Managing Whistleblowers and Document Theft in Asia and Around the World: Conducting Comprehensive Due Diligence on Corporations & Individuals

Transcription

1 Managing Whistleblowers and Document Theft in Asia and Around the World: Conducting Comprehensive Due Diligence on Corporations & Individuals Jon Dean, Partner, McDermott Will & Emery Henry Litong Chen, Partner, MWE China Law Offices June 27, Boston Brussels Chicago Düsseldorf Houston London Los Angeles Miami Milan Munich New York Orange County Paris Rome Silicon Valley Washington, D.C. Strategic alliance with MWE China Law Offices (Shanghai) 2012 McDermott Will & Emery. The following legal entities are collectively referred to as McDermott Will & Emery, McDermott" or the Firm : McDermott Will & Emery LLP, McDermott Will & Emery AARPI, McDermott Will & Emery Belgium LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, MWE Steuerberatungsgesellschaft mbh, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. McDermott has a strategic alliance with MWE China Law Offices, a separate law firm. This communication may be considered attorney advertising. Prior results do not guarantee a similar outcome.

2 Growth of Whistleblower and Employment- Related Claims The number of government referrals, agency investigations and qui tam actions filed has grown exponentially over the last 20 years Financial incentives for former employees to blow the whistle: Relator gets 15% to 30% of any recovery from the litigation, based on alleged damages that the government suffers, not the relator FCA s anti-retaliation provision 3730(h) and other common law protections Dodd-Frank has similar provisions OSHA and other statutes also have whistleblower provisions Increasingly, the government subpoena is the result of an internal whistleblower 2

3 Growth of Qui Tam Settlements and Judgments Since 1988 (in Millions) Qui tam Relator share

4 Rise in Qui Tam Actions In January 2011, there were 1,341 qui tam cases under seal for which the government had yet to decide whether to intervene. Over 1,300 in November of According to the DOJ, 638 new whistleblower complaints under the qui tam provisions of the federal False Claims Act (FCA) were filed under seal in Represents a peak in such filings over prior years The DOJ recovered more than $3 billion under the FCA in 2011, of which $2.8 billion was generated from qui tam actions. 4

5 FCPA Enforcement Trends: New Whistleblower Incentives Source: The Washington Post, published March 23,

6 China: Chinese Government Encourages Whistle Blowing The Central Discipline-Inspecting Committee of the Communist Party of China and the Ministry of Supervision jointly hosts a website and a hotline for whistleblowers: Tel: The Supreme People s Prosecuting Institute hosts a website and a hotline for whistleblowers: Tel: The State Administration for Industry and Commerce and its local branches host a local hotline: Tel:

7 China: Incentives for Whistle Blowing in China The Supreme People s Prosecuting Institute issued the Interim Measures to Award Whistleblowers (1994) ( Measures ) to award whistleblowers that provide information on the crimes of bribery, embezzlement and other crimes. The Measures provide that monetary incentives will be provided, but did not state the monetary amount. Some local measures state what percentages of recovery will be provided as awards. For example, Hunan Province provide the following percentages as awards with an upper limit of RMB 100K (US$ 16K): 10% if recovery < 1 million (US$160K) 1% if recovery from 1 million (US$ 160K) to 10 million (US$ 1,600K) 0.5% if recovery > 10 million (US$ 1,600K) If a recovery is exceptionally high, the award can be more than RMB 100K (US$ 16K) but no more than RMB 200K (US$ 32K). 7

8 Protecting You and Your Organization Against Whistleblowers Hiring Internal Policies to Deter Whistleblowers Termination 8

9 Hiring: Identifying Potential Whistleblowers Who are the typical whistleblowers? Examples: Controller Assistant Director, Dept. of Engineering Vice President of Sales Director of Human Resources Director, Physical Therapy Dept. (U.S. v. MVRMC) Financial services employees (U.S. v. St. Luke s) Pharmacy Manager (U.S. v. Humana) Director of Compliance, Research (U.S. v. University Alabama-Birmingham) Lab technician (U.S. v. Poehlman) Research assistant (U.S. v. Cornell School of Medicine) 9

10 China: What are Typical Whistleblowers Under Chinese Law? Disgruntled employees Competitors (voluntary or forced) Case study: An Administration for Industry and Commerce (AIC) was investigating a company for a possible bribing incident. As a condition to mitigate liability, the AIC asked the company to inform on some other companies that conducted bribery. Incentivized whistleblowers Case study: An AIC did not collect enough fines as planned. Therefore, the AIC solicited a lawyer to be an informer of some bribing incidents or crimes. The AIC promised that it will give some monetary award to the lawyer if he successfully helped get a company punished. 10

11 Hiring: Identifying Potential Whistleblowers Background checks Employment Education Prior litigation (for sensitive positions) 11

12 Hiring: Background Checks (Not Undertaken) 12

13 Hiring: Prior Litigation Checks (Not Undertaken) 13

14 Internal Policies: Incentivizing Internal Reporting In order to encourage accurate internal reporting, an organization should: Set up anonymous hotlines and surveys for employees to raise issues Treat all employees with respect, even if they raise a non-issue Stress confidentiality and promptly investigate reported concerns Document the resolution of every compliance issue that is raised by employees Whistleblowers always claim they tried to get management to correct noncompliance, but were rebuffed 14

15 Termination: Conducting an Effective Exit Interview Take notes and document the interview Two interviewers are better than one Obtain a proper release of liability Obtain a return of property certification Require disclosure of any compliance concerns and take concerns seriously Many Whistleblowers first raise their claims after they are terminated for cause Require another certification at employment exit interview identifying any compliance issues Inform company management of any concerns raised or allegations made against the employer Consider involving counsel in conducting any post-interview review or investigation 15

16 WHISTLEBLOWER DOCUMENT THEFT 16

17 Preventative Measures May Eliminate the Problem Before it Occurs Whistleblower actions are often built on stolen documents. Protecting the company as soon as the employee begins to complain, if and/or when they do so. Monitor the comings and goings of the employee Observe the times he/she leaves Monitor Monitor phone records (i.e. telephone calls to counsel) Post termination, consider monitoring incoming from his/her private account 17

18 Assembling Proof That a Theft of Confidential Documents Has Taken Place Once you establish improper removal, collect the paper trail. Ask the employee if they are aware where certain files are located. They will often distort the truth regarding the location of the records, justifying termination and setting up your ability to attack the ethics of the whistleblower. But what about the records? 18

19 Stolen Confidential Documents Should be Returned 19

20 Seeking the Return of Stolen Documents Puts the whistleblower on the defensive. Circumvention of rules of discovery the company has a right to review its own documents for privilege and responsiveness, and keep material confidential. Prevents privilege waivers and fishing expeditions. Potentially prevents further document sharing. Company gets an understanding of what whistleblower is after -- its an early form of discovery for the company when it may otherwise be in the dark regarding the whistleblowers allegations. Allows the company to begin building defenses. Sets up basis to terminate and potentially cuts-off damages as to termination claims. Gives the company an early opportunity to resolve issues, work through the issues, and potentially even cut-off alleged damages as to liability. 20

21 China: Exclusionary Rules On March 14, 2012, the Decision of the National People s Congress on Amending the Criminal Procedure Law of the People s Republic of China (the Decision) was promulgated; it will come into force on January 1, The Decision includes significant amendments to five procedural rules that could affect bribery cases the rule excluding illegally obtained evidence is one of the five procedural rules. 21

22 China: Exclusionary Rules/Hidden or Stolen Documents as Evidence Case study: A disgruntled employee of a U.S. pharmaceutical company informed the Administration for Industry and Commerce ( AIC ) of an incident of bribery. The employee provided the AIC with information on the location of evidence of bribery. The police or prosecutors may use a hidden or stolen document as a clue to its investigations without relying on the stolen documents as evidence. Therefore, the exclusionary rule might not be applicable. 22

23 China: Exclusionary Rules/Evidence Acquired by Torture If evidence is acquired by torture, such evidence is illegal and shall be excluded. However, in practice, courts rarely conduct hearings to exclude illegal evidence, as evidenced in the ongoing case against Xie Yalong, former vice-chairman of the Chinese Football Association, and the director of the Chinese Football Management Centre. Xie was arrested for accepting bribes in exchange for manipulating soccer games in Xie was prosecuted and tried in April that year. At the trial, which took place during the anti-gambling crackdown on crimes campaign of 2011, he admitted he was guilty, but not as a corrupt official. On April 24, 2012, in the Intermediate Court of Dan Dong, Xie alleged he was tortured and forced to confess during the investigation. His lawyer accordingly applied to exclude the illegally obtained evidence. 23

24 Pilfering Documents: The Whistleblower s Pursuit of the Public Interest or Selfinterest? Whistleblowers will claim that pilfering documents in the alleged public interest is appropriate. Many courts disagree with this public policy exception and order return. The Ninth Circuit has held that employees cannot take it upon themselves to steal, copy, and disseminate sensitive documents in anticipation of a lawsuit, and therefore benefit from their wrongdoing. Holding otherwise would give employees an incentive to rifle through confidential files looking for evidence that might come in handy in later litigation. O Day v. McDonnell Douglas Helicopter Co., 79 F.3d 756, 763 (9th Cir. 1996). Many other courts have agreed with O Day, including the Southern District of New York, the District of Nebraska, and the Northern District of Illinois. 24

25 China: Difficulty to Terminate a Whistleblower Who is an Employee Termination with a legitimate cause only Theft of a document to whistle blow may not be a legitimate cause 25

26 Not All Courts Reject the Whistleblower Public Policy Exception At least one court has held that a whistleblower s theft was not improper where it caused no harm to the employer, i.e. where the whistleblower made copies of the confidential documents, leaving the originals in place, and where the employer was aware of exactly which documents had been misappropriated. X Corp. v. Doe, 805 F. Supp. 1298, (E.D. Va. 1992). Cafasso v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1062 (9th Cir. 2011) also raises concerns. The Cafasso Court declined to address whether it could acknowledge a public policy exception to a relator s theft of confidential documents in pursuit of an FCA action. But the Court allowed for the possibility that it would recognize such an exception, as long as those asserting its protection... justifi[ed] why removal of the documents was reasonably necessary to pursue an FCA claim... The need to facilitate valid claims does not justify the wholesale stripping of a company s confidential documents. Id. 26

27 The Weight of Authority Supports the Employer By no means can [public] policy fairly be said to authorize disgruntled employees to pilfer a wheelbarrow full of an employer s proprietary documents in violation of their contract merely because it might help them blow the whistle on an employer s violations of law, real or imagined. See JDS Uniphase Corporation v. Jennings, 473 F. Supp. 2d 697, 702 (E.D. Va. 2007) 27

28 Most Courts Should Recognize the Hypocrisy of the Alleged Self-Interest 28

29 China: Rules of Privilege Against Selfincrimination The Decision adds rules of privilege against self-incrimination and elaborates on the exclusionary rules of illegally obtained evidence, which existed in previous judicial interpretation. Privilege against self-incrimination is provided in Article 15 of the Decision: It shall be strictly prohibited to force anyone to selfincriminate. How about luring someone to self-incriminate? 29

30 China: Report Problems Within a Prescribed Time and in a Prescribed Place The disciplinary rules of the Communist Party of China ( CPC ): Supervisory officials may be authorized to require related persons to provide explanations and statements regarding items related to supervision within a prescribed time and in a prescribed place ( Double Prescriptions ) Double Prescriptions as CPC rule = Residential Confinement as law 30

31 China: Enhancement of Investigation in Respect of Suspects of Bribery Cases For a significant bribery case, more aggressive investigative measures and limited meetings of a lawyer with the concerned suspect. 31

32 China: Enhancement of Confiscation Procedures for Illegal Income Confiscation of illegal income of a fleeing suspect. 32

33 Presenters Jon Dean Partner, McDermott Will & Emery Los Angeles Office Henry L.T. Chen Partner, MWE China Law Offices Shanghai Office