The United States Attorney’s Office for the Southern District of New York recently announced a policy—called the “SDNY Whistleblower Pilot Program”—that seeks to encourage individuals to voluntarily disclose financial crimes in which they themselves participated. First unveiled in January 2024 and then revised this month, the policy sets forth the circumstances under which SDNY says that it will grant a non-prosecution agreement to an individual in exchange for the individual’s cooperation. As we explain, while it remains uncertain whether and when it might make sense for any individual to come forward under the policy, the existence of the program has implications for corporate internal investigations.

SDNY’s policy applies to individuals, not corporate entities, and concerns the disclosure of (a) information regarding criminal conduct undertaken by or through public or private companies, exchanges, financial institutions, investment advisers or investment funds involving fraud, corporate control failures, or market integrity; or (b) information regarding criminal conduct involving state or local bribery or fraud related to federal, state, or local funds. The policy provides that SDNY “will enter into a non-prosecution agreement in exchange for the individual’s cooperation” where certain conditions are met, and none of the identified exclusions applies.

There are four required conditions. First, the misconduct must be nonpublic and unknown to any component of DOJ. Second, the disclosure must be voluntary, rather than in response to a government inquiry or imminent threat of disclosure. Third, the individual must be prepared to cooperate against equally or more culpable people. And fourth, the individual must truthfully disclose all misconduct, including his or her own, completely.

February 2024 revisions to the policy specify that the misconduct may not be known to “any component” of DOJ. In its first iteration, the policy concerned only what was known or threatened by SDNY. This is a significant change because it sweeps in all other U.S. Attorney’s Offices, the Criminal Division, and presumably even the Civil Division—which might be aware of conduct through a civil False Claims Act investigation, for example.

The policy also sets forth exclusions. That is, the disclosing individual cannot be: (a) a federal, state, or local elected or appointed and confirmed official; (b) an official or agent of a federal investigative or federal law enforcement agency; (c) a person who otherwise is, or is expected to become, of “major public interest”; or (d) the chief executive officer or equivalent or chief financial officer or equivalent of a public or private company. Nor can the individual have “engaged in any criminal conduct that involves the use of force or violence, any sex offense involving fraud, force, or coercion or a minor, or any offense involving terrorism or implicating national security and does not have a previous felony conviction or a conviction of any kind for conduct involving fraud or dishonesty.” Finally, by footnote, the policy excludes individuals who provide information regarding violations of the FCPA, campaign finance laws, federal patronage statutes, corruption of the electoral process, bribery of federal officials, federal tax offenses, or federal environmental crimes.

Even where an individual does not satisfy all of these terms, the policy provides that prosecutors “may nonetheless consider” extending a non-prosecution agreement to an individual who discloses criminal conduct and cooperates. Among the factors supplied to guide such consideration are the extent to which the misconduct was already public or known to DOJ, the truthfulness and completeness of cooperation, and the adequacy of non-criminal sanctions.

Although styled as a “whistleblower” program, the policy is quite different from typical whistleblower programs, such as those established at the SEC, FinCEN, and other federal regulators, inasmuch as it does not provide any financial incentives to individual whistleblowers. To the contrary, February 2024 revisions to the policy specify that anyone receiving a non-prosecution agreement pursuant to its terms must forfeit any proceeds involved in the individual’s criminal misconduct.

The policy is a significant departure from DOJ’s traditional approach to non-prosecution agreements with individuals. Section 9-27.600 of the Justice Manual directs prosecutors to consider a non-prosecution agreement with an individual in exchange for cooperation where “the person’s timely cooperation appears to be necessary to the public interest and other means of obtaining the desired cooperation are unavailable or would not be effective.” It is difficult to square SDNY’s blanket policy with an individualized determination that no other means exist to secure the desired cooperation, yet the SDNY policy provides in a footnote that it “does not supersede any provision of the Justice Manual.”

But it is arguably in line with DOJ’s 2023 policies seeking to incentivize corporate self-disclosure of criminal conduct. As we have previously discussed, the Voluntary Disclosure Policy for all U.S. Attorney’s Offices provides for leniency with respect to corporate resolutions where a company timely discloses misconduct by its employees before that misconduct is known to DOJ or public. Indeed, the interplay between these two policies suggests how SDNY’s policy for individuals could have traction, even if few individuals come forward.

The decision for an individual to come forward under the policy remains fraught and involves many unknowns and variables. Presumably an individual would need to conclude that he had committed a crime subject to the policy, which was unknown to DOJ and not public; that he could and would cooperate against others who were also guilty and equally or more culpable; that he was prepared to forfeit any proceeds acquired through the conduct; and that the specific circumstances of the matter made it in his interest to come forward. Moreover, such an individual would presumably need to conclude that disclosure to SDNY was in his interest, where a non-prosecution agreement with SDNY would not bind any other DOJ component and where there would be no guarantee that an investigation could begin elsewhere. SDNY clearly does expect individuals to come forward: the February revisions to its policy provide for an intake form and specify the internal reviewing structure for disclosures. But it seems reasonable to conclude that the policy would be far more attractive to individuals if it covered all of DOJ, rather than only SDNY.

For a company, however, the SDNY policy for individual non-prosecution agreements increases the pressure to investigate, remediate, and disclose. That is because an employee who comes within the terms of SDNY’s policy and decides to disclose criminal misconduct could thereby “beat the company to the punch” and deprive it of the opportunity to reap the benefits afforded to corporate disclosure. Recognizing this dynamic increases the importance for companies to implement robust internal-reporting procedures, in order to ensure that the company is able to learn about and assess and potentially remediate and disclose any allegations of employee misconduct before an employee decides to go to SDNY. In addition, this same dynamic will need to be accounted for in the plan for any internal investigation, both in terms of the timing of the steps of the investigation and in decisions about operational security.