What Does DOJ’s New Corporate Enforcement Policy Mean for the FDA- and DEA-Regulated Industry?

It’s been a month since DOJ announced the “first-ever Department-wide corporate enforcement policy” for criminal matters.  Touted as a means of “promoting uniformity, predictability, and fairness” in how DOJ pursues white-collar cases against corporate defendants, the new “Corporate Enforcement and Voluntary Self-Disclosure Policy” (CEP) sets a framework for prosecutors deciding whether to bring, and a roadmap for corporate defendants on how to avoid, federal charges.  Like the other voluntary self-disclosure policies from various DOJ offices and U.S. Attorney’s Offices throughout the country, the Department-wide CEP seeks to incentivize corporate behavior, voluntary self-reporting of potential misconduct, cooperation with law enforcement, and good faith efforts to rectify wrongdoing.

To date, we are aware of just one case in which DOJ applied its new CEP and declined to prosecute a corporation after its voluntary self-disclosure of bribery conduct, which the company had identified during an internal investigation.  While the impact of having a single CEP governing corporate criminal matters is yet to be seen, FDA- and DEA-regulated companies under criminal investigations should seriously consider the benefits of a self-disclosure when it comes to discovery and potential reporting of misconduct.

What Does the CEP Do?

The policy provides a path for declination of a criminal case if the company meets the following factors:

1. Voluntary self-disclosure of the misconduct to an appropriate criminal component of DOJ;
2. Full cooperation with DOJ’s investigation;
3. Timely and appropriate remediation of the misconduct; and
4. There are no aggravating circumstances (e.g. severe harm, recidivism, etc.).

Prosecutors may still recommend a declination in the face of aggravating circumstances, depending on the severity of those circumstances weighed against the other factors.  A company, however, will still be required to pay all applicable disgorgement/forfeiture and restitution to victims resulting from the misconduct.

For those companies that don’t quite meet the criteria for a declination, they still may obtain a non-prosecution agreement (NPA) for a number of years, which is an out-of-court agreement with DOJ to refrain from filing charges, typically in exchange for financial penalties and a tolling agreement.  The CEP states that an NPA may be appropriate where a company’s self-disclosure did not qualify as “voluntary” or where prosecutors determined that the aggravating factors did not warrant a declination.  Full cooperation and timely remediation are still expected, and DOJ may still decide that an NPA is not appropriate if there are “particularly egregious or multiple aggravating circumstances.”

Under an NPA resolution, DOJ may allow a term of less than three years, not require an independent compliance monitor, and provide a 50-75% reduction in the low end of the Sentencing Guidelines fine range.

If a company is ineligible for a declination or NPA under the above framework, prosecutors maintain discretion to otherwise determine an appropriate resolution.  The CEP, however, limits prosecutors’ ability to resolve the monetary penalty of any resolution for less than 50% of the Sentencing Guidelines fine range.

What Do These Terms Mean?

Most of the CEP is really a defining of certain key terms (found in Appendix B of the policy).  These are the details that matter.  The CEP provides the following definitions:

A voluntary self-disclosure is defined as follows:

1. The company makes a good faith disclosure of the misconduct to the appropriate DOJ component;
2. The misconduct is not previously known to DOJ;
3. The company had no preexisting obligation to disclose the misconduct to DOJ;
4. The disclosure occurs “prior to an imminent threat of disclosure or government investigation”; and
5. The company discloses the conduct to DOJ within a “reasonably prompt time” after becoming aware of the misconduct (the burden rests on the company to demonstrate timeliness).

The CEP deems that a company has fully cooperated when it:

1. Timely, truthfully, and accurately discloses all facts and non-privileged evidence relevant to the conduct at issue;
2. Proactively cooperates (i.e., disclosing relevant facts not specifically requested or identifying opportunities for DOJ to obtain evidence not in the company’s possession);
3. Timely and voluntarily preserving, collecting, and disclosing relevant documents;
4. De-conflicting witness interviews and other investigative steps that a company intends to take as part of its internal investigation to prevent conflicting or interfering with DOJ’s investigation; and
5. Makes company officers, employees, and agents available for interviews by DOJ.

Considerations for Industry

The CEP attempts to provide certainty to companies when deciding whether to self-disclose misconduct to the federal government.  But the CEP affords federal prosecutors significant subjectivity in determining whether a corporation has satisfied the factors of “full cooperation” and “timely and appropriate remediation.” Thus it remains unpredictable whether the end result of a self-disclosure will be a declination, a non-prosecution agreement, or subject to prosecutorial discretion.

Further, the CEP is more rigid on whether a disclosure is deemed voluntary.  As noted above, the CEP sets forth five elements in the definition of a “voluntary self-disclosure.”  In contrast, under the Southern District of New York’s policy, which is now superseded by the CEP, a company would have been credited for a voluntary disclosure so long as it had not previously received notice from the government that it was being investigated (e.g., a grand jury subpoena, HIPAA subpoena, or interview request).

Importantly, the CEP does nothing to define timing for the declination decision, unlike the aspirational deadlines set forth in previous voluntary disclosure policies from other offices. While those internal deadlines were not enforceable, companies could point to a written policy requiring at least a provisional response within a certain time period.  As we know, companies (particularly those that are publicly traded) value clarity and transparency, which is one of the missions for the nationwide CEP.

Lastly, companies already operating in an environment that requires reporting certain issues to FDA (e.g., adverse events, recalls) or DEA (e.g., suspicious orders), should be asking themselves whether they should escalate the issue to a voluntary self-disclosure to DOJ.  There can be significant benefit to preemptively reporting an issue before DOJ hears from a whistleblower or is served with a False Claims Act complaint.  And of course there are reasons a company may not want to self-disclose certain issues.  We have advised companies on the pros and cons of self-disclosure, and would be happy to work with you on this analysis if and when it is needed.