On January 10, 2024, the United States Attorney’s Office for the Southern District of New York (SDNY) announced the creation of an SDNY Whistleblower Pilot Program. The program is designed to encourage early and voluntary self-disclosure of criminal conduct by individuals with information relating to financial crimes and political corruption, thus demonstrating the SDNY’s continued focus on prosecuting those crimes. Notably, in exchange for coming forward to self-disclose and cooperate, the SDNY has committed to the specific circumstances under which whistleblowers may be offered a non-prosecution agreement (NPA). This announcement is a departure from the SDNY’s longstanding position requiring that most whistleblowers involved in criminal conduct plead guilty pursuant to cooperation agreements, unless the whistleblower’s involvement was de minimus.
SDNY Whistleblower Pilot Program
The program is limited specifically to whistleblowers who come forward with information relating to financial crimes and political corruption. The SDNY will consider offering an NPA to whistleblowers if certain conditions are met, including that:
- the information must not already be known to the SDNY;
- the individual must be willing to cooperate in the investigation and prosecution and provide substantial assistance;
- the individual cannot be (i) an elected or appointed and confirmed federal, state or local government official, (ii) a federal official or law enforcement agent, (iii) a person who is or who will be of “major public interest,” and (iv) the CEO or CFO of a private or public company;
- the individual must not have a prior felony conviction or conviction of any kind involving fraud or dishonesty.
Even if the whistleblower does not meet all the above conditions, prosecutors have discretion in considering whether to extend an NPA.
Recent Whistleblower Trends
The SDNY program falls in line with a recent trend of whistleblower policies and updates across various federal agencies, as authorities increasingly try to incentivize companies and individuals voluntarily to disclose potential corporate criminal misconduct and corruption with carrots as well as sticks. Most notably, in January 2023, the Department of Justice revised its corporate enforcement policy to provide a presumption of a declination of prosecution (DPA) to companies that voluntarily self-disclose misconduct, fully cooperate, and remediate in a timely and appropriate manner.
Whistleblower programs offered by other agencies including the Securities and Exchange Commission (SEC), the Financial Crimes Enforcement Network (FinCEN) and the Commodities Futures Trading Commission (CFTC) likewise encourage individuals to come forward with information by offering hefty financial awards and strong anti-retaliation protections. Within a month after FinCEN created a revolving reward fund of $300 million to pay out informants, more than fifty people came forward with tips and information related to anti-money laundering and sanctions evasion. Both the SEC and the CFTC received a record number of whistleblower tips in fiscal year 2023: the SEC received over 18,000 tips and distributed nearly $600 million in whistleblower awards; the CFTC received a record 1,530 tips and nearly double the number of award applications than received in 2022.
The SDNY program offers a different but important incentive for potential whistleblowers—the possibility of protection from prosecution. With a potential NPA on the line, it appears likely that a similar trend of an increase in whistleblowing is likely to follow.
The SDNY program reflects the Office’s ongoing focus on prosecuting financial crimes as well as political corruption, allowing prosecutors to consider extending an NPA for information relating to those crimes even if the whistleblower does not meet all the requirements.
Going forward, companies will need to keep in mind that globally, regulators are increasingly providing additional incentives for whistleblowers to come forward and offering them greater protection for doing so.
In particular, companies may be well advised to review the robustness of their internal reporting channels and encouraging employees to use them. When operating effectively, such internal programs can help companies identify risk-related issues and expose potential violations in the workplace in advance of an external inquiry, thus affording companies an opportunity to identify, mitigate and remediate possible misconduct prior to an external escalation. As we wrote here, recent findings from the Freshfields whistleblowing survey suggest that the number of US employees who would report incidents of whistleblowing to their managers have decreased significantly, while the number of US employees who would report directly to authorities or on social media have increased. Companies may wish to keep such trends in mind when evaluating their internal compliance programs and considering what enhancements and internal messaging may be appropriate.