Key Takeaways:
- Noncompliance by individuals or organizations receiving federal funds could result in a costly government enforcement action under the False Claims Act or even criminal prosecution
- Government self-disclosure programs are varied and unique to the administering agency
- Self-disclosure may be mandatory, but many agencies offer voluntary disclosure programs
- Self-disclosure must be navigated strategically with advice from experienced legal counsel
The High Stakes of Noncompliance
Mistakes happen. Most organizations and the people who operate them strive to comply with the complex laws and regulations that govern them. Occasionally, however, a business can fall short of full compliance for any number of reasons—from inadvertent missteps to intentional fraud by bad actors. Whether you are a healthcare provider, government contractor, financial institution, non-profit organization, ERISA fiduciary, publicly-funded grant recipient, or a taxpayer, you bear the burden of compliance and the consequences of noncompliance.
Government self-disclosure programs offer individuals and organizations an opportunity to take action ahead of, and perhaps instead of, “getting caught.” If noncompliance is discovered, instead of waiting for a civil investigative demand, subpoena, or call from the government, an organization or individual should consider self-disclosure. For some organizations and individuals, it may be required. For others, it may be an opportunity.
The stakes for failure to comply with applicable laws and regulations are high. Enforcement actions by the government can result in serious financial consequences like fines, penalties, restitution or disgorgement. An organization’s operations could be critically disrupted. For example, enforcement actions can result in debarment (excluding individuals or companies from receiving federal funds), suspension of licenses or permits, revocation of funding, cancellation of contracts, mandatory compliance monitoring, and banning individuals or companies from the marketplace. The Department of Justice may pursue civil enforcement under the False Claims Act where the non-compliance is interpreted as fraud. Prosecutors may even consider criminal charges where the non-compliance appears intentional or willful. Beyond the legal realm, the reputational damage of a public enforcement action against an organization may be challenging to repair.
The Options Upon Discovery of Noncompliance
Early detection of noncompliance offers an opportunity to organizations and individuals to navigate a strategic course, including through self-disclosure. Many government agencies have a self-disclosure program—each with unique requirements, benefits, and considerations. If you learn of noncompliance, it is important to consult with experienced attorneys to assess your options, gather and verify the facts, and act promptly. An internal investigation may be necessary to confirm whether suspected noncompliance occurred, and if so, the nature and scope of noncompliance, and to identify the individuals responsible.
It is also imperative an individual or organization understand whether self-disclosure to a government agency will waive their attorney-client privilege in subsequent civil litigation. The answer will depend on the nature of the information disclosed, the agency and disclosure program involved, the circumstances under which disclosure was made, and which Circuit Court of Appeals may review the question.
In some cases, self-disclosure is mandatory. This is the case, for example, for some contractors providing services under contracts with the U.S. Department of Health and Human Services.
In other cases, the government offers meaningful leniency for prompt voluntary disclosure of noncompliance. Disclosure programs may help avoid a public government enforcement action and its consequences. Self-disclosure can also demonstrate to government and non-government agencies, shareholders, employees, and industry stakeholders your entity’s integrity and commitment to compliance.
Examples of government disclosure programs that can be used to avoid the worst:
- The Department of Defense Office of Inspector General (DOD OIG), Contractor Disclosure Program
This program provides federal defense contractors with a method to fulfill their mandatory reporting obligations under the Federal Acquisition Regulation (FAR). When credible evidence of fraud is discovered, disclosure to DOD OIG may be required. Questions of who is required to report, what rules apply, what circumstances require reporting, and what the content of the reporting should include are best navigated with advice from an experienced attorney. Once suspected fraud is disclosed, DOD OIG reviews the matter with stakeholders in the Department of War and provides notification to the Department of Justice. These agencies will likely undertake an audit and investigation. Criminal prosecution, civil enforcement actions under the False Claims Act, debarment, and suspension are possible consequences which may be avoided if a company navigates the disclosure scrupulously. Department of Defense Office of Inspector General, Contractor Disclosure Program - The Department of Justice, Antitrust Division, Corporate Leniency Policy
This policy provides corporations with an option to voluntarily self-report federal violations involving price-fixing, bid-rigging, and market allocation crimes, and requires they cooperate in the criminal antitrust investigation. In exchange, the Leniency Policy offers non-prosecution protections for the corporate entity and its cooperating personnel who are the first to report the wrongdoing. Time is of the essence in deciding whether to self-report to the Antitrust Division because leniency will only be available to the first corporation to come forward and provide truthful, continuing, and complete cooperation. Whether a corporation should self-report depends on numerous and complex factors. For example, the Leniency Policy is limited in scope and will not bind other federal or state prosecuting agencies, nor will it bind other DOJ components. Further, a participant corporation is required to commit to cooperate with the DOJ, an obligation which should be considered carefully. Department of Justice Antitrust Division – Leniency Policy. - The U.S. Department of Health and Human Services, Office of Inspector General
DHHS offers three self-disclosure programs for (i) health care fraud for providers, suppliers, and others who are subject to Civil Monetary Penalties under 42 U.S.C. § 1320a-7a and the Antikickback Statute under 42 U.S.C. 1320a-7b; (ii) for contractors for entities with a Federal Acquisition Regulation-based contract; and (iii) for grant recipients for whom disclosure of potential criminal violations is mandatory, while disclosure of conduct that might create liability under the Civil Monetary Penalty Law is not mandatory, but may be made voluntarily. These programs facilitate the disclosure of self-discovered evidence of potential fraud, violations of the False Claims Act, conflicts of interest, bribery or gratuity, or violations of criminal laws; they are not designed for simple overpayments. The requirements of these programs are detailed, and strict compliance is necessary. Participation in these programs may prevent the costs and disruptions associated with a government-directed investigation, civil or administrative litigation, and may provide relief from Civil Monetary Penalties. U.S. Department of Health and Human Services, Self-disclosure Information - The IRS Voluntary Disclosure Program
The IRS offers taxpayers facing potential criminal liability an option to submit a truthful, timely, and complete disclosure of any willful noncompliance. Importantly, this program is not for taxpayers whose noncompliance was the result of an error or mistake. Voluntary disclosure offers the benefit of reduced civil penalties, but will not guarantee immunity from criminal prosecution. Voluntary disclosure will be considered by IRS Criminal Investigation and the Department of Justice, and they may decline to prosecute. A proposal to change the program is currently pending and open for public comment. Critically, a taxpayer considering this option should first seek advice from an experienced criminal tax attorney. IRS Criminal Investigation Voluntary Disclosure Practice - New York’s Department of Taxation and Finance Voluntary Disclosure Program
New York State provides taxpayers with an option to file their delinquent tax returns or pay taxes they owe without penalties or criminal prosecution. The program is available for a variety of taxes including income, corporate, and sales taxes. A taxpayer may be eligible for the program even if his or her nonpayment was the result of fraudulent or criminal conduct. With some exceptions, any information provided in a voluntary disclosure by a taxpayer cannot be used against a taxpayer or shared with federal, state, or local government agencies. Department of Taxation and Finance – Voluntary Disclosure and Compliance Program - The Department of Labor Voluntary Fiduciary Correction Program
The Department of Labor allows employers and plan officials to voluntarily correct violations of the Employee Retirement Income Security Act (ERISA) and avoid civil enforcement actions by the Department of Labor. These violations include breaches of fiduciary duties, including for delinquent participant contributions and loan repayments, and eligible inadvertent participant loan failures. When corrections are made through this program, employers can receive a “no action” letter from the Employee Benefits Security Administration (EBSA) and will not be subject to civil monetary penalties for the corrected transactions. Employers can also receive conditional relief from excise taxes for certain transactions. U.S. Department of Labor – Voluntary Fiduciary Correction Program
Avoiding Noncompliance in the First Place
There are also steps you can take today to mitigate the risk of a government enforcement action:
- Adopt a written code of conduct and employee training programs to ensure the organization’s workforce is aware of expectations to act ethically and honestly, and the disciplinary consequences of non-compliance.
- Implement internal policies designed to assist employees in complying with legal requirements and prevent potential violations, whether inadvertent or intentional.
- Create a program for proactive compliance monitoring. Some government agencies provide guidance for organization’s compliance infrastructure, for example HHG OIG’s General Compliance Program Guidance and DOJ’s Guidance on the Evalution of Corporate Compliance Programs
- Ensure employees are aware they are expected to promptly report compliance-related concerns and create a safe, reliable method for employees and stakeholders in your business to report issues internally.
- Develop and enforce a strict policy of non-retaliation and non-intimidation for those who report compliance-related concerns in good faith, whether or not the concerns prove to be unfounded.
- Budget and plan for when a self-audit or internal investigation may become necessary.
- Seek counsel to regularly review and audit your policies and procedures to ensure compliance with changes in the law.
It takes institutional courage to voluntarily self-report noncompliance. Leading your institution through an incident of noncompliance is a critical moment and must be done right. Engage a legal team with deep experience navigating high-stakes matters inside of these federal agencies. The Government and Internal Investigations team at Harter Secrest & Emery can help determine whether disclosure is the right path for your organization, and if so, can guide you through it.