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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??