IN THIS ISSUE
NEWS U.S. Department of Justice Initiative Signals Continued, Targeted Focus on Corruption in the Healthcare Industry 1 The Anti-Kickback Statute: More Than Just a Sidekick to the FCPA 2 IN THE INTERIM 4
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U.S. DEPARTMENT OF JUSTICE INITIATIVE SIGNALS CONTINUED, TARGETED FOCUS ON CORRUPTION IN THE HEALTHCARE INDUSTRY
The healthcare industry is no stranger to Department of Justice (DOJ) scrutiny. DOJ prosecutors have aggressively pursued improper billing practices and Medicare fraud by pharmaceutical and medical device companies, and in 2015, the DOJ expanded its enforcement scope by creating the Corporate Health Care Fraud Unit to investigate cases of corporate healthcare fraud. Pharmaceutical and medical device companies also have historically been the targets of aggressive enforcement of the Foreign Corrupt Practices Act (FCPA) by both the DOJ and the Securities and Exchange Commission (SEC). Moreover, based on recent comments, it does not appear as though the new administration plans to change course.
In August 2017, the DOJ's Criminal Fraud Section announced a new, formal initiative between the Corporate Health Care Fraud Unit and FCPA prosecutors to jointly investigate and prosecute healthcarerelated bribery, noting that the "Fraud Section stands uniquely positioned to investigate and prosecute cases involving both domestic bribery and kickback schemes AND FCPA anti-bribery violations in the healthcare industry." This latest development sends a strong signal to healthcare companies that they will be targeted for conduct both here and abroad. In public comments revealing the new initiative, Acting Chief of the Criminal Fraud Section Sandra Moser highlighted the particularly harmful effects of corruption in the healthcare sector, insofar as it "place[s] the personal, financial interest of the physician or company above the individualized best interests of their medical patients," "erode[s] public confidence in our health care programs, discourage[s] [patients] from seeking medical care, and lead[s] to overutilization and rampant fraud."
Acting Chief Moser's comments are not particularly surprising. It has long been recognized that the heavily regulated nature of the healthcare industry, coupled with the amount of government funds at stake, makes that sector uniquely situated for vulnerabilities arising out of corruption and bribery -- both domestic and international. From 2009 to 2015, there were just under 20 FCPA settlements involving healthcare-related companies, and in the last year alone there were a number of high-value FCPA settlements involving healthcare companies, including a $519 million settlement with Teva Pharmaceuticals, which agreed to pay a $283 million penalty to settle FCPA allegations with the DOJ and to forfeit $236 million in profits plus interest to resolve a civil investigation by the SEC.
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Given the government's recent focus, all healthcare-related entities would do well to review their compliance programs to ensure their programs adequately account for potential bribery risks, both domestic and foreign. During her speech, Acting Chief Moser instructed companies to "empower [their] compliance executives by giving them their rightful seat at the table and listening to what they have to say" and not leave those same executives having to defend a program to the government that the executives had tried to make better but were denied. Shoring up basic elements of a strong compliance program, including a chain of command committed to compliance, more robust internal accounting controls, anticorruption training for employees and policies targeted to travel, gift and entertainment expenses, can reduce the chance of prosecutorial involvement in the first instance and goes a long way in building credibility should corporate executives find themselves in the unenvious position of defending their programs.
...and healthcare companies should be on
alert that compliance failures could lead to significant liability under both the AKS and FCPA.
...the DOJ reached a significant settlement that may foreshadow the potential effect of the cooperation between the Fraud and FCPA units.
In 2016, Olympus, a medical device distributor,
settled two separate bribery-related cases with
the DOJ, entering into a deferred prosecution agreement (DPA) with
the DOJ in each case and paying more than $600 million in fines in connection with its actions.
THE ANTI-KICKBACK STATUTE: MORE THAN JUST A SIDEKICK TO THE FCPA
Although the federal criminal Anti-Kickback Statute (AKS) prohibits similar conduct to the FCPA, historically, there have been few settlements that involved both statutes. But with the DOJ's increased enforcement of both the AKS and FCPA in recent years, along with increased cooperation between the units enforcing both statutes (which we discuss in the previous article), an increase in joint enforcement actions will likely occur, and healthcare companies should be on alert that compliance failures could lead to significant liability under both statutes.
As background, the AKS is a federal statute that prohibits the exchange of (or offer to exchange) anything of value in an effort to induce the referral of federal healthcare program business. The lack of historic joint FCPA/AKS enforcement actions may be explained by the fact that AKS cases often begin differently from FCPA investigations. Whereas FCPA investigations typically begin when the DOJ or the SEC opens an investigation, most AKS cases originate when a civil complaint is filed under the False Claims Act (FCA), a federal law that imposes liability on individuals and entities (typically, federal contractors) that defraud governmental programs. The FCA allows private citizens -- known as relators -- to file civil qui tam actions on behalf of the federal government alleging violations of the AKS and other statutes, and those relators can recover a percentage of the government's overall recovery in those actions. In addition to these qui tam cases, some AKS cases begin with a DOJ-initiated investigation. However, even where an AKS case is originated by the DOJ, the DOJ's Health Care Fraud Unit, which functions independently from the DOJ's FCPA Unit, is responsible for the case. Despite these differences in origin, FCPA and AKS investigations may be quickly becoming logical bedfellows, and both recent comments by the DOJ and a significant case from last year explain why.
As discussed in the previous article, the DOJ's Criminal Fraud Section announced a new, formal cooperation initiative between the Health Care Fraud and FCPA units to investigate and prosecute healthcare-related bribery. This initiative will likely lead to an uptick in joint FCPA and AKS investigations, building on a recent trend in this type of enforcement.
Even before this initiative was announced, however, the DOJ reached a significant settlement that may foreshadow the potential effect of the cooperation between the Fraud and FCPA units. In 2016, Olympus, a medical device distributor, settled two separate bribery-related cases with the DOJ, entering into a deferred prosecution agreement (DPA) with the DOJ in each case and paying more than $600 million in fines in connection with its actions. First, as part of an FCPA investigation, the company's Latin America entity, Olympus Latin America (OLA), paid a criminal fine of $22.8 million to resolve allegations by the DOJ that Olympus employees bribed doctors across Latin America to buy Olympus endoscopes, which are used during digestive tract procedures. As part of Olympus' FCPA settlement, it entered into a three-year DPA and agreed to a compliance monitor. According to the DPA, OLA
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...the conduct prohibited by both the FCPA and
AKS is very similar, and healthcare companies
should ensure that their compliance regimes are robust enough to prevent
the type of conduct that is subject to
joint enforcement of both statutes...
provided "cash, money transfers, personal or non-Olympus medical education travel, free or heavily discounted equipment, and other things of value" to doctors working at government hospitals or clinics in various Latin American countries to increase sales. Company executives kept a spreadsheet of the illegal payments, linking them to sales and revenue data and instructed other employees to keep them a secret.
For related conduct, Olympus Corporation of the Americas (OCA) paid a criminal penalty of $312.4 million -- more than 10 times the FCPA settlement -- for violating the AKS plus $310.8 million to settle civil claims under the federal and various state False Claims Acts based on similar allegations in the U.S. More specifically, the DOJ alleged that OCA won new business and rewarded doctors' purchases by giving doctors and hospitals kickbacks, including consulting payments, foreign travel, lavish meals, millions of dollars in grants and free medical equipment. For example:
1. OCA gave a hospital a $5,000 grant to facilitate a $750,000 purchase of OCA's products.
2. OCA held up a $50,000 research grant until a second hospital signed a deal to purchase Olympus equipment.
3. OCA paid for three doctors to travel to Japan in 2007 as a quid pro quo for their hospital's decision to switch from a competitor to Olympus.
4. A doctor with a major role in a New York medical center's buying decisions received free use of $400,000 in equipment for his private practice.
DOJ alleged that these payments helped OCA win more than $600 million in U.S. sales and earn profits of more than $230 million.
As the Olympus case makes clear, the conduct prohibited by both the FCPA and AKS is very similar, and healthcare companies should ensure that their compliance regimes are robust enough to prevent the type of conduct that is subject to joint enforcement of both statutes, which is likely becoming a trend.
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IN THE INTERIM
July 12, 2017: The UK Serious Fraud Office (SFO) confirmed that it has opened an investigation into possible overseas bribery by London-based Amec Foster Wheeler plc, (AMEC) joining ongoing DOJ and SEC investigations. The investigation concerns Amec's relationship with Unaoil, which is the subject of an ongoing SFO investigation into allegations that it paid bribes on behalf of large oil and gas companies. Amec said the SFO's new investigation is not expected to affect the proposed acquisition of the company by John Wood Group, which is expected to close later this year.
July 19, 2017: Dmitrij Harder, the former owner of a Pennsylvania-based consultant company, was sentenced to 60 months in prison for violating the FCPA. Harder pleaded guilty last year to paying approximately $3.5 million in bribes to an official at a major international development lender in exchange for referrals of the development lender's clients to Harder's company. According to the DOJ, the bribes were paid through the Channel Island bank account of the official's sister. The official was sentenced to six years in prison after a British jury found him guilty of related corruption offenses. Harder was also ordered to forfeit $1.9 million.
July 20, 2017: Amadeus Richers, the former general manager of Miami-based Cinergy Telecommunications Inc, pleaded guilty to one count of conspiracy to violate the FCPA in connection with paying $3 million in bribes to Haitian officials to secure a contract with Haiti's state-owned telecommunications company. Richers, who was indicted in 2011 and remained a fugitive until his extradition from Panama on February 23, 2017, is the ninth defendant to plead guilty or be convicted at trial in the case. According to the DOJ, Richers and his co-conspirators paid some of the money directly to the officials or their relatives and funneled more through third-party intermediaries. He was sentenced on September 25, 2017 to time served, and ordered to pay a fine of $100.
July 27, 2017: Halliburton Company agreed to pay the SEC $29.2 million in disgorgement and penalties to settle charges that it violated the books and records and internal controls provisions of the FCPA in connection with payments it made to an Angola-based company. According to the SEC's press release, in the course of pursuing new oil projects with Sonangol, Angola's state oil company, Halliburton contracted with a local Angolan company to satisfy local regulations for foreign firms operating in the country. The Angolan company was owned by a former Halliburton employee who was a friend and neighbor of the Sonangol official who would ultimately approve the award of the projects to Halliburton, which made $14 million from the deals. The SEC found that Halliburton violated its internal accounting controls by choosing the Angolan company and subsequently backing into a scope of work, rather than first determining the services it needed and then conducting a competitive bidding process. Halliburton also erred by failing to substantiate the need for a single source of supply. Halliburton's former vice president who led these efforts, Jeannot Lorenz, agreed personally to pay the SEC a $75,000 penalty for causing the violations.
July 28, 2017: IBM Corp. reported that the DOJ and SEC informed it in June 2017 that they were closing their respective investigations into the company without pursuing any enforcement action. The investigations, which began in early 2012, involved allegations of illegal activity by a former IBM Poland employee relating to sales the company made to the Polish government.
July 28, 2017: Ng Lap Seng, a Macau billionaire, was found guilty by a federal jury of paying bribes to two United Nations (UN) officials in exchange for official help promoting development of a conference center in Macau. According to the DOJ, Ng paid at least $1 million in bribes to Francis Lorenzo, a former deputy ambassador from the Dominican Republic, and John Ashe, a former UN General Assembly president and ambassador from Antigua and Barbuda. Lorenzo pled guilty and testified for the government at Ng's trial. Ashe was charged with bribery but died in an accident while awaiting his trial. Ng was
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convicted of all six counts he faced: one count of conspiracy to commit bribery and to violate the FCPA, two counts of violating the FCPA, one count of paying illegal bribes and gratuities, one count of conspiracy to commit money laundering, and one count of money laundering. He faces up to five years in prison for the FCPA-related offenses, up to 10 years for the bribery conviction, and up to 20 years for the money-laundering-related counts.
July 31, 2017: Net1 UEPS Technologies, a South Africa-based transaction-processing provider, announced in a securities filing that it received a letter from the DOJ informing it that the DOJ has closed its investigation concerning possible FCPA violations. The DOJ's investigation, which began in November 2012, concerned the tender process that resulted in Net1 being awarded a contract from the South African Social Security Agency. Although the deal involved South African entities and individuals, U.S. authorities became involved because Net1 is an "issuer" under the FCPA. The DOJ's letter comes approximately two years after the SEC issued Net1 a declination letter in a related investigation and a federal district judge dismissed a class action securities lawsuit brought by shareholders against Net1 and two of its executive officers for the same conduct.
August 4, 2017: Ohio-based Teradata Corporation, an enterprise software developer, disclosed in an SEC quarterly report that it discovered "questionable expenditures for travel, gifts and other expenses" at a subsidiary doing business in Turkey. Teradata said in the filing that it had contacted the SEC and DOJ and launched an internal investigation, and the individuals involved in the conduct are no longer with Teradata.
August 7, 2017: Minnesota-based MTS Systems Corporation, a manufacturer of test systems and sensing equipment, disclosed in an SEC quarterly report that the DOJ and SEC had closed their investigations into possible FCPA violations by the company's business in China and Korea "without further action taken by either agency." The MTS internal investigation into gift, travel, entertainment and other expenses in Asia began in 2012.
August 22, 2017: Chongqing International Construction Corporation (CICO), a Chinese state-owned enterprise, was debarred for at least a year by the African Development Bank (AfDB) for engaging in fraudulent practices during bids for an AfDB-financed road construction project in Uganda. The AfDB said that CICO "inflated its purported experience with similar projects, grossly overstating both the scope and the value of contracts it had supposedly successfully completed in the past." The AfDB said that CICO will remain debarred until the company has adopted "a comprehensive integrity compliance program that meets the standards of the AfDB."
August 25, 2017: U.S. District Judge Denise Cote of the Southern District of New York sentenced Mahmoud Thiam, an American citizen and New York banker who served as mining minister of Guinea, to seven years in jail for laundering bribes from Chinese companies. A jury convicted Thiam in May of one count of dealing in criminally derived property and one count of money laundering for taking $8.5 million from executives of China Sonangol International Ltd. and China International Fund SA in exchange for valuable mining rights.
August 29, 2017: A criminal complaint filed in the District of Massachusetts charged Joseph Baptiste, a retired U.S. Army colonel, with one count of conspiracy to violate the FCPA and commit money laundering. The complaint alleges that Mr. Baptiste solicited bribes from undercover FBI agents in Boston who were posing as potential investors in a port project in Haiti. Mr. Baptiste allegedly told the undercover agents that he would make payments to Haitian officials through a Maryland nonprofit entity that he controlled.
August 29, 2017: According to a Wall Street Journal report, the DOJ has "begun to review allegations" that Uber violated the FCPA. The DOJ, which does not comment on ongoing FCPA investigations, said that it would neither confirm nor deny that Uber is a target. According to the article, based on what the DOJ finds, it may or may not decide to open a full-fledged FCPA investigation into Uber.
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September 11, 2017: Italian oil company, Eni SpA, disclosed in an SEC filing that the internal investigation the company began three years ago in connection with possible FCPA violations in Nigeria, had expanded to include Algeria, Congo, Iraq, Kazakhstan and Kuwait. According to the SEC filing, the DOJ and SEC also have opened their own investigations into the allegation of corruption relating to the award of certain contracts to Eni's former controlled company, Saipem, in Algeria. September 21, 2017: Swedish telecommunications company, Telia Company AB, agreed to pay a $548.6 million criminal penalty and accepted a three-year DPA with the DOJ to resolve FCPA violations in Uzbekistan. Of that amount, $500 million is a criminal fine and $40 million will be paid as a forfeiture on behalf of the company's Uzbek subsidiary, Coscom LLC. According to the DPA, the total criminal penalty will be offset by up to $274 million for any criminal penalties paid to the Dutch Public Prosecution Service to settle the potential prosecution in the Netherlands. Telia separately settled a parallel investigation with the SEC through an administrative order, agreeing to disgorge $457 million. According to the SEC order, the total disgorgement will be offset by up to $208.5 million for any forfeiture payment made to either the Swedish or Dutch authorities and will be offset by an additional $40 million if that amount is paid within 10 days as part of its resolution with the DOJ.
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FCPA GOVERNMENT INVESTIGATIONS AND CORPORATE SETTLEMENTS
26 23 25
21 20 19
11 11 13 14
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Pending Investigations**
* N ew criminal or civil cases (settled or contested) instituted by year ** Based upon public disclosures of investigations
Corporate FCPA-Related Penalties*
(in U.S. millions)
87.2 155.1 2006 2007
260.3 2011 2012
143.2 2014 2015 2016
12 Pending Settlement**
* Includes disgorgement; does not include non-U.S. fines ** Includes publicly disclosed reserves for future FCPA settlements
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