Recently, the head of the DOJ’s National Fraud Enforcement Division (known as “NFED”) Colin McDonald issued Directive 26-12: “Corporate Enforcement in the Fight Against Fraud.” The Directive signals a more aggressive, coordinated and data-driven approach to corporate fraud enforcement, with greater emphasis on management accountability, taxpayer-related misconduct and centralized oversight.
Although existing self-disclosure incentives remain intact, companies operating in the DOJ’s priority areas may face increased investigative scrutiny and more demanding compliance expectations. Note that the Directive supplements the Corporate Enforcement Policy that the DOJ published earlier this year.
Here are a dozen things to consider:
1. The DOJ Adopts a More Aggressive Approach to Corporate Fraud: The Directive calls for an aggressive use of investigative and prosecutorial tools to combat corporate fraud, particularly misconduct involving taxpayer funds. At the same time, the DOJ emphasizes that prosecutors should avoid overreaching in ways that interfere with legitimate business operations.
2. Four Areas of Corporate Fraud Receive Priority: The Directive identifies four enforcement priorities: (i) healthcare fraud, including controlled substances and Food, Drug and Cosmetic Act violations, (ii) government procurement and contracting fraud, (iii) significant tax and revenue evasion and (iv) tariff evasion, import-related fraud and forced labor. Companies with operations in these areas should expect heightened scrutiny.
3. Ten Factors Now Carry Greater Weight in Charging Decisions: Prosecutors must give “great weight” to 10 factors when determining whether to charge a company or negotiate a resolution. These include management involvement, concealment of misconduct, schemes lasting three years or longer, threats to national security, substantial harm to taxpayer-funded programs, fraud affecting multiple government programs, conduct spanning three or more federal districts, financial harm to at least 25 victims or losses of $25 million or more, transfers of U.S. dollars supporting foreign adversaries and immigration-related offenses.
4. Management Involvement Becomes a Particularly Important Consideration: Whether corporate management knew about – or participated in – fraudulent conduct is a central factor in charging decisions. Companies should ensure their internal investigations evaluate potential management involvement early, along with any efforts to conceal wrongdoing or obstruct government oversight.
5. Corporate Enforcement Oversight Becomes More Centralized: NFED’s Corporate Enforcement Section will participate in corporate investigations from their inception through resolution or litigation. Prosecutors must coordinate with this Section throughout the process, potentially resulting in more consistent charging decisions, cooperation assessments and resolution terms.
6. Compliance Programs Face More Specialized Scrutiny: NFED’s Corporate Enforcement Section will have primary responsibility for evaluating companies’ compliance with criminal resolutions, including implementation of compliance programs, remediation commitments and disclosure obligations. Companies entering deferred prosecution – or non-prosecution agreements – should anticipate ongoing review by specialized attorneys.
7. Whistleblower Incentives May Extend to Participants in Fraud: The DOJ intends to develop whistleblower programs that encourage reporting even by individuals who participated in misconduct. Although the details have not been announced, this approach could expand the pool of potential whistleblowers and increase the likelihood that corporate misconduct comes to the government’s attention.
8. The DOJ Expands Its Use of Data Analytics to Detect Fraud: NFED’s Corporate Enforcement Section is using the National Fraud Detection Center – as well as data analytics and interagency coordination – to identify misconduct and generate leads. These capabilities could allow prosecutors to discover violations independently, increasing the need for companies to conduct their own data reviews and identifying problems early.
9. Voluntary Self-Disclosure Incentives Remain Available: The Directive supplements – rather than replaces – the DOJ’s Corporate Enforcement Policy. Companies may still receive benefits for voluntary disclosure, cooperation and remediation. Note that none of the 10 factors automatically disqualifies a company from receiving those benefits, although the factors may influence prosecutors’ assessment of aggravating circumstances.
10. Companies May Have Less Time to Make Self-Disclosure Decisions: Expanded government data analytics and potential whistleblower incentives increase the possibility that the DOJ will discover misconduct before a company voluntarily reports it. Companies should review their internal reporting, investigation and escalation procedures to ensure they can promptly evaluate potential violations and make informed disclosure decisions.
11. Corporate Tax and Trade Compliance Take on Greater Importance: The Directive’s emphasis on significant tax evasion and tariff-related fraud expands the practical reach of NFED’s corporate enforcement efforts beyond healthcare companies and government contractors.
12. The DOJ’s Enforcement Responsibilities Remain Divided Among Offices: NFED’s emphasis on fraud involving taxpayer funds and government programs differs from the Criminal Division’s “White Collar and Corporate Enforcement” Section, which retains responsibility for matters including securities fraud, insider trading and foreign bribery. Companies should identify which DOJ office is handling an investigation because enforcement priorities and procedures may differ.
Authored by
Broc Romanek