how to respond when the government comes …...3/31/2015 1 how to respond when the government comes...

3/31/2015

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How to Respond When the Government Comes Knocking?

A Primer for Inspections,Subpoenas, and Search Warrants

Overview of Presentation

• Understanding the Enforcement Mindset– A Peak Inside the Regulator’s/Prosecutor’s Playbook

• A Quick Review of the Government’s Toolbox– What Tools Can Be Used and Why?

• Inspections

• Grand Jury/HIPPA Subpoenas

• Search Warrant

• How To Respond at Each Phase– Checklists?

• Some Case Studies on How Things Can (or Did) Go Wrong

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Setting the Stage: Understanding the Enforcement Mindset

• What is the Role of Governmental Enforcement?

• What are the Goals?– Deterrence – Specific & General

– “Proportional Punishment”

• How Many Organizations are Regulated?

• What about Budget Constraints?

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Setting the Stage: Understanding the Enforcement Mindset

• What Types of Enforcement Can Be Brought?– “Spears”

• Adminstrative?

• Civil Action?

• Criminal

• Debarment?

• When to Use?

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Analogy: Calling Balls & Strikes; Criminal/Civil

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But Who Makes that “Call?”

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Broad Enforcement Discretion

What conduct should be punished / prosecuted?

----- Higher Standard

----- Low Threshold

What conduct can be prosecuted?

Zone of Discretion

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Measuring Corporate “Culture”

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What you say?

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What you resources do you allocate ?

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What you measure consistently?

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Focus of Prosecutor's Review (Relative to Incident)

During

After

Before

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Influencing the Three Phases of a Prosecutor’s Review

Befo

re/P

reve

ntio

n“Effective” Compliance & Self-Governance• What is

Declared?• What is

Done?• Funded• Measured Du

ring

Inci

dent

Cooperation

”Responsible Triage”

Litigation Hold

Internal Investigation

Afte

r/Re

activ

e

Remediation• Prompt• Voluntary

Compliance Improvements• Prevent

Recurrence

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The Playbook (Prosecutorial Policies): USAM

• USAM 9-27.300 expresses the

principle that the defendant

should be charged with the

most serious offense that is

encompassed by his/her

conduct and that is readily

provable.

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Key Theme of Playbook: Spears & Shields

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Criminal Enforcement Policies that Set the Parameters for Prosecutorial Discretion: Civil vs. Criminal?

• Internal Standards• DOJ

HHS

• U.S. Attorneys Manual• General/Individuals• Factors to Consider in

Charging Corporations

DOJ

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And Last, But Not Least . . . The Advisory Sentencing Guidelines for Healthcare Fraud

Primary Factors To Consider:

• Loss / Ill-Gotten Gains

• Significant Disruption of Governmental Function

• Abuse of Position of Trust

• Paperwork Concealment/Cover-up?

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Healthcare Fraud “Spears”

Violation Related:

• Extreme Degrees

• Long Duration of Violations

• History of Repeated Violations

• Clarity of Standards/Regs/Law

• Economic Benefits from Violations – (Ill-Gotten Gains or Cost Savings)

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Other “Spears”

“Lying & Cheating” Facts:

• False Statements– Certifications

– During Investigation

• Concealment

• Failure to Report

• Obstruction

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Other “Spears”

Miscellaneous Facts:

• Overly Adversarial or Delayed Response to Government Investigation

• Lack of Remediation / Corrective Action

• Pervasive Involvement of Executives, Management & Employees

• Clear Evidence of Intent / Knowledge– Repeated Past Violations

– “Smoking Gun” emails

– Insider testimony

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The Shield: Specific Factors That Decrease Likelihood of Prosecution

Compliance/Good Corporate Citizenship:

• Strong Record of Documented & Effective Compliance

• Minimal History of Non-Compliance

• Past Record of Auditing

• Self-Reporting of Violations

• True Lone Wolf/Rogue Employee

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Compliance/Good Corporate Citizenship:

• Strong Support from State Regulators– Good Corporate Reputation

• Complete & Early Cooperation During Government Investigation

• Remediation / Corrective Measures

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Violation-Related Facts:

• Ambiguous, Vague or Overly Complex Regs/Standards/Law

• Limited Economic Motive @ Violations

• Absence of “Lying Cheating” Factors

• Agency “Condonation” or Awareness of Prior Violations

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Criminal Enforcement Policies on Charging Corporations: Core ThemesFactors To Be Considered:

• Pervasiveness of Wrongdoing in Company

• Timely and Voluntary Disclosure of Wrongdoing

• Willingness to Cooperate in Investigation

• Existence & Effectiveness of Pre-Existing Compliance Program

• Remedial Actions Taken Post Violation

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Criminal Enforcement Policies on Charging Corporations: Core Themes

Factors To Be Considered:

• Collateral Consequences Arising From Prosecuting the Company

• Adequacy of Prosecuting Responsible Individuals (“Bad Apples” vs. Orchard)

• Adequacy of Civil/Regulatory Enforcement Against the Company

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Common Reasons for Declinations in Healthcare Fraud Criminal Cases

• Strong/Robust Compliance Program

• Strong Compliance History

• Self-Detection of Potential Violation

• Prompt Initiation of Internal Investigation

• Self-Reporting to Government

• Promptly Terminating/Disciplining the Relevant Employee(s)

• Rogue Employee

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Common Reasons for Declinations in Healthcare Fraud Criminal Cases

• Full and Meaningful Cooperation with the Government Investigation

• Implementing Comprehensive Remediation to Address the Root Cause of Violations/Problem

• Voluntary & Timely Improvements to Existing Compliance Programs

• Overly Technical/Unclear Regulations

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Investigative Tools Used in Criminal Health Care Fraud Investigations

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Voluntary Interviews

• Patient victims

• Whistleblowers

• Relevant medical personnel

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Access Requests

• Billing Data from CMS

• Medicare Enrollment data

from CMS

• Reports of internal

investigations from CMS

contractors

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The Government Is Watching YOU• Surveillance: (no court

intervention)

– Consensual Recordings

– Observations in Public Space

• Surveillance: (Court

Intervention)

– GPS Tracking Devices

– Pen Registers/Trap and Trace

– Pole Cameras

– Title III Wiretaps

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Next Up . . .

• When the Other Shoe Drops

– Grand Jury/HIPPA Subpoenas

– Search Warrants

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Compulsory Process (Criminal )

• Grand Jury Subpoena

– Documents

– Testimony

• HIPPA Subpoena

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Grand Jury/HIPPA Subpoenas

• Not addressing civil subpoenas – many distinctions.

• Different from subpoena to testify at trial.

• Can be used for both testimony and documents.

• Focus on documents: scenario corporate counsel will encounter most frequently.

• Preparing a written subpoena response plan with input from outside counsel and management now will minimize mistakes, expenses, and negative publicity later.

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Intro: Purpose of the Subpoena

• Secure documents and physical evidence.– duces tecum.

– “A subpoena may order the witness to produce any books, papers, documents, data, or other objects the subpoena designates.” Fed. R. Crim. P. 17(c)(1).

• And secure testimony.– ad testificandum. Fed. R. Crim. P. 17(a).

• Broader than civil equivalent.– Can be served “at any place within the United States” – less option

to quash for procedural/ venue problems.

• Fed. R. Crim. P. 17(e)(1).

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Your Initial Subpoena Review

• When you receive the

subpoena, whether focused

on documents or testimony,

develop an action plan:

– Contact the Law Department

– Carefully Review the

Subpoena

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Note on: Subpoena Ad Testificandum

• Initial questions unique to

those subpoenas that seek

testimony:

• Whose testimony is sought?

– Executive/Management?

– Employee?

• Need for separate

representation?

– Employee with conflict

– Fact witness

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Focus: DocumentsThe Subpoena Duces Tecum

• Initial review of subpoena to determine scope– Date range

– Type of documents

– Cost/feasibility of compliance

– Deadline?

• Review for indications of allegations/potential crimes

• Determine whether grounds to challenge.

• Start considering whether compliance is better strategic option, even where challenge grounds exist.

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Subpoena Duces Tecum

• Caution: penalties for improper response. – Avoid “game-playing” that is prevalent in some civil discovery.

• Contact experienced counsel• Immediately suspend regular document destruction - even if

consistent with document retention policies• Memorialize all steps & decisions in written memorandum.• Notify some employees / control group

– Do not discuss the subpoena or any aspect of the investigation with all employees.

• Remember: You’ll be better off if you have prepared a response protocol in anticipation of subpoena.

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Your Subpoena Response Plan

• Keep on hand in case of emergencies and refresh periodically.

• Should contain:– A copy of the company’s document retention policy.

– A contact list: key executives who need to know, go-to outside counsel, responsible IT person; custodian of records.

– Draft of memo to responsible employees with instructions regarding preservation of electronic and hard copy documents.

– A plan for ensuring that all versions of electronic documents, in particular, are secured.

– A directory of where key general categories of documents are stored and likely to be located.

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Initial Telephone Call• Call prosecutor:

– Discuss role of company, individuals.

• Witness, subject, or target?

– If for documents . . .

• Discuss subpoena to ensure you understand requests, resolve any questions, and narrow or define scope as appropriate.

• You know company and documents/subject matter better than requester;create mutual goodwill/ relationship through this conversation.

• Offer to keep dialogue open and avoid adversarial approach.– Ability to personally address production and compliance issues on will

save time and resources and avert unintended consequences

– Assess where documents are to be produced and whether/ when an executive will need to testify. Usually can defer until after agent review.

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Document Search, Review & Production Process

• Retrieve & follow the plan you already prepared.

• Plan & supervise & document “process”– Keys:

• What dox are produced?

• What process was followed?

– Even – especially – document search efforts that reveal no docs

• Designate a point person to be “custodian of records.”– Custodian should be prepared to testify about the steps taken to

gather information for the subpoena

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Document Search, Review & Production

• Which documents are “responsive?”

• Which responsive documents are privileged?– Create a decision log and a privilege log

• “Bate-stamp” and keep copy of all that is produced– Note, you generally will produce originals, unlike in civil litigation.

• Types of Privileges:– Attorney Client / Work Product

– 5th Amendment

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Privileged Documents

• Avoid inadvertent waivers of

attorney-client privilege.

• Certain disclosures can be

viewed as corporate

admissions.

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Attorney-Client Privilege

• Protects confidential communications between client seeking legal advice and his attorney.

• Can be waived:– By corporate management

– By disclosure outside of a privileged relationship.

• Includes voluntary disclosure to third party.

• Includes disclosure at the request of a government agency.

• Includes inadvertent disclosures (where reasonable precautions to prevent were not taken)

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Work Product Privilege

• Protects documents prepared for trial or “in anticipation of litigation .”

• Can also be waived by voluntary disclosure.

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Search Warrants

• Physical Premises

• Internet-based e-mail

accounts

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Search Warrant Response

• As with subpoena response, plan now.

• Particularly important because there is typically less lead time than for subpoena response.

• FBI and others may appear unexpectedly.

• Our analysis focuses on federal procedure, not state procedure.– Substantially similar, but differences may exist.

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Search Warrant Response

• Increasing reliance on search warrants as a tool in business crimes– Investigations vs. issuing subpoenas

– Government’s key advantage:

• SURPRISE & CONTROL

• “knock and announce rule”

– 4th Cir. exceptions – danger or imminent evidence destruction.

• Focus of government’s search = – Not just documents

– but all “instrumentalities of crime”

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Warrant versus Consent

• Recent trend: agents appear without warrant and request documents and consent waiver.– Pros:

• Ability to work with agents to narrow and define scope.– Physical scope and subject matter scope.

• Goodwill.• Agents quickly in and out.

– Cons:• No need for government to make showings that are in place to protect

you.– E.g., probable cause showing for magistrate.

• Easier path to potentially incriminating documents.

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Search Warrants Background

• All searches and seizures are

governed by the Fourth

Amendment’s:

– Prohibition against

unreasonable searches and

seizures; and

– Requirement the warrants to

conduct searches be

supported by “probable

cause.”

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Search Warrants Ground Rules

• Search Warrants Obtained from a U.S. Magistrate Judge

• Can be completely based upon hearsay evidence.

• Company does not even have to be a “Target” to be searched.

• Search must occur within 10 days of the warrant being issued, between 6AM-10PM

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Search Warrants

• Government has legal leverage during execution of search

• Number of agents varies (2-50)

• No need for company or employees to display “cowboy”mentality:– Be professional & courteous

• Best Advice:– Advance planning & organized response

• Establish internal procedures & search response plan

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Advance Planning: Overall Goals

• Improve “crisis” management:– Demystify “searches”– Prepare company representatives

• Protect legal interests of company and personnel• Respond appropriately & legally --

– Not doing whatever the government requests• Convey “good corporate” image• Be prepared to respond to press.

– Not “no comment”– Emphasize a few key points only.– More on this later

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Overall Goals

• Get the government what it is

entitled to take or review as

quickly as possible --- and get

the agents out.

• Minimize disruptive impact of

search to ongoing business

operations

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Action Steps During Search

• Request agents’ credentials & copy of the warrant (and supporting affidavit - if unsealed)

• Provide agents with company memorandum re: search

• Request meeting with agents to discuss ways to minimize disruption with ongoing operations (floor plans, organizational charts, etc.).

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Company Search Memo

• Company’s memorandum re: search should state that company:– Objects & does not consent to search;

– BUT - Is willing to cooperate;

– Is represented by counsel;

– Requests opportunity to confer with counsel prior to search; and

– Requests all inquiries during search be directed to company search coordinators, ideally counsel only - not employees.

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Action Steps During Search

• Carefully review warrant for:– accuracy of information;

– particularity of search limits; and

– nature of alleged violations

• Typical “Defects:”– Name/Address of company

– Beyond deadline

• Pay close attention to scope of warrant -- i.e., “places to be searched and items to be seized.”

• Limit search to those areas specifically designated in warrant.

• Do not consent to or allow agents to exceed limits and conduct an “expanded” search.

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Actions Steps During Search

• Identify legally protected/privileged files– If dispute arises - segregate & submit to magistrate “in camera.”

• Accompany agents & carefully monitor and record all aspects of search.– (i.e., conduct, statements, questions, requests, attitude).

• If agents Refuse to allow company to accompany them -- seek order from magistrate.

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Handling Employees During Search:

• Alert employees that search is occurring (by e-mail or memo);

• Instruct employees to direct all questions from agents to company’s search coordinator or legal counsel;

• Provide employees with an overview of their rights (gov’t usually does not);

• Avoid even appearance of obstruction;

• Instruct employees to refer all media questions to designated individual.

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Employee’s Rights During Search:

• Employees are under no legal obligation to talk to the agents -their choice;

• Employees have a right to consult with an attorney;

• Company may provide counsel

• In many circumstances, employees should be sent home (after being advised of their rights)

• Where employees consent to be interviewed, try to be present during the interview and take detailed notes on both:– Questions asked; and

– Answers given.

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After the Smoke Clears:

• Information is power

• Gather all facts surrounding

the allegations/investigation

• The good, the bad, and the

ugly

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Post-Search: Info to Obtain

• Request copy of search receipt / inventory (list of items taken). See Rule 41(f)(3).

• Request copies of all items seized.– If Request is refused - file Rule 41(f)(4) Motion.

• Obtain copy of “return” filed with court.

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Post-Search: Debriefing

• Immediately and thoroughly debrief all employees who consented to interview (if you were not present)

• Important insight into basis for investigation & positions you to better anticipate allegations

• Summarize all interviews into written memoranda.

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Post Search: Dealing With the Media• Only counsel should talk to media, with rare exceptions.

• “No comment” usually plays as “we’re guilty!”

• Since the search will attract media, prepare your brief remarks carefullyTypical Initial Remarks:– Preliminary nature of investigation;

– Company’s willingness to cooperate;

– Company’s own efforts to investigate and gather reliable facts; and

– Other positive/accurate aspects of company

• Beyond this is dangerous. – LESS IS MORE.

– Minimize statements that press or authorities can later characterize as inconsistent with facts.

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Post-Search: Call to Prosecutor

• Counsel Must Initiate Communication with Federal Prosecutor to gather additional information (i.e., nature of investigation; targets, etc.).

• Goal of call is to foster similar dialogue regarding similar issues to call in subpoena response context.

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Post-Search: Internal Investigation?

Most Important Task:Assess need to conduct privileged internal investigation:

– Interviews

– Document Review & Summary

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When Bad Turns to Worse . . . Some Lessons Learned

Framed in Context of Each

Phase We Previously Discussed:

• Before Trouble Hits

• During “Encounters”

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Mistakes Made Before Trouble Hits

• Poor Reputation

• Past “Friction” with Regulators

• Deficient Compliance Program

• Disgruntled Employees

• History of Past Violations/Fines

• Prior Audits with No Follow-Thru

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Mistakes Made During “Encounters”

• Bad Attitude– Adversarial

– Defensive

• Non-Responsive or Delays

• Seeking Out / Retaliating Against Whistleblower

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Mistakes Made During Subpoenas

• Incomplete

• Inaccurate / False

• No Documentation of Process

• No Credibility

• Untimely

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Mistakes Made During Search Warrant

• No Prior Planning/Training

• “Cowboy” Mentality

• Consent to Expand Search

• Waiver of Privilege

• Lack of Monitoring

• Failure to Initiate Internal Inv.

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Significance of an Organization’s Culpability Score§8C2.5. Culpability Score

• Start with 5 points.

• Involvement in or Tolerance of Criminal Activity

If more than one applies, use the greatest:

• If --– the organization had 5,000 or more employees and

• an individual within high-level personnel of the organization participated in, condoned, or was willfully ignorant of the offense; or

• tolerance of the offense by substantial authority personnel was pervasive throughout the organization; or

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It’s in the “math”…. (continued)– the unit of the organization within which the offense was committed

had 5,000 or more employees and

• an individual within high-level personnel of the unit participated in, condoned, or was willfully ignorant of the offense; or

• tolerance of the offense by substantial authority personnel was pervasive throughout such unit,

add 5 points; or

• If --– the organization had 1,000 or more employees and



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It’s in the “math”…. (continued)– the unit of the organization within which the offense was

committed had 1,000 or more employees and



add 4 points; or

• If --– the organization had 200 or more employees and



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It’s in the “math”…. (continued)– the unit of the organization within which the offense was

committed had 200 or more employees and



add 3 points; or

• If the organization had 50 or more employees and an individual within substantial authority personnel participated in, condoned, or was willfully ignorant of the offense, add 2 points; or

• If the organization had 10 or more employees and an individual within substantial authority personnel participated in, condoned, or was willfully ignorant of the offense, add 1 point.

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It’s in the “math”…. (continued)

• Prior History

If more than one applies, use the greater:

• If the organization (or separately managed line of business) committed any part of the instant offense less than 10 years after (A) a criminal adjudication based on similar misconduct; or (B) civil or administrative adjudication(s) based on two or more separate instances of similar misconduct, add 1 point; or

• If the organization (or separately managed line of business) committed any part of the instant offense less than 5 years after (A) a criminal adjudication based on similar misconduct; or (B) civil or administrative adjudication(s) based on two or more separate instances of similar misconduct, add 2 points.

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An “effective compliance program” can reduce culpability points and that can lower the potential ‘punishment’ of an organization • Can you demonstrate your program’s effectiveness?

– did it’s design help detect the issue

– did the organization self-report

– did the organization “cooperate” in the government’s investigation

• U. S. Federal Sentencing Guidelines - §8B2.1– “7 elements” of an “effective compliance program”

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§8C2.5 (f) Effective Compliance and Ethics Program

• If the offense occurred even though the organization had in place at the time of the offense an effective compliance and ethics program, as provided in §8B2.1 (Effective Compliance and Ethics Program), subtract 3 points.

• Subsection (f)(1) shall not apply if, after becoming aware of an offense, the organization unreasonably delayed reporting the offense to appropriate governmental authorities.– Except as provided in subparagraphs (B) and (C), subsection (f)(1)

shall not apply if an individual within high-level personnel of the organization, a person within high-level personnel of the unit of the organization within which the offense was committed where the unit had 200 or more employees, or an individual described in §8B2.1(b)(2)(B) or (C), participated in, condoned, or was willfully ignorant of the offense.

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Effective Compliance and Ethics Program (cont'd)

– There is a rebuttable presumption, for purposes of subsection (f)(1), that the organization did not have an effective compliance and ethics program if an individual—

• within high-level personnel of a small organization; or

• within substantial authority personnel, but not within high-level personnel, of any organization, participated in, condoned, or was willfully ignorant of, the offense.

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Effective Compliance and Ethics Program (cont'd)Self-Reporting, Cooperation, and Acceptance of Responsibility

If more than one applies, use the greatest:

• If the organization (A) prior to an imminent threat of disclosure or government investigation; and (B) within a reasonably prompt time after becoming aware of the offense, reported the offense to appropriate governmental authorities, fully cooperated in the investigation, and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, subtract 5 points; or

• If the organization fully cooperated in the investigation and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, subtract 2 points; or

• If the organization clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct, subtract 1 point.

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§8C2.6. Minimum and Maximum Multipliers• Using the culpability score from §8C2.5 (Culpability Score) and

applying any applicable special instruction for fines in Chapter Two, determine the applicable minimum and maximum fine multipliers from the table below.

Culpability Score Minimum Multiplier Maximum Multiplier10 or more 2.00 4.00

9 1.80 3.608 1.60 3.207 1.40 2.806 1.20 2.405 1.00 2.004 0.80 1.603 0.60 1.202 0.40 0.801 0.20 0.40

0 or less 0.05 0.2082

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Multipliers Matter

• Actual loss of “False Claims” - $1,000,000

• Culpability Score – 8 [ add 5 base points + 3 points for organization with > 200 - <1,000 employees]

• 1.6 – 3.2 multiplier can be applied to loss amount

• OR

• Culpability Score – 3 [8 is reduced by 3 points because of the existence of an ‘effective compliance program and by 5 points because the organization detected the issue and self-reported]

• 0.6 x 1.2 multiplier can be applied to loss amount

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