Government Investigations and Enforcement Cooperation, Defense, and Settlement Strategies

Transcription

1 Government Investigations and Enforcement Cooperation, Defense, and Settlement Strategies July 12, :00 2:00 p.m. 1

2 Trends, Legal Principles and Best Strategies for Cooperation, Defense and Advocacy 2

3 DOJ: Can investigate any company or person subject to U.S. jurisdiction with respect to statutes they enforce Civil Division Criminal Division Assisted by FBI DOD Inspector General and other IG Offices Can investigate any government contractor or employee of a government contractor with respect to statutes and regulations governing contractors Assisted by Defense Criminal Investigative Service or by other investigative bodies (e.g., Defense Logistics Agency investigation team) Other federal agencies SEC (publicly held companies), IRS (for tax cases), etc. 3

4 Whistleblower Bounty incentives Investigation of/disclosure by another company Complaint/report by the wronged party Referral from other enforcement authorities Media reports Voluntary self-disclosure Mandatory self-disclosure (FAR) 4

5 Roles and responsibilities Stakeholders Cooperation and defense Internal investigation Legal assessment Remediation Settling up with the government 5

6 Internal resources Legal Compliance Finance Human Resources Internal Audit External resources Outside counsel Forensic accountants Experts 6

7 Internal stakeholders: define and determine what need to know and what decisions need to make. External stakeholders, e.g., other government agencies, customers, etc.: define and determine what need to know and decide. 7

8 Broad power to compel production of documents, other items and material, and witness testimony. Subpoena power DOJ grand jury subpoena power. FRCP 17; see also United States Attorney's Manual et seq. SEC subpoena power. 15 U.S.C. 78u(b); see also SEC Enforcement Manual DOD IG Administrative subpoena power. Inspector General Act of 1978, as amended. Subpoenas can be directed at the party under investigation, or at third parties (and unknown to the party under investigation) Search and seizure If approved by a judge, DOJ can execute warrant and search without notice to seize computers, documents and data from a company s premises Undercover investigations Wiretaps and other techniques 8

9 Voluntary disclosure of the matter and/or of documents, data, and testimony. Defense contractors and publicly traded companies often comply voluntarily. Cooperation is best approach Negotiate reasonableness limitations Help facilitate resolution 9

10 Prosecution of individuals in white collar cases a high priority. [T]he inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them is that individual prosecutions enhances accountability, promotes fairness, and has a powerful deterrent effect. - Eric Holder, United States Attorney General (September 2014). However, prosecution of individuals can be challenging. DOJ has stressed that a company seeking cooperation credit must provide significant assistance for prosecution of culpable individuals. Corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct. Yates Memo, Individual Accountability for Corporate Wrongdoing (September 9, 2015) It is important to appreciate our commitment to the notion that individual accountability applies with equal force and logic to the department s civil enforcement [e.g., the False Claims Act]. Acting Associate Attorney General Bill Baer remarks (June 9, 2016) [A] primary focus [for DOJ] will be on what evidence you uncovered as to culpable individuals, what steps you took to see if individual culpability crept up the corporate ladder, how tireless your efforts were to find the people responsible. Marshall Miller, Principal Deputy Assistant Attorney General for DOJ Criminal Division (September 2014). 10

11 A company seeking credit for voluntary cooperation with government investigation must do more than comply with specific requests: Provide factual analyses and briefings, including facts learned from internal investigation Organize evidentiary materials in user-friendly form Pay for counsel for individual witnesses Make witnesses available Participation of outside counsel Pay for travel or other costs associated with making witnesses available to the government Not hide behind attorney client privilege (though waiver should not be required) Other requests (e.g., an employee wearing a wire to obtain evidence against former employee) 11

12 Performance of rigorous internal investigation permits you to address government investigation effectively Provides credibility Enables cooperation Facilitates defense Supports ability to negotiate resolution Key to demonstrating effective compliance program 12

13 The Federal Sentencing Guidelines and other authorities provide guidance for effective compliance program. USSG 8b2.1 Effective Ethics and Compliance Programs provisions encapsulate the core principles for an effective compliance program of Prevent, Detect and Respond. Principles of Federal Prosecution of Business Organizations. Federal Acquisition Regulations Government authorities expect an effective compliance program to include a rigorous process for internal investigations. 13

14 Who will conduct the investigation external resources, internal resources Definition of issues and questions under inquiry Litigation Hold/Document Preservation Notice Timing, content, distribution Litigation hold and other measures to prevent spoliation, avoiding credibility issues, avoiding obstruction of justice Identification of relevant document types and sources Scope and nature of document review and analysis 14

15 Identification of witnesses and interviewees Conducting witness interviews Employee duty to cooperate Whistleblower protections (Dodd Frank, False Claims Act) Counsel for individual employees or former employees Joint defense agreements, sharing of information Duties towards represented and unrepresented persons Indemnification rights for executives 15

16 Managing attorney-client privilege Internally and externally (with government investigators) Written product: memos, reports, briefings for Board or management Insurance coverage for costs associated with government and internal investigation 16

17 Potential corporate liability Including possibility of referral from one agency to another (e.g., DOJ criminal to civil) Potential executive or other employee liability Defenses Overall strategy Re corporation Re individuals associated with the corporation 17

18 Personnel (counseling, discipline, termination) Monetary, e.g., pending invoices or payments associated with the matter Policies, procedures and controls Training Additional disclosures, if any (e.g., to customer) Timing of remediation: what is needed immediately, what is longer term Consider factors and questions outlined in February 2017 DOJ guidance re the Department s evaluation of corporate compliance programs. 18

19 DOJ principles for exercising discretion whether to prosecute a corporation and type of settlement if any. Nature and seriousness of offense Pervasiveness of wrongdoing History of similar misconduct Timely and voluntary disclosure of the matter and evidence relating to the matter Existence and effectiveness of corporate compliance program Remedial actions Collateral consequences Adequacy of prosecution of responsible individuals Adequacy of civil or regulatory remedies - U.S. Attorney s Manual ( Filip Memorandum Principles ) 19

20 Convince the government to decline If not, settlement and litigation are the remaining options Settlement options depend on context: Criminal: Conviction, Deferred Prosecution Agreement, Non-Prosecution Agreement Civil: Civil Judgment or Remedy With Findings or Admissions, Civil Judgment or Remedy Without Findings or Admissions, and DPAs or NPAs Administrative: Administrative Agreement (in government contractor context) 20

21 Risk analysis and ensuring internal stakeholders approve strategy Understanding the particular agency s process and the players Deciding who will participate and who will lead in negotiations process, at which stage Outside counsel In-house lawyers Executives, Board members, key corporate functions (Finance, Internal Audit, etc.) Making the case for mitigation Presenting evidence of favorable facts, legal arguments, cooperation, remediation, etc. Compliance with the settlement: planning and execution 21

22 Financial Cost Can climb into tens of millions, or even more for large companies Reputational harm Settlements are matters of public record Can harm business prospects and stock price Disruption to business Ongoing obligations and government scrutiny Reporting, compliance measures, etc. Continuing enforcement risk NPAs and DPAs pose risk for duration of agreement Personnel if investigated or charged Suspension and debarment risk Needs to be identified and mitigated as applicable 22

23 Trends, Legal Principles and Best Practices for Advocacy and Negotiation 23

24 Suspensions and debarments more than doubled between 2009 and 2013 Suspensions and debarments increased by 14% between 2013 and 2014 Suspension and debarment referrals increased by 10% between 2015 and 2016 Suspensions and debarments vs. show cause letter 24

25 Increased suspension and debarment of individuals 2011 GAO Report urged agencies to increase numbers Some members of Congress believe agencies too timid Federal grantees under scrutiny Focus on counterfeit parts, human trafficking, and labor violations 25

26 Federal Acquisition Regulations Debarment Conviction or civil judgment for myriad offenses, including, but not limited to, fraud in connection with obtaining or performing a government contract, embezzlement, theft, forgery, bribery, records falsification or destruction, false statements, tax evasion, criminal tax violations, receiving stolen property Knowing failure to comply with the FAR s mandatory disclosure rules Any other cause of so serious or compelling a nature that it affects present responsibility and any offense affecting business integrity Suspension Adequate evidence of anything that would be grounds for debarment Non-Procurement Common Rule (NCR) Federal grants, financial aid, scholarships, loans, insurance, donation agreements Only adequate evidence required Reciprocity suspension and debarment under the FAR bars contractor from non-procurement related transactions and vice-versa Many statutes contain debarment provisions, e.g., Davis Bacon Act, Walsh-Healey Act, Buy American Act. 26

27 Agencies now undertaking "fact-based" suspension or debarment without indictment, conviction or judgment Based on a "preponderance of the evidence" of: Willful failure to perform in accordance with contract terms Unfair trade practice Affixing a "made in America" label Violating the Drug-Free Workplace Act History of unsatisfactory performance Attorney General determination that contractor is violating Immigration and Nationality Act Anything "affecting" present responsibility 27

28 Agencies must have procedures that provide "notice and an opportunity to be heard" Agencies must notify contractor in writing of proposed debarment or proposed suspension and alleged reasons Procedures must also permit "contractor an opportunity to submit, in person, in writing, or through a representative, information and argument in opposition" within 30 days of receiving this notice 28

29 Issue is present responsibility Not punishment discretionary Debarring official should consider "the seriousness of the contractor's acts or omissions and any remedial measures or mitigating factors Evidence can come from: Mandatory disclosures Contracting officers Whistleblowers Other law enforcement reports Agency attorneys Inspector general Competitors Evidentiary burden is on the contractor when it comes to presenting remedial measures or mitigating factors 29

30 A show cause letter. Does not trigger immediate suspension; permits presentation of evidence and mitigation factors before suspension or debarment. Whether to issue a show cause letter is at the agency s discretion and is not required by statute, case law, or the FAR, resulting in inconsistent practices across agencies. An NCR notice of proposed debarment is the equivalent of a show cause letter; contractor not immediately excluded. A notice of suspension under the FAR or the NCR, or a notice of proposed debarment under the FAR. Results in immediate suspension from further contracting with the government until the proceeding is resolved. 30

31 Written submission should track the FAR mitigation standards (FAR (a)). The standards overlap, so your presentation may have some duplication The debarment sanction is imposed only in the public interest for the Government s protection and not for purposes of punishment. FAR 9.402(a) Demonstrate to SDO that debarment is not needed to protect the Government s interest 31

32 Best to appear in person before SDO This gives you an opportunity to demonstrate credibility and sincerity to SDO Give straightforward factual presentation Don t make excuses; accept responsibility for mistakes or bad judgment Demonstrate what lessons you have learned and why any misconduct won t happen again 32

33 Contesting evidence or legal basis of grounds for suspension or debarment Can you demonstrate debarment record is insufficient? SDO will not allow you to litigate issues in pending criminal case Or to attack jury verdict or court decision Focus instead on present responsibility what you have done to meet ethical challenges for example 33

34 Mitigation elements Notified Government in timely manner Investigated circumstances and provided results to SDO Cooperated with Government during investigation and any court or administrative action Paid or agreed to pay all criminal, civil, and administrative liability, including investigative or administrative costs incurred by Government, and made restitution Management recognizes and understands seriousness of misconduct Implemented or agreed to implement remedial measures, including but not limited to personnel action, and including any measures identified by the Government Had adequate time to eliminate circumstances that led to cause for debarment Effective standards and internal control systems at time of conduct Debarring official required to consider this factor. FAR

35 Mitigation elements (cont.) Instituted or improved ethics and compliance program to prevent recurrence Written code of business ethics and conduct Conflicts of interest, illegal or other improper payments, anticompetitive guidelines, insider trading Government contract requirements for procurement integrity, classified information, recruiting and employing government personnel Periodic acknowledgement of codes by employees Clear establishment of what behavior is acceptable and unacceptable; what to do if employees encounter improper behavior Consequences for violations Employee reporting right and also obligation Code available to each employee on contract Compliance training Internal controls "to facilitate timely discovery of improper conduct in connection with Government contracts" and ensure corrective measures promptly instituted 35

36 Tips for demonstrating mitigation to the agency Presentations to the agency s SDO Bring key executive leaders (e.g., CEO, CFO, CCO, GC) and Board members (e.g., Chairman of the Board, Chair of Governance Committee, Chair of Internal Audit Committee) to meet with the SDO (accompanied by outside counsel) Steps taken by company to improve ethics and compliance Compliance Committee (representing key stakeholders in company) Newsletter Training Involvement of top management in program: Town Hall meetings, etc. Hotline; other reporting mechanisms 36

37 In reaching decision, SDO considers only what is submitted in writing Unless you arrange for verbatim transcript, oral statements at hearing are not part of record Decision will be made only on written record Debarment period typically three years Possible to request shortening of time based on events that occur during debarment period 37

38 An Administrative Agreement is an alternative to suspension or debarment Acknowledges grounds for suspension or debarment Creates plan for company to demonstrate present responsibility These alternatives: Acknowledge harmful effect of debarment on innocent employees, customers, shareholders and pensioners Serve public interest May include an Independent Monitor Onerous reporting requirements 38

39 Negotiation process, players Key typical terms, obligations on the contractor Involvement of Board of Directors; appointment of outside directors Deferred Prosecution Agreement or Non- Prosecution Agreement with DOJ does not automatically guarantee an Administrative Agreement with SDO 39

40 Public posted on agency website and listed on Federal Awardee Performance and Integrity Information System ("FAPIIS"). Recites charges, monitor duties, controls Example: FedBid, Available at: 40

41 7. The VA OIG Report alleges the Company engaged in conduct reflecting adversely on its responsibility under Federal Acquisition Regulation Subpart 9.4 (48 C.F.R. Subpart 9.4). Specifically, the report alleges: a. FedBid executives, including Mr. Richardson and Mr. Saadat, sought and obtained insight into nonpublic VA matters in exchange for potential employment of an individual; b. A senior VA official provided nonpublic information to FedBid executives, including Mr. Richardson and Mr. Saadat, which Mr. Richardson and Mr. Saadat used to promote the company's business objectives; and c. The Company used a senior VA official to act as an agent of FedBid to promote FedBid as a reverse auction provider to the Defense Logistics Agency. 41

42 8. On January 26, 2015, based on the VA OIG Report and the underlying documents, the Air Force proposed to debar FedBid from Government contracting and Government-approved subcontracting pursuant to FAR Subpart 9.4 and the Department of Defense FAR Supplement Subpart On January 28, 2015, the Air Force met with FedBid representatives, including Mr. Jordan and FedBid's counsel. During the meeting, FedBid representatives provided a copy of the Company's new Code of Business Ethics and Conduct, dated January The representatives also provided a binder titled "FedBid Compliance Documents." The documents contained an overview of FedBid's compliance program, its ethics hotline procedure, and its whistleblower policy, among other documents. 11. The submission outlined the changes FedBid has implemented since the VA GOIG report was issued in September Specifically, the submission detailed several management changes, including appointing a Chief Compliance Officer, and improvements to FedBid's ethics and compliance program. 14. For purposes of this Agreement, the Air Force and FedBid agree that FAR Subpart provides a legally sufficient basis for FedBid's debarment. 42

43 15. This Agreement is intended to provide assurances to the Government that FedBid is presently responsible and that, notwithstanding, the basis for the debarment, FedBid can be trusted to deal fairly and honestly with the Government and that the debarment of FedBid is not necessary in this case. As such, the Air Force agrees, based upon the facts currently known, to terminate the proposed debarment of FedBid and further agrees not to debar FedBid, subject to the terms and conditions in the Articles set forth below. Mr. Sadaat personally remained proposed for debarment and the Agreement governed contact with this ex-executive. To the extent Mr. Sadaat has business relationships, either directly or indirectly, with FedBid, including in his capacity as consultant to EPS Commerce, Inc., a wholly owned subsidiary of FedBid, those business relationships shall be reflected in arms-length arrangements that do not provide in any manner whatsoever for Mr. Sadaat to control or to influence either the day-to-day or long term operation or management of the Company during the term of this Agreement. 43

44 Lessons from FedBid Company got friendly with the VA and used nonpublic information to try to gain a government contract Executive suspended or debarred After receiving notice of the proposed debarment, FedBid took action immediately Before meeting with agency it: Created new compliance code Compiled binder of compliance documents Appointed a Chief Compliance Officer Made "management changes" 44

45 Blanket disqualification without following FAR procedures, or a succession of negative responsibility determinations Must show "systematic effort by the procuring agency to reject all of the bidder's contract bids." Stapp Towing, Inc. v. United States, 34 Fed. Cl. 300, 312 (1995). Secret blacklist justified on national security grounds During vendor vetting, or responsibility determinations, field contracting personnel report adverse information that has national security implications. "Vendor vetting rating process does not provide a contractor either notice of its ineligible status or an opportunity to present rebuttal evidence " MG Altus Apache Co. v. United States, 111 Fed. Cl. 425, 444 (2013). Because "requiring traditional due process in the rating process would adversely affect national security," contractor is not entitled to FAR Subpart 9.4 safeguards. Id. 45

46 John S. Pachter Member, Smith Pachter McWhorter PLC Jim Winner Chief Legal Officer, General Counsel & Secretary MHVC Acquisition Corp. Harris IT Government Services Iris E. Bennett Member, Smith Pachter McWhorter PLC

47 John S. Pachter Member, SMITH PACHTER MCWHORTER PLC Mr. Pachter's practice encompasses all aspects of government contracts law. He has also testified as an expert in several cases. Mr. Pachter has represented and counseled clients on fraud and compliance investigations, audits, corporate governance and ethics, and defense of qui tam actions. He has also served as Independent Monitor or Ombudsperson for several companies under federal agency appointment. As Independent Monitor, he supervised ITT Corporation's performance under an Administrative Compliance Agreement stemming from violations of the Arms Export Control Act at the Night Vision component of ITT Defense Electronics & Services. In 2004, the Legal Times recognized Mr. Pachter as a Leading Lawyer in Government Contracts. He has also been listed in Virginia Super Lawyers, and in Chambers USA, America's Leading Lawyers for Business and Nationwide Leading Lawyers. In 2012 Mr. Pachter was the first recipient of the Allan J. Joseph Excellence in Leadership Award, conferred by the ABA Section of Public Contract Law for "exceptional effort and accomplishments" as well as "extraordinary contributions" to the Section. Education George Washington University (J.D., with honors, 1966) George Washington University (L.L.M. in Government Procurement Law, 1970) Tulane University (B.A., 1963) 47

48 Jim Winner Chief Legal Officer, General Counsel & Secretary MHVC Acquisition Corp. Jim Winner is Chief Legal Officer, General Counsel and Secretary for MHVC Acquisition Corp. (formerly Harris IT Government Services). The company competes in the mission critical domains of cyber, space, and intelligence. Jim s previous position was Chief Legal Officer, General Counsel and Secretary of GardaWorld Federal Services, a global security and risk management company. Earlier, he served in division general counsel positions for Northrop Grumman, ITT Corporation and Exelis Inc. He also practiced law with Barnes & Thornburg LLP and worked as in-house counsel for Rolls-Royce Corporation and Cummins Inc. Jim is a U.S. Air Force veteran and a board member of the Northern Virginia Chamber of Commerce. He was named the 2016 National Capital Region Outstanding Chief Legal Officer by the Association of Corporate Counsel. 48

49 Iris E. Bennett Member, SMITH PACHTER MCWHORTER PLC Ms. Bennett has deep experience counseling clients on the investigation, defense, and resolution of white collar matters, as well as the corporate compliance programs designed to avoid such liabilities. She has represented numerous Fortune 100 corporate and individual clients in matters relating to potential violations of criminal or civil fraud statutes, including the Foreign Corrupt Practices Act (FCPA), the False Claims Act, the Anti-Kickback Act, and antitrust laws. She has also represented companies in matters implicating the federal mandatory and voluntary disclosure rules and brought those matters to successful resolution. She has conducted internal investigations in cases across the globe and represented companies before the Criminal and Civil Divisions of the Department of Justice as well as the Securities and Exchange Commission, in all phases of U.S. government investigations and settlement. Ms. Bennett's fluency in Spanish has enabled her to conduct many investigations in that language. In addition to her extensive investigation and defense experience, Ms. Bennett has years of FCPA compliance counseling experience. She regularly advises corporate clients on their anti-corruption compliance programs and on specific policies, procedures and compliance questions. She has also designed and led large-scale corporate compliance reviews and audits. Ms. Bennett clerked for the Honorable Robert W. Sweet of the United States District Court for the Southern District of New York, and for the Honorable David S. Tatel of the United States Court of Appeals for the District of Columbia. Ms. Bennett entered private practice after serving as a federal criminal defense lawyer in the District of Columbia Federal Public Defenders' office. Education New York University School of Law, J.D., 1999; magna cum laude; Order of the Coif; New York University Law Review Harvard College, A.B., 1989; summa cum laude; Phi Beta Kappa 49