform False Claims Act enforcement.
With his announcement, Rosenstein drew a clear line between criminal and civil cases. In criminal investigations, companies must provide information on all individuals who were substantially involved in the criminal conduct at issue, regardless of their level of seniority.
On the other hand, Rosenstein observed that "[c]ivil cases are different" and concluded that the 'all-or nothing' approach has been inefficient and counterproductive to the False Claims Act's main goals – deterrence and the reimbursement of victims (which, in False Claims Act cases, is the government). Notably, he underscored the importance of having DOJ policies that "work in the real world". Because False Claims Act cases are about pursuing fraudulently obtained government moneys, the DOJ now appears to realise that pursuing judgment-proof, lower-level employees is a waste of everyone's resources.
Rosenstein pre-empted the recent announcement by reaffirming that the pursuit of individuals responsible for wrongdoing remains a top priority. While the new policy may not be intended as a full shift away from the strategy of the 2015 Yates Memo, it does signal a softening of how that memo's objectives should be implemented. Issued by then-Deputy Attorney General Sally Yates, the Yates Memo announced a DOJ policy of greater scrutiny of individuals in corporate investigations. In his remarks, Rosenstein acknowledged that for allegations involving "activities throughout the company over a long period of time, it is not practical to require the company to identify every employee who played any role in the conduct".
With the new policy, DOJ prosecutors resolving civil False Claims Act cases may award:
Two other policy changes announced by Rosenstein are intended to further restore discretion to civil DOJ attorneys. Government attorneys may now negotiate civil releases for individuals who do not warrant additional investigation in corporate False Claims Act civil settlement agreements. After the issuance of the Yates Memo and until the changes Rosenstein announced, the DOJ explicitly carved out individual civil liability in all corporate False Claims Act resolutions, as a matter of policy, leaving individual employees open to the risk of later being sued for related conduct. Given this announcement, a significant shift in approach is expected. In addition, civil DOJ attorneys are once again permitted to consider an individual's ability to pay in deciding whether to pursue a civil judgment.
The new DOJ policy reflects the reality of modern corporate investigations, as well as a more nuanced grasp of how limited resources on both the government's and defendants' side should be deployed to resolve corporate cases. It encourages realistic cooperation efforts without compromising the DOJ's policy of holding individuals accountable.
The announcement should come as a measure of relief to large corporations, where the task of identifying every potentially culpable individual – no matter at what level within the company – can be a challenging undertaking. The previous binary approach – full cooperation or no credit – was counterproductive to encouraging cooperation, forcing companies to analyse whether it was more economical to undergo a costly investigation or to miss out on the cooperation credit that could significantly affect the multiplier in civil cases. Rosenstein's remarks recognise that most companies want to cooperate, and the new policy is meant to reward that instinct.
For further information on this topic please contact Gejaa Gobena, Mitchell J Lazris or Peter S Spivack at Hogan Lovells US LLP's Washington DC office by telephone (+1 202 637 5600) or email (email@example.com, firstname.lastname@example.org or email@example.com). Alternatively, contact Karla Aghedo at Hogan Lovells US LLP's Houston office by telephone (+1 713 632 1400) or email (firstname.lastname@example.org). The Hogan Lovells US LLP website can be accessed at www.hoganlovells.com.
Jennifer Cochrane, associate, assisted in the preparation of this article.
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