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:

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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

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0 A B C D

Looking for love in all the wrong places…

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http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCM2s75mJ6scCFUiPPgodqaIA8w&url=http://sporclepedia.wikia.com/wiki/File:Olympic-Rings.jpg&psig=AFQjCNFVfJ7dpFLL9EVGhvyvKGGrw-naBA&ust=1441892210777595

Boats, Planes and ……..

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http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCN-qiriN6scCFQJzPgod5uAK8w&url=http://airsoc.com/articles/view/id/55ba584e3139440d4c8b4571/picture-of-airplanes&psig=AFQjCNFyQ4xOg0qNT3yxNVEyYOm1y6N5UA&ust=1441893319281797

Even Internships……..

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And of course, money

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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

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• 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)

Individuals Business Organizations

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Overview: Fines and Penalties

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Overview: Local Anti-Bribery Laws

Countries That Have Enacted or Amended Anti-Bribery Laws Since 2009

Source: Geology.com

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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

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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

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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

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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

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Step 5: Enforcement ► Program must have teeth to be effective

► Disciplinary measures, including termination when appropriate

► Positive incentives to encourage compliant behavior

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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

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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

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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

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0 A B C D

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RISK AREAS & RED FLAGS

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

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0 A B C D

Geographic Risks

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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?

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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)

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Gifts, Entertainment and Travel

Which of the following would be acceptable?

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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

0 A 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

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Customs Clearance Process

Watch for red flags Reliance on facilitation payment exception oftentimes problematic in this context

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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

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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

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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

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0 A 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.

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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?

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0 A 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

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Business Partners: Third Parties

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• 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


Breadth of potential exposure:

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Your

Company

Foreign Affiliates Distributors

Sales Agents Joint Ventures

Customs Officials • Govt. Employees State-Owned Enterprise Employees


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

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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

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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

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QUESTIONS?

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

Who Is Responsible?

“[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

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∗ Background

∗ Sanctions Overview ∗ Practical Guidance

∗ Questions

Agenda

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∗ Protect national security

∗ Advance foreign policy ∗ Promote democracy

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Goals of Sanctions Laws

∗ Penalties $ignificant monetary fine$ Prison for individuals Designation as prohibited party

∗ Reputational damage

∗ Business risk

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Importance of Compliance

∗ U.S. Department of the Treasury,

Office of Foreign Assets Control (OFAC)

∗ Restrict transactions (e.g., financial, provision of services, etc.)

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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)

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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

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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

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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

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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

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∗ 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

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∗ What are the challenges?

∗ How can they be addressed?

∗ Who is the customer / can they pay?

Cuba: Practical Challenges

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∗ 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

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∗ Is anything permitted?

∗ When will activities be permitted?

∗ How should companies proceed?

Iran: Practical Challenges

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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

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∗ What transaction partners are permitted / prohibited?

∗ What are the challenges?

∗ How can they be addressed?

Russia / Ukraine: Practical Challenges

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* Burma * Venezuela

* Yemen

* Others?

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What’s To Come

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Impact

∗ Global operations/customers

∗ Provide services around world

∗ Export goods and / or technology

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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

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∗ Commit to compliance

∗ Keep eyes open for red flags Need not be an expert but . . . Report potential issues

∗ No retaliation for good faith

reports

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Expectations for Personnel

Questions?

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Thank You!

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Helena Yarbrough Associate General Counsel Bridgestone Americas, Inc. [email protected] Thad McBride Bass Berry & Sims [email protected] O: (202) 827-2959 C: (202) 253-2518

mailto:[email protected]

mailto:[email protected]

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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

Questions?

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)

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.

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).

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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

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Consumer Protection

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

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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

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False Claims Act – Medicaid

Federal False Claims Act (1863) Tennessee Medicaid False Claims Act (1993) ► Treble Damages ► Civil Penalties ► Whistleblowers

Federal/State cooperation

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False Claims Act – Medicaid

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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

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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)

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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)

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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.

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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

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Medicaid Fraud Enforcement

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

Auditors (PERM)

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Takeaways

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

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2nd Annual Compliance & Government

Investigations Update

Practical Strategies for Responding to Government Investigations and Improving Your Compliance