2nd Annual Compliance & Government Investigations Update

2nd Annual Compliance & Government
Investigations Update
Practical Strategies for Responding to
Government Investigations and Improving Your Compliance

Top Ten Mistakes Companies Make

#10 -Thinking it’s going
to be fast.
#9 - Thinking it’s going
to be fair.
# 8 - Thinking it’s going
to be cheap.

#7 - Thinking one lawyer
can represent everybody.
#6 - Thinking a voluntary
disclosure can be limited.
#5 - Thinking political
influence can help.

#4 - Failing to anticipate they
will be investigated.
#3 - Failing to notify defense
counsel before they fire key
employee-witnesses.
#2 - Failing to coordinate
public statements with
defense counsel.

#1 - Failing to preserve records
and electronic information

Compliance and the U.S. Foreign Corrupt
Practices Act (“FCPA”)
September 10, 2015
Compliance & Government Investigations Roundtable
Bass Berry & Sims

Live Audience Polling
To participate, use your smart phone or other Internet-
connected device to navigate to this web address:
bbs.participoll.com
No need to download an app!
Use this voting screen to participate:
8

Overview:
FCPA
The FCPA creates both civil and criminal liability for
individuals and companies
What is included in the FCPA?
► A. Bribery of U.S. government officials
► B. Bribery of foreign officials
► C. Accounting Provisions: Books and records/internal
controls
► D. All of the above
9
0A B C D

Looking for love in all the wrong places…
10

2015 Statistics &Trends
As of September 1, 2015:
► DOJ: 2 corporate resolutions; 4 individual actions
► SEC: 6 corporate resolutions; 2 individual actions
Increase in published DOJ declinations
Increased SEC activity
► Increased use of cease-and-desist proceedings and focus on
accounting provisions
Number of known ongoing DOJ/SEC FCPA
investigations is stable
► As of July 2015, the FCPA Blog reported 74 ongoing FCPA-
related investigations
Continued increase in transnational enforcement
14

• US$25 million criminal fine per
violation (books & records and
internal control violations)
• Up to US$2 million criminal fine per
violation (anti-bribery violations)
• US$10,000 civil penalty or
disgorgement of gross gain
• Alternative Fines Statute, 18 U.S.C.
§ 3571(d) (twice the gain or loss)
• 20 years in prison and/or US$5
million per violation (books & records
and internal control violations)
• 5 years in prison and/or US$250,000
fine per violation (anti-bribery
violations)
• US$10,000 civil penalty or
disgorgement of gross gain
• Alternative Fines Statute, 18 U.S.C.
§ 3571(d) (twice the gain or loss)
IndividualsBusiness Organizations
15
Overview:
Fines and Penalties

16
Overview:
Local Anti-Bribery Laws
Countries That Have Enacted or Amended Anti-Bribery Laws Since 2009
Source: Geology.com

17
STEP-BY-STEP APPROACH TO
CREATING AND MAINTAINING AN
ANTI-CORRUPTION COMPLIANCE
PROGRAM

Step-by-Step Approach to Creating and Maintaining an Anti-
Corruption Compliance Program
Step 1: Senior management decides to develop and
implement a compliance program
► Requires an affirmative decision to develop a program
► “Tone at the top”
► Appropriate oversight and resources (monetary and personnel)
► Consider naming a Chief Compliance Officer if not already in
place
18

Step 2: Risk Assessment
► Compliance programs are not one-size-fits all
► A risk assessment evaluates geographic and operational risk
factors relative to the organization
► Common components of a risk assessment include:
- Questionnaires (low-to-medium risk locations)
- On-site interviews (higher-risk locations) (if feasible)
- Analysis and synthesis of results
- Documentation of processes and results
- Performed at direction of legal counsel to retain privilege
► Baseline risk assessment not a substitute for periodic risk
assessments
19

Step 3: Program Design
► Risk assessment to be used as the roadmap for program design
► Components include:
- Code of Conduct
- Anti-corruption policies and procedures
- Training
- Acknowledgments and certifications
- Reporting mechanisms
- Procedures to identify and mitigate third-party risk
- Processes specific to joint ventures, mergers and acquisitions
20

Step 4: Implementation
► Once designed, the program should be implemented globally
► Specific focus on nerve centers and high-risk operations and
locations
► Important that the program be communicated and understood
throughout the organization
► Create a culture of compliance
21

Step 5: Enforcement
► Program must have teeth to be effective
► Disciplinary measures, including termination when appropriate
► Positive incentives to encourage compliant behavior
22

Step 6: Monitoring & Evaluation
► Programs must be regularly reviewed and assessed to adapt to
the changing risk landscape
► Regular reviews and evaluations should include some
combination of:
- Review of relevant policies and procedures
- Review of other potentially relevant documents, including incident
reports and contracts with high-risk third parties
- Interviews of individuals in high-risk positions
- Solicit regular certifications of compliance
- Provide regular anti-corruption training
- Provide regular recommendations of policy or other compliance
program enhancement
23

Step 7: Responding to Potential Compliance Issues
► An effective compliance program must have processes in place
to respond to potential violations
► Complaints should be reviewed and evaluated for potential
seriousness and directed upon receipt
► Credible reports should be further investigated through an
internal investigation, which (depending on severity and scale)
should include some combination of:
- Document review
- Forensic analysis
- Interviews
- Reporting (internal + potential governmental disclosure)
► Compliance issues should be documented by issue and
analyzed for trends
24

Audience Poll
What is best way to prove to the government you have
an effective compliance program?
A. Written policies and procedures
B. Regular training
C. Documentation of investigating red
flags/whistleblower complaints
D. Interviewing high risk individuals
25
0A B C D

Audience Poll
Which geographic area presents your greatest concerns
about anti-corruption compliance?
A. Central/South America
B. Asia
C. Central and South America
D. Not sure/all the of above
27
0A B C D

Geographic Risks
28
Transparency International Corruption Perception Index
measuring corruption risk:
Transparency International’s 2014 Corruption
Perception Index

Geographic Risks
When evaluating geographic risk, example
considerations include:
► Where is the Company operating?
► What is the perceived level of corruption in these locations?
► What are the customary practices in these locations?
► Are state-owned entities prevalent (e.g., hospitals, airlines)?
► What is the level of anti-corruption enforcement in these
locations?
► Is cross-border enforcement likely?
29

Gifts, Entertainment and Travel
Providing gifts, entertainment and travel can be an
important part of doing business and building
relationships
► Gifts to government officials and client representatives may be
permitted, but only if they are reasonable, appropriate, and bona
fide
► Always require appropriate approvals before permitting gifts or
travel to government officials
There is no set amount at which the promotional,
entertainment or travel expense becomes a bribe
Concern relates to lavish and excessive expenses
designed to influence the recipient (look to intent)
30

Gifts, Entertainment and Travel
Which of the following would be acceptable?
31
A. Company-branded hat and jacket
B. $200 pp dinner for non-government
C. Catered lunch during business meeting
D. First class flight and hotel accommodations for a U.S.
Congressman to Rio Olympics
0A B C D

Customs Clearance Process
Customs Clearance and Logistics. A significant number
of enforcement actions focus on corrupt payments made to
expedite the logistics process and/or to secure customs
clearance
Risk areas include:
► Reliance on third parties, including freight forwarders, carriers,
and customs brokers
► Frequent interaction with government officials (customs officials)
► Bribes of small monetary value (liquor, cigarettes, cash)
customary (and expected) in many markets
32

Customs Clearance Process
Watch for red flags
Reliance on facilitation payment exception oftentimes
problematic in this context
33

Licensing and Permitting
Licensing and Permitting.
Risk Areas include:
► Frequent interactions with government officials with discretionary
authority
► Securing licenses or permits is often critical to a business unit’s
operation or continuing operations (e.g., building permit, utilities)
► Often done through a third-party intermediary
34

Routine Governmental Action
Routine governmental action, including securing licenses,
permits, or customs clearance necessarily involves touch points
with government officials
Facilitation Payments: Small payments to expedite a
routine government action are permissible under the FCPA.
Note: Most other countries’ anti-corruption legislation prohibits
facilitation payments
Note: The trend in anti-corruption compliance is to prohibit
facilitation payments
35

Routine Governmental Action
Which of the following would be permissible (qualifying as a
facilitation payment or service fee)?
A. Rush fee listed on schedule
B. Fee to customs inspector to expedite inspection
C. Fee to government procurement officer to renew contract
36
0A B C

Charitable Contributions
DOJ and SEC have acknowledged that companies
engage in charitable giving and that the FCPA does not
prevent corporations from acting as “good corporate
citizens.” However, DOJ and SEC have also cautioned
that charitable contributions can be a way to mask
corrupt payments.
37

Charitable Contributions:
Hypothetical
Hypothetical A U.S. utility company plans to construct a
plant in country with lacking elementary educational
facilities. The utility company also planned to donate
$100,000 to a government entity to fund an elementary
school construction project near the new plant.
Is this an appropriate charitable contribution?
A. Yes?
B. No?
Why or why not?
38
0A B

Charitable Contributions:
Hypothetical
Answer. By means of an Opinion Procedure Release
(“OPR”), the DOJ considered this question (OPR 97-02).
DOJ declined to take enforcement action noting that the
Requestor:
► Required a written agreement from the government entity
receiving the donation stating that the funds would only be used
in relation to the elementary school
► Made the donation directly to the governmental entity, not to an
individual government official
39

Business Partners:
Third Parties
40
• The use of third-party
agents or
intermediaries to
interact with
government officials on
behalf of the company
poses a risk in all
areas of business
operations

Business Partners:
Third Parties
Breadth of potential exposure:
41
Your
Company
Foreign Affiliates
Distributors
Sales Agents
Joint Ventures
Customs Officials • Govt. Employees
State-Owned Enterprise Employees

Business Partners:
Third Parties
Third-Party Red Flags include:
► History of corruption
► Government official recommending a specific third party
► Unusual financial arrangements and/or accounting arrangements
► Unusually high commissions
► Lack of qualifications to perform services requested
► Lack of work product or requested deliverable
42

Business Partners
Business partners can expose a company to FCPA risk.
Considerations include:
► Joint Ventures and joint-venture partners
► Ownership percentage (minority v. majority)
► Government officials as business partners?
► Government officials as board members?
► Control?
► Fully integrated? Day-one integration?
► Always conduct appropriate due diligence
43

Business Partners:
Successor Criminal Liability
DOJ has an expansive view under which a successor
company can be charged with its predecessor’s FCPA
violations
It is generally no legal defense that:
► FCPA violations predated an acquisition
► Successor did not know about the violations
► Successor performed anti-corruption due diligence
44

Effective Resolution of
Healthcare Fraud Investigations
Matthew Curley John Kelly
Lisa Rivera Brian Roark

New Qui Tam Lawsuits
Number of New Qui Tam Lawsuits
Filed by Year (FY 2010 - 2014)
0
100
200
300
400
500
600
700
800
2010 2011 2012 2013 2014
Over 3,300 new qui tam lawsuits filed since 2010

Era of Heightened Criminal Enforcement

Damages Theories in Civil Investigations
Establishing Damages in FCA Cases
Guiding principle is “to make the government whole” for
damages incurred “because of” a violation of the FCA
Measure of damages may depend on the nature of the conduct
under investigation
► Government typically seeks money paid out because of the false claim
over and above what would have been paid if the claims were truthful
► E.g., healthcare provider would have received no reimbursement for
claims tainted by violation of the Anti-Kickback Statute
► No credit for “value” received by the government
for the goods or services provided to
beneficiaries of government healthcare
programs

“Lies, Damned Lies, and Statistics”
Extrapolation to Establish Liability Across Universe of
Claims
Courts increasingly willing to allow government to argue that
liability should be extrapolated across a universe of claims based
on review of a sample
LifeCare Centers of America
► Government sought to use random sample of 400 admissions from
82 SNFs to extrapolate findings across 4,396 admissions and
154,621 claims
Aseracare
► District Court denied summary judgment for
hospice provider and concluded that “[t]he
Government has statistical evidence regarding
all of the Government’s universe of 2,181 claims.
Statistical evidence is evidence.”

Negotiating Civil Settlements
FCA Damages and Penalties
FCA provides for treble damages and per claim penalties of
between $5,500 and $11,000
Government will expect some multiple of damages in any FCA
settlement
FCA allows for private parties (qui tam relators) to bring suit on
behalf of the government and participate in % of any recovery

FCA Settlement Agreements
Standard terms and conditions included in all settlement agreements
“Covered Conduct” language will dictate scope of release:
Possible to negotiate cold-comfort letter

Tax Consequences of FCA Settlements
Providers considering settlement should evaluate tax consequences
of any potential settlement
► Section 162(f) of the Internal Revenue Code prohibits deduction of fines or
similar penalties paid to the government
► Settling parties may deduct the amount of a civil FCA settlement
characterized as compensatory
► Most FCA settlements are silent on characterization of amounts beyond
single damages
Recent case law has rejected government’s argument that any
amounts in excess of single damages must be treated as punitive
fines
► Allows for possible favorable tax treatment of greater portion of amounts
paid to resolve FCA allegations

Criminal Enforcement Efforts
During 2014, DOJ prosecutors:
► Obtained 734 federal healthcare fraud-related convictions
► Opened 924 new criminal healthcare fraud investigations
► Filed 496 criminal cases against 805 defendants
During 2014, HHS-OIG:
► Excluded 1,310 individuals and
entities based upon criminal
convictions for crimes related to
Medicare and Medicaid
► Excluded 432 individuals and entities for crimes related to other
healthcare programs

“[I]t is important that criminal [and
civil … attorneys] coordinate in a
timely fashion, discuss common
issues that may impact each matter,
and proceed in a manner that allows
information to be shared to the
fullest extent appropriate to the case
and permissible by law.”
Parallel Proceedings

Resolving Criminal Investigations
U.S. Attorney Manual: 9-28.000 - Principles Of Federal
Prosecution Of Business Organizations

Factors considered in prosecuting corporations include:
► Nature and seriousness of the offense;
► Pervasiveness of wrongdoing within the corporation,;
► History of similar misconduct;
► Timely and voluntary disclosure of wrongdoing and its willingness to
cooperate;
► Existence and effectiveness of the pre-existing compliance program;
► Corporation's remedial actions (update compliance program, replace
responsible management, discipline wrongdoers, pay restitution, and
cooperate); and
► Collateral consequences such as disproportionate harm to
shareholders, pension holders, employees, and the public.

Options for resolving criminal healthcare fraud
investigations include:
► Declination
► NPA/DPA
► Civil Resolution
► Criminal Plea
Other considerations include:
► Fines/Penalties
► Post-resolution monitoring or reporting requirements
► Exclusion/Debarment
► Public Company v. Private Company considerations
• Board approval
• Risk of spin-off litigation

Tackling Administrative Issues
HHS Office of Counsel for the Inspector General
(OCIG)
Administrative involvement with resolution of HCF investigation
► Administrative consequences involve imposition of Corporate Integrity
Agreements (CIA) and mandatory or permissive exclusion from federal
healthcare programs
► No release of administrative consequences unless OCIG signs FCA
settlement agreements
OCIG scrutinizes resolution of HCF investigations for:
► Methodology of calculation of single damages
► Rationale for multiplier applied to single damages
► Lower multiplier=greater scrutiny

HHS-OIG Guidance for Boards
OIG guidance on Board’s oversight and review of compliance
program functions:
► Stresses meaningful oversight and “asking
the right questions”
► Working knowledge of regulations and the
organization
► Promotion of robust communication with
management
► Meaningful assessment of compliance
program
► Identification and addressing of risks from
emerging industry trends
► Engender compliance responsibility through
incentives based on compliance and quality
outcomes

Corporate Integrity Agreements
CIA mandated as a condition of settlement in exchange for
HHS-OIG release
Typical CIA requirements include:
► Establishment of compliance officer and compliance committee
► Written code of conduct and policies and procedures
► Imposition of additional training and education requirements
► Review of claims and arrangements by IRO
► Development of risk assessment and review process and disclosure of
overpayments and other “reportable events”
► Annual reports and certifications by key management and officers to
government

OIG-Initiated Administrative Litigation
OIG announced creation of new litigation team dedicated to
pursuing civil penalty and exclusion cases
Administrative Civil Remedies Branch staffed with at least 10
attorneys dedicating “100% percent of their time” to
investigating and litigating CMPs and exclusion cases
initiated by OIG
Goals of ACRB include:
► Holding individuals accountable by examining “spin-off” cases against
individuals or other actors
► Enforcing OIG’s industry guidance
► Filling enforcement gaps
► Complementing DOJ enforcement activities

Cuba, Iran and Other Hot
Sanctions Topics
September 10, 2015
Nashville, Tennessee
69

∗ Background
∗ Sanctions Overview
∗ Practical Guidance
∗ Questions
Agenda
70

∗ Protect national security
∗ Advance foreign policy
∗ Promote democracy
71
Goals of Sanctions Laws

∗ Penalties
 $ignificant monetary fine$
 Prison for individuals
 Designation as prohibited party
∗ Reputational damage
∗ Business risk
72
Importance of Compliance

∗ U.S. Department of the Treasury,
Office of Foreign Assets Control
(OFAC)
∗ Restrict transactions (e.g., financial,
provision of services, etc.)
73
Sanctions Overview

∗ Country-based
 Comprehensive (e.g., Cuba, Iran, Sudan)
 Selective (e.g., Burma, Russia / Ukraine)
∗ Specially Designated Nationals (SDNs)
 Individuals (e.g., terrorists, drug kingpins)
 Groups (e.g., proliferators, terrorist organizations)
 Vessels (e.g., ships owned by Iran, Cuba)
74
Types

∗ U.S. persons
 U.S. citizens and LPRs, wherever located
 Persons in United States, regardless of
nationality
 Entities organized or headquartered in
United States, including branches
∗ Non-U.S. companies owned or controlled
by U.S. person (Cuba and Iran)
∗ Anyone, anywhere, who causes a
violation
75
Jurisdiction

∗ Sanctions prohibit both direct and
indirect transactions
∗ Cannot take act indirectly that cannot
be taken directly
 Authorizing or financing
 Referring business opportunity
 Changing procedures
 Provide business, other support services
76
Facilitation

∗ Designated for foreign policy reasons
 Terrorism
 Narcotics
 Proliferation
 Official in sanctioned country
∗ Virtually all transactions prohibited
∗ Located around the world, i.e., screen the SDN List
77
Specially Designated Nationals

 Commerzbank (March 2015) – $258 million
 Processed transactions for sanctioned parties through U.S.
financial system
 PayPal (March 2015) - $7.5 million
 Failed to screen, and processed, transactions involving
sanctioned parties
 “Reckless disregard” for U.S. sanctions compliance
 Blue Robin (July 2015) - $82,260
 Imported software development services from Iran
Enforcement
78

∗ At beginning of 2015, U.S. eased restrictions on Cuba
∗ Travel to island for many purposes (though not simply
to be a tourist)
∗ Export certain U.S.-origin items to Cuba for specific
purposes
∗ Activities in support of telecommunications services in
/ with Cuba
Hot Topic: Cuba
79

∗ What are the challenges?
∗ How can they be addressed?
∗ Who is the customer / can they pay?
Cuba: Practical Challenges
80

∗ Joint Comprehensive Plan of Action (JCPOA) – July 2015
∗ No immediate effect on U.S. sanctions
∗ Most sanctions relief under JCPOA is for non-U.S.
companies
∗ Until Iran meets its obligations, the only sanctions relief is
that provided in the Joint Plan of Action (JPOA)
∗ Transactions related to commercial passenger aircraft and
related parts and services
∗ For non-U.S. entities owned or controlled by U.S. persons,
U.S. committed to license activities consistent with JCPOA
Hot Topic: Iran
81

∗ Is anything permitted?
∗ When will activities be permitted?
∗ How should companies proceed?
Iran: Practical Challenges
82

Hot Topic: Russia / Ukraine
∗ Ukraine-Related Sanctions Regulations (31 C.F.R. Part
589) and Executive Orders
∗ SDNs
∗ Sectoral Sanctions
∗ Financing / dealing in certain debt
∗ Actions in support of exploration / production for certain
projects that have the potential to produce oil
∗ Crimea-specific prohibitions
83

∗ What transaction partners are permitted / prohibited?
∗ What are the challenges?
∗ How can they be addressed?
Russia / Ukraine: Practical Challenges
84

* Burma
* Venezuela
* Yemen
* Others?
85
What’s To Come

∗ Global operations/customers
∗ Provide services around world
∗ Export goods and / or technology
87
Application

Compliance Guidance
∗ Tone at the top
∗ Policies and procedures
 Training
 Due diligence
 Reporting violations
 Appropriate approval of expenses
∗ Maintain accurate records
∗ Periodic self-assessments
88

∗ Commit to compliance
∗ Keep eyes open for red flags
 Need not be an expert but . . .
 Report potential issues
∗ No retaliation for good faith
reports
89
Expectations for Personnel

Thank You!
91
Helena Yarbrough
Associate General Counsel
Bridgestone Americas, Inc.
yarbroughhel@bfusa.com
Thad McBride
Bass Berry & Sims
tmcbride@bassberry.com
O: (202) 827-2959
C: (202) 253-2518

Special Considerations in
Government Contracting/
Grant Investigations
2nd Annual Compliance &
Government Investigations Update
September 10, 2015

Introduction
US Government is the largest purchaser of
goods & services in the world
► $500B+ procurement budget
► Approximately the same annual grant budget
Multiple enforcement tools
► Criminal & civil
► Contractual remedies
► Administrative
► Third party liability

Unique Aspects of
Procurement Fraud Matters
Internal investigations
► Privilege issues
► Timing
Mandatory disclosure obligations
Suspension/debarment risk
Type of investigation may influence
response

Who is “Investigating”?
Multiple parties with potentially different
interests
► Agency contracting staff
► OIG
► SDO
► DOJ Civil
► DOJ Criminal
What do they know about government
contract/grant law?

Internal Investigation
Considerations
Speed
► Obligation for “timely” disclosure should inform speed
of investigation
► Should consider two stage investigation
- Preliminary - determine if there is credible
evidence
- In depth investigation
Privilege
► SDOs expect disclosure of facts from internal
investigation
► KBR

Mandatory Disclosure
Obligations
Contract and grant recipients must
disclose certain types of violations
For contracts, two sources of this
obligation
► Contract provision
► Basis for suspension/debarment
Key differences between the contract
requirement and the S/D provision
For grants, obligation in 2 CFR Part 200

Mandatory Disclosure –
FAR 52.203-13
Contract provision is required in contracts over $5.5
million with performance period of 120 days or more.
Requires
► timely disclosure, in writing to agency OIG, with a copy to the
Contracting Officer,
► when the contractor has credible evidence in connection with the
contract or subcontract under the contract
► that a principal, employee, agent or subcontractor has committed
- violation of Federal criminal law involving fraud, conflict of
interest, bribery, or gratuity violation found in Title 18
- violation of the civil FCA

Contract Disclosure –
FAR Subpart 9.4
Suspension/Debarment trigger is similar
► Knowing failure by a principal until 3 years after final
payment
► to timely disclose to the Government in connection
with the award, performance or closeout of a contract
or subcontract
► credible evidence of
- violation of Federal criminal law involving fraud, conflict of
interest, bribery, or gratuity violation found in Title 18
- violation of the civil FCA
- significant overpayment

Grant Disclosure Obligation
Under 2 CFR Part 200, the new “super circular,” awardees must timely
disclose in writing to Federal agency (or pass-through entity) all violations of
Federal criminal law involving fraud, bribery or gratuity potentially affecting
the Federal award.
Non-compliance could result in:
► Application of programmatic failure remedies, including:
- Cessation of cash advances
- Withholding of approval to proceed or requiring additional approvals
- Increased financial reporting
- Increased project monitoring and technical management assistance
► If the non-compliance cannot be corrected by one of the above actions,
additional remedies will be applied, including:
- Payment withholding pending correction of deficiency
- Disallowance of costs related to non-compliance
- Whole or partial termination of Federal award(s)
- Suspension or debarment

Who to Disclose to
Contract provision specifies IG with copy to
contracting officer
Suspension/debarment trigger requires
disclosure to the “Government”
► Sufficient to disclosure to contracting officer, but may
consider going to IG if high value or significant issue,
as those will likely be immediately shared with the IG
and the suspending/debarring official
Grant rules require disclosure to the awarding
agency or pass-through entity

What to Disclose
Not all violations must be disclosed
► Careful analysis is required
► Even if not mandatory, may be reasons to disclosure
Credible evidence of
► Certain types of Title 18 violations
- fraud, conflict of interest, bribery, or gratuity
► Civil FCA violations
► Suspension/Debarment provision also requires
disclosure of “significant” overpayment
- Measured by relative value or absolute value
- Separate obligations to return government funds

When to Disclose
Must be timely, but triggered only when
company has credible evidence
Reasonable for contractor to conduct initial
investigation to confirm credible evidence
Tension between desire to disclose quickly
and need to ensure disclosure is accurate

How to frame your disclosure
Just the facts, Jack
► No need to characterize what provision was violated
Gap analysis
► What went wrong, and why?
Should include at least a plan for remedial action
and discipline, if appropriate
► Preferable to show actions have already been taken
Opportunity to tell a positive story

Suspension/Debarment Risk
Must be aware of suspension/debarment impact
of any investigation
S/D can devastate a company
► No new awards, options or new funds under existing
contracts
► Potentially devastating collateral consequences –
lines of credit can be called, commercial companies,
particularly in the healthcare field, may cease doing
business with you
Increased pressure to exclude companies and
individuals

Consider Early Engagement
with SDO
Consider early engagement with the
suspending/debarring official
► Better the SDO hears about it from you
► Will probably receive any mandatory
disclosure
► Information sharing with DOJ
► Soliciting information from contracting officers
about performance problems, terminations
► Increased availability of information on
government systems

What to Tell the SDO
What went wrong
► Why didn’t the systems in place prevent it
► “Rogue” employee is a good story, but why
didn’t internal controls prevent it
What you are doing to fix it
Openness and contrition will build trust
► Must be mindful of impact disclosures to SDO
have on related actions

Actions today to limit fallout of
an incident tomorrow
• Government contractors “must conduct themselves with
the highest degree of integrity and honesty.” FAR
3.1002
Build a culture of compliance & ethics
► established by top management, lead from top
► embedded in activities such as education
► reinforced by incentive systems
► given force through disciplinary action for transgressors
► inseparable from the organization’s structure, processes, and
management style
► encompasses enterprise risk management

Compliance Culture (continued)
Other elements of a compliance culture include
► addresses the risks that arise in each strategic area
► establishes control points and specific responsible
employees for the risk elements
► ensures controls are well documented for internal and
external purposes
► identifies the specific people responsible for
managing each compliance element
► Without a commitment to compliance, even the best
policies and procedures will be useless

Implement a “values-based” ethics program which
emphasizes core values
Core values are key to instilling an ethical culture in an
organization
Management commitment to values-based ethics
program
Encourages employees to think before they act
Core values include
► Communication, honesty, integrity, openness, respect,
responsibility
Value Based Ethics

Compliance Practices to Avoid
Suspension or Debarment
Oversight/Monitoring
Dedicated resource in charge of ethics/compliance program,
reporting directly to the Board of Directors
Documented policies and procedures
Effectively communicate standards and procedures to
employees and conduct to periodic training
Active monitoring and auditing to detect non-compliant
conduct
Implement system for reporting non-compliant conduct, with
mechanism for anonymous reporting
Consistent enforcement with incentives for compliant conduct
and disciplinary action for non compliant conduct

Compliance Oversight/Monitoring
Procedures for responding appropriately when
non-compliant conduct is detected
Periodically evaluate effectiveness of the
program
Periodic risk assessments and updates to the
program to address new or changing risks
Documentation of compliance activities is key to
demonstrating effective compliance program
► Maintain records so presentation to SDO and others
can be assembled on short notice

Compliance Practices to Avoid
Suspension or Debarment
Documenting Corrective Actions
Monitoring and Evaluation
Identification of non compliance
► investigate root causes
► develop appropriate corrective action
Implement corrective action
Examine effectiveness
Record all actions and findings
Monitor - Continuous monitoring is the key element to success in the
Quality System
“It isn’t what you find…it’s what you do
about what you find.”
Philip Crosby

Bob Cooper, Bass, Berry & Sims PLC
Anna Grizzle, Bass, Berry & Sims PLC
Mary McCullohs, Tennessee Assistant Attorney General,
Medicaid Fraud Integrity Division
Trends in State Attorney General Investigations/
Medicaid Fraud

AG Investigations 100 Years Ago
STANDARD OIL CO., et al.
v.
STATE
Supreme Court of Tennessee
117 Tenn. 618 (1907)
117
.
John D. Rockefeller Charles T. Cates, Jr.

AG Investigations Today
“AGs have shifted from primarily pursuing local consumer
protection issues and defending state agencies to exploring
business practices on a national scale relating to industries
heretofore untouched by state regulators.”
B. Nash, A. Luciano & B. Mosca, Recent Developments in State Attorneys
General Enforcement, 46 The Urban Lawyer 901, 901 (Fall 2014).
118

119
http://www.nytimes.com/interactive/2015/us/politics/attorneys-general.html

Current Areas of Multistate Enforcement
Consumer Protection Act
False Claims Act – Medicaid and Non-Medicaid
Nonprofits
Antitrust
120

Consumer Protection
Commonwealth of Kentucky, ex. rel. Jack Conway, Attorney General,
v. Daymar Learning, Inc., et al.
121

Consumer Protection
Tennessee Consumer Protection Act (1977)
Remedies:
► Injunction, restitution, civil penalties
Examples of multistate settlements:
► Tobacco Master Settlement Agreement, $206 billion (46 states, 1998)
► National mortgage servicing settlement, $25 billion (49 states, 2012)
► Chase Bank, credit card debt collection, $136 million (47 states, 2015)
► Amgen, drug marketing, $71 million (49 states, 2015)
Compliance monitors
122

False Claims Act – Medicaid
Federal False Claims Act (1863)
Tennessee Medicaid False Claims Act (1993)
► Treble Damages
► Civil Penalties
► Whistleblowers
Federal/State cooperation
123

False Claims Act – Medicaid
124
http://www.hhs.gov/news/press/2015pres/03/20150319a.html

False Claims Act – Non-Medicaid
Tennessee False Claims Act (2001)
► Treble Damages
► Civil Penalties
► Whistleblowers
Recent cases over UST remediation fund:
► Exxon settlement, $6 million (2013)
► State v. Chevron Corp., No. 15C2954, Complaint (filed Aug. 5,
2015, Davidson County Circuit Court) (seeking $18 million
restitution and civil penalties)
Government contracting
125

Nonprofits
Tennessee Nonprofit Corporation Act
Solicitation of Charitable Funds Act
Tennessee Consumer Protection Act
Public Benefit Hospital Sales and Conveyance Act
Hospital Cooperation Act, as amended in 2015
Federal Trade Commission, 50 States and District of Columbia v. Cancer Fund of
America, Inc., et al., Case No. 2:15-cv-00884-NVW (D. Ariz. filed May 18, 2015)
126

Antitrust
Federal & state statutes
Cooperation among DOJ, FTC, State AGs
Recent multistate examples:
► Dollar Tree/Family Dollar– negotiated divestiture of 300
stores to complete $9.2 billion acquisition. FTC and 17
states, including TN (July 2015)
► Sysco/US Foods – abandoned merger plan after FTC and
11 states, including TN, obtained preliminary injunction
blocking merger (June 2015)
Healthcare mergers:
► St. Luke’s (ID)
► Partners (MA)
127

Takeaways
State AGs have significant enforcement authority over a
broad scope of business activities.
State AGs have powerful investigatory and litigation
tools.
State AGs have power in numbers.
128

Medicaid Fraud Enforcement
Affordable Care Act
► Expansion of Medicaid population
► +$250MM for fraud enforcement PLUS
$75MM for Medicaid Integrity Program
Recent Settlements
► Children’s Hospital - $12.9M
► All Children’s Health System - $7M
129

Medicaid Fraud Enforcement
Increase in audit activity
► Medicaid Integrity Contractors (MICs)
► Medicaid Recovery Auditors (Medicaid RACs)
► Payment Error Measurement Program
Auditors (PERM)
130

Takeaways
Medicaid enforcement will continue to
increase
Providers should self-police Medicaid
compliance
Providers should understand the roles of
the State enforcement agencies
131

2nd Annual Compliance & Government Investigations Update

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