Thursday, April 28, 2011

Indian official seeks to create own False Claims Act

Law minister of the Indian government Veerapa Moily has suggested a series of legal and administrative measures that can be taken immediately to improve governance and reduce corruption in India.

The most important of the 10 steps includes the establishment of whistleblower provisions modeled after the US False Claims Act. As in the US, citizens would be granted the right to bring actions against companies or individuals that are defrauding the government.

If such claims were proven in court, the guilty party would be required to pay up to 5 times the amount of injury sustained by the government or society, in some cases allowing for non-monetary losses to be quantified for the purposes of recovery.

Iraq development contractors to pay $8.7 million to resolve fraud allegations

Two companies that contracted with the Department of State to provide civilian police training in Iraq have agreed to pay $8.7 million to the US to settle whistleblower allegations that they submitted or caused to be submitted false claims for payment.

DynCorp International LLC will pay $7.7 million, resulting from allegations that it submitted fraudulently inflated claims for the production of container camps in various locations. The Sandi Group, the subcontractor, will pay $1.01 to resolve allegations that it sought and received compensation for danger pay that was not provided to employees.

“The hard work of stabilizing Iraq is challenging enough without contractors and subcontractors inflating the cost of rebuilding by making false claims at taxpayers’ expense,” said Tony West, Assistant Attorney General for the Civil Division.

The qui tam lawsuit was filed by two former employees of the Sandi Group that became aware of the illegal activities. They will receive up to $481,710 from the government’s recovery.

SEC misses deadline for whistleblower rules

The Securities and Exchange Commission has missed the April 21 deadline for finalizing its new whistleblower rules. The expected date is now between May and July, according to the SEC's calendar.

Earlier stories had reported delays in implementing an SEC whistleblower office because of budgetary concerns.

An SEC spokesman John Nester declined to comment on why the SEC has delayed the final rules but told the Wall Street Journal that the agency is working hard to meet all the Dodd-Frank law’s deadlines “with an emphasis on getting the rules right.”

Tuesday, April 26, 2011

Feds effort to target individuals responsible for fraud reaches Forest Labs CEO

The Obama administration is pursuing individual executives who are responsible for wrongdoing, rather than simply imposing fines on their companies. This month the CEO of Forest Laboratories was notified by the Dept. of Health and Human Services that it intends to exclude him from doing business with the federal government.

Such an exclusion would prevent the company from selling its drugs to Medicare, Medicaid and the Veterans Administration. Rather than lose these lucrative customers, Forest Labs would most likely oust the CEO, Howard Solomon.

The head of HHS said in congressional testimony that the new use of exclusion is meant to alter the cost-benefit calculus of corporate executives. "As long as the profit from fraud outweighs those costs, abusive corporate behavior is likely to continue."

Solomon's exclusion has its origins in a federal investigation of Forest's marketing practices. The company entered a plea agreement with the government last September, paying $313 million in criminal and civil penalties for a variety of violations, including illegal marketing of its drugs Celexa and Lexapro.

Wednesday, April 20, 2011

Philly has an app for that

Reporting fraud in Philadelphia has gone high tech. City Controller Alan Butkovitz has introduced an iPhone app that allows citizens to submit reports directly to the controller's fraud unit.

The Philly WatchDog app enables users to send messages anonymously, to record and upload video of fraudulent activities, and to pinpoint the location of an incident though the GPS feature.

"Like any investigative unit of government, we oftentimes rely on the public to help us identify waste and fraud in city government," said Butkovitz. "It is critically important for government to be on the same technological page as our citizens."

No word yet on when the Android version will be released.

Tuesday, April 19, 2011

Johnson and Johnson to pay $70 million for subsidiaries’ FCPA violations

Johnson and Johnson has agreed to pay $70 million, following allegations that subsidiaries of the company used improper bribes in foreign countries, including payments to Saddam Hussein, in violation of the Foreign Corrupt Policies Act.

The deferred prosecution agreement with the Department of Justice also requires that the company take additional measures to prevent future transgressions. If the standards are met for 3 years, further criminal penalties may be avoided.

The company’s bribery scheme had involved illegal payments to government officials in Greece, Poland, and Romania, among other recipients. According to the SEC, the scheme netted more than $32 million in business.

Monday, April 11, 2011

Verizon agrees to pay $93.5 million to settle whistleblower allegations

Verizon has agreed to pay $93.5 million to resolve allegations that it systematically overcharged the government for voice and data services beyond their fixed contracts. The whistleblower case had been under seal until the recent announcement of the government intervention and settlement.

"Verizon was not only charging the government for the costs associated with communication services, but it also was pumping up its revenues by charging the government for Verizon's own property taxes and other costs of doing business," said Colette Matzzie, a Washington, DC, attorney with Phillips & Cohen LLP, which represents the whistleblower. "Under federal law, Verizon was responsible for paying those costs, not the government.

“Corporations that contract to provide services to federal, state and local governments must play by the rules,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. “We will protect taxpayers against those who seek to charge more than they deserve.”

Under the False Claims Act, relators in successful whistleblower actions are entitled to 15 to 25% of funds recovered, if the government joins the case.

Tuesday, April 05, 2011

Appeals court upholds whistleblower secrecy law

A divided court of appeals for the 4th circuit has upheld the unconditional sealing of False Claims Act cases. Dissenting parties felt that the automatic application of a seal violated the First Amendment and the public’s right to access court proceedings.

Under the current laws, all FCA cases are placed under seal for 60 days to allow the government to decide whether or not to intervene. Many cases remain under seal for several months, although judicial review is required at the end of the 60-day period.

The majority opinion in the 2-1 vote upholding the current law agreed “that ‘sunlight’ and ‘openness’ are important values,” but held that justice is better served by “protecting the integrity of ongoing fraud investigations”. Judge James Dever III, of the majority opinion, pointed out that all FCA cases are eventually unsealed. “Thus, in every FCA case, the people will be able to see how the Executive and the Judiciary have fulfilled their constitutional and statutory roles.”

Monday, April 04, 2011

Report identifies problem in wasteful price growth at Pentagon

A report from the Government Accountability Office has identified $135 billion dollars in price growth from original spending estimates at the Pentagon in the past two years. The report indicates that much of the overspending is caused by mismanagement and projects that went to production before testing was complete.

The GAO says that the projected cost of the Pentagon’s largest projects has grown by 9 percent, or $135 billion in the past two years. While 65 billion of those dollars has resulted from the government’s decision to purchase more goods than initially estimated, the other $70 billion appeared “to be indicative of production problems and inefficiencies or flawed initial cost estimates.”

This report comes following efforts by the Obama administration and Congress to curb wasteful spending in the defense sector. While the GAO said that spending efficiency appears to be improving in new programs, many programs have not been “fully adhering” to regulations intended to prevent waste.

Anti-bribery laws: US v. UK

Although both the United States and the United Kingdom are cracking down on corporate fraud and corruption, the U.K.’s Bribery Act of 2010 may be a game-changer.

The Bribery Act, which is broader in some respects than the U.S. Foreign Corrupt Practices Act, applies to any type of bribery, not just payments to foreign officials. A company is liable for the actions of employees or agents who act on its behalf, and is strictly liable for any failure to prevent the bribery.

The Bribery Act applies to any organization that “carries on a business” in Britain, meaning that it could have wide application, although the guidance on this point is not clear.

The Act gives the U.K. an opportunity to elevate anti-corruption and anti-fraud enforcement to new levels, creating expectations for business that could raise the bar globally.

CFTC Commissioner Chilton says rules must encourage whistleblowers

Bart Chilton, Commodities Futures Trading Commissioner, says that the success of the whistleblower provisions of the False Claims Act should inform CFTC whistleblower proposals.

Chilton admits that whistleblower provisions were new to his agency and that their proposed rules "missed the mark Congress intended us to hit." After receiving responses from qui tam attorneys and others, he has some thoughts on what the new rules should include.

Chilton's list of what the final rule should contain definitely hits the mark. He says there must be a guaranteed, non-discretionary award if the proffered information results in a government recovery. He says that the CFTC mustn't impede whistleblowing by requiring compliance with all company internal procedures before filing a whistleblower claim. And Chilton recognizes that disqualifying any whistleblower who has compliance, supervisory or audit responsibilities is "such a vast restriction as to render the entire new authority ineffectual."

A CFTC commissioner who gets the value of whistleblowers and wants to implement a "robust and active whistleblower program" is encouraging news.

Saturday, April 02, 2011

Debating a whistleblower reward program for Canada

The unfounded fear that whistleblower programs hurt internal compliance and disclosure programs now is being raised in Canada following an announcement by the Ontario Securities Commission that it is considering implementing a whistleblower program.

Edward Waitzer, a partner at Stikeman Elliot LLP, raised this concern in a commentary, Should We Pay for Whistleblowing?, published in the Financial Post.

Dimitri Lascaris, a partner at Siskinds LLP, correctly observes in his response that it would be very instructive to consider the history of whistleblower awards in the U.S. in evaluating whether to adopt such a regime in Canada. During the 25 years that the modern False Claims Act -- which has no internal reporting requirement -- has been in existence, there has been no evidence that financial rewards for whistleblowers have had a negative effect on internal compliance programs. On the contrary, before the 1986 FCA amendments, few government contractors had internal compliance programs, much less effective ones. Since Congress enacted the FCA in 1986, compliance programs among government contractors have exploded, and many of them are excellent. Where companies have implemented good programs, employees have used them rather than going to court. Employees only circumvent the bad programs, ones where it is known that internal reporting is tantamount to career suicide.

Canada should rely on experience rather than rhetoric in deciding whether to adopt a similar set of incentives for its securities markets.