Thank you, Amy [Comstock Rick], for your kind introduction. And thank you to the Food and Drug Law Institute for inviting me this morning to talk about the Civil Division’s enforcement of the laws protecting the health and safety of the American public, and our efforts to redress fraud against federal health care programs. I am pleased to be here with you to participate in what FDLI describes as its “marketplace for discussion” of food and drug law issues.
I’ve been involved in government litigation, enforcement and compliance efforts for nearly 10 years now, from a variety of perspectives. But in no other position have I seen such a richly diverse and complex litigation and enforcement caseload as I have in the Civil Division – a caseload that I am proud to say is so ably handled, day in and day out, by the dedicated and hard-working professionals in the division. One of the best parts of my job, hands down, is to oversee the Justice Department’s affirmative civil enforcement efforts, and this morning I’d like to share some insights into that work.
As you may know, the Civil Division is the largest litigating division in the Department of Justice. It is made up of more than 1,300 permanent employees, including more than an 1,000 attorneys. I know many of you are most familiar with our enforcement efforts under the False Claims Act (FCA) and the federal Food, Drug and Cosmetic Act (FDCA). But our caseload extends well beyond those matters. In fact, about 88 percent of our cases involve defending claims filed against the government. Those cases reflect the incredible diversity of government activities, including challenges to acts of Congress and actions of the Executive; national security issues; tort claims; commercial issues such as contract disputes; and enforcement of immigration laws.
More to the point for purposes of this conference, the division also brings affirmative cases involving fraud, and we have both civil and criminal enforcement authority over the nation’s consumer protection laws. In fact, our criminal enforcement authority actually makes the name of the Civil Division a bit misleading. All of this work is critical to achieving the Attorney General’s priority of combating waste, fraud, and abuse. Since 2009, working with U.S. Attorneys across the country, we have recovered more than $45 billion on behalf of taxpayers in civil and criminal judgments and resolutions in affirmative cases.
And it’s not just about fraud. The federal FDCA is designed to ensure the safety of food, medicines, medical devices and dietary supplements, and our vigorous enforcement of that statute’s provisions helps to safeguard public health and safety.
Before I get into particular enforcement efforts in these areas, let me say up front that the department can’t do this work alone. In this room this morning, and on the panels to come during this conference, are committed and talented lawyers, regulators, industry representatives and public interest advocates with years of relevant experience working together toward a shared goal. Most of you work hard to ensure that your industry, your companies and your clients follow the law—not just because it’s good business, but because you are also committed to protecting the health and safety of our citizens. You bring safe and effective health care products and unadulterated food to consumers across the country and around the world. You are on the front line ensuring our confidence in what we eat, and the safety, effectiveness, and purity of the medicines and devices we use to treat illnesses that threaten us. You adopt meaningful compliance measures that both prevent and root out misconduct that would undermine our common goals, diminishing the risks your organizations and clients face from enforcement agencies. We may not always see eye to eye as we pursue our respective responsibilities, but the department appreciates and thanks you for the innovation and good faith you bring to your efforts to comply with the law.
Let me turn now to the enforcement tools the Civil Division uses to protect health and safety.
I’ll start with our Consumer Protection Branch. As I mentioned, although it is housed in the Civil Division, our Consumer Protection Branch brings both civil and criminal actions. In appropriate cases, the branch uses general legal tools, like the mail and wire fraud statutes, to pursue wrongdoers. But the Branch’s primary instrument is the FDCA, which provides civil and criminal remedies against those who introduce adulterated or misbranded products into interstate commerce. The FDCA is a unique instrument specifically designed to protect consumers from risks associated with the distribution of food and medicine and other products regulated by the FDA.
We use civil FDCA enforcement actions to prevent adulterated or misbranded products from being distributed in the future. When we see unlawful practices or conditions, typically identified by our agency partner, we can ask courts to authorize seizure of potentially unsafe products and temporary shutdown of facilities until sanitary conditions are put in place. We also routinely require companies to institute new health and safety procedures, including hiring experts and setting up quality control or compliance programs. Often, rather than litigating to judgment, we resolve these actions through negotiated settlement. These settlements are then submitted to a court for entry of a permanent injunction, giving us the ability to seek judicial enforcement if the defendant later fails to abide by the court’s order.
Sometimes, though, it’s important to hold individuals and entities who put consumers at risk criminally accountable. Criminal actions send a stern deterrent message to anyone tempted to put profit over safety. These actions put corporations and their officials on notice: If you sell contaminated products, you will pay for your crimes.
In determining whether criminal action is appropriate, consumer protection prosecutors in the Civil Division follow the same guidelines applicable in every criminal prosecution. Among other things, prosecutors evaluate the nature and seriousness of the offense, the deterrent effect of the prosecution, and the culpability of the individuals or entities involved.
Under the FDCA we can bring both misdemeanor and felony charges. On the misdemeanor side, introducing adulterated and misbranded products into interstate commerce is a strict liability offense. That means that the government doesn’t need to prove intent, and so claims of “I told someone else to take care of that” are not a shield from criminal responsibility. What is more, in appropriate cases—where intent to defraud or mislead is clear—the division will bring felony charges.
Let me offer a couple of recent examples of FDCA enforcement actions.
In 2014, the department brought and resolved criminal charges against Quality Egg, an Iowa egg production company, its owner, and its CEO in the Northern District of Iowa. Quality Egg produced and distributed adulterated eggs, leading to a nationwide salmonella outbreak that caused almost 2,000 reported illnesses. In 2010, FDA investigators discovered unsanitary conditions at the company’s facilities, including live and dead mice and frogs in egg-laying areas, feed areas, conveyer belts and outside of the buildings; manure piled to the rafters below laying hens; a room so filled with manure it pushed a screen out of a door, giving rodents access to the building; and live and dead beetles and flies throughout the chicken barns. Quality Egg pleaded guilty to FDCA misdemeanor and felony charges as well as bribery of a public official, paid a $6.79 million fine, and received three years of probation. Quality Egg’s owner and CEO each pleaded guilty to a misdemeanor violation of the FDCA and were sentenced to three months in prison, one year of supervised release, and a $100,000 fine.
Many of you probably know about the criminal trial and convictions of two former officials of, and one food broker for, the Peanut Corporation of America (PCA). PCA products were tied to a salmonella outbreak leading, according to the CDC, to more than 700 reported infections and nine deaths. Using epidemiological projections, the CDC estimated more than 22,000 individuals may have been affected by the outbreak.
The human toll of an outbreak on this scale is heartbreaking, and the actions causing it are disturbing. The evidence the Justice Department introduced at trial showed that certain officials misled PCA’s customers about their testing of products and covered up that some of its products tested positive for salmonella. After a seven-week trial, a federal jury found defendants guilty of various charges. PCA’s former president was sentenced to 28 years in prison, the longest criminal sentence ever imposed in a food safety case. Other defendants involved in the PCA matter were sentenced to prison terms ranging from three to 20 years.
Fortunately, the PCA case is not representative of the food industry as a whole. In the main, American consumers can be confident the food they eat is safe. But PCA shows even a small number of bad actors can cause enormous harm. And as anyone who has ever gotten a foodborne illness will attest, even one instance feels like too many. That’s why the Civil Division will remain vigilant, and will hold accountable those in the food and drug industry who violate the public trust.
On top of its focus on protecting the food supply, the Consumer Protection Branch also works vigorously to protect consumers from unsafe or fraudulent pills and medicines. In late 2015, as part of a yearlong nationwide sweep, the department and its federal partners announced civil and criminal cases against more than 100 makers and marketers of dietary supplements.
One criminal case that was part of that sweep charged USPlabs LLC and others with conspiring to import ingredients from China using false certificates of analysis and false labeling, and lying about the source and nature of ingredients after it put them in its products. According to the indictment, USPlabs told some of its retailers and wholesalers it used natural plant extracts in two products, when it actually used a synthetic stimulant manufactured in a Chinese chemical factory. The indictment also alleges, among other things, that defendants sold some products even though they knew of studies that linked the products to liver toxicity.
Also as part of the 2015 dietary supplement sweep, the department filed civil cases seeking injunctive relief against businesses and individuals that claimed the supplements they sold were treatments for diseases like herpes, Alzheimer’s and cancer. These unsubstantiated medical claims made the dietary supplements unapproved and misbranded drugs in violation of law.
Our FDCA enforcement efforts have helped to ensure consumer safety, created greater incentives for good behavior, encouraged company insiders who see unsafe practices to speak out and deterred misconduct. But our enforcement of the FDCA is not the only way that we can help ensure that practices in the arenas of food and health care are in the public’s best interest. By using other civil tools to pursue companies and individuals who violate the law by defrauding the government of vital health care dollars, we protect not only the public fisc, but also the public health.
The FCA is the government’s most potent civil weapon for redressing fraud against federal health care programs. The Department recovered more than $19 billion in health care fraud claims between January 2009 and the end of fiscal year 2016. And for seven consecutive years, the department’s civil health care fraud recoveries have exceeded $2 billion per year.
The largest FCA recoveries this past year—$1.2 billion—came from the drug and medical device industry. These included—to give just one example—the drug manufacturers Wyeth and Pfizer Inc., which paid $784.6 million to resolve federal and state claims that Wyeth knowingly reported false prices on two acid reflux drugs. The government alleged Wyeth (before it was acquired by Pfizer) violated its Medicaid agreements with the government by failing to report deep discounts it made available to hospitals. Wyeth was required to disclose these discounts so the government could make sure its Medicaid program enjoyed the same pricing benefits Wyeth made available to its commercial customers.
Most FCA cases alleging health care fraud originate from whistleblowers who file complaints with us under the qui tam provisions of the FCA. The Act provides substantial rewards for allegations proving meritorious and resulting in recoveries to the federal government. Last year alone, more than 700 qui tam complaints alleging health care fraud were filed with the department, and the department paid $519 million in statutory rewards to whistleblowers.
These complaints are shared with our prosecutors in the Consumer Protection Branch and with criminal prosecutors throughout the country in U.S. Attorneys’ offices, often resulting in productive parallel civil and criminal investigations and prosecutions. Indeed, many of the most notable cases in past years have been those combining resolutions under the civil False Claims Act with criminal pleas under the FDCA.
Last July, for instance, Acclarent Inc., a subsidiary of Johnson & Johnson, paid $18 million to resolve allegations it caused health care providers to submit false claims to Medicare and other federal health care programs by marketing and distributing its sinus spacer product for use as a drug delivery device without FDA approval. Acclarent’s former CEO and its former vice president of sales were convicted after a six-week jury trial of 10 misdemeanor counts of introducing adulterated and misbranded medical devices into interstate commerce.
We have successfully used the False Claims Act not only to recover money on behalf of taxpayers, but also to address threats to patient safety and well-being. This past year, for example, we entered into a settlement with a Florida physician and his practice group, the Institute of Cardiovascular Excellence, to resolve whistleblower allegations that they performed excessive, medically unnecessary and inadequately documented peripheral artery interventional services and related procedures. Many of the cardiovascular procedures for which they billed Medicare and other federal health care programs were not indicated by patients’ medical histories or records, or the severity of the patients’ symptoms.
These cases are just a tiny fraction of the thousands of cases the division handles each year, but they illustrate the Civil Division’s steadfast commitment to enforcing the law and protecting American consumers. Other recent developments have supplemented and strengthened those efforts.
More than a year ago, Deputy Attorney General Sally Q. Yates issued a memorandum reinforcing the department’s commitments to pursuing not just companies involved in fraudulent behavior, but also the people whose decisions and actions caused misconduct. I know that during the course of this conference you will be discussing the implications of what’s come to be called the Yates Memo, and I’d like to spend a few minutes addressing it myself.
The Individual Accountability Memo reinforced and invigorated the Civil Division’s commitment to using the FCA, the FDCA and other civil remedies to deter and redress fraud by individuals as well as corporations. It emphasized that corporations can only act through people, and so investigation of corporate misconduct necessarily involves investigation of individuals. Punishing those who commit wrongs is essential to deterring corporate and individual misdeeds, helping redirect corporate culture and improving public confidence in our justice system.
In the past fiscal year, the department recovered millions from individuals under the FCA. This is liability borne solely by individuals; the department secured many more settlements and judgments against individuals who shared liability with a corporation or other business entity, including some owned or controlled by the individual. And on the consumer protection side, individual accountability is illustrated by, among other cases, the criminal prosecution and conviction of the five defendants in the PCA matter and two Quality Egg executives whom I mentioned earlier.
As the Deputy Attorney General explained in May, the Individual Accountability Memo is helping companies improve. Compliance officers tell us that our focus on individuals helps them steer their officers and employees toward best practices and higher standards. And that was exactly the intent. Deterrence is better than punishment. Better for companies, better for government, and, most important, better for consumers. Every harm we avoid is a victory.
The Yates Memorandum laid out six steps for strengthening enforcement against individuals.
Step one provides that a company wanting cooperation credit related to a government investigation must provide all relevant facts relating to individuals involved in the wrongdoing, regardless of their position, status or seniority. There will be no partial credit for cooperation failing to meet these threshold requirements. The requirements establish a floor that applies in both criminal and civil investigations.
I will echo what other department officials have said, and respond to concerns expressed in law firm alerts and client notices related to the Individual Accountability Memo. The obligation to disclose facts about the conduct of individuals is not fundamentally new. It has always been important to identify who did what and when.
We ask you for a proportional response when you learn about misconduct. We want the results of an appropriately thorough investigation tailored to the scope of the misconduct at issue. If you are unsure about scope, talk to us. This should be an ongoing and iterative process between the government and the company cooperating to uncover what happened and determine whether there is culpability.
Also, and importantly, nothing in the accountability policy asks or requires you to waive attorney-client privilege. We want only relevant non-privileged information, not your legal conclusions or your privileged communications. Very simply, we want to figure out what actually happened. When we have the facts, we will exercise our own judgment and reach our own legal conclusions.
Second, the Memorandum provides that the department will focus from the outset of its investigation on individuals in both criminal and civil matters. This helps focus the collection of evidence, increases opportunities for individuals to cooperate and allows for resolutions including both the corporation and the people who made decisions and participated in wrongdoing.
Third, the Deputy Attorney General underscored the vital importance of the Criminal and Civil Divisions working in collaboration toward shared enforcement goals. I mentioned some parallel proceedings already, and we know from experience that they produce tremendous efficiencies and maximize our ability to use all available remedies to address the misconduct.
Fourth, presumptively, corporate settlements will no longer include releases for individuals unless the individuals actually participate in the settlement.
Fifth, department attorneys must explicitly plan how to resolve their cases against individuals if they separately resolve corporate matters, and decisions not to pursue individuals are to be separately memorialized and approved by senior management.
And finally, evaluation of claims against individuals in civil matters will consider all relevant factors, including the severity of the misconduct, whether there are actionable claims, evidentiary issues, litigation risk, the individuals’ history, federal interests and other individual circumstances. Ability to pay in civil matters remains a consideration, but it will not be the sole basis for a decision to pursue individuals (or not).
The impact of the Individual Accountability Memorandum is still evolving. Large criminal and civil cases take time, and although we have already seen positive results, the memo’s changes in emphasis are yet to be fully measured. Nonetheless, we recognize that it is important that the department be transparent in implementing the policy and—as we are doing at this Institute—address with industry and the defense bar what the memorandum means, and what it does not.
Before I conclude today let me briefly discuss cooperation and government investigations. Although the division vigorously pursues wrongdoing, our resources are limited. We depend on you – every day – to ensure compliance with laws preserving safety and security and to detect and respond to bad behavior when, and as soon as, it surfaces. Cooperation with government investigations can be part of this effort.
Now, except as otherwise required by law, companies do not have to affirmatively cooperate with government investigations. You have to comply with your legal obligations, but you do not have to otherwise volunteer. Nor do you have to settle claims. It’s your right to put the government to its proof.
That said, cooperation often benefits both corporations and the government. Cooperation can help corporations, shareholders, employees, customers, and clients by focusing the government’s investigation in ways not unduly disruptive to legitimate business operations. Cooperation can shorten investigations and make them more efficient, reducing costs for both corporations and the government. Cooperation can accelerate determinations of culpability or innocence, and can hasten either the end of an investigation or a voluntary resolution, increasing certainty and predictability. Cooperation benefits the government by reducing investigative delays that compromise the government’s ability to uncover and address the full extent of corporate misconduct. Cooperation can reduce government investigative burden and expenses, and can allow the government to dedicate resources to other activities. With cooperation, the government may be able to reduce a corporation’s tangible losses, limit damage to reputation and preserve assets for restitution.
Collateral benefits also inure to an organization that promptly accepts responsibility for wrongdoing. As you know, there are legal requirements, policies and practices encouraging businesses to combat fraud on their own. Moreover, owning up to conduct and making genuine efforts to clean house can help organizations demonstrate the responsibility necessary to participate in government programs and contracts. Genuine cooperation is often a good business decision.
For all these reasons, we want to create incentives for cooperation.
As was recently described in a speech by Principal Deputy Associate Attorney General Bill Baer, the department issued internal guidance on its approach to cooperation in civil enforcement matters. As many of you know, the department has latitude in determining the appropriate parameters of any resolution we enter into and we will exercise our latitude in appropriate matters to recognize timely and significant cooperation. This will most often take the form of reduced monetary sanctions or penalties, such as a reduced multiple in a FCA settlement.
To be clear, before an organization can qualify for such consideration, it must comply with the department’s threshold individual accountability policy, which means, among other things, it has to provide all relevant facts about individual misconduct. Once an entity satisfies this threshold, the degree of any credit will depend on the extent of any additional cooperation.
Organizations are expected to do more than merely comply with government requests for information or make witnesses available when asked. Compliance with legal requirements such as subpoenas or other disclosure requirements, by itself, is not cooperation. One-sided advocacy presentations designed to lead to a limited, self-serving conclusion are not cooperation. Belated production of information an entity is legally obligated to produce is not cooperation.
Certainly, we expect prompt and full responses to government requests for information, witnesses or documents, but we also expect more. While the steps earning cooperation credit necessarily vary with the facts and circumstances of each investigation, we value cooperation that allows us to resolve the matter more quickly, and to reach more significant resolutions, without expending all of the investigative resources required absent cooperation. Cooperation should be proactive and affirmative. Early cooperation is more valuable than late. Voluntary, material participation is more meaningful than reluctant, begrudging assistance. We are looking for meaningful, active efforts to help us get to the truth.
Finally, I know some of you may be asking what will become of these policies in a new administration. As the Deputy Attorney General said just last week, holding individuals accountable for corporate wrongdoing isn’t ideological; it’s good law enforcement. Just as other policies have continued into new administrations, we expect this approach to continue well into the future. Individual accountability isn’t a partisan principle; it is a core value of our criminal justice system. Similarly, incentivizing cooperation in an investigation is a sound policy because it is right for business, important to federal law enforcement and good for the taxpayers.
It should be clear from my remarks this morning that we in the Civil Division are fervently committed to our mission. We will continue to protect to the best of our ability consumers of drugs, medical devices, food and dietary supplements. We will vigorously pursue fraud on our federal health care programs. Aggressive enforcement helps ensure that production and distribution of safe products, and fair and honest dealing with the government, are not only good ethical and moral choices, but also good business.
We look forward to working with you as we move forward. Thank you for your attention and for the opportunity you have given me to speak here today.