Justice News

Acting Deputy Attorney General Gary G. Grindler Speaks at the 2010 Compliance Week Conference
United States
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Tuesday, May 25, 2010

Introduction

Thank you very much for that kind introduction.  It is a pleasure to be here with you today.  I want to commend Compliance Week for putting together an impressive series of panels and presentations on some of the most cutting edge issues in corporate compliance today.  These topics and your role as advisors, watchdogs and advocates on compliance issues are as important today as ever.  We are now almost two years in to the worst financial crises since the Great Depression. 

Understandably, the American public has expressed frustration that corporate America is not playing by the same rules.  That sentiment has only been exacerbated by events like the oil spill in the Gulf, the mine disaster in West Virginia, and the latest round of bonuses on Wall Street.  In this climate, your role in making sure your clients act as responsible corporate citizens is essential. 

Having spent a good portion of my career in private practice representing corporate clients and advising them on compliance matters, I am no stranger to what I suspect many of you in the audience are thinking:  What is the Department of Justice focused on and how can I make sure my clients stay as far away from it as possible? 

I’d like to spend my time with you this evening hopefully answering the first question by giving you a sense of some of the policy and enforcement priorities that we are focused on at the Department and sharing some of my thoughts how you can best position your clients when interacting with the Department.  After that, there will be some time left for questions and I look forward to a dialogue with you about these important issues.  

There is much that I could discuss—from sentencing and corrections reform to our efforts to combat crime along Southwest Border to our ongoing focus on issues like international organized crime and child exploitation.  But with limited time and a desire to focus on what I suspect will be of most interest to you, I thought I would focus on three areas this evening:  the Department’s Financial Fraud Enforcement Task Force, our efforts to combat health care fraud, and the Department’s new Intellectual Property Enforcement Task Force. 

Discovery

Before turning to these areas, however, I want to say a few words about the Department’s efforts relating to discovery matters.  I raise this because I think it is important for you to know that as much as we demand from you and your clients, in terms of remediation & compliance we are going to be equally demanding of ourselves.

First, earlier this year the Department issued comprehensive guidance to all prosecutors to ensure that the Department always meets the expectation and promise, in the words inscribed outside the Attorney General’s Office, that “the United States wins its point whenever justice is done its citizens in the courts.”  It is a lofty goal, but one that we work towards and achieve in courtrooms across the country every day.  It is important to emphasize that incidents of discovery failures are exceedingly rare in comparison to the number of cases prosecuted and they are typically the product of mistake or inadequate training, rather than bad intent.  But even a few isolated incidents take a lasting toll on the legitimacy of the criminal justice system and the public’s trust in the Department.  These new discovery steps were taken, in part, to reinforce to our prosecutors as well as everyone in the criminal justice system just how seriously we in the Department take our responsibilities as guardians of justice. 

We have also taken a number of steps to ensure that we are meeting our obligations to the court and to defendants.  We are designating senior attorneys in every United States Attorney’s office and criminal litigating component to serve as Brady/Giglio experts in their offices.  We have conducted extensive training for prosecutors on discovery practices, including the challenges and responsibilities that come with the increasing volume of e-discovery.  And we will be rolling out training for paralegal and law enforcement agents on discovery obligations because, like our Assistant US Attorneys, they are critical parts of the discovery process.

The Department’s commitment to meeting our discovery obligations will be unwavering.  We will strive to ensure not only that our prosecutors comply with law, but that justice is done. 

We will continue to hold ourselves to these high standards, but we will also insist that our colleagues in the defense bar meet their obligations as officers of the court as well.  We will defend against baseless allegations of discovery violations that in effect become no more than a trial tactic.

Now, let me turn to a few of the significant enforcement initiatives that we have been focused on at the Department.

Financial Fraud Enforcement Task Force

In November of last year, the President established the Financial Fraud Enforcement Task Force by Executive Order.  The Task Force is unprecedented in its scope.  It is composed of senior level representatives of more than 20 federal agencies, regulators, and inspectors general, as well as state and local partners. Never before have such government resources been brought together to provide coordinated fraud enforcement.

The group’s membership is broad because the challenges we face and the scope of our mandate is equally broad.  The Executive Order directs the Task Force to address a wide array of fraudulent activities: "bank, mortgage, and lending fraud; securities and commodities fraud; retirement plan fraud; mail and wire fraud; tax crimes; money laundering; False Claims Act violations; unfair competition; discrimination; and other financial crimes and violations." 

The mission of the Task Force is to implement an interagency effort, using the full criminal and civil enforcement resources of the executive branch, along with state and local partners, to:

  • investigate and prosecute financial crimes relating to the current financial crisis and economic recovery efforts;
  • recover the proceeds for such crimes for victims;
  • address discrimination in the lending and financial markets;
  • enhance coordination and cooperation among federal, state, and local authorities responsible for the investigation and prosecution of financial crimes and violations;
  • conduct outreach to the public, victims, financial institutions, nonprofit organizations, state and local governments and agencies, and other interested partners to enhance detection and prevention of financial fraud schemes with the goal of reducing the chance of another financial crisis. 

We have already brought a number of significant enforcement actions that have benefited from the coordination and cooperation that the Task Force promotes.  To give you just a few examples:

  • Earlier this month, we announced the indictments of two former executives at the now collapsed Integrity Bank in Atlanta and a hotel developer for conspiracy, bribery, bank fraud and/or securities fraud relating to over $80 million in loans from the Bank.  This case was the product of a real collaboration between the FBI, FDIC, and IRS.
  • In April, we obtained a guilty verdict against the former Treasurer of Puerto Rico-based Doral Financial Corporation for a scheme to mislead investors about the value of certain mortgage related assets.  An aggregate decline in shareholder value of approximately $4 billion followed the unraveling of this scheme.  This case was developed by the US Attorney’s Office in the SDNY working closely with the SEC.
  • And in March, we charged the former President and Chief Executive Officer of The Park Avenue Bank, on allegations of self-dealing, bank bribery, embezzlement of bank funds, and fraud, relating to his attempt to obtain more than $11 million worth of taxpayer rescue funds from the Troubled Asset Relief Program, or TARP. This is the first defendant ever charged with attempting to defraud TARP and the investigation was a great example of collaboration between our prosecutors and agents and the Special Inspector General for the TARP, Neil Borofsky.

In addition to these enforcement actions – we also have several longer term initiatives that we are pursuing through the Task Force that should be of interest to you.

  • Increased Coordination.  As of March of this year, every U.S. Attorney’s Office in the country has designated a Financial Fraud Task Force Coordinator who will ensure that we are coordinating enforcement actions with partner agencies, identifying emerging trends in financial fraud, sharing best practices and training opportunities, and addressing resource gaps.
  • Additional Resources.  In April, we announced 35 new Assistant United States Attorney positions in districts throughout the country to focus on criminal and civil enforcement matters involving financial fraud.
  • Data Sharing. We are developing data-sharing platforms to integrate national data compiled by member agencies.  These data-sharing tools will be used to target local investigations of discriminatory lending practices, Recovery Act abuse, mortgage fraud, False Claims Act frauds, and other violations in “hot spots” around the country, which can then be referred to federal, state, and local partners for enforcement, or used as resources for law enforcement.
  • Training and Public Outreach.   A key focus of the Task Force is providing training for federal, state and local investigators and prosecutors, as well as outreach to the public, on emerging trends in financial fraud.  To that end, we have organized a series of public summits on mortgage fraud over the last few months in Miami, Phoenix, and Detroit.  The summits bring together representatives of federal, state, and local enforcement agencies with industry professionals, community groups, and victims of mortgage fraud to focus on the hot spots in their community and provide practical information about fraud trends and the best practices.     

Health Care Fraud

Another significant priority for the Department is our intensified effort to ensure that health care dollars are not stolen through fraud.  Every year, hundreds of billions of federal dollars are spent to provide health security for American seniors, children, and the disabled.  While most medical or pharmaceutical providers are doing the right thing, when Medicare or Medicaid fraud occurs, it costs the American taxpayer billions of dollars that could be spent on patient care.  We have a basic duty to our citizens who receive treatment paid for by the Medicare, Medicaid, and other government health care programs to see to it that taxpayer funds are well spent and that beneficiaries are receiving proper medical care. 

The Department of Justice has redoubled its efforts to ensure the integrity of our federal health care programs. 

Because coordination across agencies is an integral part of preventing and prosecuting health care fraud, Attorney General Holder and HHS Secretary Sebelius together have pledged to fight waste, fraud and abuse in Medicare and Medicaid.  To improve that coordination, in May 2009 they announced the creation of the Health Care Fraud Prevention and Enforcement Action Team (HEAT)—a senior-level, joint task force that is designed to use the combined resources of both agencies in new ways to combat all facets of the health care fraud problem. 

The HEAT initiative invests new attention, resources, and technology at the problem of health care fraud.  The focus of the initiative is to both prevent fraud, waste and abuse before it happens, and to aggressively combat it if and when it occurs.  The initiative has several core goals, including:

  • To detect fraud through a variety of data-driven investigative tools, including prepayment reviews and audits, site visits to providers, and the use of cutting edge-technology and new data mining techniques;
  • To strengthen enforcement efforts through an expansion of Medicare Fraud Strike Force teams; increased False Claims Act, Food, Drug & Cosmetic Act, and Anti-Kickback cases; and greater enforcement of emerging fraud schemes, such as pharmaceutical, device, and durable medical equipment cases;
  • And to leverage partnerships through private sector outreach, and improved coordination with State and local anti-fraud efforts.

In less than a year since it was announced, the HEAT initiative has had some remarkable successes. 

In total, since the announcement of the HEAT Initiative last May, Medicare Strike Force prosecutors have filed over 60 cases charging more than 200 defendants, negotiated more than 50 guilty pleas, and litigated six jury trials obtaining convictions of six defendants.    Also, during Fiscal Year 2009, federal prosecutors in districts throughout the country filed criminal charges in 481 health care fraud cases involving charges against 803 defendants and obtained 583 convictions for health care fraud offenses. In addition, they opened 1014 new criminal health care fraud investigations involving 1786 subjects.

Our coordinated law enforcement and litigation efforts have resulted in an impressive return on investment of $4 returned to the Treasury for every dollar spent.  In fact, we have returned at least $13.1 billion to the Medicare Trust Fund since funding under Health Care Fraud Abuse and Control funding was established in 1996. 

Just as important is the significant deterrent effect that our enforcement efforts have had.  For example, 12 months after we launched a Medicare Fraud Strike Force operation in the Miami area in 2007 – our very first Strike Force operation – there was an estimated reduction of $1.75 billion in durable medical equipment (DME) claim submissions and a reduction of $334 million in DME claims paid by Medicare compared to the preceding 12-month period.

Based on the success of our Medicare Fraud Strike Force model, we expanded Strike Force operations last summer from two to four cities, and in December we added three more cities.  Strike Forces are now operating in seven locations: South Florida, Los Angeles, Detroit, Houston, Brooklyn, Baton Rouge and Tampa.  These expanded efforts have already produced substantial results, including several takedowns of numerous health care fraud perpetrators.  And the President’s budget for FY2011 commits significant resources to expanding those Strike Force teams into an additional 13 cities.

You can be assured that we will also use every tool at our disposal to investigate and prosecute corrupt practices in the pharmaceutical industry.  In the months ahead, for example, you can expect to see the Department increasingly use the Foreign Corrupt Practices Act to prosecute kickbacks and bribes paid to foreign government officials by pharmaceutical companies.  As the drug companies do more and more of their business overseas where so much of the health care business is government run, we see the opportunities for FCPA violations unfortunately proliferating.  Indeed, in some foreign countries nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product may involve a “foreign official” within the meaning of the FCPA.  The extent of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates, in our view, a significant risk that corrupt payments will infect the process.  The Department will not hesitate to charge pharmaceutical companies and their senior executives under the FCPA if warranted to root out foreign bribery in the industry.

The HEAT initiative also has an important civil fraud enforcement component.  In Fiscal Year 2009, False Claims Act health care recoveries exceeded $1.6 billion, the eighth year that the Department obtained in excess of $1 billion in civil health care fraud recoveries.  Last fall, Pfizer Inc. and its subsidiary Pharmacia & Upjohn Company Inc. agreed to pay $2.3 billion to resolve criminal and civil liability arising from the illegal promotion of certain pharmaceutical products.  This is the largest health care fraud settlement in the history of the Department of Justice, the largest criminal fine of any kind imposed in the U.S., and the largest ever civil fraud settlement against a pharmaceutical company.  In addition to our litigation and prosecution efforts, we have enhanced training programs on enforcement measures for prosecutors and investigators, and we have increased compliance training for providers to prevent honest mistakes and help stop potential fraud before it happens.  And on January 28 of this year, in an effort to enhance public-private partnerships, we hosted a National Health Care Fraud Summit that brought together Federal and State policy officials, private sector leaders including insurance companies and providers, law enforcement, beneficiary advocates, and other key stakeholders.

These efforts have been greatly assisted by the new health care reform legislation.  I’ll just briefly mention a few provisions of the bill that should be of interest to you:

1. The Affordable Care Act requires providers and suppliers to establish compliance plans as a condition of enrollment in Medicare or Medicaid and to submit claims to Medicare within 12 months of the date of service –thus helping to cut down on fraud schemes that take advantage of the extended claims filing deadlines.

2. The legislation provides new authorities for stepped-up oversight of providers and suppliers participating in Medicare and Medicaid, including mandatory licensure checks.

3. For the first time, the Secretary of HHS may impose a moratorium on the enrollment of providers and suppliers in areas where necessary to prevent or combat fraud, waste or abuse.  The legislation also authorizes the Secretary to withhold payment under Medicare or Medicaid to providers of services or suppliers for claims pending an investigation of a credible allegation of fraud. 

4. And the legislation provides HHS with new authorities to identify and recover overpayments through the expansion of Recovery Audit Contractors (RACs) to Medicaid, Medicare Advantage (MA) and Part D.  Providers, suppliers, and MA and Part D health plans must self-report and return Medicare and Medicaid overpayments within 60 days of identification.

In addition, I want to highlight a few aspects of the legislation that are particularly relevant to criminal and civil enforcement: 

1. a provision directing the Sentencing Commission to increase the federal sentencing guidelines for health care fraud offenses, by 20-50% for crimes that involve more than $1,000,000 in losses.

2. Clarification that a violation of the anti-kickback statute constitutes a violation of the False Claims Act.  This will ensure that all claims resulting from illegal kickbacks are false, even if the claims are submitted by an innocent third-party and not directly by the wrongdoers themselves.

3. A provision giving the Department of Justice subpoena authority for investigations conducted pursuant to the Civil Rights for Institutionalized Persons Act, allowing the government to better protect the health and civil rights of individuals living in institutional facilities. 

In the weeks and months ahead, we will be making good use of all these tools to continue attacking health care fraud on multiple fronts  -- prevention, deterrence, detection and prosecution.

Intellectual Property Enforcement

Another important priority for the Department is our new initiative to address the growing number of domestic and international intellectual property crimes.  IP crimes come in many forms:  online piracy of movies, music, software, and video games; sales of counterfeit electronics and other luxury goods; and distribution of counterfeit pharmaceuticals, medical devices, and other items that threaten health and safety.  These crimes present serious and increasing threats to both the well-being of American citizens and our economic security, and the Department is fully committed to confronting these 21st century crimes head on. 

Earlier this year, Attorney General Holder announced the creation of an Intellectual Property Enforcement Task Force.  This new Task Force, which I chair, will allow the Department to identify and implement a multi-faceted strategy with our federal, state and international partners to effectively combat IP crimes.  This Task Force will ensure renewed and high-level attention to IP enforcement and will provide a useful vehicle for coordinating our efforts and making best use of our resources. 

Although the Task Force is still in its early stages and there is much work to be done, it is my expectation that it will have several important priorities. 

  • First, the Task Force will monitor the Department’s overall enforcement efforts, and will serve as a central mechanism for tracking what the Department’s components and US Attorneys’ offices are doing in this field. 
  • Second, the Task Force will coordinate the Department’s many efforts to fight IP infringement.  As in so many areas, there are a number of DOJ components doing important IP-related work.  In a world of limited resources, it is critical that we avoid duplication of efforts and do all we can to make sure that all of the Department’s resources are focused on an agreed set of priorities in a coordinated manner. 
  • Third, the Task Force will serve to increase the Department’s focus on international IP enforcement.  The vast majority of counterfeit and pirated goods come from foreign sources, including over the Internet.  Too many countries have become safe havens for producers because they do not have strong intellectual property laws or enforcement efforts.  Many of our US law enforcement agencies have forged strong connections with their foreign counterparts, but we can and must do more on that front.  Similarly, we must focus on the intersection between international organized crime and intellectual property theft.  This will require greater communication and cross-training between our analysts, agents, and prosecutors responsible for IP enforcement and those responsible for organized crime enforcement.
  • Finally, the Task Force will work to expand the Department’s civil enforcement efforts to complement its criminal prosecutions.  The Department is already developing an action plan to emphasize and expand the civil tools available for IP enforcement – and in particular, a system of graduated sanctions that can be used in conjunction with criminal enforcement tools to combat intellectual property theft more effectively. 

So those are a few of the enforcement priorities that we are pursuing at the Department.  In pursuing them, we will be aggressive, but fair, and we will use every tool at our disposal to ferret out and prosecute corporate crime.  In a number of recent cases, for example, we have shown that law enforcement techniques like wiretaps and undercover operations are no longer the sole provenance of drug cases and violent crime, and can be used quite effectively in securities and FCPA cases.  Similarly, our success with the Medicare Strike Forces have shown that there is great enforcement value in bringing proactive, data-driven investigations that allow for nimble and targeted prosecutions.  You can expect to see these lessons applied in other areas, such as mortgage fraud, in the future. 

What You Can Do

Now, how can you best advise your clients in light of the Department’s enforcement priorities and given the climate we are in where there is so much distrust of corporate America.

First, you can make sure that your clients have robust, effective compliance programs and internal controls.  A company’s compliance program continues to be one of the most important factors that we consider under the Principles of Federal Prosecution of Business Organizations.  You are on the front lines of this issue and can make a real difference in your respective institutions by sending the message about the need for an effective compliance program.  Compliance programs must not exist only on paper. 

In this context, I want to point out that the United States Sentencing Commission recently amended the Sentencing Guidelines on the issue of compliance programs.  Specifically, the Commission clarified the importance of assessing and modifying compliance programs after you discover criminal conduct at your company.   The current Guidelines provide that, following the discovery of criminal conduct, a company should, among other things, make “any necessary modifications to the organization's compliance and ethics program.”  The new amendment -- assuming it goes into effect in November -- provides a new commentary to that provision specifying that this post-violation process includes “assessing the compliance and ethics program and making modifications necessary to ensure the program is effective … and may include the use of an outside professional advisor to ensure adequate assessment and implementation of any modifications.”

In addition, the latest Guideline amendments clarify the circumstances under which an effective compliance and ethics program can entitle an organization to a 3-level reduction in its culpability score.  Specifically, the amendment allows an organization to receive the decrease if the organization meets four criteria: (1) the individual or individuals with operational responsibility for the compliance and ethics program have direct reporting obligations to the organization’s governing authority or appropriate subgroup thereof; (2) the compliance and ethics program detected the offense before discovery outside the organization or before such discovery was reasonably likely; (3) the organization promptly reported the offense to the appropriate governmental authorities; and (4) no individual with operational responsibility for the compliance and ethics program participated in, condoned, or was willfully ignorant of the offense.  These amendments reinforce the point that having a robust compliance program is critical not only to preventing misconduct in the first place, but also how your organization will be treated in the event criminal conduct does take place.

The second thing you can do to best position your client, is  you can partner with us.  As I hope has been clear in my discussion of our enforcement efforts, there is a consistent theme of the importance of sharing information and partnering with the private sector in its anti-fraud efforts.  Through examples like the National Heath Care Fraud Summit and the regional mortgage fraud summits, we have been reaching out to private sector anti-fraud professionals to share information about fraud schemes and improvements in data analysis.  While we have limitations in what we can share, we are interested in exploring ways to work together within those constraints.  If the private sector sees new fraud schemes or ways in which we can prevent fraud, that is something you should share with us.

Third, you can advise your clients to make early, voluntary disclosure of misconduct.   As you know, it is usually in your client’s best interest to cooperate with the government’s investigation through the disclosure of relevant facts, the production of documents and other evidence, and making witnesses available who have relevant information.  Not only is such voluntary disclosure in your client’s interest, but the failure to do so -- the failure to make timely voluntary disclosure following the discovery of a criminal violation -- in some circumstances can itself be an independent violation of law.   In December 2008, for example, the FAR was revised to require government contractors to disclose violations of criminal law and the False Claims Act in connection with award and performance of government contracts and subcontracts.  Under this provision, contractors are subject to debarment and suspension from government contracting for knowingly failing to disclose such violations and overpayments on government contracts in a timely manner.  Contractors are also required to establish internal control systems to facilitate timely disclosure of improper conduct and fully cooperate with government agencies responsible for audit, investigation, and corrective actions.

Fourth, you can guide your client’s decision to take meaningful remedial measures in response to criminal wrongdoing, including the payment of restitution and the disciplining or termination of culpable employees, officers, or directors. 

In the end, all of these steps – robust compliance programs, information sharing between public and private sector anti-fraud efforts, voluntary disclosure, and meaningful remedial measures -- will inure to the benefit of your clients in several significant ways.  They will deter criminal conduct from occurring in the first place.  They will ensure that if and when misconduct does occur, it is detected early on and can be rooted out before too much damage is done.  Your client will receive credit for such actions during the prosecutorial decision-making process.  Finally, such steps will make your clients stronger corporate citizens, and will empower your clients’ officers, directors, and employees to fulfill their fiduciary obligations to shareholders and their duties of honest dealing to the investing public and the taxpayers.    

Thank you again for having me here and I look forward to your questions.