Heads up: Companies can avoid criminal prosecution and million-dollar payouts for serious violations and mistakes by taking advantage of the Justice Department’s self-reporting policy.
Justice recently revised the parameters for self-reporting so that it’s applied evenly in all districts. All of the conditions are crystal-clear, which is great news for execs and company lawyers that are forced to deal with a violation of the law. The downside is Justice gave itself multiple “outs” that allow for criminal cases to move forward regardless of whether the company comes forward.
The overwhelming majority of cases brought by federal agencies and Justice are settled, but those settlements typically dwarf the amount of civil penalties. For example: Investment advisors Betterment just settled with Justice and the Securities Exchange Commission (SEC) for $9 million.
The SEC Charged Betterment for not informing its clients about an automated tax-loss harvesting service it offered and recordkeeping discrepancies. Clients of Betterment complained they paid more than they needed to in taxes because they weren’t advised of the company’s full range of services.
Report it before the government finds out on its own
Here’s a quick rundown of the revised self-disclosure policy:
Self-disclosure must be made voluntarily by the company and not a whistleblower, and it must be given before the government knows about a violation. All facts about the violation must be given to the DOJ’s environmental crimes division or U.S. Attorney’s office where the violation occurred.
Aggravating and disqualifying factors that may warrant either a guilty plea or prosecution even if a company self-discloses include:
- knowing endangerment
- pervasive misconduct that Justice lawyers may uncover
- concealment or obstruction of justice
- lack of cooperation, and
- failure to remediate the problem.
Keep in mind that agencies like the SEC or the IRS aren’t the only agencies that can refer violations for criminal prosecutions. Disparities in job interview offers and hiring, environmental and safety accidents, and “outside-the-lines” efforts to thwart union formation, can lead to criminal cases.
Bottom line: Robust compliance programs and internal self-auditing are more paramount than ever. Employees need to know they’re responsible for – and feel empowered – to report unethical or illegal activities if they uncover them.