SDNY Whistleblower Program for Individuals: An Extension of DOJ Corporate Voluntary Disclosure Policies

In this article, we analyze the Southern District of New York’s (SDNY) new Whistleblower Pilot Program, how it fits into the US Department of Justice’s (DOJ) recent push for self-disclosure and the risks that a cooperator might face.

SDNY Whistleblower Program

SDNY’s new Whistleblower Pilot Program “encourage[s] early voluntary self-disclosure of criminal conduct” in exchange for a possible non-prosecution agreement (NPA). On its face, the policy seems immensely rewarding. But like any program, the benefits of cooperating have to be weighed against the risks, particularly here where the program is brand new and has not been assessed in practice.

Under the Whistleblower Pilot Program, SDNY will enter into a non-prosecution agreement with a cooperating individual who can provide information on criminal conduct undertaken by or through public or private companies, exchanges, financial institutions, investment advisors, or investment funds involving fraud, corporate control failures, bribery, or fraud relating to federal state or local funds. To qualify:

1. The information must not be public or be previously known to SDNY;
2. The information must be provided voluntarily;
3. The cooperating individual must truthfully and completely disclose all criminal conduct in which the individual participated and of which the individual is aware;
4. The individual must be able to provide substantial assistance to SDNY in its investigation and prosecution of one or more equally or more culpable persons and cooperate fully in the investigation and prosecution; and
5. The individual must provide complete disclosure of not only the criminal conduct in which the individual participated, but also of the criminal conduct of which the individual is aware.

The pilot program does not apply to a cooperator who (1) has been elected or appointed and confirmed to federal, state, or local office; (2) is an official or agent of a federal investigative or law enforcement agency; (3) is or is expected to become of “major public interest”; (4) is the CEO,CFO, or their equivalent of a public or private company; (5) has engaged in criminal conduct involving the use of force or violence; any sex offense involving fraud, force, coercion or a minor; terrorism or national security; or (6) has a previous felony conviction for conduct involving fraud or dishonesty. 

The pilot program also “does not apply to individuals who provide information regarding violations of the Foreign Corrupt Practices Act, or violations of federal or state campaign financing laws, federal patronage crimes, or corruption of the electoral process, or bribery of federal officials.”

Cooperators who come forward and check all the above boxes get the golden ticket — a NPA. An NPA is a get out of jail free card, with some caveats because cooperators may still be subject to civil penalties. It provides individuals with immunity from prosecution on crimes (except for tax fraud[1]) arising out of the specific set of disclosed facts. 

Corporate Voluntary Self-Disclosure Policy

SDNY’s pilot program is in line with DOJ’s recent efforts to reward companies that cooperated in a timely manner with DOJ. In a September 15, 2022, Memorandum (Monaco Memo), the Deputy Attorney General stressed that:

To receive full cooperation credit, corporations must produce on a timely basis all relevant, non-privileged facts and evidence about individual misconduct such that prosecutors have the opportunity to effectively investigate and seek criminal charges against culpable individuals. Companies that identify significant facts but delay their disclosure will place in jeopardy their eligibility for cooperation credit.

Further emphasizing the importance of timely cooperation, Deputy Attorney General Monaco instructed prosecutors that, “[g]oing forward, in connection with every corporate resolution, Department prosecutors must specifically assess whether the corporation provided cooperation in a timely fashion… . Where prosecutors identify undue or intentional delay in the production of information or documents … cooperation credit will be reduced or eliminated.” The Monaco Memo directed each DOJ component to develop and publish a Voluntary Self-Disclosure policy.

Following the directive of the Monaco Memo, in February 2023, DOJ announced the implementation of a new Voluntary Self-Disclosure Policy detailing the circumstances under which companies would be considered to have made a voluntary self-disclosure of misconduct. Under the policy, companies that became aware of misconduct before it was publicly reported or otherwise known to DOJ, disclosed all relevant facts to a US Attorney’s Office in a timely fashion, and appropriately remediated the criminal conduct would not be required to enter a guilty plea and would not be subject to the imposition of a compliance monitor. Companies that fully comply with DOJ’s policy will receive deferred prosecution agreements, NPAs, and declinations. Fines will also be significantly discounted.

Previous SDNY Policy Concerning Individual Cooperation

The new SDNY policy is a dramatic departure from its prior policies involving individual cooperators. The office previously required cooperators to fully disclose all prior criminal activity and to plead guilty to all federal crimes disclosed during their cooperation. Successful cooperators hope that a prosecutor’s 5K1.1 letter will result in a lenient sentence. Section 5K1.1 of the US Sentencing guidelines provides, in part, that “[u]pon motion of the government stating that the defendant has provided substantial assistance in the investigation or prosecution of another person who has committed an offense, the court may depart from the guidelines.” (emphasis added). Although the commentary on Section 5K1.1 provides that “[s]ubstantial weight should be given to the government’s evaluation of the extent of the defendant’s assistance,” the sentencing court ultimately has full discretion over how to sentence a cooperator. 

The Section 5K1.1 letter is nothing more than a recommendation. Even if a cooperator avoids incarceration, they still face the impact of felony conviction on the ability to adopt, housing, welfare, immigration, employment, professional licensure, and property rights. By contrast, with an NPA, there is no felony conviction, no risk that a sentencing judge will determine that incarceration is appropriate, even after cooperation. Although the upside of SDNY’s whistleblower pilot program is substantial and should incentivize cooperators to come forward, whistleblowers should exercise caution before deciding to enter into the SDNY Whistleblower Program. Significantly, it remains in the sole discretion of the US Attorney’s Office to determine whether an individual is eligible for a non-prosecution agreement. 

Risks of Cooperation

The SDNY Whistleblower Program applies to criminal conduct that SDNY does not know about. If an individual provides information about misconduct which is already known to the US Attorney’s Office, that individual is ineligible for the Whistleblower Program and may be charged with criminal violations. Under such circumstances, the SDNY “may consider, with supervisory approval …, exercising discretion to extend an NPA in exchange for the individual’s cooperation,” but whether such discretion will be afforded is a big question. And because the pilot program is so new, it is unclear how and when SDNY will exercise discretion. Additionally, SDNY’s decision to enter into an NPA does not preclude other offices and agencies from prosecuting the cooperator. Finally, cooperators may face civil consequences and reputational issues arising out of testimony at trial. While these consequences may pale in comparison to the collateral consequences of a federal criminal prosecution, the uncertainty about eligibility and the likelihood of civil consequences may dissuade some potential whistleblowers entering into the program.

[1] Although SDNY’s whistleblower policy doesn’t explicitly exclude tax prosecutions, given the Tax Divisions authority to oversee all federal criminal tax enforcement, the Tax Division and not the SDNY has the sole discretion to decline prosecution in criminal tax matters. U.S.A.M. 6-4.010.