Tough on Fraud, Wary of Overreach: New Fraud Division Issues Corporate Enforcement Directive to Further “American Interests”

Citing “ongoing and rampant” fraud against the United States, on October 1, 2026, Assistant Attorney General Colin M. McDonald issued Directive 26-12, “Corporate Enforcement in the Fight Against Fraud,” (the Directive) to the U.S. Department of Justice’s (DOJ) National Fraud Enforcement Division (Fraud Division). The five-page Directive outlines a more centralized fraud enforcement strategy that instructs prosecutors to take an “aggressive, all-tools approach” to combat fraud against U.S. taxpayers while also guarding against overbroad corporate enforcement. We break down what is new — more concrete markers, mandatory and early Main Justice involvement — and what is not — credit for voluntary self-disclosures, cooperation, and remediation — as well as what this actually means for companies.

General Approach: Aggressive on Fraud, Wary of Overreach

We have previously written about the new Fraud Division when it was first announced in January, when it first took operational shape in April, and when it announced its hiring plans and priorities in August. The Directive gives new insight into where the Fraud Division will focus its priorities and the centralized approach it will take to achieve its goals.

The Directive opens by framing the Fraud Division’s mission as combating “ongoing and rampant fraud against the United States and American taxpayer dollars.” The Directive acknowledges that DOJ has long prosecuted companies where wrongdoing is serious and pervasive and where compliance policies, internal controls, and prior misconduct show that the company caused or encouraged the offense.

At the same time, the Directive pairs its “zealous” posture toward companies that defraud taxpayers with a pledge to “firmly guard against overbroad corporate enforcement.” Prosecutors are to draw distinctions between “shades of corporate malfeasance” so that enforcement does not interfere with legitimate business operations. “At the same time” that the Fraud Division prosecutes companies for wronging, it “must protect law-abiding companies and appropriately credit those that demonstrate a willingness to disclose misconduct, cooperate, and remediate.” This is not new.

To effect this vision, the Fraud Division will take a more centralized role in all corporate enforcement matters going forward. By October 8, 2026, Fraud Division prosecutors must report ongoing corporate investigations to the Division’s Corporate Enforcement Section (the Section), and they must promptly notify the Section of new investigations and major developments. The Section will also take primary responsibility for evaluating a company’s compliance with any corporate criminal resolution, including its efforts to implement or enhance its compliance program and satisfy its reporting obligations.

Specific Enforcement: What Factors Will Guide Investigation, Prosecution, and Resolution

The Directive instructs prosecutors opening and conducting corporate investigations to prioritize four categories: (1) fraud schemes involving the healthcare industry, including healthcare fraud, the distribution of controlled substances, and violations of the Federal Food, Drug, and Cosmetic Act; (2) fraud implicating the public trust or financial integrity of procurement, government contracts, and other government functions; (3) significant evasion of revenue; and (4) tariff evasion, importation-related fraud, and forced labor.

These categories closely track the priorities the Criminal Division announced in May 2025.

When recommending charges or negotiating pleas and other agreements, prosecutors “must place great weight” on 10 factors, which fall into four groups:

• Corporate culpability. Knowledge of or involvement in the scheme by corporate management, and efforts to conceal fraud from government agencies or auditors or otherwise obstruct government oversight.
• Duration and scale. Conduct furthering the scheme for three years or more; conduct affecting three or more federal districts; and conduct causing financial harm to 25 or more victims or $25 million or more in loss.
• Harm to government programs and national interests. Substantial financial hardship to a taxpayer-funded program or government function; effects on multiple such programs or functions; actions threatening the safety or security of Americans, including military readiness; and the exfiltration of American dollars to support foreign adversaries.
• Immigration offenses. Conduct involving immigration offenses.

While the list is expressly non-exhaustive, it suggests that fraud schemes with certain fact patterns — such as those of shorter duration or those involving less than $25 million in loss — should, as a matter of policy, result in resolutions that are less harsh on corporate defendants.

The Directive devotes its final section to promoting disclosure to the Fraud Division. It stresses that individuals and companies willing to “bring criminal fraud out from the shadows” can accelerate the work of rooting out fraud. The Directive accordingly calls for incentivizing whistleblowers, “including … those who participated in the criminal conduct.” It also instructs Fraud Division leadership, in consultation with law enforcement partners, to design and implement whistleblower policies and programs and to provide the public with transparency “to the extent possible.” We do not yet know what rewards, eligibility criteria, or protections those programs will include beyond existing DOJ policies, nor do we know how they will interact with the existing whistleblower programs.

What This Means for Companies

The Directive offers specific markets for companies to evaluate exposure and their ability to mitigate risk. Activities implicating trade, immigration, or federal funds; actions that might threaten national security; and schemes that harm greater than 25 victims or result in at least $25 million in loss all increase the likelihood of investigation, prosecution, and tough penalties. (That said, companies need to remember the factors listed in the Directive are not exhaustive; prosecutors may consider “any other relevant factor” in resolving a fraud investigation.) The Directive also reiterates counterweights to exposure, such as voluntary self-disclosure, cooperation, and remediation credit, though the details of how those counterweights might operate remain unknown.

Companies should pay particular attention to the duration, geographic reach, and program footprint of any known issue. They should also strengthen internal reporting channels, anti-retaliation protections, and escalation protocols to reap maximum benefit from the Fraud Division’s efforts to promote disclosure.

For defense contractors, manufacturers, and importers, the practical implication is that an internal investigation should assess more than the financial loss: Did product substitution compromise military readiness? Did false origin information obscure a problematic foreign supply chain? Where did the proceeds go, and whom did they benefit? Those are illustrative applications of the Directive — not new offenses — but they could materially influence the government’s approach to a corporate resolution. Companies operating in the healthcare sector must perform a similar assessment, given the potential implications for patient harm and product safety.

Limiting exposure proactively and taking early action when issues arise will be crucial under these enforcement priorities. Engagement with experienced counsel can guide each of these respects.

We will continue to monitor the Fraud Division’s corporate enforcement policies and priorities, including any forthcoming whistleblower programs, here on Enforcement Edge. For questions about this Directive or its implications, please contact the authors or any member of Arnold & Porter’s White Collar Defense & Investigations group.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.