Companies encouraged to voluntarily report financial misconduct

Governments are testing an age-old idiom: You catch more flies with honey than with vinegar.

The Southern District of New York, one of the country’s most prominent federal white-collar crime courts, is encouraging companies to come clean about their potential financial misconduct. In exchange, companies that qualify could avoid criminal charges.

On February 24, US Attorney Jay Clayton announced the SDNY’s new Corporate Enforcement and Voluntary Self-Disclosure Program for Financial Crimes. The program offers a “fast track” for companies that report their own fraud and financial misconduct before prosecutors come knocking or a whistleblower outs them.

Companies that self-report fraud or market manipulation, cooperate with investigators, make amends for the wrongdoings, and commit to three years of conduct reporting can receive a conditional declination letter from the government, which says the company won’t be brought up on criminal charges.

The SDNY program isn’t operating in isolation. The SEC has been making similar efforts in civil cases to encourage self-reporting for the past few years. SEC Enforcement Director Gurbir Grewal said in a 2023 Bloomberg interview that it was a “gamble” for companies to not self-report. And that in the cases “where there have been zero penalties—there has [usually] been an element of self-reporting.”

According to a client alert from law firm Gibson Dunn, the SDNY’s program could “yield a higher rate of self-reporting than other federal programs” because “aggravating factors” like the seriousness of the offense or the severity of harm caused by the misconduct may not disqualify a company.

The SDNY program “offers corporations considering whether to self-report much greater certainty that, if self-reported, the illegal conduct they identified will not result in a criminal prosecution depending on the facts learned during the investigation,” said Gibson Dunn.