in the last frontier - scce official site...fca: key points • when evaluating materiality under...
TRANSCRIPT
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DOJ Enforcement:
Corporate & Individual
Accountability
In the Last Frontier
ENFORCEMENT FACTS
� Every company will have a compliance
problem sooner or later
� Corporations can anticipate and prepare for
these problems
� How corporations respond to problems
(including criminal conduct) makes a big
difference
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ENFORCEMENT FACTS
� Corporate compliance professionals benefit
from understanding the enforcement process
� DOJ is focusing on both corporate and
individual liability for wrongdoing
� Voluntary disclosure and full cooperation can
benefit corporations
ENFORCEMENT LEVELS
� Agency Warning
� Administrative Action
�Notice of Violation/Penalty
�Suspension and Debarment
� Civil Enforcement
�Civil Complaint
�False Claims Act/Qui Tam suit
� Criminal Prosecution
ENFORCEMENT AGENCIES
� FBI
� IRS
� SBA
� SEC
� EPA
� DEA
� HUD, HHS, DHS, etc.
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TYPES OF MISCONDUCT
�Intentional, knowing or negligent failures to
follow health, safety, environmental,
immigration, tax or other regulatory
requirements
�Corruption, fraud, false statements or
omissions, embezzlement, misuse of
government funds
TYPES OF MISCONDUCT
�Destruction of documents (Sarbanes-Oxley)
�Obstruction of justice, witness tampering
CIVIL ENFORCEMENT
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Unisea, Inc.
� Unisea is among the largest seafood producers in the world. Headquartered in Redmond, WA
� Dutch Harbor facility processes crab, surimi, pollock, cod, halibut, fish oil, & other seafood products.
� Nippon Suisan Kaisha (Japan) owns Unisea & claims it as its largest subsidiary.
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Unisea’s Refrigeration Condensers
� Unisea operates 12 anhydrous ammonia refrigeration condensers.
� Condensers are cooled with seawater via pumping thru metal tubes within the condenser body.
� The non-contact cooling water then flows through pipes into harbor & through NPDES-permitted outfall.
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Condenser tubes
developed leaks
� Leak discovered in tube on 12/11/07 during cleaning
� Eventually 4 tubes found to be corroded and leaking
� Tubes were beyond expected lifespan
� UniSea failed to maintain, detect and respond.
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Civil Allegations
• Clean Water Act: 33 U.S.C. §§ 1311 & 1319
Allegations:
• Discharge of ammonia, high PH wastewater & seafood waste from
outfalls into Water of U.S. in violation
of NPDES permit
Evidence:
• Anhydrous ammonia (NH3) leaked into non-contact cooling water and
was discharged through outfall into
bay
• Total of 17,200 pounds of anhydrous
ammonia released
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Civil Allegations
• CERCLA: 42 U.S.C. § 9603(b)
Allegations:
• Failure to Report discharge of hazardous substance (ammonia gas)
• Releases of more than 100 pounds of anhydrous ammonia in a 24 hr.
period must be immediately reported.
Evidence:
• Unisea did not report for December
releases for over 30 days
Civil Judgment
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•$1.9 Million Civil Penalty: • Federal & State shared fine
•Environmental Compliance Plan • Monitoring and reporting
•Waste Remediation• Survey & Clean up
•Stipulated Penalties• Set fines for violations for future violations
Unisea Inc. Penalties
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Criminal Prosecution
Westward Seafood, Inc.Clean Air Act Prosecution of Individuals
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Westward Seafoods
� Dutch Harbor facility processes crab, halibut, Pollock, imitation crab meat from pollock, fish meal, & other seafood products.
� Headquartered in Seattle, Washington.
� Additional facility on Kodiak Island, Alaska.
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FACILITY
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Powerhouse
Offices
Overview
� Facility produced its own electricity using 3 diesel fueled electric generators.
� Produces steam for fish processing using 2 diesel-fired steam generators.
� Emissions vented through a single combined smokestack.
� Nitrogen Oxide (NOx) emitted
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Title V Permitting
� Emissions authorized through a Title V Operating Permit.
� ADEC issued the permit, but violations are enforceable the by EPA.
� Facility considered a “major source” under the federal Clean Air Act (CAA).
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Westward’s Voluntary-
Disclosure to EPA
� Systematic Failure to operate pollution control equipment (CASS).
� False record keeping and false reporting to ADEC & EPA
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Criminal Conduct
Hampton, Morales and Beigh:
�Turned off CASS
�Falsified, or caused to be falsified, records to conceal fact and prevent detection.
�Tampered with CASS water meters.
�From August 1, 2009 – August 31, 2011 (2 years)
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Falsified reports in Powerhouse
� Daily engine round sheets for each generator…
� No data entered for CASS section
� # of nozzles on
� Cass meter
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Clean Air ActFalse Statement
� Elements:
� Any person who knowingly
� Makes any materially false statement, representation, or certification (or omits material information from, or knowingly alters, conceals, or fails to file or maintain any notice, application, record, report, plan, or other document)
� required pursuant to this chapter to be either filed or maintained.
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• Clean Air Act: 42 U.S.C.§7413(c)(2)(A)
• Penalty:
� Two years &/or fines pursuant to 18 U.S.C. § 3571.
Clean Air ActTampering
� Elements:
� Any person who knowingly
� Falsifies, tampers with, renders inaccurate, or fails to install any monitoring device or method
� required to be maintained under this chapter.
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• Clean Air Act: 42 U.S.C.§7413(c)(2)(C)
• Penalty:
� Two years &/or fines pursuant to 18 U.S.C. § 3571.
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Individual Defendants
� James Hampton� Assistant Chief Engineer
� September 2004 to September 2011
� Raul Morales� Powerhouse Supervisor
� April 2004 to September 2011
� Bryan Beigh� Powerhouse Operator
� January 2003 to September 2011
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Individual Sentences
HAMPTON AND MORALES BEIGH
� Base Offense (§2Q1.3(a)): 6
� Ongoing Discharge (§2Q1.3(b)(1)(A)): +6
� Discharge in Violation of a Permit (§2Q1.3(b)(4)): +4
� Role in the Offense: (§3B1.1): +2
� Acceptance of Resp. (§3E1.1): -3
� Total: 15 x I (18 to 24 months)
� Sentenced to 2 mo. jail, $1000 fine, 1yr
� Base Level Offense (§2Q1.3(a)): 6
� Ongoing Discharge (§2Q1.3(b)(1)(A)):+6
� Discharge in Violation of a Permit (USSG §2Q1.3(b)(4)): +4
� Acceptance of Resp. (§3E1.1): -3
� Total: 13 X I (12 to 18 months)
� Sentenced to 3 years probation, $750 fine
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Judge’s Considerations at
Sentencing
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• Integrity matters
• Must follow the law, even if you don’t
agree with it
• Recognized need to deter
• Recognized significance of
Leadership role
• But considered time that had
passed since crime and loss of job
• Considered no evidence of
harm to individuals
• Considered cooperation and characteristics of defendants
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DOJ YATES MEMO
DOJ YATES MEMO
�Deputy Attorney General Sally Yates issued a
DOJ policy memorandum on September 9, 2015
addressing Individual Liability for Corporate
Misconduct
�Subsequently incorporated into the United
States Attorney’s Manual under Principles for
Prosecution of Business Organizations
DOJ YATES MEMO
� One of the most effective ways to combat
corporate misconduct is by seeking
accountability from individuals who
perpetrated the wrongdoing (civil & criminal)
� Deters illegal activity, incentives changes in
corporate behavior, ensure proper parties held
responsible, promoted public confidence in
justice system
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DOJ YATES MEMO
� To qualify for cooperation credit,
corporations must provide all relevant facts
relating to individuals responsible for
misconduct
� Criminal and civil investigations should focus
on individuals from the inception
� Absent extraordinary circumstances, DOJ
will not release culpable individuals from
liability when resolving corporate
investigation
The U.S. Supreme Court and
the False Claims Act Plus what
may trigger an Internal
Investigation
Christine V. Williams
Founder
Outlook Law, LLC
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Backing Up: Truth In Negotiations
Act
� Some foundation in Negotiating with the Government
� Intent, intent, intent
� Mandatory Disclosures
The False Claims Act
On June 16, 2016, the US Supremes issue a decision on the FCA that changes the landscape
for Government Contractors
U.S. Civil War Act
The key questions resolved were the following: (1) omissions are misrepresentations, thereby implied certifications that are false may be a basis for liability if they are made knowingly and are material;
� Omissions-implied certifications
� Half-truths
� The three roads less traveled
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False Claims Act
(2) the FCA’s definition of what constitutes a defendant’s state of mind (or knowingly) when submitting an invoice is that the defendant must have implied or actual knowledge that the subject is material to inducing payment;
� Knowingly: Gun being able to fire
False Claims Act
(3) the FCA definition of materiality cannot be so expansive so as to include every minor or insubstantial violation; especially when the Government routinely knows about the minor violation and pays such invoices anyway.
� Materiality: having a natural tendency to influence or be capable of influencing the recipient’s actions (paying)
FCA: Key Points
• When evaluating materiality under the FCA, the Government’s
decision to expressly identify a provision as a condition of
payment is relevant, but not automatically dispositive.
• Proof of materiality can include, but is not necessarily limited to,
evidence that the defendant knows the Government consistently
refuses to pay claims based on noncompliance with the
particular statutory, regulatory, or contractual requirement.
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FCA: Key Points
• Conversely if the Government pays a particular claim
in full despite its actual knowledge that certain
requirements were violated, that is very strong
evidence that the requirements are not material.
• Additionally, if the Government pays a particular type
of claim in full despite actual knowledge that certain
requirements were violated, and has signaled no
change in position, that is strong evidence the
requirements are not material.
FCA: Key Points
The Court rejected the position that the
Government may refuse to pay part or all of any
invoice despite the fact that the Government may
otherwise routinely pay such invoices knowing
minor or insubstantial violations may be contained
in those invoices.
Whoops
� What Happens Next?
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Investigating and
Interested Entities
(Qui Tam Scenario)
Main Justice
AUSA
Investigative
Agencies
Contracting
Officer
Agency Resources /
OIG
Contractor
Suspension and
Debarment OfficialMain Justice
AUSA
Investigative
Agencies
SBA
Contracting
Officer
Agency Resources /
OIG
Contractor
Suspension and
Debarment OfficialMain Justice
AUSA
Investigative
Agencies
DCAA
Contracting
Officer
Agency Resources /
OIG
Contractor
Suspension and
Debarment Official
Qui Tam Relator
The Time of Magical Thinking
Myths at the Outset
1. This is just a subpoena.
2. This is a good company with good people. Who could possibly believe we committed a crime?
3. The [insert government customer or regulator] loves us, so this won't go anywhere.
4. All we have to do is tell our side of the story and this will go away.
5. This is just like civil litigation.
6. There is nothing to be done.
Key Steps
� Triage
� Preserve data
� Assemble the team
� Control the information flow
� Have a written plan
� Collect and analyze data
� Conduct effective witness interviews
� Report the results
� Follow-up
� Do no harm
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What Is Not To Be Done
× Do not obstruct the investigation
× Do not make admissions
× Do not rush in to talk to the prosecutor
× Do not call your congressman
× Do not fire the whistleblower
× Do not alienate the prosecutor
× Do not talk to the press
Why Conduct an Internal Investigation?
Principles of an Effective Investigation
� Develop facts in a thorough and reliable way
� Promote credibility and avoid the appearance of conflicts
� Be completed in a timely and cost-effective manner
� Report findings clearly
� Use the findings to protect the business
� Do no harm
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Triage
Assemble the Team –
Who Should Direct the Investigation?
� Common options
� Legal department
� Chief compliance officer
� A board committee
� Key considerations
� How serious is the allegation?
� What are the consequences for the business?
� Who is implicated?
� Who is the audience?
Be Prepared for Employee Questions
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Do No Harm
� Misrepresentations and pretexting
� Physical searches
� Recording communications
� Accessing data outside the company
� Foreign investigations
� Loose lips
� Privilege waivers
� Failure to finish
Global, Parallel or
Coordinated Settlements� Advantages of achieving a global settlement
� Burden on contractor to coordinate among
settling agencies
� Criminal
� Civil
� Suspension and Debarment Authority
Conclusion
� Understand object(s) and scope of the
investigation
� Comply and avoid obstruction of justice
� Protect the company's interests
� Evaluate options
� Resolve the matter
� Improve performance moving forward
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Questions??