On May 20, 2020, panelists from the DOJ, SEC, and FBI participated in a virtual town hall to discuss the state of play of FCPA and healthcare fraud enforcement as the United States and the rest of the world navigate the wide-ranging challenges wrought by the COVID-19 pandemic.
Government panelists included:
- Robert Zink (Chief of the Fraud Section, Criminal Division, DOJ);
- Daniel Kahn (current Senior Deputy Chief of the Fraud Section, and former FCPA Unit Chief, DOJ);
- Joe Beemsterboer (current Senior Deputy Chief of the Fraud Section, and former Chief of the Health Care Fraud Unit, DOJ);
- Charles Cain (Chief of the FCPA Unit of the SEC’s Division of Enforcement); and
- Leslie Bakschies (Unit Chief at the FBI).
Key takeaways from the town hall discussion include:
- Government investigations and multi-lateral cooperation continue, supported by remote investigative tools. All of the panelists confirmed that both ongoing and new investigations continue. The US Government, like private companies, has been affected by COVID-19-related travel restrictions, shutdowns (including of courts in some districts, delaying trials and grand juries), and other remote-work constraints. But panelists emphasized that they are able to continue much of their investigative work. This includes, for example, issuing subpoenas and other document requests, reviewing document submissions, and communicating with counsel. Ms. Bakschies noted that the FBI is also obtaining search and arrest warrants through remote conferences with judges, and finding other “creative ways” around impediments. The agencies also continue to collaborate with their counterparts outside the United States to move forward, de-conflict, and resolve cases.
The panelists acknowledged that some investigative practices are impractical right now, and that they did not expect companies to put their employees in unsafe positions. For example, they likely would not request that employees based overseas fly to the United States for witness interviews while stay-at-home orders are still in place. But interviews and proffers via phone and teleconference are occurring. Mr. Kahn noted that a lawyer may either be in the same room with a client and social distancing, or they may be on separate lines with opportunities to confer privately. Interviews of particularly important witnesses may be postponed until an in-person meeting is feasible.
- Companies should be prepared to explain any obstacles to timely cooperation. The panelists acknowledged that companies are operating in difficult and unprecedented circumstances. Although they will not accept the pandemic as a blanket explanation for failing to cooperate and comply timely with requests, the panelists stated that they would consider on a case-by-case basis the facts and circumstances surrounding any requests for additional time. Companies should, therefore, be prepared to explain the legitimate reasons for any such requests.
- Similarly, companies should be prepared to explain any COVID-19-related impact on their compliance programs. Stay-at-home orders and travel restrictions can affect companies’ compliance activities, including their ability to carry out on-the-ground compliance risk assessments, audits, internal investigations, due diligence, and training. Likewise, furloughs or budget constraints may adversely affect compliance programs. Panelists acknowledged these challenges, as well as that companies may need to shift their focus away from less risky areas for testing and will not be able to do everything all at once. While expressing their expectation that the DOJ and SEC would be reasonable in evaluating these situations, the panelists also said they would expect reasoned explanations for decisions leading to fewer compliance measures. They also will want to understand what steps a company has taken in an effort to ensure it met its legal and compliance obligations.
- Companies are expected to review their policies and internal controls. Given the unprecedented times, the panelists expressed an expectation that companies evaluate their compliance programs to determine if they are adequate to address evolving risks. Zink noted that, while the pandemic has caused a slowdown in the DOJ’s work, it is using the opportunity to review its policies and controls and provide training. On the assumption that companies also might be experiencing a slowdown in their normal operations, he expressed an expectation that companies evaluate the effectiveness of their policies and controls and provide training during this period as well.
- Companies should identify and address areas of heightened FCPA risks created by COVID-19-related circumstances. Panelists suggested that, apart from the normal FCPA risks associated with a company’s business, companies should consider whether there are different or additional risks created by the pandemic that need to be addressed. For example, Ms. Bakschies noted risks that pressure to meet numbers can create when there are restrictions on travel by sales personnel, such as risks surrounding foreign agents trying to drum up business. Cain suggested that companies consider how the current situation might be affecting the nature and extent of their government interactions and how they go to market, and to focus attention on areas of heightened risk. Mr. Kahn noted the risk that companies could pay bribes to get into an earlier phase of re-opening or to ease restrictions on production or sales of products.
- FCPA enforcement authorities will consider COVID-related circumstances when assessing a company’s compliance efforts and determining whether an FCPA violation has occurred. The panelists repeatedly emphasized that these were extraordinary times and that they would not discount the current circumstances when assessing a company’s compliance efforts and making charging decisions. As an example, Mr. Kahn noted that, if assessing whether a payment to a customs official is an FCPA violation, he would look at the facts and circumstances surrounding the incident. For instance, if an employee paid a customs official in connection with bringing personal protective equipment into a country, then the “corrupt intent” element of the FCPA might not be met if the payment was deemed to have been made for the purpose of protecting the health and safety of the company’s workers. Similarly, as companies face disruptions to corporate supply chains and the need to find new partners quickly, FCPA enforcement authorities will need to understand if there is a legitimate reason that due diligence cannot be as robust as normal and what steps a company is taking to try to meet its legal and compliance obligations.
- COVID-19-related health care fraud schemes are a current enforcement focus of the DOJ’s Health Care Fraud Unit. Beemsterboer explained that DOJ’s Health Care Fraud Unit was still focused on the core issues identified before the pandemic—1) traditional health care fraud, and 2) illegal prescription of opioids—but that COVID-19-related fraud schemes are overlaying those core issues and are a current enforcement priority.
- Enforcement authorities also are focused on securities violations, as well as fraud under COVID-related relief programs. The panelists noted that the current environment is “ripe” for securities violations and market manipulation. Authorities will be carefully monitoring market activity, the timing of trades, and whether companies are appropriately establishing and policing black-out periods. The panelists also expect there to be fraud under the paycheck protection program and other CARES Act funding programs. This will give rise both to civil False Claims Act matters, as well as criminal investigations and prosecutions. (Steptoe has described these CARES Act programs and related investigation and enforcement risks, including for both borrowers and lenders, in a series of advisories available on our COVID-19 Resource Center.) Within the DOJ, the Market Integrity and Major Frauds Unit (MIMF)—which focuses on the prosecution of complex securities, commodities, and other financial fraud cases, including government procurement fraud, working closely with the SEC, CFTC, and other regulatory partners—will be actively pursuing fraud activity related to the pandemic.