Tag: DOJ

Airbus to Pay Unprecedented $3.9 Billion for Multinational Bribery, FCPA Violations

Last week, the Department of Justice (DOJ) announced the largest deferred prosecution agreement for violations of the Arms Export Control Act (AECA), International Traffic in Arms Regulations (ITAR), and Foreign Corrupt Practices Act (FCPA) in history. Airbus SE, a French aircraft company, agreed to pay over a combined $3.9 billion to the DOJ as well as authorities in France and the UK for foreign corruption and bribery charges. The penalty is the largest of its sort and is the result of anti-fraud efforts across the three countries.

Airbus engaged in corruption for several years, offering bribes to foreign officials and misreporting to authorities to conceal the bribes. These violations of the Arms Export Control, International Traffic in Arms, and FCPA encompass activities in the United States, UK, France, and China. The crimes also include corruption in defense contracts.

According to a DOJ Press Release, Airbus will pay $527 million to the United States for the company’s violations of the International Traffic in Arms and Foreign Corrupt Practices Acts. In this case, Airbus self-reported and voluntarily cooperated with law enforcement after uncovering violations in an internal audit. It is possible an internal report initiated the audit. Cooperation and remedial measures by Airbus were taken into consideration in the settlement terms of the deferred prosecution agreement and benefitted Airbus.

International whistleblowers are crucial to the detection of large-scale corruption and fraud around the world. The SEC and DOJ rely on individuals who decide to anonymously and confidentially blow the whistle on violations of the FCPA. The FCPA allows for foreign nationals to file whistleblower claims in the US and receive an award between 10 and 30 percent of the total amount recovered by the government if a successful enforcement action follows their disclosures.

Copyright Kohn, Kohn & Colapinto, LLP 2020. All Rights Reserved.
For more bribery cases, see the National Law Review Criminal Law & Business Crimes section.

Colleges, Students Tell DOJ McGraw-Hill/Cengage Merger Would Create a Textbook Duopoly

Two of the three dominant college textbook publishers – McGraw-Hill Education, Inc. and Cengage Learning Holdings II, Inc – have agreed to merge, creating a virtual duopoly in the college textbook market and setting the stage for a potential antitrust fight with the Antitrust Division of the U.S. Department of Justice. McGraw-Hill and Cengage claim the new company will generate global growth, improve margins, and produce efficiencies that will lead to more affordable education materials for students.

But several student and consumer groups disagree, arguing the merger will lead to decreased competition and higher prices for college textbooks. They also claim the post-merger entity will implement digital strategies (e.g., all-access digital subscriptions) that will: (1) force smaller competitors out of the market; (2) eliminate the secondary textbook market, which provides students a lower cost option for purchasing or renting textbooks; and (3) allow the two dominant publishers to collect and monopolize certain types of student data, including data showing students’ learning styles, students’ understanding of core concepts, students’ need additional assistance, and/or students’ risk of dropping out.

The Scholarly Publishing and Academic Resources Coalition (SPARC) has been one of the loudest critics of the merger. On August 14, 2019, SPARC sent a letter to the DOJ urging it to block the merger, arguing that it will “significantly decrease competition in a market already rife with anti-consumer behavior.”

In its section titled “The Textbook Market is Broken,” SPARC explains that college textbooks are sold in a “captive market” because students are forced to purchase the materials selected by their professors. This system “effectively hands the three major companies who currently dominate the market a blank check to develop expensive materials without regarding the preferences, needs, or financial circumstances of students. The textbook industry’s current state of dysfunction results from years of consolidation, unsustainable practices, and lack of price competition.” SPARC points to textbook pricing as an example of this dysfunction, as prices “have increased 184% over the last two decades — three times the rate of inflation.”

In a separate letter sent to the DOJ at the end of July, U.S. PIRG Education and student leaders from colleges across the country raised similar concerns. Specifically, the students explain they have “directly felt the impacts of skyrocketing textbook prices, further exacerbated by Cengage and McGraw-Hill’s efforts to remove cost-cutting options for students by undermining used book markets,” and that “[t]o maintain profit margins, publishers have put out custom or frequent new editions to make it difficult to find a used book for our classes ….” Citing a rather shocking statistic, the students claimed that “65% of students have skipped buying a book at some point in their college career because of cost despite 94% of them knowing it would hurt their grade.”

The students also identified several specific harms caused by “innovative” digital models employed in the textbook industry:

  • The publishers issue expiring access codes to paid online platforms that students must also use to submit homework and test answers, destroying the used book market;
  • Students cannot sell their materials at the end of the course or keep them or future reference, harming students who already cannot afford books;
  • Automatic billing or so-called “inclusive access” means that students are automatically charged for materials, eliminating their ability to price shop; and
  • Based on contracts proposed at some schools, publishers will continue to raise prices at the same rate that has led to the current affordability crisis.

The potential anticompetitive impacts of this merger are obvious and significant. Assuming the relevant market is the U.S. college textbook market, the merger is between two entities that each control more than 20% of an already highly concentrated market. Under relevant case law and the DOJ’s/FTC’s Horizontal Merger Guidelines, the merger presumptively increases market power for the post-merger entity and violates Section 7 of the Clayton Act. Moreover, the merging entities have made clear they intend to develop an all-access digital subscription service that, if adopted en masse, will likely eliminate both smaller competitors and the secondary market for college textbooks. Finally, by creating a virtual duopoly, the merger increases the likelihood of coordination among rivals. Considering these issues, the DOJ must take a very close look at this merger and implement conditions that address these issues if the merger is approved.

© MoginRubin LLP

ARTICLE BY Timothy Z. LaComb of MoginRubin.
Edited by Tom Hagy for MoginRubin LLP

Qui Tam Defendants’ Presentations to Government During Investigation Unprotected from Discovery in Other Lawsuits, Federal District Court Ruled

In a recent decision, a federal district court judge ruled that a defendant’s presentations to the Department of Justice, made during the course of the Department’s investigation of a pending False Claims Act qui tam lawsuit, are not protected from discovery by the whistleblower who brought that lawsuit. The case is the United States and State of California ex rel. Higgins v. Boston Scientific Corp., 11-cv-2453 (D. Minn. Aug. 28, 2019), and was decided by Judge Joan Ericksen.

The relator (the term for the whistleblower in a False Claims Act lawsuit), Higgins, alleged that Boston Scientific made certain false certifications relating to the company’s defibrillators, thereby causing physicians to submit false claims for payment relating to the use of those devices. As is usual in qui tam cases, after filing the lawsuit, the Department of Justice opened an investigation and requested documents (known as a “civil investigative demand” under the False Claims Act) to Boston Scientific. The company turned over documents to the Department, but then also created and made “presentations” to the government. While the court’s decision does not describe those “presentations,” presumably they were slideshows or other materials, put together by Boston Scientific’s lawyers, to try to convince the Department of Justice to shut down the investigation or to decline intervention in the lawsuit.

Unscrupulous companies have found many different ways to take advantage of vital government programs. The False Claims Act is an essential weapon in the fight against government programs fraud since it was first enacted during the Civil War to combat war profiteering. The system often depends on whistleblowers telling their story with the help of an experienced False Claims Act attorney.

These private citizens bring qui tam (whistleblower) lawsuits under the False Claims Act (“FCA”), which allows them to act on behalf of the U.S. government in exposing government programs fraud committed by companies serving the federal government. Under the FCA, relators (fraud whistleblowers) receive a portion of the money that has been recovered by the government, known as the relator’s share.

After the government declined intervention in the case, Higgins decided to pursue the case on his own (which a relator is permitted to do), and he served a document request on Boston Scientific demanding production of any such presentations. Boston Scientific did not want to turn over the materials and therefore raised four separate legal objections. It was those objections that Judge Ericksen addressed in her opinion.

First, Boston Scientific objected to turning over the presentations because they were akin to “settlement negotiations” with the government, and thus not “relevant” to relator’s lawsuit. The court, however, ruled that although settlement negotiations might not be admissible at trial, they were still subject to discovery by Higgins because “they were related to his claims about the medical devices at issue.”

Second, Boston Scientific objected because “public policy” required protection of the presentations, arguing that “the government will not be able to settle False Claims Act cases if a defendant’s presentations to the government could later be revealed to relators.” Judge Erickson, however, found nothing in the False Claims Act that supported this position. While the government might not be able to turn over such presentations under certain circumstances, nothing in the statute prevented Boston Scientific from turning them over to relator.

Third, Boston Scientific claimed an “expectation of confidentiality” in the presentations, citing a 1977 decision by the Eight Circuit Court of Appeals. Judge Erickson rejected that contention, finding that the earlier Circuit Court decision related to attorney-client privilege, but not to the work product doctrine. Because the materials that Boston Scientific had provided to the Department of Justice were not covered by attorney-client privilege, the company’s only argument was “work product,” and that argument was not sufficient to support its claimed “expectation of confidentiality.”

Finally, Boston Scientific argued that the work product doctrine itself protected the presentations from disclosure. Judge Erickson easily disposed of that argument, noting that work product protection “is waived by intentional disclosure to an adversary,” and that the government was indeed Boston Scientific’s “adversary,” even though the Department of Justice later declined to intervene in the case.

The court’s decision was correct. Although Boston Scientific’s attorneys came up with several creative arguments in an attempt to protect the “presentations” from discovery, none of them had any merit. Although a defendant in a False Claims Act case is free to communicate with the Department of Justice, the defendant cannot assume that those communications will remain secret, particularly from the relator who has brought the very lawsuit under investigation by the Department. The relator is entitled to know about those communications, especially if they are relevant to the merits of the relator’s case (which they almost always will be). Accordingly, Judge Erickson reached the correct result and established useful precedent on this recurring issue.

© 2019 by Tycko & Zavareei LLP

For more on qui tam cases, see the National Law Review Litigation / Trial Practice page.

Compliance Risk Alert: Opioid Warning Letters issued by the U.S. Department of Justice Target Prescribers

U.S. Attorney’s Offices (“USAOs”) across the country are issuing warning letters to physicians and other prescribers (collectively, “Prescribers”) cautioning them about their opioid prescribing practices (the “Warning Letters”). In just the last week, the USAO for the Eastern District of Wisconsin sent warning letters to over 180 prescribers identified by Drug Enforcement Administration (“DEA”) data as prescribing opioids at relatively high levels. The Food and Drug Administration and the Federal Trade Commission have also been issuing their own warning letters to opioid marketers and distributors over the past several months, evidencing a concerted effort to combat the opioid epidemic on a number of fronts through various federal enforcement and regulatory efforts.

The Warning Letters appear to be based entirely on review and analysis of DEA’s data with no other investigation into the patients who received opioid prescriptions or their medical conditions. Importantly, each of these USAOs has recognized explicitly that the prescribers have not necessarily broken any laws and that the prescriptions may all be medically appropriate. Nevertheless, any warning from an office wielding criminal enforcement authority should never be taken lightly, particularly when related to an issue – opioid overprescribing – that remains a top Department of Justice and U.S. government enforcement priority. While the Warning Letters themselves are issued without meaningful investigation, they may often signal that additional investigatory or enforcement action is forthcoming. In some cases, for instance, prescribers may be visited unannounced and in-person by DEA diversion investigators, special agents, or other law enforcement officers.

Prescribers who have already received a Warning Letter should contact legal counsel to assist in taking measures to assess their degree of risk and preparing for potential further government inquiry. Contacting legal counsel early and preserving privilege could be key to prevent an informal inquiry from becoming a protracted criminal investigation. Experienced counsel can help focus the government’s inquiry, provide the information in a manner that is responsive to the government’s request while also providing relevant context, and limit disruption to the provider’s practice. In collaboration with their counsel, contacted Prescribers should consider:

  • An audit of medical records related to patients who have received opioid prescriptions to confirm their propriety in light of medical documentation;
  • Correction and supplementation of any deficient records, consistent with government requirements for medical documentation to support such prescriptions; and
  • Implementing any required process improvements to mitigate future risk.

Prescribers who prescribe opioids as part of their practices but who have not received a Warning Letter should consider taking prophylactic measures in response to this increased government scrutiny, as should their employers and partners. For instance, Prescribers – and those who employ or contract with prescribers – should consider:

  • Reviewing prescribing patterns against local and national benchmarks;
  • Reviewing a sample of documentation related to opioid prescription decisions to ensure that it sufficiently supports medical necessity and provides additional training on documentation practices as needed;
  • Reviewing and implementing the most current standards of care related to opioid prescribing and patient monitoring, including recommendations issued by the Centers for Disease Control and Prevention’s Guideline for Prescribing Opioids for Chronic Pain; and
  • In larger practices, implementing or updating, as necessary, policies and procedures related to opioid prescribing.
Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.
This post was written by Erica J. Kraus, Michael W. Paddock, David L. Douglass, Danielle Vrabie and A. Joseph Jay, III of Sheppard Mullin Richter & Hampton LLP.
Read more health care compliance news on the National Law Review’s Health Care Type of Law page.

Hiring US Citizens Only for ITAR Compliance Can Violate the Immigration and Nationality Act

The Department of Justice (DOJ), Civil Rights Division, announced on August 29, 2018, its civil settlement with the international law firm, Clifford Chance US LLP, for violations of the Immigration and Nationality Act (INA), 8 U.S.C. 1324b, attributable to Clifford Chance’s overly restrictive interpretation of who can work on projects involving data controlled by the International Traffic in Arms Regulations (ITAR).

Clifford Chance, for purposes of conducting a large scale document review involving ITAR controlled data, restricted the project to U.S. Citizens only, based on its good faith belief that only U.S. Citizens could work on ITAR projects. But the ITAR generally allows U.S. Persons to have access to ITAR controlled data, and defines a (natural) “U.S. Person” as “a lawful permanent resident as defined by 8 U.S.C. 1101(a)(20)” or “a protected individual as defined by 8 U.S.C. 1324b(a)(3).” See 22 C.F.R. 120.15. Thus the ITAR does not restrict access to U.S. citizens only, but also generally allows access by non-U.S. citizens who fall within the following classes, among others:

  • Nationals of the U.S. (i.e., those born in the “outlaying” possessions of the U.S. meeting specified requirements, or individuals born of a parent who meet specified requirements);
  • Aliens lawfully admitted for permanent residence (i.e., “green card” holders);
  • Certain refugees; and
  • Certain asylum seekers.

According to DOJ, Clifford Chance unlawfully discriminated against persons based on their citizenship by excluding eligible non-U.S. citizens from its ITAR project. DOJ rejected Clifford Chance’s argument that it should be absolved of liability because it acted in good faith (there’s no good faith exception to the prohibition against discrimination under 1324b), and Clifford Chance agreed to pay a $132,000 civil penalty, implement various corrective actions, and allow DOJ oversight for a two-year period.

What does that mean for you? If you hire or contract with U.S. Citizens only for purposes of fulfilling your ITAR obligations, you may be violating the INA. You should review your hiring and contracting processes to make sure that you do not limit hiring or outsourcing to U.S. Citizens only, when ITAR compliance is your justification for denying job opportunities based on citizenship or national origin.

 

© 1998-2018 Wiggin and Dana LLP
This post was written by David A. Ring and Najia S. Khalid of Wiggin and Dana LLP.

Japanese Toyobo Pays $66 Million to Settle False Claims Act Allegations Over Selling Defective Fiber to Government for Use in Bullet Proof Vests

The Department of Justice recently announced the settlement of a qui tam lawsuit against Toyobo, the sole manufacturer of Zylon fiber used in bulletproof vests, in relation to their violation of the False Claims Act (FCA). According to the allegations of the case, between 2001 and 2005, Toyobo actively marketed and sold defective Zylon fiber for bullet proof vests, knowing that Zylon degraded quickly in normal heat and humidity, which makes the material unfit for use in bullet proof vests. It is further alleged in the whistleblower lawsuit, that Toyobo published misleading degradation data, that underestimated the degradation issue and started a public campaign to influence body armor manufacturers to keep selling bullet proof vests made with Zylon fiber.

Within the Complaint that the United States filed following their decision to intervene in the case, the U.S. alleged that Toyobo’s actions delayed the government’s efforts to determine the defect in Zylon fiber by several years. After a study of the National Institute of Justice (NIJ) in August 2005 found out, that more than 50 percent of Zylon-containing vests could not stop bullets that they had been certified to stop, NIJ decertified all Zylon-containing vests.

The qui tam lawsuit is brought to Government’s attention by relator Aaron Westrick, Ph.D., who is a law enforcement officer, formerly employed as the Director of Research and Marketing at Second Chance Body Armor (SCBA), which used to be the largest bullet proof vest company in the United States. In the lawsuit, whistleblower Westrick alleged, that Toyobo knew the strength of Zylon fibers sold to the bullet resistant vest makers would degrade quickly under certain environment, and nevertheless Toyobo did not disclose such fact or made misleading disclosures, resulting in the United States’ payment for the defective bullet resistant vests.

The relator Westrick brought the qui tam lawsuit under the FCA, which allowed him to act on behalf of the U.S. government in exposing the government programs fraud. Under the FCA, relators receive a portion of the money that has been recovered by the government, which is known as the relator’s share. For his participation as a relator, or whistleblower, within the case Dr. Westrick will receive $5,775,000, as a reward for exposing the government fraud scheme. Such high rewards are not uncommon for individuals who file qui tam lawsuits on behalf of the federal government. If and when a case settles, whistleblowers can receive between 15% and 30% of the amount recovered by the government.

 

© 2018 by Tycko & Zavareei LLP.

Department of Justice Announces Task Force to Combat Prescription Opioid Crisis

Last week, United States Attorney General Sessions announced the creation of the Department of Justice Prescription Interdiction & Litigation (PIL) Task Force to combat the prescription opioid crisis.  According to the Department of Justice (Justice), the PIL Task Force will rely on “all available criminal and civil enforcement tools” to hold those at “at every level of the [opioid] distribution system” accountable for unlawful conduct.  This significant step may result in greater oversight and widespread criminal and civil prosecutions.

Prescription opioids, such as oxycodone, hydrocodone and morphine, are powerful pain-reducing drugs, but may also trigger feelings of pleasure or a “high.”  Prolonged use of opioids can lead to addiction, misuse and abuse.  According to the United States Department of Health and Human Services (HHS), an estimated 64,000 Americans died of drug overdoses in 2016, with the vast majority the result of opioids – nearly 116 people lost their lives to opioids each day.  HHS declared a public health emergency in 2017, and followed with a strategic plan to improve access to prevention, treatment and support services to address it.  The PIL Task Force will work in conjunction with HHS to provide additional federal resources to address the problem.

At the manufacturer level, the PIL Task Force will examine existing state and local government lawsuits against opioid manufacturers to determine what, if any, federal assistance can be provided.  One example is already underway: Justice will file a statement of interest in the pending multi-district federal litigation in Ohio, which focuses on the improper marketing and distribution of prescription medications by manufacturers and distributors.  Justice will argue the federal government has borne substantial costs arising from the opioid epidemic and is entitled to reimbursement.

The PIL Task Force will also rely on existing laws to hold distributors, pharmacies and prescribers accountable for unlawful actions.  This work was underway even before the Task Force’s inception.  In 2015, for example, a grand jury returned a multicount indictment against Little Rock, Arkansas physician Dr. Richard Johns for unnecessarily prescribing oxycodone to patients, including to some patients he had neither examined nor met.  Johns later pleaded guilty to a single count of conspiring to possess with the intent to distribute oxycodone through a plea deal and received a nine-year federal prison sentence.

Finally, Attorney General Sessions directed the PIL Task Force to establish a working group to (1) improve coordination and data sharing across the federal government to better identify violations of law and patterns of fraud related to the opioid epidemic; (2) evaluate possible changes to the regulatory regime governing opioid distribution; (3) recommend changes to laws.

The Attorney General was clear: “We will use criminal penalties.  We will use civil penalties.  We will use whatever tools we have to hold people accountable for breaking our laws.”

The PIL Task Force is another example of federal, state and local actions to address the opioid epidemic, which may significantly impact the health care industry.  Dinsmore & Shohl is monitoring the situation and stands ready to assist clients in navigating these developments.

National Institute on Drug Abuse, Opioid Overdose Crisis (Feb. 2018)

U.S. Department of Justice, Attorney General Sessions Delivers Remarks Announcing the prescription Interdiction and Litigation Task Force (Feb. 27, 2018).

U.S. Department of Justice, Justice Department to File Statement of Interest in Opioid Case (Feb. 27, 2018),

U.S. Department of Health & Human Services, HHS Acting Secretary Declares Public Health Emergency to Address National Opioid Crisis (Oct. 26, 2017).

 

© 2018 Dinsmore & Shohl LLP. All rights reserved.

New Sheriff In Town As Rolls-Royce Pays Record Penalty For Foreign Bribery And Corruption

Rolls-RoyceOn 17 January 2017, the UK Serious Fraud Office (“SFO”),[1] the US Department of Justice (“DOJ”),[2] and the Brazilian Ministério Público Federal (“MPF”) announced an $800 million global settlement with Rolls-Royce plc and Rolls-Royce Energy Systems Inc., (together, “Rolls-Royce”) resolving allegations of a long-running scheme to bribe foreign officials in South America, the Middle East, Eastern Europe, and Asia in exchange for assistance in obtaining government contracts. In addition to the payment of disgorgements and fines – the largest ever imposed under the UK’s Bribery Act 2010 (“UK Bribery Act”) – Rolls-Royce has agreed to implement a number of compliance measures and reporting requirements pursuant to deferred prosecution agreements (“DPAs”) with UK, US, and Brazilian authorities. The joint settlement, which was spearheaded by the SFO, heralds a new era in global cooperation and coordination in the enforcement of bribery and corruption laws.

Unprecedented simultaneous tripartite global penalty

Under its DPA with the SFO, Rolls-Royce will pay a penalty of over £497 million (US $612 million), comprising disgorgement of profits of £258 million and a financial penalty of £239 million (US $294 million), plus interest. In addition, Rolls-Royce will pay approximately £13 million (US $16 million) to reimburse the SFO’s full investigation and litigation costs.

In the US, Rolls-Royce has agreed to pay a criminal penalty of nearly $170 million (UK £138 million) for conspiring to violate the Foreign Corrupt Practices Act (“FCPA”) by having paid bribes in excess of $35 million between 2000 and 2013. The penalty reflects a 25-percent reduction from the bottom of the US Sentencing Guidelines fine range and a credit of more than $25 million (UK £20 million) in recognition of the fine paid in Brazil. The settlement with the DOJ falls within the top fifteen largest FCPA settlements of all time.

In Brazil, Rolls-Royce has agreed to a fine of approximately $25 million, reflecting $12 million in profits received from contracts with Brazil’s state-run oil company, Petrobras, $6 million paid in kickbacks paid to intermediaries, and a fine equal to the amount of kickbacks.

DPAs – more than just a fine

In the UK, DPAs are voluntary agreements which result in the suspension of a prosecution in return for the offending company meeting certain obligations including that the company must account for its conduct before a criminal court. The terms of the DPA must be approved by a judge as fair, reasonable, proportionate, and in the interests of justice. A DPA is not available to individuals. Upon review, on 17 January 2017, Sir Brian Leveson, sitting as a judge in the Crown Court, approved the Rolls-Royce DPA noting that the financial penalty was “broadly comparable to a fine that a court would have imposed on conviction following a guilty plea.”[3]

In addition to payment of the fine, under the UK DPA, Rolls-Royce is required to continue the independent compliance review of its approach to anti-bribery and anti-corruption which commenced in January 2013 when Rolls Royce appointed independent lawyer, Lord Gold, to conduct the review. Lord Gold has already produced two interim reports and is due to produce a third report by the end of March 2017. Rolls-Royce has agreed to provide the SFO with Lord Gold’s third report and produce a written Implementation Plan setting out how it will give effect to the third report’s recommendations and any other outstanding recommendations not yet implemented in the first and second reports. Rolls-Royce must implement or have sustainment plans to execute the Implementation Plan to the satisfaction of Lord Gold within 2 years of its commencement. Once the Implementation Plan is complete, Rolls-Royce must obtain a final report from Lord Gold and provide it to the SFO.

In addition to these compliance measures, Rolls Royce has agreed to continue its cooperation with the SFO including the disclosure of all relevant information and material in its possession, custody or control, which is not protected by legal professional privilege, in respect of its activities and those of its present and former directors, employees, agents, consultants, contractors and sub-contractors. It must also use its best efforts to make available for interview, as requested by the SFO, present or former officers, directors, employees, agents and consultants of Rolls-Royce.

Much like in the UK, DPAs in the US set the terms by which prosecutors will decline to pursue a case against the offending company. The DOJ agreed that it will not pursue a criminal or civil case against Rolls-Royce, provided that, within three years, the company pays the $170 million penalty, cooperates fully with US and foreign authorities in all matters related to corrupt payments, implements a compliance program that meets the elements identified in the DPA, and annually reports to the DOJ regarding remediation and implementation of its compliance program. Among other requirements, Rolls-Royce must develop and maintain policies and procedures addressing particular risk areas (e.g., gifts, entertainment, travel, political contributions and charitable donations) through periodic risk-based review, assign one or more senior corporate executives for implementation and oversight of the policies and procedures, implement periodic training and compliance certifications, establish an effective system for internal reporting and investigation, and institute risk-based due diligence and compliance requirements for all agents and business partners. The DPA does not provide any protection against the prosecution of individuals.

Brazilian law empowers the relevant authorities to enter into agreements (“leniency agreements”) with entities that have cooperated with the authorities’ investigations. By satisfying the conditions of the agreements, companies may face lower fines or lesser sanctions. Rolls-Royce reportedly provided the MPF with the results of an internal investigation in early 2015 and agreed to cooperate with Brazilian authorities. The terms of its agreement with the MPF also impose measures designed to ensure that the company enhances its existing compliance programs.

Cooperation can be a mitigating factor

Rolls-Royce’s cooperation with and accountability to regulators appears to have factored into the global settlement. In the UK, the court acknowledged that, despite not initially self-reporting its conduct, Rolls-Royce cooperated extensively with the SFO since 2012, and “[c]ould not have done more to expose its own misconduct.”[4] This extensive cooperation was one of the primary reasons the court concluded that the DPA was in the interests of justice and a relevant factor in mitigation when assessing the value of the agreed penalty. However, the UK settlement does not conclude the matter in its entirety. As noted by the court, the SFO will continue to investigate the conduct of current and former Rolls-Royce employees. These individuals are afforded no protection from prosecution under the DPA and, given the wide-ranging allegations documented in the DPA’s statement of facts, more charges seem likely.

The US also acknowledged Rolls-Royce’s cooperation throughout the government investigation, including its thorough internal investigation, numerous factual presentations, and producing witnesses for interviews. Going forward, Rolls-Royce must continue to cooperate for three years under the terms of its settlement with the DOJ, and must promptly report any evidence or allegations of past or new FCPA violations, truthfully disclose all factual information, provide documents or evidence requested by the DOJ, and use its best efforts to make current and former officer, directors, employees and agents available for interviews or testimony.

SFO led investigation – A new trend?

To date, the US has irrefutably been the global leader in investigating and enforcing anti-bribery and anti-corruption offences. In 2016, twenty-seven companies paid approximately $2.48 billion to resolve criminal and civil FCPA enforcement matters with the DOJ and the Securities and Exchange Commission. In contrast, the SFO has been criticised for failing to undertake comprehensive investigations capable of securing high-profile convictions under the UK Bribery Act. This has led many commentators to conclude that the UK Bribery Act is less effective than the FCPA, despite the fact it is more extensive than the FCPA in terms of its jurisdictional reach and the conduct it prohibits.

Rolls-Royce’s DPA with the SFO is only the third of its kind endorsed by English courts. In each instance, courts have emphasized the importance of self-reporting. Indeed, Sir Brian Leveson noted in his judgment endorsing the Rolls-Royce settlement that a “DPA will likely incentivise the exposure and self-reporting of wrong doing by organisations in similar situations to Rolls-Royce. This is of vital importance in the context of the investigation and prosecution of complex corruption cases in bringing more information to the attention of law enforcement agencies so that crimes can be properly investigated, and prosecuted effectively. Furthermore, the effect of the DPA is to require the company concerned to become a flagship of good practice and an example to others demonstrating what can be done to ensure ethical good practice in the business world.”[5]

The Rolls-Royce settlement may also signal a new trend in global anti-bribery and anti-corruption enforcement. It is the single largest individual investigation the SFO has conducted to date, spanning a four year period, with over 30 million documents reviewed, and numerous arrests and interviews of current and former Rolls-Royce employees (taken both voluntarily and under compulsion). Additionally, the settlement follows in the footsteps of VimpleCom’s $795 million resolution with US and Dutch authorities in 2016, having been reached with the assistance of law enforcement officials in several jurisdictions, including Austria, Germany, the Netherlands, Singapore and Turkey. The scope of the SFO’s investigation and its cooperation with other global law enforcement agencies, together with the resulting penalty, should be a warning to businesses operating internationally that they may face scrutiny from several global regulators simultaneously and expect intense scrutiny of world-wide conduct.

Gone are the days of US authorities being the lone sheriff in town, policing foreign companies that have contacts in the US but consoling themselves to non-intervention by the home countries. Rather, companies must be aware that there are now consequences for non-compliance on their home turf as well. As the SFO and other foreign authorities demonstrate the will to pursue bribery and corruption cases, the US may allow the countries in which corrupt companies are domiciled to police those practices at home.

ARTICLE BY Jodi L. Avergun, Steven Baker, Bret A. Campbell, Joseph V. Moreno, Jenna Rennie & Janaki Tampi of Cadwalader, Wickersham & Taft LLP
© Copyright 2017 Cadwalader, Wickersham & Taft LLP

[1]   See SFO Case Information, Rolls-Royce PLC (17 January 2017), available athttps://www.sfo.gov.uk/cases/rolls-royce-plc/.

[2]   See Press Release, Rolls-Royce plc Agrees to Pay $170 Million Criminal Penalty to Resolve Foreign Corrupt Practices Act Case (17 January 2017), available athttps://www.justice.gov/opa/pr/rolls-royce-plc-agrees-pay-170-million-criminal-penalty-resolve-foreign-corrupt-practices-act.

[3]   See Serious Fraud Office v Rolls Royce PLC Rolls-Royce Energy Systems Inc [2017] at paragraph 63, available at https://www.judiciary.gov.uk/wp-content/uploads/2017/01/sfo-v-rolls-royce.pdf 

[4]   See Serious Fraud Office v Rolls Royce PLC Rolls-Royce Energy Systems Inc [2017] at paragraph  38, available at https://www.judiciary.gov.uk/wp-content/uploads/2017/01/sfo-v-rolls-royce.pdf. 

[5] See Serious Fraud Office v Rolls Royce PLC Rolls-Royce Energy Systems Inc [2017] at paragraph  60, available at https://www.judiciary.gov.uk/wp-content/uploads/2017/01/sfo-v-rolls-royce.pdf. 

DOJ Releases its 2016 False Claims Act Recovery Statistics

DOJ False Claims actOn Wednesday, the Department of Justice (DOJ) released its annual False Claims Act (FCA) recovery statistics, which revealed that Fiscal Year 2016 has been another lucrative year for FCA enforcement.  Based on these statistics, DOJ recovered more than $4.7 billion in civil FCA settlements this fiscal year — the third highest annual recovery since the Act was established.  Since 2009 alone, the government has recovered $31.3 billion in FCA settlements and judgments.  This is a truly staggering statistic.  It shows that the government’s reliance on the FCA to combat fraud will continue for the foreseeable future.

The healthcare and financial industries represent the largest portions of this year’s FCA recoveries.  In the healthcare industry alone, DOJ recovered a total of $2.5 billion based on federal enforcements.  DOJ also touted its instrumental role in assisting states recovering funds overpaid under state Medicaid programs.  From the financial industry, the government collected another $1.7 billion, largely as a result of enforcement actions arising from alleged false claims in connection with federally insured residential mortgages.

The number of new FCA matters through both qui tam and non-qui tam actions has increased since last year.  Interestingly, however, the statistics indicate that the share of settlements and judgments for relators declined—the percentage of the total recoveries from qui tam suits decreased from 80.7% in 2015 to 61% in 2016.  Most significantly, the percentage of recoveries for cases where the government declined to intervene decreased from 31% to 2.2% since last year.  Although the cause for this decline is uncertain, one could argue that this indicates that DOJ views the assistance of relators as less valuable in recent years.

Notwithstanding the specific observations related to the industries and types of actions resulting in recoveries this fiscal year, the statistics demonstrate that the FCA remains a powerful tool for the government’s fraud deterrence efforts.

ARTICLE BY Heather L. Petrovich of Sheppard, Mullin, Richter & Hampton LLP

Copyright © 2016, Sheppard Mullin Richter & Hampton LLP.

DOJ, FTC Announce New Antitrust Guidance for Recruiting and Hiring; Criminal Enforcement Possible

handcuffs, criminal enforcementMany companies—and the HR professionals and other executives who worked for them—have found out the hard way that business-to-business agreements on compensation and recruiting can violate the antitrust laws and bring huge corporate and personal penalties.

Last week, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ) jointly issued antitrust guidance for anyone who deals with recruiting and compensation. The guidance is written for HR professionals, not antitrust experts. It avoids jargon and applies antitrust basics in plain English. It expands on those basics by providing short and direct answers to real-life questions.

The guidance comes in the wake of several actions in recent years by the federal antitrust agencies against so-called “no-poaching” or “wage-fixing” agreements entered by companies competing for the same talent. It announces that DOJ will prosecute criminally some antitrust violations in this space. While the new guidance is explicitly aimed at HR professionals, senior executives should understand it as well.

The guidance starts with the basics: The antitrust laws establish the rules for a competitive marketplace, including how competitors interact with each other. From an antitrust perspective, firms that compete to recruit or retain employees are competitors, even if they do not compete when selling products or services. Therefore, agreements among employers not to recruit certain employees (no-poaching) or not to compete on various terms of compensation (wage-fixing) can violate the antitrust laws.

To be illegal, these agreements need not be explicit or formal. Evidence of exchanges of information on compensation, recruiting, or similar topics followed by parallel behavior can lead to an inference of agreement. Intent to lower a company’s labor costs is no defense. Also, there is no “non-profit” defense: while they might not compete to sell services, non-profits are considered competitors for the staff they hire.

The potential costs of antitrust violations are huge: fines by the agencies; treble damages for injured actual or potential employees; and intrusive regulation of basic company operations from consent decrees and judgments. In addition, the DOJ used this guidance to announce that it will now prosecute criminally any naked wage-fixing or no-poaching agreements. According to DOJ, these naked agreements—“separate from or not reasonably necessary to a larger legitimate collaboration between the employers”—harm competition in the same irredeemable way as hardcore price-fixing cartels. So now, any executives involved in such agreements—whether HR professionals or not—face personal consequences, including threats of potential jail time.

Even unsuccessful attempts to reach an anticompetitive agreement on these topics can be illegal in the eyes of the regulators. As the guidance makes clear, so-called “invitations to collude” have been and will continue to be pursued by the FTC as actions that might violate the Federal Trade Commission Act.

Some of these information exchanges and agreements do not automatically violate the antitrust laws and there is nothing in this new guidance that suggests otherwise. If the agreements are reasonably necessary to an actual or potential joint venture or merger, legitimate benchmarking activity, or other collaboration that might help consumers, their net effect on competition would need to be judged. In prior actions, the agencies also have recognized as legitimate certain no-poaching clauses in agreements with consultants and recruiting agencies. Even such common uses as employment or severance agreements might not run afoul of the antitrust law’s prohibitions.

The guidance does not—and really cannot—go into all the detail necessary to determine when any particular effort will pass antitrust muster. It does refer readers to the earlier Health Care Guidelines but those helpful tips relate only to information exchanges. The guidance also provides links to the many prior civil actions taken by the agencies on these types of matters. It is accompanied by a two-sided index card entitled Antitrust Red Flags for Employment Practices that could be part of an effective compliance program.

ARTICLE BY Steven J. Cernak of Schiff Hardin LLP

© 2016 Schiff Hardin LLP