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Foreign bribes made by U.S. companies to foreign officials or their relatives to get business  is a major focus of prosecutions by the Department of Justice—including bribes to Russian and Chinese officials. Prosecutions also include foreign corporations trading on a U.S. stock exchange.  The penalties are getting larger and more cases are being generated by whistleblowers with inside information on their employers. For example, last year, Teva Pharmaceutical a global generic drug maker paid $519 million to settle charges that it bribed officials in Russia, the Ukraine and in Mexico. The same year, Braskem S.A. the Brazilian based petrochemical maker paid $957 million for hiding millions of dollars in illicit bribes paid to the Brazilian government officials to win business. Bribes of foreign officials violates the Foreign Corrupt Practices Act (FCPA).Mount Sunapee lease holder Och-Ziff pays $413 million to settle foreign bribes concerning African diamonds and mining rights

Now, there is an additional target for foreign bribes; the foreign officials who take or arrange the bribes often in the form of wire transfers. While the Forieg Corrupt Practices Act (FCPA) does not apply to the bribe recipient, there are many other laws which are being used against them, including wire and mail fraud. In July of this year, federal prosecutors here were successful in prosecuting a South Korean government official when he was found guilty of laundering bribery proceeds in the United States. In this case, the official who was the Director of South Korea’s Earthquake Research Center was said to have demanded over one million dollars in bribe payments from two companies in exchange for providing them with business in Korea. This was the second prosecution this year of a foreign official for taking a bribe and laundering it here. The first involved a former Minister of Mines and Geology of the Republic of Guinea who was convicted by a federal jury in a scheme of laundering bribes paid to him by a Chinese fund.

While previously it was only the company  paying the bribes that was pursued by the S.E.C. or D.O.J..  That has now changed. The interesting question is what will this mean for doing business in Russia and China where the official taking the bribe may find themselves in court in the United States, when there is jurisdiction for prosecution due to wire transfers or sending the funds back to the U.S.? Over the past ten years, there have been scores of settlements arising from foreign bribes by U.S. companies in Russia, China, Mexico and elswhere. In the case of Russia, recent press reports have suggested that many bribes paid in Russia may be indirectly tied to Russian President Vladimir Putin through his friends and business associates. See The “Panama Papers”.Panama Papers still revealing on Sergei Roldugin and the secrets of Putin wealth

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According to Bloomberg news today, two whistleblowers are about to reap a $61 million reward from the Securities and Exchange Commission for assisting the agency in proving that JP Morgan & Chase failed to disclose to wealthy clients that it was directing them to investments that were most profitable for JP Morgan. SEC letters issued Wednesday telling six whistleblower applicants of a preliminary decision. It said two would share almost one quarter of the record settlement which the SEC had reached with the bank in December of 2015.JP Morgan has agreed to pay $307 million.

Under the SEC whistleblower program, the names of whistleblowers are not revealed. Part of the payment will go to the Commodity Futures Trading Commission (CFTC) which operates a separate whistleblower program. The CFTC has not made any whistleblower award determination in the JO MOrgan case, which means the whistleblower may receive even more moneys as a CFTC reward.

JP Morgan admitted disclosure failures from 2008-2013 relating to two units-its securities division and its nationally chartered bank. The reward is expected to be the largest to date awarded to a SEC whistleblower.

There is a constant drumbeat of daily news about Russia and investigations of possible collusion to fix the election. Also,  following the release of the “Panama Papers” stories about Russian corruption and offshore moneys leading  to friends of Vladimir Putin added to the fuel of interest in the Russian way of business. As a result, independent Counsel Robert Mueller will have lots of leads from the information previously released by the investigative media which may connect to his  investigation of meetings by election officials with Russian representatives.

Interestingly, a large number of U.S. companies not only still do business in Russia, but they own subsidiary companies there and those companies are doing quite well. However, a look at cases investigated and settled by either the Securities and Exchange Commission (SEC) or the Department of Justice (DOJ) reveals that many of the companies doing business in Russia are settling cases alleging that they have been paying substantial bribes to government officials in violation of the Foreign Corrupt Practices Act (FCPA). Also, there is another trend and that is that whistleblowers, seeking the allowed 15-30% reward of what the U.S. recovers are bringing forth cases under the False Claims Act (FCA) allowing for citizens or non-citizens to file cases on behalf of the government when they reveal new info not known by the Government. Because the whistleblowers are insiders with detailed information, often presenting supportive emails and document to corroborate their cases, the fact of cases alleging bribes to Russian officials is no longer uncommon.

What companies have settled such cases in recent years?

 

 

Largest Health Care Fraud Enforcement Action in Department of Justice History

 

WASHINGTON – Attorney General Jeff Sessions and Department of Health and Human Services (HHS) Secretary Tom Price, M.D., announced today the largest ever health care fraud enforcement action by the Medicare Fraud Strike Force, involving 412 charged defendants across 41 federal districts, including 115 doctors, nurses and other licensed medical professionals,for their alleged participation in health care fraud schemes involving approximately $1.3 billion in false billings. Of those charged, over 120 defendants, including doctors, were charged for their roles in prescribing and distributing opioids and other dangerous narcotics. Thirty state Medicaid Fraud Control Units also participated in today’s arrests. In addition, HHS has initiated suspension actions against 295 providers, including doctors, nurses and pharmacists. Attorney General Sessions and Secretary Price were joined in the announcement by Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting Director Andrew McCabe of the FBI, Acting Administrator Chuck Rosenberg of the Drug Enforcement Administration (DEA), Inspector General Daniel Levinson of the HHS Office of Inspector General (OIG), Chief Don Fort of IRS Criminal Investigation, Administrator Seema Verma of the Centers for Medicare and Medicaid Services (CMS), and Deputy Director Kelly P. Mayo of the Defense Criminal Investigative Service (DCIS).According to court documents, the defendants allegedly participated in schemes to submit claims to Medicare, Medicaid and TRICARE for treatments that were medically unnecessary and often never provided. In many cases, patient recruiters, beneficiaries and other co-conspirators were allegedly paid cash kickbacks in return for supplying beneficiary information to providers, so that the providers could then submit fraudulent bills to Medicare for services that were medically unnecessary or never performed. The number of medical professionals charged is particularly significant, because virtually every health care fraud scheme requires a corrupt medical professional to be involved in order for Medicare or Medicaid to pay the fraudulent claims.  Aggressively pursuing corrupt medical professionals not only has a deterrent effect on other medical professionals, but also ensures that their licenses can no longer be used to bilk the system. Continue reading

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In March of this year, The New York Times reported that a report commissioned by the government accused heavy equipment manufacturer Caterpillar of carrying out tax and accounting fraud. According to the Times, the report outlined a company strategy for repatriating billions of dollars from its offshore affiliates while evading federal income taxes on those earnings.https://www.nytimes.com/2017/03/07/business/caterpillar-tax-fraud.html .The investigation resulted in Caterpillar’s offices being raided in March by various US Government agencies and the company has since disclosed in its securities filings that the IRS is seeking more than $2 billion in income taxes and penalties on profits earned by the company’s Swiss unit.

Under U.S. tax laws, companies owe corporate income taxes at a rate of 35 percent on profits earned around the world but are permitted to defer taxes on profits made offshore until they seek to bring those earnings back into the states—known as repatriation. Once the funds are brought back, they owe the IRS the taxes minus what they paid when the funds were overseas. The story reached a new chapter in June this year, with the Fortune Magazine reported that the feds had determined that Caterpillar had failed to submit a load of required documents relating to exports in recent years and also unveiled discrepancies between the company’s ordinary filings and what it submitted to authorities in response to subpoenas. http://fortune.com/2017/07/03/the-irs-thinks-its-on-to-something-in-its-caterpillar-probe/

A former Caterpillar accountant by the name of Daniel Schlicksup, who had worked for the company for 16 years,  tried without success to tell his company that it was engaged in practices that was not legal. Then, he says he came under retaliation and wrote a 15 page memo on how that happened, according to an article in Bloomberg News. https://www.bloomberg.com/news/features/2017-06-01/the-whistleblower-behind-caterpillar-s-massive-tax-headache-could-make-600-million  Aided by Mr. Schlicksup’s memo, the IRS began to dig.  Schliscksup, 55, left the company but if the IRS collects what it says Caterpillar owes he could receive a reward of $600 million in line with the IRS whistleblower program.  In 2012, a Senate committee examined the company’s taxes. In a 95-page report which mentions Schlicksup prominently, they concluded that Caterpillar avoided or deferred $2.4 billion in taxes. Now Mr. Schlicksup could receive one of the highest whistleblower awards ever.

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The Royal Bank of Scotland has agreed to pay $8.3 billion to the Federal Housing Finance Agency to cover a range of allegations linked to its involvement  in packaging and selling on subprime mortgages in the lead up to the financial crisis. The bank still faces investigations from several U.S. agencies including criminal and civil investigations by the U.S. Department of Justice. The bank still faces probes from several U.S. agencies including criminal and civil investigations by the U.S. Department of Justice. RBS warned Wednesday that “further substantial provisions and costs may be recognized…depending upon the final outcomes.” Analysts at Jefferies estimate RBS will set aside a further $2.5 billion by the end of the year to cover future Justice Department settlements. So far, the bank hasn’t had meaningful discussions with the Justice Department over any settlement, said RBS Chief Financial Officer Ewen Stevenson. See Settlement Agreement The settlement resolves all claims in the lawsuit FHFA v. The Royal Bank of Scotland Group plc et al., Case No. 3:11-cv-1383 in the United States District Court for the District of Connecticut. See Complaint: RBS Complaint 7.12.17
FHFA filed a total of 18 lawsuits in 2011 as conservator of Fannie Mae and Freddie Mac alleging violations of various statutory provisions by participants in the mortgage finance sector. The settlement with RBS represents settlement of the 17th case of those filed by FHFA. FHFA received a favorable verdict after trial in the 18th case and that verdict is currently the subject of an appeal.

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Mallinckrodt LLC, pharmaceutical manufacturer and one of the largest producers of oxycodone will pay $35 Million settling assertions that it violated the Controlled Substances Act (CSA) says the DOJ. The government alleged that Mallinckrodt failed to design and implement an effective system to detect and report “suspicious orders” for controlled substances – orders that are unusual in their frequency, size, or other patterns. From 2008 until 2011, Mallinckrodt supplied distributors, and the distributors then supplied various U.S. pharmacies and pain clinics, an increasingly excessive quantity of oxycodone pills without notifying DEA of these suspicious orders. Through  investigation, the government learned that manufacturers of pharmaceuticals offer discounts, known as “chargebacks,” based on sales to certain downstream customers. Distributors provide information on the downstream customer purchases to obtain the discount. The groundbreaking nature of the settlement involves requiring a manufacturer to utilize chargeback and similar data to monitor and report to DEA suspicious sales of its oxycodone at the next level in the supply chain, typically sales from distributors to independent and small chain pharmacy and pain clinic customers.

The government also alleged that Mallinckrodt violated record keeping requirements at its manufacturing facility in upstate New York. Among other things, these violations created discrepancies between the actual number of tablets manufactured in a batch and the number of tablets Mallinckrodt reported on its records. Accurate reconciliation of records at the manufacturing stage is a critical first step in ensuring that controlled substances are accounted for properly through the supply chain.

In addition to the significant monetary penalty, this settlement includes a groundbreaking parallel agreement with the DEA, as a result of which the company will analyze data it collects on orders from customers down the supply chain to identify suspicious sales. The resolution advances the DEA’s position that controlled substance manufacturers need to go beyond “know your customer” to use otherwise available company data to “know your customer’s customer” to protect these potentially dangerous pharmaceuticals from getting into the wrong hands. DEA’s Memorandum of Agreement with Mallinckrodt also sets forth specific procedures it will undertake to ensure the accuracy of batch records and protect loss of raw product in the manufacturing process.

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President Trump signed an executive order for CBP to ramp up efforts to combat customs law violations, especially anti-dumping and other schemes to evade out trade tariffs.   The Customs and Border Protection Agency (CBP) which enforces US customs and trade laws is in line to receive an increase of $300 million to recruit and hire new personnel.  Where these schemes to evade import duties are engaged through fraud, for example by misrepresenting the goods country of origin, individuals with specific information can, through counsel, file a case on behalf of the United States under the False Claims Act (FCA). That is exactly what is happening. The FCA imposes penalties and the whistleblower may receive up to 30% of what the Government recovers for the violations. Over the past two years alone, scores of cases have been taken against companies trying to cheat on paying customs tariffs in various ways. Those cases were brought forward by whistleblowers.

One example is the University furnishings and Freedom Furniture Group Inc. which had to pay $15 million to settle an FCA law suit for making false statement to avoid paying duties on wooden bedroom furniture imported from China. University Furnishings sells furniture for student housing. The whistleblower in that case was another furniture company called University Loft Company, which received $2.25 million as its share of the settlement.

Another example is the Univar case in which the company evaded duties on artificial sweetener saccharin from China by transshipping it through Taiwan. It was re-bagged and Taiwan was falsely stated as the country of origin. In the end, several companies were revealed and the company sanctioned.

 

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According to newly released data from the Centers for Medicare and Medicaid Services (CMS), pharmaceutical and medical device companies paid over $8.2 Billion to doctors and hospitals in 2016, mostly for research and for things like enrolling patient into new clinical studies and carrying on those studies. The research payments also went to compensate doctors. $2.8 billion was  spent on what CMS terms “general payments,”  which includes  expenses such as consulting fees, honoraria, entertainment or travel reimbursements. Another roughly $1 billion in payments were made related to ownership interests that doctors and their immediate family members have in industry companies. Novartis and Pfizer spent the most on research among big pharma, recording roughly $450 million and $430 million in payments, respectively. AstraZeneca spent $367 million in research payments, and U.S.-based Merck and Roche rounded out the top five. Continue reading

 

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SeaWorld Entertainment  was subpoenaed by the Justice Department over an investigation about disclosures made concerning the ‘Blackfish’ documentary impact and trading in the securities of the company. The investigation relates to public statements and the disclosures  made by the firm and some executives.  SeaWorld said that it had received subpoenas from both the Justice Department and the S.E.C., concerning “disclosures and public statements made by the Company and certain executives…on or before August 2014, including those regarding the mimpact of the “Blackfish” documentary and trading of the company’s securities…” The company was accused in the  2013 documentary Blackfish of abusing the captive killer whales that performed at its venues, charges it denied. In 2010, an orca named Tilikum killed its trainer, Dawn Brancheau, dragging her underwater and drowning her during a routine  at SeaWorld in Orlando, Fla. SeaWorld did not cooperated in the filming of “Blackfish” which described how Tilikum had killed three people. In 2013 following the release of the documentary, Seaworld was criticized . Animal rights activists argued that keeping the killer whales in small tanks was mistreatment as their natural environment is the open seas. Activists say the killer whales have a short lifespan when in captivity compared to those in the wild. When the ‘Blackfish’ documentary was  released, Seaworld  described the film as being a piece of propaganda that was emotionally manipulative, false and misleading.

SeaWorld was purchased in 2009 by the Blackstone Group, a private equity group.  Since the film Blackfish was presented, admission revenues have declined 11 percent since 2013, and attendance has fallen during that period. Last year, the company recorded a loss of $12.5 million on revenues of $1.34 billion. SeaWorld stopped paying its dividend last year, and in December announced a restructuring plan and layoffs to reduce costs. Besides the critcism by animal rights activists, SeaWorld is also facing a class-action lawsuit from some investors.

Jeffrey Newman represents whistleblowers