The Foreign Corrupt Practices Act, the Anti-Kickback Statute, and Healthcare Fraud Enforcement. Anti-Bribery Provisions

Transcription

1 The Foreign Corrupt Practices Act, the Anti-Kickback Statute, and Healthcare Fraud Enforcement James M. Lord* Martie Ross Charles R Hacker, Jr. Assistant United States Spencer Fane Partner Attorney Britt & Browne, LLP PricewaterhouseCoopers LLP Seattle, Washington Kansas City, Missouri New York, NY jim.lord@usdoj.gov mross@spencerfane.com charles.r.hacker@us.pwc.com *Nothing in this PowerPoint presentation should be construed as the official position of the U.S. Department of Justice, but rather reflects Mr. Lord s personal views. Anti-Bribery Provisions Overview of Provisions A company cannot corruptly make an offer, promise, or payment of "anything of value" to a "foreign government official" or politician for (1) "the purpose of influencing his or her official actions," (2) "inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official; or (3) "securing any improper advantage." 15 U.S.C 78dd-1 et seq. Slide 2

2 Who is covered by the FCPA? oall U.S. Companies oall U.S. citizens and residents (anywhere in world) oforeign companies required to file reports with SEC, or that are listed on U.S. stock exchanges onon-issuing foreign companies and nationals who cause, directly or indirectly, an act in furtherance of a corrupt payment to occur in U.S. ou.s. companies can be held liable for acts of foreign subsidiaries, joint venture partners, and agents Slide 3 Payments Prohibited by the FCPA ogiving, offering, promising, or authorizing o Directly or indirectly o Anything of value o To any foreign official, foreign political party or party officials, or foreign political candidate o Corruptly o In order to obtain or retain business Slide 4

3 Corrupt Intent This might not be ethical. Is that a problem for anybody? Slide 5 Corrupt Intent (continued) opayment must be intended to induce/influence the recipient to misuse their official position to direct business wrongfully to, or to continue business with, the payer or any other person othe mere offer or promise of a corrupt payment is enough o The corrupt act need not succeed in its purpose Slide 6

4 Anything of Value ocovers cash, gifts, or other benefits oincludes intangibles o Travel o Education o Entertainment o Employment o Personal Favors oincludes payments/benefits to family members ono exception for small payments Slide 7 Directly or Indirectly oprohibits direct payments to foreign officials and indirect payments through intermediaries o E.g. Independent contractors, agents, lobbyists, distributors, consultants, referral partners, or introducers o Company is liable if it: o Knew of, or authorized, payment by the agent o Aware of a high probability payment would be made o Acted with deliberate ignorance or willful blindness Slide 8

5 Foreign Official oany officer or employee of a foreign government oa public international organization oany department, agency, or instrumentality of the government or international organization oofficers, employees, and agents of state-owned companies ocompany may be considered an instrumentality of the government if the government exercises substantial control over such company Slide 9 Exception to the FCPA: Facilitating Payments o Defined as payments to expedite or secure the performance of a routine governmental action by a foreign official, political party, or party official. o Facilitating payments must relate to the performance of a nondiscretionary act that an official is already obliged to perform. o Routine government action never includes a decision to award new business or continue business with a company o Also does not include payments made for the purpose of obtaining a particular substantive decision from a governmental agency. Slide 10

6 Affirmative Defenses to the FCPA o Payments that are legal under the written laws of the foreign official s country o It is not a defense that the law is not enforced or that a defense exists under foreign law o Reasonable and bona fide expenses relating to the promotion, demonstration, or explanation of products or services, or the performance of a contract o A company s policy regarding such payments and facilitating payments should be clearly articulated and followed o Such payments should be accurately recorded on the companies books and records. Slide 11 FCPA---Books and Records Provisions ofcpa imposes the following specific requirements: obooks and records must be kept in reasonable detail to accurately reflect transactions and disposition of assets. oan adequate system of internal accounting controls must be devised. ou.s. companies must engage in a good faith effort to ensure that any companies in which they hold a minority interest complies with the FCPA accounting provisions. oany intentional misrecording of a payment is a violation (even if it wasn t material, it wasn t a bribe, or it wasn t made to a foreign official ) o Company will be held liable for what it reasonably should have known. Slide 12

7 Criminal Penalties ofor violating FCPA s anti-bribery provisions: o Individuals face up to 5 years imprisonment and a fine of up to $250,000 (or twice the benefit the defendant sought to obtain) o Fines imposed on individuals may not be paid by the company o Companies face fines of up to $2 million per violation ofor violating FCPA s books and records provisions: o Individuals face up to 20 years imprisonment and a fine of up to $5 million. o Companies face fines of up to $25 million. Slide 13 The DOJ Opinion Process odoj has established an opinion process for requesting a formal opinion concerning enforcement intentions regarding any proposed business conduct othe Attorney General will issue an opinion within 30 days of receiving all information it requires to issue the opinion o If the AG approves the proposal, a presumption will arise in any subsequent enforcement action that the conduct was lawful o DOJ will not provide opinions based on hypothetical facts Slide 14

8 The DOJ Opinion Process (cont.) When should you consider seeking a formal opinion? owhen you are operating in a grey area and there is no clear answer o Can be particularly useful in determining: o Who is a foreign official. o Whether a payment is a routine facilitating payment. o Whether a payment is lawful under foreign law. Slide 15 Federal Anti-Kickback Statute 42 USC 1320a-7b(B) It is illegal to: o knowingly and willingly solicit or receive o anything of value directly or indirectly, overtly or covertly, in cash or in kind, o in return for referring an individual or purchasing, leasing, ordering, or arranging for any good or service o for which payment may be made in whole or in part under a federal health care program. Slide 16

9 FCPA vs Anti-Kickback Statute Same misconduct, different crimes o State anti-kickback statutes o Federal Bribery Statute, 18 USC 201 o State bribery statutes o State commercial bribery statutes o Civil Monetary Penalties, 42 USC 1320a 7a(a)(5) o State and certain proposed federal legislation to provide transparency around physician relationships Slide 17 FCPA vs Anti-Kickback Statute Same misconduct, different crimes o Offering, giving, receiving, or soliciting something of value to influence a person in the discharge of his/her public or legal duty Two-way street (except FCPA) Fine line between relationship-building and bribery Comprehensive; narrow exceptions/safe harbors Whether the bribe/kickback works is irrelevant Criminal (except CMP) Slide 18

10 Risk Areas in the Medical Device and Pharmaceutical Industries o Overseas sales practices - Pay to play - Distributor vs. company owned model - Consultants o Third party intermediaries and foreign agents/ brokers o Joint ventures and strategic alliances o M&A transactions o Expansion into new high risk territories driven by market growth opportunities o Government licenses, patents, and permits o Travel, gifts and entertainment different cultural norms Slide 19 Risk Areas in the Medical Device and Pharmaceutical Industries (continued) o Consulting arrangement with physicians o Company-conducted product training and education or third-party educational conferences where the company pays for an individual to attend or where the company may have an exhibit/booth o Educational and research grants o Market research o Charitable contributions and donations o Company-sponsored clinical trials o Evaluation, demonstration, promotional and loaner products o Sales, promotional, and other business meetings Slide 20

11 Do You Conduct Business in High Risk Countries? Slide 21 What are the Benefits of Anti-Corruption Compliance Management? o Increase investor trust and Company s market value o Limit business disruption and distraction of management focus caused by non-compliance issues o Protect and enhance Company s: - Reputation - Brand image - Operational effectiveness o Minimize the risk of litigation o Increase employee and investor confidence in Company s stability and performance o Prevent prosecution of Company and its employees o Support the organization s ability to attract and retain top talent o Hold resources accountable to ethical standards of business conduct o Reduce expenses and losses from fraud and inefficiency Slide 22

12 Framework of an Effective Anti-Corruption Compliance Program An effective anti-corruption compliance program should: 1. Create a control environment with the right structure and tone: Compliance Tone at the Top and zero tolerance policies Embed compliance into human resources processes (training, hiring, performance, promotion, and disciplinary actions) 2. Focus on the most important compliance risks: Conduct risk assessments to identify high-risk areas Adapt processes based upon the nature and source of the risk 3. Design compliance control activities to minimize risk of noncompliance: Establish control procedures, protocols, and monitoring programs for high corruption risk areas Slide 23 Framework of an Effective Anti-Corruption Compliance Program (continued) 4. Establish processes and systems supporting compliance: Ensure effective reporting to key corporate governing bodies (Compliance Committee, Board of Management, Audit Committee and Supervisory Board) and embed compliance into the IT systems 5. Be communicated and enforced: Mandatory training for all levels of personnel Discipline and incentives 6. Be kept current and relevant: Compliance should address changes in regulations, financial and operational policies and procedures. Slide 24

13 Due Diligence Involving Intermediaries and Third Parties High and low risk areas that may raise concerns: High Risk Incorporated or operates in a perceived high risk country Related to government official(s) Questionable past Referred by government official Lacks references Primary strength is influence Low Risk Incorporated or operates in a perceived low risk country No government relationships Experience in the region Favorable business references Past relationship with reputable entities Systematic process to doing business Slide 25 FCPA Investigations: How do Corruption and Bribery Violations Come to Your Attention? Reactive o Government investigation o Government subpoena o The press o Competitor o Whistleblower notification o Management self-reporting o Disgruntled employee Proactive o Self Assessments and certification o Compliance review o Due diligence (e.g., M&A) o Internal and external audits o Evaluating and improving anti-corruption controls and procedures Slide 26

14 Dealing with the Challenges of Complying with the FCPA Prevent: How do we prevent employees/agents from attempting to improperly influence decision-makers? Monitor: How do we identify potential problems? Respond: How do we respond to potential problems? Slide 27 Point person Prevent Risk assessment (initial and ongoing) Well-defined policy statement Specific procedures (situational) Training focused on policy and procedures and lessons learned Attestations Slide 28

15 Monitor Test employee s knowledge of rules Assess employee s ability to apply those rules Internal reporting mechanisms Inquiries Potential problems Slide 29 Monitor Select samples of high-risk transactions for in-depth analysis Government enforcement actions Test transactions to determine whether controls working Slide 30

16 Respond Findings and conclusions What exactly happened? When did we know about it? Why did it happen (root cause analysis)? Who is responsible? Slide 31 Respond Identify and implement remedial measures Employee discipline Attestation Un-ring the bell communicate with recipient Self-reporting Identify and implement proactive measures Re-evaluate risk assessment Revise policy and procedures Employee training Slide 32