Corporate boards and their leadership teams face unique compliance oversight challenges from the Department of Justice (“DOJ”)’s new Corporate Whistleblower Awards Pilot Program (“the Program”), the details of which were announced on August 1 by Principal Deputy Assistant Attorney General Nicole M. Argentieri.

This was not a totally unexpected development, as Deputy Attorney General Lisa O. Monaco previously introduced the basic objectives of the Program in a March 7 speech to the American Bar Association. Those objectives include (a) filling the gaps within the patchwork of existing federal whistleblower programs; and (b) further enhancement of DOJ’s focus on the use of financial incentives and disincentives to strengthen corporate compliance programs. The Program is not intended to overlap with any other existing federal whistleblower programs

In her March comments, DAG Monaco made it clear that Program details would be forthcoming. However, the breadth of those Program details, and their corporate governance implications, may come as a surprise to many board and executive leaders, as well as their internal legal and compliance advisors.

The basic concept of the Program remains the same: creating incentives for individuals to come forward and report corporate crime. The Program specifically focuses on the following four areas: (1) certain crimes involving financial institutions and their employees; (2) foreign corruption involving privately held companies; (3) domestic corruption involving companies; and (4) health care fraud schemes targeting private insurers not covered by qui tam claims under the False Claims Act.

In 14 single-spaced pages, the new Program guidance provides important detail on eligibility criteria, additional considerations for the payment of an award, additional guidance for public awareness, procedures for public submission of original information, and the procedures for claimants to apply for a whistleblower award.

Program details with the most relevance to corporate governance, and its compliance oversight obligations, include the following:

-Major Enforcement Commitment: The Program is the latest initiative arising from DOJ’s multi-year effort to intensify its corporate fraud enforcement focus. It is consistent with DOJ’s view that the effective use of criminal and civil asset forfeiture is an essential component of those enforcement efforts. It is also consistent with DOJ’s long-standing desire to encourage organizations to invest in compliance measures.

-Serious Money Involved: Awards to qualified whistleblowers will be based on a percentage of “net proceeds forfeited”; e.g., up to 30 percent of the first $100 million in net proceeds forfeited, and up to 5 percent of any net proceeds forfeited between $100 million and $500 million. Program guidelines allow for the possibility of increased payouts under certain circumstances, within the discretion of the DOJ. These factors will no doubt interest the whistleblower legal community.

-Significant Incentive Involved: Potential whistleblowers will be financially motivated by the Program (i.e., possibility of increased award) to report the alleged criminal conduct first through the organization’s internal whistleblower, legal, or compliance reporting mechanisms (e.g., the company “hotline”).

As Principal Deputy Assistant Attorney General Argentieri stated, “…we are telling employees: If you are aware of criminal misconduct at your company, now is the time to come forward to the Criminal Division.” Furthermore, the DOJ supports the whistleblowing process by making available on its website links to the Whistleblower Intake Formand the address to electronically submit or mail completed intake forms to the government.

-Confidentiality Protection: The Program incorporates a substantial commitment to maintaining the confidentiality of the whistleblower and states clearly DOJ’s intent to consider obstruction of justice review of facts suggesting any form of organizational retaliation in the whistleblower disclosure process.

-Complements Voluntary Self-Disclosure: Along with the announcement of the Program, DOJ simultaneously announced an amendment to its Corporate Enforcement and Voluntary Self-Disclosure Policy. The amendment provides that when a company is made aware of an internal report from a whistleblower (should it come forward and report the misconduct to DOJ within 120 days and before DOJ reaches out to the company), the company will be eligible for a presumption of a declination of prosecution (subject to full cooperation and remediation).

In this way, DOJ views the Program as complementary to its existing VSD programs for individuals and for companies because of the perceived relationship between the enhanced ability of individuals to report alleged wrongdoing and the perceived value to companies to voluntarily and promptly report such wrongdoing to the government under a VSD.

-Promotes Internal Reporting: The Program may motivate companies to confirm the effectiveness of their internal confidential reporting systems, as it offers whistleblowers a potentially greater award if they report the alleged misconduct through the existing company compliance hotline before reporting it to DOJ. In turn, the company has the opportunity to report the same misconduct under the VSD if done promptly. DOJ leadership has repeatedly reminded companies of the need to be “first in the door” to achieve protection from prosecution.

-Impact on Corporate Risk-Taking: Corporate leadership will need to evaluate the impact of increased whistleblower activity on informed risk-taking by the organization. Executives involved in pursuing strategies and practices with enhanced legal and compliance exposure may require additional comfort from leadership and counsel before proceeding.

-Impact on Compliance Oversight: DOJ makes it clear that one of the Program’s purposes is to give companies incentives to invest in strong internal reporting structures and to report crime when they learn about it. According to Principal Deputy Assistant Attorney General Argentieri, “[W]e are using more tools than ever before to identify corporate misconduct, so now is the time to make the necessary compliance investments to help prevent, detect, and remediate misconduct.”

Recognizing this, a board’s audit and compliance committee will have an interest in reviewing the accessibility of its hotline reporting systems and the manner in which reports are evaluated and responded to, especially as they may relate to possible voluntary disclosure. The vigor of the compliance plan’s anti-retaliation protections will similarly be of interest to the committee. It should also familiarize itself with the basic components of DOJ’s VSD programs to be prepared should the need arise to make such a voluntary disclosure.

-Impact on Tone at the Top: In its rollout of the Program, DOJ leadership has made clear its expectations of “every CEO and board member in America” concerning the need to invest in compliance and to build a culture of responsible corporate citizenship. That’s a fairly important message for leadership to hear.

Senior board and executive leaders should thus be motivated to expand their efforts to assure the workforce of the organization’s commitment to legal compliance, ethics, and integrity, especially with respect to supervision and advancement of employees and response to wrongdoing.

The “Multiplier Effect”: A particularly important take-away for corporate leadership from the Program announcement is DOJ’s belief that the combination of the new whistleblower awards program and its two (individual and corporate) voluntary disclosure programs “create a multiplier effect that encourages both companies and individuals to tell us what they know — and to tell us as soon as they know it.”

Furthermore, to be eligible for the most substantial benefits under these programs, both companies and individuals will be expected to share with DOJ “something [they] didn’t already know. With very few exceptions, being “first in the door” will be critical.

The Department of Justice’s new Whistleblower Awards Pilot Program reflects the latest in DOJ’s multi-year commitment to sharpen the focus on corporate fraud enforcement, support organizational corporate compliance efforts, and continue to pursue individual accountability for corporate fraud.

Given the board of directors’ fiduciary responsibility for corporate responsibility, and for oversight of corporate compliance, the implications of the new Program should be closely examined by the board and its key committees.

This post comes of us from Michael W. Peregrine and Ashley C. Hoff at the law firm of McDermott, Will & Emery LLP.