New DOJ Policy on Foreign Business Bribery

On the eve of the fortieth anniversary of the Foreign Corrupt Practices Act, the Justice Department has unveiled a policy that strongly encourages businesses to self-report any violations to the government on their own.

Those that do can presume that the government won’t prosecute them criminally as long as they fix the problem timely and cooperate fully. That’s probably good for shareholders and boards of directors, among others, but less so for managers, executives, or foot soldiers who get thrown under the bus.

The new policy was announced last week at a conference on the FCPA. It’s been added to the official policy manual for federal prosecutors. It takes most parts of the government’s recent pilot program and makes them permanent.

What does it mean to self-report voluntarily, cooperate fully, and remediate timely? It means a company must report a violation promptly and before the government gets wind of it. Also, it must share everything it knows about anything and anyone involved. Then it must create a sound compliance program based on its size and resources. And it must return all the money or property that’s subject to restitution, forfeiture, or disgorgement.

The government may still prosecute if aggravating factors make the business more culpable. That may happen, for example, if executive management was involved, or the conduct was widespread, or the company made a lot of money from it, or it’s happened before.

But even then, if the business has voluntarily self-reported, fully cooperated, and timely remediated, the government will recommend a criminal fine that’s at least 50% lower than it otherwise might be (unless the business is a repeat offender). Also, if the business has created an effective compliance program, the government likely won’t require the appointment of an outside monitor.

Finally, if a business doesn’t self-report but later cooperates and remediates fully, the government will recommend a fine that’s at least 25% lower than it otherwise might be.

CMS Puts Out New Physician Self-Referral Disclosure Protocol

If you’re a healthcare provider or supplier, take note.

Starting June 1, 2017, there is a new process for self-reporting actual or potential violations of the Stark Law to the Centers for Medicare & Medicaid Services.

Remember, Stark says that doctors can’t refer certain, designated health services that are payable by Medicare or Medicaid to entities in which they have a financial interest. The same goes if an immediate family member is the one with the financial interest. The entity that receives the referral can’t bill for those services, either. But exceptions apply.

Why in the world would you self-report? Well, if there is discretion to keep you in the program, your cooperation will go a long way. You’ll pay less in penalties. You’ll reduce or eliminate your liability for not reporting and returning the overpayments sooner. And you’ll probably put the matter behind you more quickly than if the government gets wind of it.

Now, there’s a new way to do it. Up to this point, you would submit your self-disclosure to CMS by letter. From June 1, you must submit a packet of forms and enclosures that you certify. You should submit all information necessary for the agency to analyze the actual or potential violation. You may also submit a cover letter with additional, relevant information.

You’re well-advised not to do any of this without appropriate counsel.

The new protocol doesn’t apply to non-Stark-related disclosures of potential fraud, waste, or abuse involving a federal healthcare program.

So if you wish to disclose actual or potential violations of other laws like the Anti-Kickback Statute, you should use a separate process for it.

After you talk to your lawyer.


How to Assert Your Miranda Rights

Here’s a guide to your Miranda rights on the occasion of their 50th anniversary. It’s a rough composite of the current state of the law, but you should always consult a lawyer about your specific situation before consenting to an interview with law enforcement.

The first thing to understand is that the police don’t have to give you Miranda warnings until they take you into custody and try to interrogate you. If you’re not in custody then you are free to go, and you probably should, but if you don’t, the police are free to question you as much as you’ll let them, and they don’t have to give you any warnings about it. Even if they briefly detain you based on reasonable suspicion, which they’re allowed to do, they can still question you during the stop without giving you warnings, though you’re free to assert your rights and consult a lawyer before answering (and you should).

How do you know if you’re in custody? Well, if you’ve been arrested then you’re in custody. But even if you haven’t been arrested, the test is whether a reasonable person in your shoes would feel like he or she were free to leave. So if you’re not feeling the conversation but don’t know if you can leave, you should ask. Am I in custody? Am I free to go? If you’re free to go then you should go. If you’re not then you should assert your rights and consult a lawyer before answering any more questions.

Even once you’re in custody, the police don’t have to give you Miranda warnings until they begin to interrogate you. Interrogation means they’re either directly questioning you about your arrest or doing something else that’s likely to elicit an incriminating response. That may not include their basic booking questions about your name, address, height, weight, and other biographical information, so you may not hear those warnings for some time. Remember that you don’t have to answer any questions you don’t want to.

Now, let’s say you’re in custody and want to assert your rights. How do you do it?

You must speak up. You must claim your rights to benefit from them. So speak up. Say that you don’t want to talk at all and that you want to see a lawyer. You have to speak the words. If you don’t, someone may decide that you waived your rights or didn’t assert them in the first place. It may sound strange, but you don’t necessarily invoke your right to remain silent by staying silent, so don’t leave it to chance. As long as you’re talking or saying nothing, you haven’t claimed your rights, and the police don’t have to leave you alone. And most likely, they won’t. The only sure way to make them stop is to assert your rights by saying you don’t want to talk and you want to see a lawyer.

You must ask for a lawyer. You have two rights to assert: a right to remain silent and a right to a lawyer before any questioning. You should assert both. But if you’re picking just one (and there’s no reason for that), make sure to say you want a lawyer. If you just say you don’t want to talk, the police will have to stop the interrogation, but they won’t necessarily have to leave you alone for long, and they may be able to come back and try again within hours. But when you say you want a lawyer, you automatically invoke your right to remain silent, too, and you cut off any further attempts at questioning for at least fourteen days.

You must be clear. You must assert your rights clearly. You can’t be vague, ambiguous, or equivocal. You shouldn’t ask them for advice or permission. You must say that you want a lawyer, period. The law is that you must assert your rights clearly enough that a reasonable police officer under the circumstances would understand your wishes. Don’t leave it to chance. If you’re not clear, the police may do anything to keep you talking or listening so they can keep the interview going. They may sidestep what you said or ignore it altogether. They don’t necessarily have to clarify your wishes or respond to you at all. Below are four actual examples where courts have ruled that people did not clearly invoke their rights.

  • “Maybe I should talk to a lawyer.”
  • “I think I would like to talk to a lawyer.”
  • “I think it’d probably be a good idea for me to get an attorney.”
  • “I don’t want to talk about it.”

Stick to something like these instead.

  • “I don’t want to talk at all [anymore].”
  • “I don’t want to talk.”
  • “I want to remain silent.”
  • “I want a lawyer.”

You must repeat as necessary. You must insist on your rights. Don’t count on the police to scrupulously honor them. Repeat yourself as needed if they ignore you, talk over you, threaten you, or otherwise disregard your wishes. Keep saying that you don’t want to talk and you want to see a lawyer. Keep saying that and nothing else until they leave you alone. Then contact a lawyer immediately.

A Postscript to Last Week’s Open Letter

Following up on last week’s post, readers should understand the timeline of events that brought the misconduct to light. Here are the highlights.

  1. In January 2013, a defendant in a murder case filed a motion to get some important information from the prosecution. The trial court found good cause for the motion and granted it, but the district attorney’s office did not comply with the order.
  2. In January 2014, the defense filed three additional motions, alleging that the district attorney’s office was participating in a large-scale operation by the sheriff’s department to purposely violate the constitutional rights of defendants who were awaiting trial in the Orange County jail system.
  3. In February and March 2014, the trial court ordered evidentiary hearings to get to the bottom of these allegations. That is when the district attorney’s office began a campaign to retaliate against the judge.
  4. In August 2014, the judge issued his first decision in the matter. He found that law enforcement had committed due-process violations negligently but not maliciously, and he didn’t disqualify the district attorney’s office from the case.
  5. In December 2014, the judge reopened the hearings because the defense presented evidence that at least two senior sheriff’s deputies had lied during the initial hearings.
  6. In March 2015, the judge issued his second decision in the matter. He found that the two deputies had willfully lied or withheld material evidence during the first set of hearings, and he disqualified the district attorney’s office from the case because of what now appeared to be serious due-process violations:
  • “It is now apparent that the discovery situation in this case is far worse than the court previously realized. In fact, a wealth of potentially relevant discovery material … remained secret, despite numerous specific discovery orders issued by this court.”
  • “After a period of what can at best be described as benign neglect concerning the actions of his law-enforcement partners, the District Attorney cannot or will not in this case comply with the discovery orders of this court.”
  • “In this case, the District Attorney’s conflict of interest is not imaginary. It apparently stems from his loyalty to his law-enforcement partners at the expense of his other constitutional and statutory obligations.”

An Open Letter to the District Attorney of Orange County

Mr. Rackauckas: Just what is going on in your office, sir?

I’m not talking about the fight that broke out in a county courthouse three weeks ago between one of your investigators and a defense attorney. Never mind that if a defense attorney did this to a cop, he’d be arrested so fast his head would spin. (Full disclosure: I met this lawyer two weeks ago at a bar association event and had lunch with him on Monday. Although he’s told me his side of the story, he wasn’t trying to sell anything, and I wasn’t looking to buy, either.) But that’s not the issue here.

I’m not even talking about the jailhouse snitch scandal that led to the fight and that has roiled your office—and my county—for two years now since it’s come to light. Plenty of ink has already been spilled about it, including in a letter to the U.S. Attorney General last November by a coalition of legal authorities, who called on the Justice Department to investigate the scandal. But that’s not it, either.

No, I’m wondering about your office’s response to the scandal, and specifically, the way it has retaliated, systematically, against the trial judge who ordered the hearings that brought the misconduct to light.

I couldn’t believe it at first.

More than once after the scandal broke, I had attended events at which some of your senior deputies expressed both regret and resistance over the news. By turns, what I heard from them was that, yes, some mistakes were made, and we understand your concern, but please don’t blow it out of proportion, give us the benefit of the doubt, and by the way, we’re already doing better and will continue to do better.

Then I learned that, in December, a supervising judge of the superior court had to take your office to task for repeatedly using a procedural tool to disqualify the trial judge from 94% of the murder cases that he’s been assigned to since he began scrutinizing your misconduct. That’s 46 out of 49 murder cases, sir. Your office never did that before, and this to a judge who’s among the more experienced, independent, and respected on the felony trial panel. (Full disclosure: I have a white-collar case pending before this judge.)

The supervising judge found that your office had violated the separation of powers under the state and federal constitutions, and he rightly called it an attempt to punish, silence, and intimidate the trial judge as well as send a signal to the rest of the bench. It’s a national story, and the Orange County Bar Association has taken a stand against it.

I’m wondering if you think this demonstrates good faith by an office whose mission is to “enhance public safety and welfare and create a sense of security in the community through the vigorous enforcement of [the] laws in a just, honest, efficient, and ethical manner.”

Sometimes, the right thing to do is take your lumps and stand down, but instead, your office has chosen to appeal the supervising judge’s order, taking the position that you did not direct your deputies to retaliate against the trial judge.

But either you directed them, sir, or you are not sufficiently in command of your office.

Which is it?

A House of Cards

That’s how the U.S. Supreme Court described the evidence in a murder case that it reversed last week because the prosecution had wrongly concealed other important evidence from the defense and jury.

Factor in that other evidence, the Court held, and the house begins to crumble.

How so?

There was no physical evidence tying the defendant to the murder, only the words of two inmates who were serving time for their own, unrelated cases.

The first inmate, Scott, was the one who first contacted the authorities to implicate the defendant nearly two years after the murder. His story had problems to begin with, but he subsequently gave five more statements, and the story would change each time. By the time he testified as the star witness at trial, his account bore little resemblance to the original version. Notably, he testified that another guy, Hutchinson, had run into the street, flagged down the victim’s car, pulled the victim from his car, and participated in the murder.

What the jury never heard was that Scott had a personal beef with the defendant that Scott had told another inmate about. That statement wasn’t produced at or before trial. Nor did the jury hear from another inmate who said Scott tried to coach him to lie about the defendant. That statement wasn’t produced, either. Nor did the jury get to see Hutchinson’s medical records, which would’ve shown that the man had undergone major knee surgery nine days before the muder. The surgery was to repair a ruptured patellar tendon, which meant that, nine days later, he barely would’ve been able to bend his knee. The prosecution had these medical records before trial, but they didn’t turn them over.

The other inmate, Brown, backed up Scott’s story at trial. Although he’d previously given an inconsistent statement to police, he said he decided to testify against the defendant because his sister knew the victim’s sister. He claimed his decision had nothing to do with helping himself. The prosecutor vouched for that in opening statements and closing arguments, saying there was no deal on the table and that Brown hadn’t asked for anything.

What the jury didn’t hear was that, in fact, Brown had twice sought a deal to reduce his sentence in exchange for testifying against the defendant, and the police had told him they would “talk to the D.A. if he told the truth.” The prosecution had those police notes in their possession, but they didn’t turn them over.

On appeal, the state courts ruled that, even if the defendant’s constitutional rights were violated, the errors were harmless.

But the Supreme Court was having none of that, and it summarily reversed the conviction.

The SEC Wants You to Self-Report

At a conference in November, the SEC’s Director of Enforcement, Andrew Ceresney, announced that, from now on, you must self-report violations of the Foreign Corrupt Practices Act if you want the Enforcement Division to recommend a non-prosecution or deferred-prosecution agreement. Even then, Mr. Ceresney warned, you may not get an NPA or DPA, but the Division won’t even consider it if you fail to self-report. To self-report, in other words, is now a necessary, threshold condition to negotiating an NPA or DPA.

On the heels of that announcement, last month, one company that had self-reported its FCPA violations was able to resolve civil and criminal charges on relatively favorable terms.

First, the company settled the civil SEC investigation that commenced after it reported that two of its subsidiaries were making improper payments to foreign officials to win business. The improper payments included non-business-related travel, gifts, and entertainment that totaled $1.5 million over five years. To settle the case, the company agreed to cease and desist from further violations and to surrender $14 million in profits.

Next, the company settled the parallel, criminal investigation by entering into an NPA with the Justice Department. The three-year NPA requires the company to pay $15 million in fines, improve its compliance program, and report on its progress to the government.

Finally, one of the company’s employees earned a three-year DPA of his own based on his substantial cooperation during the SEC investigation. It was the Commission’s first DPA with an individual in an FCPA case.

To be clear, self-reporting has long been a factor in the Commission’s framework for evaluating cooperation by people or businesses. Generally, the SEC will credit your cooperation based on how much you helped, how important the case was, how culpable you were personally, and how much of a threat you continue to pose.

But going forward, self-reporting appears to carry significantly more weight with the agency, at least in FCPA cases.


The Principles of Federal Prosecution of Business Organizations

They are the roadmap to a federal prosecutor’s discretion in charging your business with a crime. The why, when, and how. You can read them yourself on the Justice Department’s website. They apply to all business organizations: corporations, limited liability companies, partnerships, sole proprietorships, and even public entities, or anything in between.

Here are the highlights.

Generally, prosecutors should not treat businesses any more harshly or leniently than people, so they must consider the same things in their charging decisions as they do with individuals. These include the sufficiency of the evidence, the likelihood of success at trial, the probable deterrent effect of a conviction, and the adequacy of non-criminal remedies.

But the prosecution of businesses brings special considerations into play. The following nine illustrate those considerations but don’t exhaust them. Some may not apply to your case, and one factor may even override the others. But here they are.

  1. The nature and seriousness of the offense, including the risk of harm to the public and the Department’s priorities for particular categories of crimes. The Tax Division, for example, aims to prosecute people, rather than businesses, for corporate tax offenses. The Antitrust Division, to use another example, gives full cooperation credit only to the first cooperating business.
  2. The pervasiveness of misconduct within your business, including management’s complicity in it. The government will look at the number and kind of people with substantial authority who participated in, condoned, or stayed willfully blind to the misconduct. It may judge the pervasiveness of misconduct at your business as a whole or at one of its units.
  3. Your business’s history of similar misconduct in civil or criminal proceedings, which may include the history of any separate divisions, subsidiaries, or affiliates. Criminal prosecution is more likely if prosecutors believe your business has not responded adequately to prior warnings, charges, or sanctions.
  4. Your business’s timely, voluntary disclosure of facts from any internal investigation and its willingness to cooperate in the investigation of its agents, officers, directors, or employees, including senior executives. This was the crux of a policy memorandum issued earlier this month that emphasized the prosecution of the people through whom businesses act over just the entities themselves.
  5. The effectiveness of your business’s preexisting compliance program, if any, including how management enforces it.
  6. Your business’s remedial efforts to cooperate, pay restitution, discipline wrongdoers, or implement or improve a compliance program.
  7. The collateral consequences of prosecution, including any disproportionate harm to innocent investors, pensioners, employees, other third parties, or the public. Since every conviction of a person or business harms innocent third parties, the effect alone is not enough to ward off prosecution. But if the collateral consequences would be significant, the government may consider an alternative.
  8. The adequacy of any prosecutions of responsible individuals.
  9. The adequacy of alternative, civil or regulatory remedies.

Once prosecutors decide to charge your business, they will generally charge the most serious offense that’s likely to result in a sustainable conviction. Just like their cases against people, they will consider whether various possible charges fit the circumstances of your case, serve the ends of justice, and maximize the impact of federal resources. And just like their cases against people, they will then want a guilty plea to the most serious, readily-provable charge they filed. Their plea offer may impose substantial fines, restitution, compliance measures, court-appointed monitors, or regulatory exclusion, suspension, or debarment. And they will generally not accept your business’s guilty plea in return for cutting its officers or employees loose.

Individual Accountability for Corporate Wrongdoing

Another day, another collar, and another notable policy shift from the Justice Department.

Two weeks ago, it was the arguably-more-important decision to require search warrants before federal agents could use certain, mobile tracking-and-hacking devices in the field.

Last week, it was a policy memorandum that made a splash in the world of white-collar enforcement and defense. The policy was circulated internally on September 9 and unveiled publicly the next day in a speech by Deputy Attorney General Sally Yates.

Titled, Individual Accountability for Corporate Wrongdoing, the policy prioritizes and emphasizes the prosecution of people and not just business organizations. It applies to both the Department’s civil and criminal divisions, and it prescribes the following six points.

First, to receive even partial credit for cooperation, an organization must disclose all relevant facts regarding the individuals responsible, regardless of their position, status, or seniority. Cf. U.S.S.G. § 8C2.5, comment. (n. 13). Only once an organization does that does it become eligible for cooperation credit, and its failure to follow through and make good on that may trigger stipulated penalties or a material breach of its settlement agreement. The same goes for civil enforcement actions, including civil actions brought under the False Claims Act. See, e.g., 31 U.S.C. § 3729(a)(2) (defining cooperation sufficient to reduce the statutory penalties).

Second, the Department’s investigation of a business organization should focus on individuals from the beginning, because it helps prosecutors climb the organization’s ladder by flipping those on the lower rungs.

Third, attorneys in the civil and criminal divisions who handle such investigations should routinely talk to each other in order to maximize recoveries and take advantage of the full range of remedies available to the government—including imprisonment, fines, penalties, damages, restitution, forfeiture, and regulatory exclusion, suspension, or debarment.

Fourth, absent extraordinary circumstances or an approved policy, the Department will not agree to cut people loose from civil or criminal liability in order to resolve a case against their organization. When government lawyers resolve a case against a business, they should preserve their ability to pursue its officers or employees, and they should not agree to dismiss charges against, provide immunity for, or release civil claims against them. Or, if they do, the agreement must be approved by the appropriate United States Attorney or Assistant Attorney General.

Fifth, the department’s lawyers should not resolve a case against a business without a clear plan to resolve any related cases against individuals, and they should explain their decision to prosecute or decline such cases in a formal memorandum that must be approved by the relevant U.S. Attorney or Assistant Attorney General or their designee. Furthermore, if they reach a tolling agreement with the business to avoid blowing the statute of limitations, they should take care to resolve any individual cases before the statute runs or get tolling agreements there, too.

Sixth, the department’s civil division should consistently focus on people as well as businesses, and its lawyers should consider suing culpable individuals in order to punish and deter wrongdoing, even when they may not be able to pay a large judgment.

The memorandum closes by directing all components to incorporate these points into their everyday work, beginning with a training conference tomorrow in Washington, D.C.

But You Promised!

File this one under, #CallYourLawyerFirst.

Two weeks ago, a federal court of appeals reversed a man’s conviction for mortgage fraud and ordered the case dismissed because the government had broken its promise not to prosecute him in exchange for his cooperation.

The case presents a strange but interesting set of facts.

From 2006 to 2007, the man worked for a real-estate firm that came to be investigated for mortgage fraud. In November 2007, he and his girlfriend, who also worked at the firm, actually contacted the FBI on their own to provide information about the company.

Four months later, the couple was formally interviewed by the government, and at the end of the interview, the man expressed concern about their own legal exposure, but the prosecutor assured them that they wouldn’t be prosecuted as long as they cooperated.

Fast-forward to February 2011: The government had indicted the owners of the real-estate firm and was preparing for trial. The prosecutor called the man to go over his testimony, and they were joined on the call by another prosecutor and an FBI agent. The call lasted an hour, and the agent prepared a report on it. Then the trial got postponed for unrelated reasons, and ultimately, the man wasn’t called on to testify in it.

But six months later, the other shoe dropped; in August, the man received a target letter from the government telling him that he was next. He hired a lawyer at that point, but negotiations failed, and he was indicted, too. All the while, the government never mentioned the immunity deal to his lawyer, but neither did the defendant, apparently, and it’s not clear why. Perhaps he simply didn’t understand the situation, or perhaps he was trying to protect his girlfriend, who testified in the main case later that year and was never prosecuted.

Now fast-forward to March 2013 and the defendant’s own trial. His girlfriend took the stand as a witness, and she testified to the prosecutor’s promise to them. That surprised the man’s defense lawyer, who promptly filed a motion to dismiss the indictment (after picking up his jaw from the floor, probably), and the court suspended the trial to hear the motion.

At the hearing, the government acknowledged the immunity deal but argued that the defendant had breached it by not continuing to cooperate. Both prosecutors testified that they issued the August target letter because they had called the defendant again in July 2011, but unlike in February 2011, he was suddenly uncooperative.

There was one problem, though: the August letter didn’t refer to any July call. Nor did it refer to any other failure to cooperate or otherwise explain why the government now considered the defendant a target. The defendant denied that a July call even took place.

The prosecutors’ story was suspect for other reasons as well. They testified they made the July call from a conference room in the U.S. Attorney’s office, but they couldn’t produce any notes, logs, or records of the call. They testified they called the defendant at the same phone number they had from his prior interviews, but they couldn’t point to any logs or records on that end, either. They testified that an FBI agent was present for the call, but they couldn’t recall which one it was, except for one who testified that he couldn’t remember such a call.

Despite all that, the trial court denied the defendant’s motion to dismiss and let the trial resume, whereupon he was convicted.

But the court of appeal reversed the case because the government hadn’t proven any breach of the immunity deal, given that the prosecutors’ testimony was directly contradicted by the phone records, and there was a total absence of other notes, logs, or records to support their version of the facts. The court offered to send the case back for an evidentiary hearing to help sort things out, but the government liked that idea even less, so the court dismissed the case.

Get it in writing, then, or better yet, call your lawyer first.

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