On February 24, 2024, the United States Attorney’s Office for the Southern District of New York (SDNY) announced its new Corporate Enforcement and Voluntary Self-Disclosure Program (the SDNY VSD Program) that materially reshapes the incentives (and timing) around corporate self-reporting. Unlike traditional Department of Justice voluntary disclosure frameworks, which often leave companies in limbo for months or years before resolution, SDNY’s program offers something new: the possibility of an early, conditional declination shortly after a qualifying disclosure. For companies that move quickly and meet the program’s requirements, the payoff is significant: no criminal charges, no fines, and no corporate monitor.
To be eligible for this conditional declination, an eligible company must, among other things, fully cooperate with SDNY’s investigation, remediate the misconduct, self-report any additional criminal conduct for three years, and make restitution to victims. Notably, a number of traditionally disqualifying factors for corporate declinations, including, for example, the involvement of executives, do not automatically disqualify companies from this program. Companies that meet the obligations of the program receive a significant benefit, in terms of a final resolution that results in no charges, no fines, and no imposition of a corporate monitor.
Below we discuss some key elements of the program and takeaways for companies.
Key Elements of the SDNY VSD Program
- A clear and early path to a declination. Shortly after a company self-reports potential misconduct, SDNY will issue a conditional declination to the company. This represents a shift from SDNY’s earlier presumption of a declination to a program where a declination will be provided for eligible disclosures. Upon a company’s fulfillment of its cooperation and remediation obligations, SDNY will issue a final declination notice, with no attached criminal charges. This is also a stark departure from the typical path for corporate resolutions with DOJ, in which corporations may need to cooperate for many months or even years, producing documents, making witnesses available for interviews, before advocating for a resolution at the end of the process.
- Speed is a threshold requirement. To be eligible under the SDNY VSD program, a company must self-report promptly upon discovering potential misconduct, before the company learns of a government investigation or receives a subpoena or document request. That said, SDNY will not issue a conditional declination based on a bare-bones presentation. In practice, companies should expect several weeks of engagement, rapid document production, and follow-up as SDNY evaluates whether the disclosure merits a conditional declination.
- No financial penalties or external monitors. Under the VSD Program, SDNY will not seek or require payment of any fine, although the standard conditional declination requires the self-reporting company to make restitution. Additionally, self-reporting companies will not be required to employ or be supervised by a monitor as part of any resolution with SDNY, consistent with earlier announcements that monitors are disfavored in this Administration.
- Program is limited to certain types of fraud offenses. Only activities related to fraud or financial misconduct are within the scope of the program—activities related to foreign bribery and corruption, terrorism, or economic sanctions will not be eligible under the program.
- Involvement of senior management and other traditional factors considered by DOJ will not disqualify a company. In a departure from prior policy, the SDNY VSD Program does not make a company ineligible based on the senior management involvement, seriousness of the offense, the pervasiveness of the misconduct within the organization or the history of prior adjudications against the company. SDNY’s new policy shifts the focus of these traditionally disqualifying “aggravating circumstances” to the type of misconduct, classifying nexuses to terrorism, sanctions evasion, foreign bribery and corruption, human and drug trafficking, and physical violence as inherently aggravating factors that preclude a company’s eligibility for a declination.
- The cost of waiting has increased. On the flip side, the SDNY VSD program expressly states that companies that do not self-report should expect a presumption of a guilty plea, deferred prosecution agreement, or non-prosecution agreement with a statement of facts, as along with monetary penalties. Declinations will be the exception, not the norm, for companies that sit on potential misconduct.
What Companies Should Consider Doing Differently Now
- Consider venue in SDNY. Companies who detect misconduct should consider whether self-reporting to SDNY makes sense if they have venue (alongside all of the other traditional considerations into whether a voluntary self-report is in the best interests of the company), particularly if there are traditional aggravating factors, such as involvement of senior executives, that would otherwise render them ineligible when viewed by other DOJ components outside of SDNY.
- Move faster internally. Companies seeking to take advantage of this program may want to proceed quickly with internal investigations to be in a position to take advantage of this program if appropriate. Companies need to quickly assess the facts and issues to determine whether a voluntary report is in their best interests. There is a risk that if a company does not self-report, and the conduct later becomes known to SDNY, there will be a presumption that an appropriate resolution will be a guilty plea, a deferred prosecution agreement, or a non-prosecution agreement.
- Preserve early, preserve broadly. As a condition for SDNY’s declination of criminal prosecution, companies should preserve phone evidence, including ephemeral messaging applications for all relevant custodians, as that is an explicitly required element of the form conditional declination agreement.
- Plan for full cooperation from day one. Companies should understand the concept and be prepared to fully cooperate with SDNY’s investigation of the reported misconduct following disclosure and following provided the comfort of a conditional declination. Full cooperation includes, but not limited to: (i) disclosing all relevant, non-privileged information known to the company relating to the illegal activity; (ii) identifying individuals involved in or responsible for the illegal activity; (iii) sharing non-privileged factual findings of internal investigations; (iv) using best efforts to make present or former officers, directors, employees, agents, or consultants of the company available for interview by SDNY; and (v) consenting to disclosures to other federal regulators of materials provided to SDNY.
Bottom Line
SDNY’s new VSD Program materially raises the stakes on early detection, rapid internal investigation, and swift escalation to counsel. For companies with potential SDNY exposure, the decision whether (and when) to self‑report now carries more upside, but also demands faster, more confident judgment calls than ever before.
