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Individual Responsibility a Factor in Corporate Compliance Probes


The emphasis on holding individuals acccountable for corporate malfeasance has received support from top Department of Justice officials since the change in administration.

Companies settle with the government all the time for various alleged offenses. In nearly all instances, the company rarely admits guilt. However, in the wake of the 2015 so-called “Yates memo” written by former Deputy Attorney General Sally Quillian Yates, US Department of Justice (DOJ) officials appear to be looking more closely at individual responsibility when conducting investigations.

Five of the 6 platforms outlined in the memo deal in some way with the prosecution of individuals. And while the memo does not carry the rule of law, such guidance is generally taken seriously. One could imagine that a Republican administration would ease individual enforcement, but top DOJ officials have repeatedly expressed support for holding individuals responsible for corporate malfeasance.

However, a possible departure occurred in November 2017, when Attorney General Jeff Sessions released a memo entitled, “Prohibition on Improper Guidance Documents.” The memo prohibits “guidance documents that purport to create rights or obligations binding on persons or entities outside the Executive Branch,” including state and local governments. Sessions’ memo does not take a stand on existing guidance memos.

Companies, not to mention those responsible for corporate compliance within companies, should be paying close attention to this important issue. At the same time, corporate compliance documents should not be gathering dust on a shelf. Rather, they should become ingrained within companies that wish to stay on the right side of the law.

Large Numbers of Health Settlements

For each of the past 8 years, the DOJ has collected more than $2 billion in civil healthcare fraud settlements and judgments, netting $2.4 billion during the 2017 fiscal year. These amounts don’t include state Medicaid settlements.

Settlements during 2017 included $145 million from Life Care Centers of America and its owner over false claims for rehabilitation therapy services, which were either not warranted or performed by staff with sufficient skills, and for keeping patients longer than necessary to continue therapy billing. This was the largest settlement with a skilled nursing facility company in the history of the False Claims Act.

The department also settled with several urologists who were accused of referring unnecessary urine tests to 21st Century Oncology, which settled a fraud claim in 2015 for nearly $20 million. The firm was accused of billing for unnecessary tests and paying bonuses to physicians who referred to the facility. So, while the case against the company was settled in 2015, the DOJ continued to pursue individuals for their alleged actions.

And 8 employees at an Alabama physician’s office face federal charges in conjunction with an alleged “pill mill.” Charges included defrauding insurance companies as well as illegally prescribing narcotics. Several already have pleaded guilty. Those charged include 3 doctors, 3 nurse practitioners and 2 administrators. The administrators were each charged with 1 count of healthcare fraud.

A Closer Look at the Yates Memo

Yates had been on the job as Deputy Attorney General for barely 4 months during 2015 when the memo entitled “Individual Accountability for Corporate Wrongdoing” was circulated among the DOJ’s assistant attorneys general, federal officials, and attorneys across the United States.

Official DOJ interpretation still has not been released, but the memo signaled a change of direction for the agency, moving beyond merely targeting corporations to also investigating personal malfeasance in both criminal and civil matters.

In the memo, Yates called investigations into company officials “one of the most effective ways to combat corporate misconduct.” She adds, “Such accountability is important for several reasons: it deters future illegal activity, it incentivizes changes in corporate behavior; it ensures that the proper parties are held responsible for their actions, and it promotes the public's confidence in our justice system.

She then outlines 6 specific steps regarding individual corporate wrongdoing. Some are reiterations of then-DOJ policy, while others represented new thinking:

  1. To receive any credit for cooperating with authorities, corporations must disclose all relevant facts related to individual wrongdoing.
  2. Criminal and civil corporate investigations should also focus on individuals from the outset.
  3. Criminal and civil attorneys working on corporate probes should routinely communicate.
  4. Settling with a corporation does not mean the end of potential criminal or civil liability against individuals.
  5. Case against companies should not be resolved before “a clear plan” has been formulated related to individual cases.
  6. Civil attorneys were directed to consider individual suits in addition to corporate actions, regardless of an individual’s potential ability to pay.

So Far, Prosecutions Are About the Same

A research official at Stanford Law School writing for The Wall Street Journal notes that not much changed in the 12 months following the Yates memo in terms of prosecuting individuals versus corporations. In the year following the memo’s release, 44% of prosecutions under the Foreign Corrupt Practices Act (FCPA) were individuals (7), compared to charges against 9 companies. In the preceding year, 47% of FCPA prosecutions were aimed at individuals.

Despite no discernable uptick in prosecutions one year after the memo, the author believes this could mean that “prosecutors require additional time to incorporate the memo’s directives into their policies and procedures and to translate those directives into new enforcement actions. If that is the case, then investigations initiated before the Yates memo was announced may not be affected by the memo’s directives.”

The election of President Donald Trump and his repeated promises during his first year in office to roll back federal regulations has not encompassed the Yates memo—at least yet.

In prepared remarks during the Ethics & Compliance Initiative annual conference in April, Attorney General Jeff Sessions reiterated “the importance of holding individuals accountable for corporate misconduct. It is not merely companies, but specific individuals, who break the law. We will work closely with our law enforcement partners, both here and abroad, to bring these persons to justice.”

Sessions also said that good compliance programs were critical to potentially mitigate federal charges, along with cooperation and self-disclosure, and proper remediation.

Deputy Attorney General Rod Rosenstein weighed in on the subject during an October 2017 keynote address for the New York University Program on Corporate Compliance & Enforcement. While generally agreeing with Yates’s motivation in drafting the memo, Rosenstein said he was “not certain that the existing memos, talking points, and ‘F.A.Q.’ documents got it exactly right. But any adjustments or changes we make will reflect several common themes.”

According to Rosenstein, any forthcoming changes would:

  • Reflect ongoing resolve to punish individuals for corporate wrongdoing
  • Rein in the government from using criminal authority unfairly to bring in civil payments
  • Make the policy “more clear and more concise”
  • Reflect input from within and outside the DOJ

“Corporate enforcement is an important focus of our Department,” Rosenstein said. “Investigations of corporate fraud and corruption are essential to the rule of law. People who do business in America need to know our laws will be enforced.”

Best to Be Prepared

The DOJ does not generally fund its own investigations, instead relying on companies to conduct their own compliance audits and share any findings of wrongdoing with federal officials. But that doesn’t mean the DOJ doesn’t check up on companies.

Speaking before the Association of Corporate Counsel conference in October 2017, Kathleen McGovern said the agency frowns on weak internal compliance and mere box-checking, according to Bloomberg. McGovern, a career DOJ official, is senior deputy chief of the department’s fraud section.

“The worst thing is for an internal investigation to be conducted, DOJ does its own investigation, and we uncover conduct that in good conscience we think could have been uncovered as a result of an internal,” McGovern said during the conference. “That doesn’t bode well for the company in terms of cooperation.”

Bloomberg article also quotes Hui Chen, former compliance counsel for the DOJ who left the agency in June. She was hired by the Obama administration to determine whether company compliance programs were sufficiently robust or “paper programs” that denote ticking the right boxes while still being ineffective to detect illegal activities.

As the examples cited earlier indicate, no one is above the law. Physicians and billing clerks may think they’re shielded from prosecution because they’re part of a corporation. But since the DOJ has adopted an “all or nothing” mentality in regard to corporate cooperation, a company admitting guilt or settling with the DOJ may not be the end of the story.

Further, a corporate compliance document is no good if it doesn’t allow for effective compliance monitoring and robust oversight. Internal audits are useful to not only ensure compliance but also provide a snapshot to the financial health of a company.

And rather than being solely in the purview of the chief operating officer, compliance officer or accounting department, corporate compliance is everyone’s responsibility.

Andria Jacobs (ajacobs@pcgsoftware.com) is the chief operating officer for PCG Software and has more than 25 years’ experience in the healthcare industry.

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