How to Deal with Whistleblowers and Compliance Complaints Including Investigation Protocols

Transcription

1 How to Deal with Whistleblowers and Compliance Complaints Including Investigation Protocols

2 Presented By: Shawn Oller Office Managing Shareholder Littler Mendelson, P.C. Phoenix, AZ

3 WHISTLEBLOWER PROTECTION: A SEVERE ZONE OF RISK

4 Whistleblowing Timeline July 2002 Corporate Scandal Leads to SOX Years of Minimal SOX Enforcement Dodd-Frank and the New Age of the Whistleblower The Tide Turns

5 In a Time of Public Mistrust... ENRON TYCO WORLDCOM

6 Whistleblowers Emerge as Ethical Heroes

7 Sarbanes-Oxley s Internal Reporting Provisions Section 301: Public companies must create mechanisms for reporting financial concerns Specifically requires mechanisms for handling anonymous complaints by employees

8 SOX Provides Whistleblower Protections Section 806: Prohibits Retaliation against an employee who reports conduct that employee reasonably believes violates federal laws against mail, bank, wire, or securities fraud, violates securities laws, or constitutes securities fraud on shareholders

9 Whistleblowing Timeline July 2002 Corporate Scandal Leads to SOX Years of Minimal SOX Enforcement Dodd-Frank and the New Age of the Whistleblower The Tide Turns

10 Sarbanes-Oxley: Years of Minimal Enforcement : Government rules in favor of whistleblower in only 17 out of 1,273 complaints filed : 841 cases dismissed

11 Hurdles to Successful SOX Whistleblower Claims 90-day statute of limitations DOL took the position that subsidiaries of publicly traded corporations were not covered under the SOX whistleblower provisions Republican appointed ARB Narrow judicial interpretation by ARB and U.S. Courts of Appeals: Platone v. FLYi, Inc., ARB No (Sept. 29, 2006), aff d 548 F.3d 322 (4th Cir. 2008)

12 Whistleblowing Timeline July 2002 Corporate Scandal Leads to SOX Years of Minimal SOX Enforcement Dodd-Frank and the New Age of the Whistleblower The Tide Turns

13 Whistleblower Legislative Expansion Fraud Enforcement & Recovery Act Revised False Claims Act American Recovery & Reinvestment Act 2009 Consumer Product Safety Act 20+ Federal Whistleblower Protection Statutes Since 2006, 16 states have strengthened laws

14 : Corporate Scandal Redux Bernie Madoff sentenced to 150 years in prison for his role in a multi-billion dollar ponzi scheme Growing public outrage over bonusgate as executives at bailed-out banks receive bonuses Anti-corporate sentiment arises in the wake of mortgage crisis and worst economic downturn since the Great Depression

15 Whistleblowing Timeline July 2002 Corporate Scandal Leads to SOX Years of Minimal SOX Enforcement Dodd-Frank and and the the New Age of of the Whistleblower The Tide Turns

16 Main Drivers of Whistleblower Expansion Legislative & regulatory developments Increased government enforcement efforts Judicial expansion of rights & remedies Mobilization of the plaintiff s bar

17 Drivers of Whistleblower Expansion LEGISLATIVE & REGULATORY DEVELOPMENTS

18 Dodd-Frank Whistleblower Provisions Section 922: 10-30% reward to whistleblowers (not only employees) who alert SEC to violation of the 1934 Securities & Exchange Act (if > $1M) May remain anonymous (must have counsel) until payment of award Employee can file a Dodd-Frank or SOX retaliatory discharge claim directly in federal court Rules also provide SEC with power to enforce SOL: 6 years after violation; or 3 years after learns / should have learned; 10 year max Remedies: Reinstatement, 2X s back pay, attorney s fees

19 SEC Final Regulations Final SEC regulations (issued May 25, 2011) contain no internal reporting requirement SEC nonetheless states intention to support, not undermine, the effective functioning of company compliance and related systems Extends from 90 to 120 days the period of time in which whistleblower can report to SEC after internal complaint Identifies internal complaint as factor in bounty award

20 Calculating the Bounty Increased Percentage Significance of information provided to success of SEC proceedings Extent of whistleblower assistance SEC s law enforcement interest Whistleblower participation in internal compliance systems Decreased Percentage Whistleblower culpability for securities law violations reported Under SEC regs, culpability does not preclude award SEC will not count sanctions against whistleblower or for liability based substantially on whistleblower s conduct toward $1 million threshold Unreasonable delay in reporting the violation Interference with internal compliance systems, such as false statements to compliance department

21 Affordable Care Act Section 1588 of the ACA amended the FLSA (29 U.S.C. 218c) to prohibit retaliation against an employee who: Reports an alleged violation of ACA to (1) the employer, (2) the Federal Government, or (3) the attorney general of a state; Testifies, assists, or participates in a proceeding concerning a violation of the ACA; Objects or refuses to participate in any activity reasonably believed to be a violation of the ACA; Receives a health insurance tax credit; and Receives a federal subsidy.

22 ACA Anti-Retaliation Provision Similar to System for SOX Cases Retaliation Complaints adjudicated by OSHA Complaint must be filed within 180 days of alleged violation One of 22 federal whistleblower statutes Remedies include reinstatement, back wages, restoration of benefits, and may also include attorneys fees and costs See OSHA Interim Final Rule at p. 16; see also 29 C.F.R (e).

23 Drivers of Whistleblower Expansion INCREASED GOVERNMENT ENFORCEMENT EFFORTS

24 DOJ Steps Up Efforts To Prosecute False Claims Act Cases Parallel civil and criminal investigations are on the rise... We in the Criminal Division have recently implemented a procedure so that all new qui tam complaints are shared by the Civil Division with the Criminal Division as soon as the cases are filed. Experienced prosecutors in the Fraud Section are immediately reviewing the qui tam cases when we receive them to determine whether to open a parallel criminal investigation. Remarks by Assistant Attorney General for the DOJ Criminal Division Leslie R. Caldwell at the Taxpayers Against Fraud Education Fund Conference September 17, 2014

25 OSHA Increased Whistleblowing Enforcement Efforts Whistleblower Protection Program enforces the whistleblower provisions of 22 statutes OSHA budget steadily increasing to fund additional investigators and other enforcement-enhancing measures Created Whistleblower Protection Advisory Committee in 2012 to help identify ways to improve whistleblower protections Realigned the agency to elevate its Whistleblower Protection Program to now report to the DOL s Office of the Assistant Secretary Assistant Secretary, Dr. David Michaels, has identified whistleblowing as a top priority for OSHA

26 OSHA CLARIFIES INVESTIGATIVE STANDARD FOR WHISTLEBLOWER INVESTIGATION

27 SEC Office of the Whistleblower: Open for Business According to SEC Annual Report on the Office of the Whistleblower, complaints increased from 3,238 in FY 2013 to 3,620 in FY2014 Office has seen a 20% increase in number of complaints in just two years Since opening in 2011, the office has received more than 10,100 whistleblower tips Tips have come in from each of the 50-states and from 83 foreign countries

28 Nature of SEC Complaints in FY2014 Corporate disclosures and financials 16.9% Offering fraud 17.1% Manipulation 15.5% Insider trading 7% Trading and pricing 4% FCPA 4.4% Unregistered offerings 2.8% Market event 3.8% Municipal securities and public pension 1.6% Blank 2.8% Other 25.2%

29 SEC Bounty Awards Issued first bounty on August 21, 2012 ($50,000): Since inception, program has issued awards to 15 whistleblowers On August 29, 2014, awarded $300,000 bounty to employee with compliance and audit responsibilities On September 22, 2014, announced a $30 $35 million bounty Tipster is anonymous and living in a foreign county Commission stated that the tipster provided original information about an ongoing fraud that would otherwise have been difficult to detect. This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement Thousands of cases are pending at the SEC

30 SEC Bounty Awards March 2015 $500k bounty for bystander who was not the individual originally making an internal complaint of wrongdoing, but a company officer who was aware of the complaint and reported to the SEC after 120 days April 2015 $1.5M bounty to compliance officer who reported misconduct to SEC in order to prevent imminent misconduct from causing substantial financial harm to investors or the company itself July $3M bounty to a company insider whose information helps the SEC crack a complex fraud.

31 SEC Bounty Awards More than 40% of individuals receiving bounty awards have been current or former employees of the organization Of those employees, more than 80% raised concerns internally before reporting to the SEC An additional 20% were contractors, consultants, or solicited to act as consultants Remaining bounty award recipients were investors, professionals working in the same or a similar industry or had a personal relationship with one of the defendants

32 If you are determined to never encounter our office, then best thing you can do is take a fresh look at your compliance program and culture Denial is not a strategy around this program Adjust your mindset if your thought was to pretend there is no whistleblower program, or pretend there is no ability for employees to report, or not educate your employees The vast majority of people who come to use say they tried to report internally. We are actively looking for ways to be proactive in pursuing a retaliation claim We are trolling for tips from compliance professionals and we will come after organizations and their attorneys who attempt to prevent people from reporting to us... including a person who reports in good faith and it turned out they there were wrong Sean McKessy Chief, SEC Office of the Whistleblower

33 SEC Investigating Whistleblower Retaliation Claims SEC is actively marketing the idea of enforcing the anti-retaliation provisions of Dodd-Frank Cease and desist orders and monetary sanctions

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35 SEC Pursuing Enforcement Actions Based on Retaliation Mid-June 2014 SEC initiated the first anti-retaliation enforcement action Head trader at a hedge fund reported a conflicted transaction to the SEC and was later removed from his position, tasked with investigating the conduct about which he complained and marginalized SEC ordered employer to pay $2.2 million to settle retaliation and other charges Authority for SEC to pursue retaliation actions is questionable

36 SEC Rule 21F-17(a) The Office of the Whistleblower cites SEC Rule 21F-17(a): [n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement with respect to such communications.

37 SEC Targets Confidentiality Agreements On April 1, 2015, SEC released a cease-and-desist order declaring the confidentiality agreement of a publicly traded company, KBR, to be unlawful and levied $130,000 civil penalty Agreement at issue prohibited employees during an internal investigation from discussing the substance of their interviews involving potentially illegal or unethical conduct by the company or its employees SEC actively seeking from a large number of companies Confidentiality agreements Nondisclosure agreements Settlement agreements Severance agreements

38 Revised Confidentiality Statement Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

39 Drivers of Whistleblower Expansion JUDICIAL EXPANSION

40 Supreme Court Issues Broad Interpretation of Whistleblower Protection Act In January 2015, Supreme Court issued a 7-2 decision extending federal Whistleblower Protection Act (WPA) to air marshal who leaked to media that TSA was reducing overnight flights for air marshals despite terrorist threats WPA applied because his disclosure of sensitive security information was prohibited only by agency regulation, not law

41 : Narrow View of Protected Activity Under SOX : The employee s complaint must definitively and specifically relate to one of the six provisions of law found in 18 USC 1514A(a): mail fraud, wire fraud, bank fraud, securities fraud, any rule or regulation of the Securities and Exchange Commission, or any other provision of Federal law relating to fraud against shareholders

42 Recent Case Law Trends Toward More Lenient Standard for an Internal SOX Complaint : Allegation of wrongdoing need not be definitive or specific; employee need only have a subjectively and objectively reasonable belief that the conduct in the internal complaint relates to one of the specified violations of law in section 806 of SOX Sylvester v. Parexel International LLC, ARB Case No (May 25, 2011) Wiest v. Lynch, 710 F.3d 121 (3d Cir. 2013) Lockheed Martin v. ARB, 717 F.3d 1121 (10th Cir. 2013) Nielsen v. Aecom Tech. Corp., 762 F.3d 214 (2nd Cir. 2014)

43 Further Expansion of Protected Activity Under SOX Allegation of fraud against shareholders is not necessary! Lockheed Martin v. ARB, 717 F.3d 1121 (10th Cir. 2013) No [publicly traded company]...may discriminate against an employee because of any lawful act done by the employee (1) to provide information regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud],1343 [wire fraud], 1344 [bank fraud], 1348 [securities fraud], any rule or regulation of the SEC, or any provision of federal law relating to fraud against shareholders.

44 First Supreme Court Decision Under SOX Lawson v. FMR LLC, 134 S. Ct (U.S. 2014)

45 Lawson v. FMR LLC Supreme Court Decision: 6-3 Vote SOX Whistleblower Protections, 18 U.S.C. 1514A, apply to more than employees of publicly traded companies Contractor/Subcontractor language extends SOX whistleblower protection to employees of any business that contracts with a publicly traded company Extends whistleblower protections to employees of officers, agents and employees (babysitters & gardeners?) No limitation on which contractors are covered If Congress does not like the result, it can amend the law

46 Lawson v. FMR LLC: Practical Effect Expands coverage of SOX from about 6,000 publicly traded U.S. corporations to millions of business entities that enter into contractual relationships with those corporations Do private employers of all sizes now need codes of ethics, employee hot lines, protocols for investigations of complaints?

47 Drivers of Whistleblower Expansion THE PLAINTIFF S BAR MOBILIZES

48 App To Recruit Whistleblowers WHISTLEBLOWER LAWS: KNOW YOUR RIGHTS

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52 INVESTIGATION PROTOCOLS

53 PRESERVATION/ELECTRONIC DISCOVERY IN WHISTLEBLOWER CASES What should the company do upon receiving a demand letter? 53

54 The Lawyer s Duty Courts have repeatedly emphasized the paramount role of the lawyer in fulfilling the duty to preserve evidence Once on notice, the obligation to preserve evidence runs first to counsel, who then has a duty to advise and explain to the client its obligation to retain pertinent documents that may be relevant to the litigation

55 In re Actos: Discovery Failure Consequences Duty to preserve re: bladder cancer arose in 2002, when Defendant issued broad and sweeping legal hold that was refreshed over many years Deletion of data occurred before the official commencement of litigation Court allowed evidence of bad faith to go to the jury, including: Wholesale destruction of evidence of witnesses at the heart of discussions about bladder cancer and the need to manage the risk as a marketing problem Scale of spoliation: 46 witnesses across three continents over a period of 10 years Failure to implement and enforce legal holds Repeated material misrepresentations regarding legal holds Court issued an adverse inference instruction to the jury that focused on the missing data of 46 custodians

56 In re Actos: In House Counsel Called as Witness at Trial

57 In re Predaxa: Products Liability Litigation Court issued ~$1mm sanction against Defendant plagued with discovery problems : Inadequate legal hold, preservation scope EU-based data not identified, produced Mobile devices auto-delete not suspended Text messages not placed under legal hold 57

58 Preservation: Employee Discretion

59 Prompt Preservation Front-end (individual custodian) legal hold Back-end (IT) legal hold Track/document receipt of legal holds Other preservation logistics: Lifting account size limits Stopping auto-deletion programs Mirror imaging hard drives Capturing departing employee data Chain of custody documentation Conduct audits of key custodians (documenting same) Periodically revalidate Key Custodian lists and reissue holds

60 Identify Sources of Electronic Evidence Computers Desktop, Laptop Assistant s Home Network Servers Document management Share, personal drives Smart phones Communications: , IM, text HR information systems: Personnel files Performance evaluations Training Payroll/Compensation T&E reimbursement Accounting systems CRM systems track customer leads, contracts e.g. Salesforce.com Ethics Hotline, Complaints Vendors/Third Parties Payroll Accountants (audited financials) Vendor that prepared FDA submissions Law Firms (prepare 10-Q and related earnings reports and public filings) Headhunters (to fill Compliance Officer position) Back-up Media System-wide backups Disaster recovery backups Personal or ad hoc backups

61 Leveling The Preservation Playing Field: It s a Two-Way Street Date when duty to preserve was triggered? Personal devices: computers, phones, tablets, USB drives Cloud-based accounts itunes, Dropbox , IM, text messages Social Networking sites

62 WHEN IS A SETTLEMENT DEMAND EXTORTION?

63 Extortionate Settlement Demand Stenehjem v. Sareen, No. H (Cal. Ct. App. June 13, 2014) Employee terminated for sexual misconduct threatened False Claims Act qui tam action if the company did not negotiate a settlement of employee s wrongful termination and defamation claims Court held that pre-litigation threat to expose company and its leaders unless they settled his unrelated private termination lawsuit was extortion as a matter of law

64 DOJ Prosecution of Individuals: Examples Individual Misconduct Stryker Biotech President and Three Sales Managers (2012) Charged with wire fraud, conspiracy, and distribution of a misbranded device; President also charged with making misrepresentations to FDA DOJ dropped all charges following start of the trial InterMune CEO (2011) Criminal trial on drug misbranding and wire fraud for false statements in press release on results of Phase 3 Trial Found guilty of wire fraud; acquitted on misbranding conviction confirmed on appeal; five-year exclusion imposed Park Doctrine Marc Hermelin KV Pharma CEO/Chairman of the Board (2011) Pled guilty to two misdemeanor counts of misbranding in violation of the FDCA under the Park Doctrine; sentenced to one month in prison and paid $1.9MM in fines and forfeitures; excluded Synthes (2009) Four executives charged with a single misdemeanor count of shipping an adulterated and misbranded product and pled guilty as responsible corporate officers under Park Doctrine Upon sentencing, all four executives received jail time (up to 9 months) Purdue Frederick Company (2007) President and CEO, GC and Medical Director pled guilty to a misdemeanor count as responsible corporate officers and were ordered to pay $34.5MM in damages despite the government s stipulation that none of the executives had personal knowledge of criminal conduct

65 OIG Exclusion of Individuals Exclusion is mandatory (42 U.S.C. 1320a-7(a)) where individual (or company) was: Convicted of program-related crimes Convicted of patient abuse Convicted of a felony relating to health care fraud Convicted of a felony relating to controlled substances Exclusion is permissive in circumstances where individual (or company): Engaged in fraud, kickbacks and other prohibited activity (42 U.S.C. 1320a-7(b)(7)) (i) Had an ownership or control interest in a company that was excluded or convicted of certain offenses and knew or should have known of the conduct that led to the sanction or (ii) was an officer or managing employee of such a company (42 U.S.C. 1320a-7(b)(15)) Permits exclusion under a Park theory of liability

66 SEC Prosecution of Individuals The SEC is also targeting individuals In May 2014, SEC Director of Enforcement Andrew Ceresney gave a speech in which he emphasized that the SEC will take action against corporate compliance officers if: They actively participated in misconduct; They helped mislead regulators; or They have clear responsibility to implement compliance programs or policies and wholly failed to carry out that responsibility

67 SEC Focus on Corporate Executives SOX 302 CEO and CFO must sign separate certifications, assuring: SOX 404 financial information is material accurate and complete; maintenance of disclosure controls and procedures; and adequacy of internal control over financial reporting. Annual reports must include an internal control report, in which management: affirms responsibility for maintaining an adequate system of internal controls; describes the framework used to evaluate the company s internal controls; and assesses the effectiveness of internal controls.

68 SEC Focus on Corporate Executives SOX 906 Annual and quarterly reports must have a certification assuring: full compliance with the Securities Exchange Act; and the information in the report fairly presents the financial condition and results of operation of the company. Criminal penalties for false certifications If made knowingly: fine of not more than $1 million, or imprisonment of not more than 10 years, or both If made willingly: fine of not more than $5 million, or imprisonment of not more than 20 years, or both

69 Issues for Compliance Officers Thomas Haider (2014) Former Chief Compliance Officer of MoneyGram International, Inc. FinCEN assessed a $1 million civil monetary penalty against Haider USAO for Southern District of New York filed complaint on behalf of FinCEN against Haider in his individual capacity seeking monetary and injunctive relief, including barring Haider from participating in the affairs of any financial institution Alleged willful failure to implement an effective anti-money laundering compliance program and properly file suspicious activity reports as required under the Bank Secrery Act

70 HOW DOES AN INVESTIGATOR CONDUCT EFFECTIVE EMPLOYEE INTERVIEWS?

71 Interviewing Employees Upjohn Co. v. United States, 449 U.S. 383 (1981) The Upjohn Warnings I am not your lawyer; I am the corporation s lawyer. I am interviewing you because you are a constituent of the corporation and I am trying to get information so I can give the corporation legal advice. This is a privileged conversation; the corporation holds the privilege and may choose to waive it some day. You must keep this conversation strictly confidential. 71

72 DOES DODD-FRANK APPLY IF A WHISTLEBLOWER ONLY MADE AN INTERNAL COMPLAINT?

73 Does Dodd-Frank Apply If a Whistleblower Only Made an Internal Complaint? 5 th Circuit s Answer in Asadi v. G.E. Energy United States, LLC, 720 F.3d 620 (5th Cir. 2013): NO SEC s Answer: YES District courts across the country are split

74 DOES AN EMPLOYEE ENGAGE IN PROTECTED ACTIVITY WHEN HE REPORTS ISSUES TO HIS EMPLOYER AS PART OF HIS JOB DUTIES?

75 Protected Activity: Scope of Job Duties Generally, under SOX and Dodd-Frank, employees can engage in protected activity by reporting problems to their employers even if their conduct falls within the scope of their job duties The majority of courts hold that conduct consistent with a plaintiff s regular job duties does not place the employer on notice of a potential FCA suit, and is therefore not protected activity

76 CAN A WHISTLEBLOWER BRING CLAIMS ARISING FROM THE PERIOD AFTER HER EMPLOYMENT ENDED?

77 Whistleblowers Post-Employment Allegations Can a relator be the original source of fraud that allegedly occurred after he/she left the company? Yes. See U.S. ex rel. Galmines v. Novartis Pharm. Corp., No (E.D. Pa. 2015) May 2006: plaintiff, a qui tam whistleblower, separates from company July 2006: plaintiff files initial complaint 2015: plaintiff seeks discovery concerning conduct between July 2006 and 2009 Held: A relator can be an original source for allegations extending past the date of employment if he/she had direct and independent knowledge of the underlying scheme Some courts have reached the opposite conclusion. See U.S. ex rel. Gravett v. Methodist Med. Ctr. of Ill., No (C.D. Ill. 2015); U.S. ex rel. Duxbury v. Ortho Biotech Prods., L.P., 2010 WL (D. Mass. Sept. 27, 2010)

78 Investigating the Whistleblower s Claim Compliance is the first line of defense Compliance officer s responsibility to determine if a violation has occurred Work within established company protocols Determine need for outside counsel If a violation has occurred Take remedial steps Determine if there is a disclosure obligation CIA or other existing mandate Merger/acquisition considerations Risk of a qui tam filing

79 Voluntary Disclosures DOJ Guidance DOJ Guidance Thompson/McNulty/Filip memos, Primary objectives Increase scrutiny of corporations cooperation Ensure efficacy of corporate governance and compliance programs Factors DOJ will consider before charging a corporation Nature and seriousness of offense Pervasiveness of wrongdoing Corporation s history of similar conduct Corporation s disclosure of wrongdoing and willingness to cooperate Existence and adequacy of compliance program Corporation s remedial actions Collateral consequences Adequacy of prosecution of responsible individuals Adequacy of civil or regulatory enforcement actions Companies get credit for disclosing relevant facts to DOJ

80 Voluntary Disclosures SEC Guidance SEC Guidance: The Seaboard Factors Self-policing prior to discovery of misconduct, including establishing effective compliance procedures Self-reporting of misconduct when discovered, including conducting a thorough review of the misconduct, and promptly and effectively disclosing the misconduct Remediation, including dismissing or disciplining wrongdoers, modifying and improving internal controls and procedures to prevent recurrence, and compensating those adversely affected Cooperation with law enforcement authorities, including providing the Commission staff with all information relevant to the violations and remedial efforts

81 Avoiding Prosecution First line of defense declination Second line of defense civil remedy If DOJ insists on criminal remedy Deferred Prosecution Agreement (DPAs) Key Provisions DOJ files a criminal Information charging the company Company admits to allegations Charge is dismissed after a term of years Company agrees to compliance-related obligations New violations cause conviction and may be separately investigated Year Number of DPAs & NPAs Signed * Gibson Dunn 2014 Year-End Update on Corporate Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs)

82 Avoiding Prosecution Why does DOJ agree to a DPA? Rewards extraordinary cooperation and/or voluntary disclosures Compromise position between civil resolution and criminal conviction Imposition of additional criminal penalty Often in conjunction with qui tam settlement Avoids exclusion of entity Allows DOJ some control over company s compliance efforts during the term of DPA Often imposed in parallel with CIA Conduct not widespread or egregious Why does OIG grant exclusion waivers? Same principles

83 Other Issues When should a company begin an investigation? Should the investigation be conducted by the compliance department or outside counsel? When should a company inform its Board of Directors about whistleblower claims? What is the best way to update the Board as an investigation is initiated and progresses? Are the executives exposed to personal liability? What is the proper method for communicating with a whistleblower? How should a company manage civil and criminal parallel proceedings? If violations of law occurred, what, if any, disclosures should a company make? If the investigation reveals that employees violated the law, how should the company decide whether to discipline or terminate them? Can claims under SOX, Dodd-Frank and the False Claims Act be released in a settlement agreement? Can a whistleblower bring claims arising from the period after her employment ended?

84 WHISTLEBLOWER PROTECTION ADVISORY COMMITTEE

85 Whistleblower Protection Advisory Committee Best Practices created by WPAC WPAC established to advice, consult with, and make recommendations to the Secretary of Labor and OSHA WPAC voted unanimously to recommend that Assistant Secretary, Dr. David Michaels, consider Best Practices and issue guidance consistent with them.

86 The Role of Leadership: Accountability and Oversight CEO and management held accountable for policies, program and response to reports of retaliation Board and Leadership understand retaliation, i.e.: statutory definition of retaliation steps taken in organization to prevent it employees real willingness to report organization s record Board members understand their legal risks under Sarbanes-Oxley and other statutes Organizations have a chief compliance officer to enact, enforce, and evaluate anti-retaliation policies and programs. CCO Should report to CEO and also Board

87 The Role of Leadership: Accountability and Oversight Performance reviews for leaders and managers should support anti-retaliation behavior Completing training, championing compliance initiatives, and constructively addressing concerns Appropriate consequences (i.e. discipline, penalties) should be imposed when acts of retaliation are confirmed. Companies should enact strong codes of conduct and ethics programs Both should support fair treatment of employees who report issues internally, to agencies, and in response to government inquiries Bargaining unit leaders help create management awareness and encourage employees to come forward Track changes in public policies and laws and update internal training, auditing and other internal polices & practices.

88 PREVENTION: FOSTERING A SPEAK UP CULTURE

89 What if Employee Engagement Were On Your Balance Sheet? Cash Inventory Fixed Assets Goodwill Employee Engagement

90 The Critical Role of Supervisors Recipients of Initial Reports Data from the 2013 NBES ETHICS RESOURCE CENTER

91 Fear, Distrust & Dissatisfaction Drive External Reporting 50% The problem was ongoing & I thought someone from outside could stop it. 45% I did not trust anyone in my company. 40% I was retaliated against after I made my first report inside the company. 40% I was afraid I would lose my job if I did not get outside assistance. 36% My company acted on my report, but I was dissatisfied. 29% My company did not act on my report. 22% I was afraid for my safety. 14% I had the potential to be given a substantial monetary reward. Only 1 in 5 Employees Ever Reports Outside the Company Data from the 2013 NBES ETHICS RESOURCE CENTER

92 Prevention: Fostering a Speak Up Culture Value - Encouraging employees to raise concerns in a non-retaliatory environment: fosters cost-effective remedies avoids external legal and public relations risks, and improves employee involvement and ability to contribute to organizational success. Supervisors - Employees usually report first to the supervisor. Train supervisory personnel to respond constructively Transparency and Protection - Ensure all issues can be reported and evaluated in a transparent system with protections for reporting and reporter Multiple avenues - Make multiple avenues available for reporting issues Raising questions - Provide non-emergency options for raising concerns Anonymous - Provide anonymous reporting options

93 Prevention: Fostering a Speak Up Culture Eliminate disincentives informal and formal to reporting Encourage reporting by following through when addressing concerns Ensure all issues can be reported, evaluated and get an honest, timely response in a structured and transparent system Provide ways for employees to get unbiased, confidential advice about exercising whistleblower rights and how to cope with the stress of reporting concerns

94 Prevention: Fostering a Speak Up Culture Protect employee rights even if the person is incorrect or unpleasant in raising the issue Have a policy of no punishment, explicit or implied, for reporting concerns or incidents: Be alert to punishments including retaliatory changes in employee status that occur for unrelated reasons soon after a reported incident or injury Remember that all employment status changes must be undertaken for legitimate non-retaliatory, non-discriminatory reasons Seek input and involvement of workers and union leaders in design and operation of reporting channels and anti-retaliation programs

95 IMPLEMENTING A RETALIATION RESPONSE SYSTEM

96 Implementing a Retaliation Response System Retaliation response system should include multiple avenues for reporting; opportunities outside chain of command; a hotline, including anonymous reporting; and the ability to elevate to higher levels Separate, more independent channel or customized methods for especially polarizing or high-stakes issues Be transparent about how investigations are conducted, including roles and procedures, timing, quality standards, conflict-of-interest protections, training of investigative personnel, and confidentiality and anti-retaliation protections Investigations should be independent, focus on the facts and the underlying concern rather than on defending against the allegation or targeting the individual who raised the concern. Program enhancement - consider if more open reporting channels and greater trust are needed

97 Implementing a Retaliation Response System Independent and Consistent Discipline - An independent review with a pre-established process should review any proposed discipline and apply just culture principles Preserve rights of all parties and assess independently and objectively when a formal complaint has been filed Independence from business influences - Investigation system must have conflict of interest protections and should include leaders and functional groups without a vested interest in the outcome Appropriate confidentiality protections - Confidentiality protections and rumor control are essential to encouraging reporting, enabling objective evaluation, finding a fair resolution and protecting the employee from further retaliation Ongoing protection of whistleblowers, many years after incident

98 ANTI-RETALIATION TRAINING

99 Anti-Retaliation Training Training should cover at least these topics: What constitutes retaliation including common but less overt behaviors such as peer pressure, ostracizing, mocking, and exclusion from meetings How to respond to a report of an issue without engaging in or appearing to engage in retaliation Skills for defusing, problem solving and stopping retaliation in a work group The anti-retaliation system, including roles and responsibilities, how to report concerns, how to escalate when supervisors or others do not respond, and whistleblower protections And

100 Anti-Retaliation Training Training Topics Cont d: Relevant laws, rights of employees, risks and consequences of not responding appropriately Importance to organizational culture and results What constitutes notice, when organizations are required to act, and the legal exposure and penalties they face for inaction How to separate annoying or inappropriate behavior from the report itself Avoiding assumptions about employee s motive in raising an issue

101 Anti-Retaliation Training Training must be continuous and address External changes in legal, regulatory and policy requirements Staff turnover Need for refreshers

102 MONITORING PROGRESS

103 Monitoring Progress Accountability systems should not reward low reported numbers Higher numbers for a new program aren t bad; they may mean people feel more comfortable coming forward Higher numbers mean that the organization has an opportunity to address the issues and learn where retaliation is taking place Incentives reward management and employee behavior that supports coming forward with concerns Accountability and incentives should focus on leading indicators of problem solving, encouraging compliance with safety, financial and other safeguards, and of creating a speak up and no retaliation culture Top leaders and the board should receive dashboard reports on issue reporting, retaliation allegations, and issue resolution, along with indepth results of independent audits Bargaining unit leaders should be involved in the development and review of measures

104 INDEPENDENT AUDITS AND PROGRAM IMPROVEMENT

105 Independent Audits and Program Improvement Perform independent assessment audit to ensure workers are coming forward (surveys, interviews, program data) Watch out for conflicts of interest! Cross check other sources such as workers comp, grievances, outside agencies, and exit interviews to see if ethics and compliance channels are functioning Produce and track monitored Get well plans for delinquent facilities, work groups, managers Incident investigations provide a key cross-check to see if policies and systems work under pressure Examine changes in personnel and business practices to see if they impact reporting Board and Leadership should receive a thorough briefing on audit/assessment results, hear directly from auditors

106 Questions

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