Archive for the ‘Guest Posts’ Category

Mid-Year Review Of Anti-Corruption Law North Of The 49th Parallel

Thursday, August 27th, 2015

CanadaA guest post  from Mark Morrison (Blake, Cassels & Graydon) the Canada Expert for FCPA Professor, and Blakes attorneys Michael Dixon and James Reid.

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This year, Canada has been actively implementing laws aimed at a holistic approach to the fight against corruption. This post discusses some of the new legislation effected by the Canadian Government to compliment Canada’s equivalent of the FCPA, the Corruption of Foreign Public Officials Act (CFPOA), as well as some of the recent enforcement proceedings taking place in Canada so far this year.

New Anti-Corruption Laws

The Integrity Regime – On July 3, 2015, the Government’s principal contracting arm, Public Works and Government Services Canada,  announced the implementation of a new government-wide Integrity Regime for all federal government procurement. The new Regime replaced the Integrity Framework, which was heavily criticized as being unfairly harsh for its lack of due process and failure to account for remedial actions taken by companies subject  to its application. The new Regime has provided some flexibility to ameliorate some of the harshest aspects of the Framework.

Under the Integrity Regime, a supplier is barred from doing business with the Government of Canada for 10 years if it or any board members have been convicted or discharged in the past three years for a range of integrity-related offences in Canada or abroad, including bribery, fraud, bid-rigging, tax evasion, insider trading and money laundering. However, the decade long ban can be cut in half if the supplier shows it has taken action to co-operate with authorities, takes remedial action and enters into an administrative agreement with the Government. While the new regime amounts to a retreat from the integrity rules enacted just last March, in which any prior conviction against a supplier or any of its international affiliates would have earned a 10-year ban with no chance of its reduction, the automatic debarment penalty remains–unlike the U.S. equivalent integrity provisions.

In addition, arguably the most significant improvement to the former Integrity Framework, is that the new Regime eliminates mandatory ineligibility of a supplier for the actions of an affiliate (including a parent company) unless there is evidence that the supplier/potential supplier had involvement in the wrongdoing that led to the conviction of its affiliate.

The Extractive Sector Transparency Measures Act (ESTMA) – ESTMA is Canada’s latest step in the global fight against corruption. The ESTMA, which came into force on June 1, 2015, is designed to complement Canada’s existing anti-corruption regime in the CFPOA by creating greater transparency over payments to a government by the extractive sector. ESTMA’s reporting requirements apply to companies engaged in the development of oil, gas or minerals that are either (a) listed on a Canadian stock exchange or (b) have a place of business in Canada, do business in Canada or have assets in Canada, and which meet certain size thresholds.

Companies subject to the ESTMA are required to report and publically disclose all payments, including taxes, royalties, fees and any other consideration for licenses, permits or concessions in excess of CAD$100,000. The Government has recently published draft guidelines and reporting specifications for public comment. The ESTMA will apply to payments to certain aboriginal governments, subject to a two-year transitional period. Non-compliance with the reporting requirements is an offence. Any director or officer who directed, authorized, assented to, acquiesced in or participated in the non-compliance can also be held personally liable. These offences are subject to a maximum fine of CAD$250,000 for each day that the non-compliance continues.

Recent Enforcement Proceedings

Canadian anti-corruption enforcement has increased from 2014, which did not see any penalties imposed on corporate defendants under the CFPOA. The lack of enforcement in 2014 may have been reflective of the considerable resources and attention that was dedicated by the Royal Canadian Mounted Police (RCMP) to the high profile investigation of Canada’s largest construction and engineering firm.

SNC Lavalin In February of this year, the RCMP laid corporate corruption and fraud charges against the Quebec based construction and engineering companies of the  SNC Lavalin Group, which stems from the Group’s dealings in Libya between 2001 and 2011. The RCMP investigation has also lead to criminal charges against several former SNC executives.

SNC maintains that any wrongdoing was the act of rogue individuals no longer employed by the company, and has entered a plea of not guilty. Unlike in the United States, Canada does not currently have deferred prosecution agreements, civil settlements, or other formal resolution procedures available outside of a criminal guilty plea. No preliminary hearing dates have been set in relation to the corruption charges against SNC.

In addition, to the Libya allegations, former SNC executives have also been charged in connection with an alleged bribery scandal related to a $1.3 billion hospital project in Montreal, where it has been alleged that former SNC executives funneled money to ex-McGill hospital officials in exchange for the contract. A three week preliminary hearing, which is protected by a publication ban, heard testimony from about 16 people this past March.  No decision on committal for trial has yet been issued.

MagIndustries – The RCMP has obtained a search warrant and is investigating allegations from a whistleblowing accountant at MagIndustries Corporation, that bribes were paid to officials in the Republic of Congo to win approvals tied to a potash mine development. The RCMP believe four top executives with the company, including the CEO, ignored warnings from Canadian financial advisers and signed off on a string of illegal payments to Congolese officials. None of the allegations contained in the search warrant have been tested in court, and the RCMP has not laid any charges to date.

Canadian Senate Expenses Scandal – dominating Canadian media headlines since the recent announcement of the October Federal Election, is the ongoing political scandal concerning the expense claims of certain Canadian senators which began in late 2012. Senators Patrick Brazeau, Mike Duffy, Mac Harb, and Pamela Wallin claimed travel and living allowance expenses which were ineligible. Brazeau, Duffy, and Harb were criminally charged with one count each of fraud and breach of trust. As a result, the Auditor General of Canada examined expense claims made by all the other 116 senators and former senators over a two-year period. In the June 2015 report of the Auditor General, the Auditor General identified thirty senators whose claims were ineligible, and of these, recommended that nine cases be referred for police investigation.

Conclusion

Canada continues to focus on anti-corruption compliance and enforcement by bolstering the legislative tools available to law enforcement and government agencies. Onlookers are intently watching what will come from the high profile cases against SNC and the Canadian senators. As things are looking now, the remainder of 2015 is shaping up to be one of the most active years in Canadian anti-corruption enforcement history.

Carlos Rodriguez: My Dad, My Hero

Tuesday, August 4th, 2015

CarlosMany people in the FCPA space know the name Carlos Rodriguez.

His name, along with his co-defendant Joel Esquenazi, is synonymous with the “foreign official” issue.  (See this article at pgs. 24-42 to learn more about the 11th Circuit’s flawed”foreign official” decision in May 2014).

Mr. Rodriguez of course is more than just a name associated with a legal concept.

He is a real person, with a real family, who is serving real time in federal prison away from that real family.

In this post, Mr. Rodriguez’s adult daughter, Angeli Rodriguez, shares her perspective on her dad and her hero.

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I’d argue every child has envisioned their parent as a superhero at some point, and no one can argue that all heroes need an alias that denotes their special ability. I was no exception to this naive imagination while growing up, and I’ve concluded the only fitting title for my dad would be the Human Shield.

The funny thing about superhero tales is whenever the protagonist thinks his work is done, the city under his protection is struck by peril worse than the last. While the obvious explanation for this irony is that it’s what keeps the comic industry in business, I like to think this element of comic books grants them the slightest bit of realism. Science deems it the simplest principle of physics, or what goes up must come down. But if you really think about it, a sequence of highs and lows is above all the perfect description for life itself. Unless, of course, you have the Human Shield.

I’m more than lucky to be able to say that my childhood was always one of highs. I had both of my parents who loved my siblings and me unconditionally and raised us in a beautiful home in South Florida. For years, my dad was the vice president of a successful telecommunications company while my mom put her nursing career on hold to care for all of us. When I was four, she was diagnosed with breast cancer but, thanks to the Human Shield, I knew nothing more than “Mommy’s a little sick.” Within a year or so, I was told Mommy was better.

The shielding, however, would only continue.There came a point in elementary school when I realized Dad was no longer wearing ties or coming home at dinnertime. Soon, he was the one picking the kids up from school and Mom was the one at work. I recognized these changes but never questioned them. Instead, I was delighted to see more of my father, who would tell elaborate stories about his day every car ride home. My brother, my sister, and I always knew he was lying and looked forward to laughing with him each time we’d call him out on it. I used to think Dad’s crazy stories were solely meant to entertain us, but I’ve come to realize they were really fabricated by the Human Shield. By the time I reached middle school, I was aware that Dad’s old company had gone bankrupt. He had made a couple of attempts to work from home, but it was evident Mom was the one supporting us now. Nothing seemed different, though. My siblings and I continued to receive a private school education, let alone everything else we ever wanted.

I began to worry something bad was bound to happen, that our lives would finally come down after being up for so long. The Human Shield, on the other hand, never lost a smile. His optimism was contagious and quickly eradicated any concerns I ever had. According to Dad, happiness was all about visualization. He became enthralled with the concept of a “dream board” and helped me paste printed images of my desired future on a poster. With activities like these, I gradually grew closer and closer to my father. By eighth grade, I was blind to the fact that he no longer joined us for family beach days and was careful not to go out too late at night. Those were probably his best acts of shielding but were soon to be his last.

I vividly remember the day my parents broke the news…news which had been on their radars for over a year but nowhere near mine. I did not cry, and I did not speak. I just sat there, half listening to words that could not possibly be true. My father is a good person and good people shouldn’t secretly be on house arrest nor are they supposed to go to prison. Superhero tales just don’t end that way, especially when the “villain” in question is innocent.

In the legal world, my dad’s case is regarded as the “foreign official” issue and considered by many, including the Supreme Court, as unimportant. To me, it stands as the one “low” I could not be protected from, which shattered my shield and changed life as I knew it. I guess I never really realized how powerful my hero was or how much I needed him until he was no longer always by my side. He went away in November of my freshman year of high school, but for months I denied his absence and refused to believe the injustice my family bore. After months of this delusion, however, I forced myself to face reality. It was time for me to garner my own strength and show my dad that I could be super, too. This was much easier to do when I realized how heroic the rest of my family was.

My older brother Giancarlos started college at the University of Florida the same year that Dad was imprisoned. As the only son, his relationship with our father was undeniably special, and the times he visited home were noticeably hard for him. This past December, Gian graduated from UF with three degrees. He now has a full-time job.

My younger sister Natalia was already in middle school when Dad left. Our mom could no longer afford her Catholic school education, however, and she had to transfer schools after attending the same one for nearly ten years. She and Dad had always bonded over her volleyball career and an extremely similar sense of humor. Natalia is now class president for the third year in a row and maintains the second highest GPA of the juniors at her high school.

And, lucky for the three of us, the Human Shield is married to Superwoman. My mom has surely struggled the most with Dad’s sentence yet has managed to not only keep her life in order but all of ours. She sold the house my siblings and I grew up in as well as works two jobs to provide for us. Her spirit, however, never falters and she amazes me each day with her strength. I was empowered by both her and my father to work hard throughout high school but accredit my full ride to Boston University to her encouragement. Had I any other mother, I am positive our situation would have affected me much more negatively.

Since he left, my dad has missed three Thanksgiving’s, four Christmas’s, my 15th-18th birthdays, my brother’s college graduation, and my high school graduation, plus all of the celebratory moments and memories in between. The only contact we have consists of letter exchanges and a restricted 15-minute phone call every two weeks. Courtesy of the U.S. government, my connection to my father will remain this way until January 2018. It’s absurd, surreal, ridiculous, and undeniably unfair, but somehow he has maintained his positive outlook on life. That’s why a very small part of me is grateful for this experience. Because of the “foreign official” issue, I’ve realized how much my father once protected me and, in losing that protection, how much strength I myself possess. I may not have the superpowers needed to free him or convince courts of his innocence, but I like to think that by mimicking his optimism I can one day be someone’s hero.

Lessons Learned As A Foreign Corrupt Practices Act Monitor

Thursday, July 23rd, 2015

LeasonsToday’s post is from Scott Fredericksen (Partner, Foley & Lardner) and originally appeared in International Trade Law & Regulation, Vol. 21, Issue 3, 2015 (Thomson Reuters).

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Not long ago, Foley & Lardner was selected as a monitor for a medical devices company that had been found to have engaged in activities alleged to have violated the FCPA. As the leader of the investigatory team, I did not have the normal advantage of working with a known client with a known business.

Rather, I needed to quickly develop a multi-faceted team that had to quickly get up to speed on the company’s business model, how it conduct business abroad, its distributor arrangements, its compliance program, its internal controls, and its training. In short, I had to set up a compliance review with the kind of probing that one would find in an in-depth financial audit.

The importance compliance lessons learned from Foley’s experience of a corporate monitor are provided below.

General Lessons

As most people who are involved in the compliance area know, establishing the right corporate culture is paramount. The key requirements include ensuring that the company has a culture of respect for compliance, that senior management is firmly behind all compliance efforts, and that there is a strong and well-funded compliance infrastructure that can catch compliance missteps from a variety of angles.

Establishing the appropriate corporate compliance culture requires constant reiteration of the compliance message. Compliance standards must be public and promulgated throughout the company, including through regular placement in company newsletters and on corporate intranets. Compliance policies should be readily accessible to employees and integrated into all aspects of employment, starting with discussions of compliance during the hiring process and references to the policy in employment contracts. Even employee performance reviews can help serve this purpose, by ensuring that employee adherence to compliance standards are part of the evaluation process.

The involvement of senior management is also essential for the development of a corporate culture focused on compliance. Placing a member of senior management in charge of compliance acts as a vital link between the executives and board members responsible for running a company and the employees on the ground who must deal with potential regulatory violations issues on a regular basis. A high-level member of management who is intimately involved in the compliance process also lends legitimacy to the company’s compliance policy and helps firmly establish the tone from the top.

This is not to say that every company needs to have a dedicated chief compliance officer. The establishment of the compliance infrastructure, like all compliance efforts, needs to be a risk-based endeavor, which means that the compliance needs of a smaller company that only operates in a handful of foreign countries may not be the same as those of a large multinational corporation that operates in a number of high-risk environments. It is common in smaller companies for compliance duties to be handled by an employee who has multiple responsibilities, such as the head of the human resources or audit departments. But at all companies, there should be a single person who is responsible for monitoring potential violations, managing due diligence, developing and providing compliance training, answering questions and resolving red flags, and testing the compliance program. This type of compliance ownership, by a person who is free from business pressures to achieve particular outcomes, is essential to ensure that compliance responsibilities are taken seriously. A Corporate Monitor’s Guide to International Regulatory Compliance.

A final issue is the adequacy of funding. Effective compliance requires hiring appropriate compliance personnel, taking time from busy employees for training, the establishment of internal controls and processes to monitor the effectiveness of the program and procedures in place, and periodic revisions to the policies and training materials. Companies should put in place programs that will be supported by commensurate resources. If, for example, a company states that it will perform due diligence on every agent it hires, then it should ensure that it has set aside sufficient resources to carry through on this commitment. Although compliance can be expensive, it pales in comparison to the multimillion dollar fines and high investigatory costs that now accompany even routine violations of U.S. regulations.

Compliance Program Improvements

A thorough and proper risk assessment forms the core of any good compliance program. No compliance program has the luxury of drawing on unlimited resources. Therefore, it is necessary to begin with a sober assessment of the regulatory risks facing the business, including those posed by its corporate profile, business model, types of products sold, areas of operation, use of third parties, degree of government interaction, and other business-profile issues that impact the degree of regulatory risk.

The ways in which to conduct a proper risk assessment vary, but certain principles are universal. Involvement from senior management and employees that understand the company, its business model, and its specific regulatory risk points is essential. The risk assessment must be conducted free of business pressures, without clouded judgment regarding where the highest risks arise. The risk assessment also should take into account all the ways in which outside actors can implicate the company or create regulatory liability, such as agents, distributors, joint venture partners, and other third parties.

Companies also need to update their risk assessments on a regular basis. Corporate expansions, mergers and acquisitions, establishment of new joint ventures, expansions into new countries or product lines, and new distributor arrangements are all activities that can alter the risk profile of a company. Even regulatory developments, such as enactment of broad anticorruption laws such as the UK Bribery Act or the recent ramping up of OFAC sanctions and related enforcement activity, can impact compliance requirements. Not all of these changes, or their impact on compliance efforts, are obvious, which makes a regular reassessment of risk an important compliance function.

After conducting a risk assessment, a company must decide how to allocate its compliance resources. Allocating most resources to identified high-risk areas is important. So, however, is recognizing that the risk even in low-risk areas seldom is zero, and thus deserve some compliance attention as well. A well-structured risk assessment can help balance the distribution of compliance resources.

It also is important to regularly update compliance measures. Compliance standards regularly change, driven not only by changes in the regulatory framework but also the expectation of the regulators. As a result, it is important for a company to remain educated about compliance issues, including through regularly sending compliance personnel to specialized conferences, and following developments that bear on the ever-evolving standards for an acceptable compliance program.

When changes are made, the changes to the compliance program must be appropriately promulgated throughout the company. Depending on the change, this could require anything from company-wide training to a simple email from the company’s chief compliance officer. Regular communications regarding the company’s compliance message serves the dual purposes of keeping the compliance message top-of-mind while also communicating the company’s evolving compliance efforts and its commitment to compliance.

Training Enhancements

Training is an integral part of every compliance program, and serves a function that is much greater than merely communicating information. Done properly, it is an important part of the compliance-related dialogue that helps minimize the risk of violations and while helping to discover violations that already have occurred. It also is a key cog in the central goal of communicating the importance of compliance to the organization.

Although many companies conduct training electronically, including through the use of innovative compliance presentations and on-line quizzes, in-person training remains the gold standard. Company personnel tend to pay more attention to a live presentation, and the presentation can be tailored to the requirements of the audience. Allowing time for discussion not only allows employees the opportunity to ask questions about areas that are unclear, but often reveals areas where further inquiry may be appropriate. Properly presented, in-person training can result in compliance feedback that can be incorporated to improve the overall compliance program.

No matter how training is provided, it cannot be a one-time event. Although all employees should receive initial training upon their hiring, reinforcement of the training on a periodic basis is essential. Annually is a good benchmark that works for most companies.

Finally, companies should make training relevant to the evidence. The training should use as many real-world examples as possible, such as case studies drawn from actual problems confronted by the company in the past, as well as those that are more likely to occur based on the industry and where and how the company does business.

Audits and Compliance Checkups

Compliance as envisioned by the compliance program, and compliance as it actually occurs in the field, often are two very different things. A company that implements rigorous procedures, but then fails to live up to them, often enjoys the worst of two worlds, since its failure to meet its compliance goals would be held against it in any enforcement proceeding. To avoid this possibility, compliance implementation should be monitored by direct observation, by supervision of the program, and by testing the controls.

Some of this testing can be done in the company’s normal internal audit process, and it is important that internal audit employees receive specific compliance training so they understand what to do and why they are doing it. One increasingly common way of ensuring the testing of the controls is to conduct compliance audits. These audits are intended to stress-test compliance procedures by picking high-risk transactions at random to see whether the compliance program is functioning as envisioned. Beyond this, regime-specific audit items can be created, which generally will focus on whether the company is adhering to its internal controls in a given area. They can be conducted by properly trained internal or external auditors.

The tendency at many companies is to conduct audits based upon the ease of conducting them, rather than their utility. This shows up, for example, when companies target their own foreign operations for compliance-related audits, but do not exercise their rights to audit agents or joint venture partners. It also arises when companies do not return to the lessons of their risk assessments to determine the high-risk areas that merit follow-up checks. Unlike financial audits, which tend to concentrate on areas with the highest revenue impact, compliance-based audits often need to focus on areas that may have a small revenue impact but a large compliance risk footprint. Operations in a developing country, for example, may be new and have still-small revenue, yet present an outsized compliance risk.

Agent and Distributor Controls

No compliance program, no matter how well conceived, can perform its job unless the risks posed by third parties are adequately addressed. This is because many enforcement settlements are premised on agency principles, i.e., a determination that parties outside the company were acting on behalf of the principal, thus creating legal liability for the principal.

Dealing with agents, distributors, and other third parties presents unique and interesting challenges. Often companies work with these third parties in foreign countries because they do not understand the business culture or ins-and-outs of doing business in a particular country. Agents help fill this knowledge gap by bringing knowledge of the business environment that the company cannot fill by itself.

But the greater the separation from corporate headquarters, the greater the risk. The dangers of third parties can arise in a host of areas, including for matters handled by customs brokers, distributors, sales agents, political consultants, lobbyists, and other third parties. The consistent use of third parties, even when justified from a business perspective, by itself can be considered a compliance red flag. The oversight of third parties accordingly should be considered in every aspect of the company’s risk assessment, including with regard to the establishment of the relationship (with appropriate contractual protections), training, accounting, ongoing certifications, and even audits.

Due diligence is also a key step when managing third-party risks. Due diligence is a potpourri of tasks that may include interviews, background checks, reviews of databases and publications, consulting third parties to provide reliable local information, using forensic accountants to review books and records to evaluate risk, visiting the office of agents, and other methods of confirming suitability, as the case may be. Once again, the application of risk-based principles will help determine how much due diligence is appropriate for various types of third parties.

At too many companies, third-party compliance oversight begins and ends with due diligence. In other words, the company conducts its third-party due diligence, places the resulting report in its file, and then moves on to conducting the business relationship without much more in the way of oversight. Ongoing review of the relationship, however, is the best way to proceed, including through periodic certifications, ensuring up-to-date training, monitoring any deviations of the relationship from the anticipated course, and the conduct of third-party audits. Due diligence is important, but it is only a limited snapshot of the past. As the relationship evolves, the company’s best source of information about the relationship becomes the data concerning its own relationship with the third party.

 

“The Most Corrupt Health System Globally Is That in the US. Unfortunately It is Also the Most Influential Medical System”

Tuesday, July 21st, 2015

PillsIn response to this recent post, I received the following from an individual who prefers to be called “a fraud investigator from the United Kingdom.”

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I was interested to read your points and observations about health care and the foreign official issue. Notwithstanding whether or not employees and physicians connected to state owned or controlled hospitals etc are foreign officials, there is a very real concern, certainly in the UK, that financial interests undermine medical decision making. Indeed there are various studies which appear to prove the effect.

I know from experience there is a resultant detriment to state funds here, so in this context and in the absence of other meaningful regulation of health care corruption, the broad use of “foreign officials” is welcome.

Many people working in my industry recognise that health care presents unique issues with corruption. This may be explained by market forces. For example, if you ‘marketize’ an essential service where the purchasers are entirely reliant on people with financial interests (Physicians) to decide what is best for them, and at the same time patients cannot challenge those people without potentially jeopardizing their own care, it is arguable that such a market cannot ever function effectively, particularly when huge amounts of money are involved.

Health care is also unique in how and why it is utilized. You can walk away from your lawyer, accountant etc if you feel uncomfortable, but you can’t so easily walk away from a Physician who may hold the key to curing you. It follows that you are very unlikely to question or care about their financial interests, particularly when your insurer or the government is paying most of the costs.

Ultimately though, patients not only trust Physicians based on them being people of high public standing, but they also have to trust Physicians if they are to be confident of getting well. It is this inherent trust which is exploited and undermined by financial interests. I think everyone knows fundamentally how wrong it is for payments to be made to Physicians and other health care professionals, the question is how to stop the practices and to cure the underlying cultural cause.

Within the US health care sector there are agencies who use well intentioned laws to prosecute wrongdoing such as under Stark or the Federal Anti-Kickback statute; HHS-OIG and the FBI publicize high profile prosecutions very frequently. However, those efforts appear never ending – presumably because the profits are so great that for many people it is considered worth taking the risk. However, I also know in some parts of the US that businesses are unable to compete for patients on a legitimate basis because all other providers are paying kickbacks to secure business.

My interest and point in contacting you, is one of culture. Health care is an essential need for everyone and the corruption of those services affects all levels of society globally. Unfortunately, the US has suffered so much misconduct in medical practices that it has become almost the norm. For example, the very idea of so called “Patient Recruiters” goes against everything I understand to be reasonable yet they form part of the structure of health care provision in the US.

If you consider – Pharma payments, medical devices such as cardiac implants, CPD coding, patient recruiting, hospital kickbacks, pathology overuse, durable medical equipment and ambulatory care as headline issues (there are many others), you will find the US system is rife with problems. Although nowhere near to the same extent here in the UK, it is clear that in India, Serbia, Greece, China, Russia and many other countries there are massive issues with corruption in health care. However, my view and I suspect that of many others, is the most corrupt health system globally is that in the US, primarily due to conflicts of interest. Unfortunately it is also the most influential medical system.

The corruption is partly explained by the lack of transparency around pricing and proven clinical benefits. For example, I travelled to the US not so long ago and required a common over the counter remedy available in the UK for about 15 dollars. In the US, the same medicine is prescription only and costs $150 dollars plus $150 dollars to see a Physician for the prescription. Fortunately, a colleague had brought some with him as on his last trip he had ended up paying the $300 dollars.

Another example is just looking at all the people wearing physiotherapy aids. I couldn’t quite believe it when I was just walking around a US city, but came to understand that there is big money in prescribing pointless wrist, knee, elbow supports and the like. The reason for these two simple examples is to show that pricing in the US is out of control and that treatments of questionable clinical benefit are routinely offered and accepted.

What I wonder is:

  • How much global health care corruption can be accounted for by large corporates which are either directly based or primarily selling in the US (Pharma and device manufacturers in particular)?
  • Is the issue in fact that financial practices designed to influence Physicians’ independent decision making have become so commonplace in the US that they are replicated overseas as a matter of course? In other words if usual business practice in the US is on a corrupt basis, and indeed is necessary just to compete with rivals, then when those corporate move into overseas markets the natural tendency must be to use the same methods. This is certainly evident in FCPA cases in China. It would be easy to make a lot more discussion around what happens when US corporate practices are applied in countries with endemic corruption issues.
  • Would it be better to have an anti-corruption focus and international agreement specifically targeting designated sectors – health in this case but also perhaps mining, energy and other areas where problems are similar on a global level, are well known about and the market is one which all people are to an extent dependent on?

One final thought/question. Should the US be policing health care overseas under the guise of the “foreign official” enforcement theory or should the US be policing it by redefining how businesses operate in the US as a starting point and then applying those standards overseas?

I will certainly continue to watch developments on your website with interest and thank you for your excellent insights – do keep up the good work.

Canadian Government Overhauls the Integrity Regime for Suppliers – Still Tough to Get Over Debar

Monday, July 13th, 2015

CanadaToday’s post is from Milos Barutciski and Matthew Kronby (partners with Bennett Jones in Toronto).

It was originally published as a Bennett Jones Client Alert and is reposted below with permission.

 

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On July 3, the Government of Canada announced a new Integrity Regime to replace the previous rules for debarment (disqualification) from public procurement. The new Regime, which is effective immediately, responds to more than a year of steady criticism of the previous Integrity Framework first established in 2010 by Public Works and Government Services Canada (PWGSC), the principal procuring arm of the Canadian federal government. That criticism, from business, legal and anti-corruption organizations, argued that the Integrity Framework had become so inflexible, punitive and far-reaching that it would be counterproductive to its objectives, namely to deter criminal misconduct and protect the integrity of the public procurement process. Commentators argued that the actual effect of the old Integrity Framework was to make it difficult for the government to find “clean” suppliers and to discourage companies from acknowledging and remediating wrongdoing.

The Government signaled its intention to address these concerns in its April 2015 budget. The new Integrity Regime goes a considerable distance to correct many of the problems with the Integrity Framework, but falls short in some critical respects.

The Concerns Giving Rise to the New Integrity Regime

Under the former Integrity Framework, suppliers faced disqualification from PWGSC procurements for fraud or corruption offences they or their affiliates have committed. The definition of “affiliates”, which appears to have been drawn from the U.S. debarment rules, is very broad; it covers all relationships where one entity has the power to control the other or a third party has the power to control both. In 2012, the list of offences that could give rise to debarment was expanded to include the bribery of foreign public officials under the Corruption of Foreign Public Officials Act and other federal offences.

None of this provoked particular concern until March 2014, when PWGSC adopted the latest in a series of “get tough” amendments to the Integrity Framework. One of these amendments imposed a mandatory 10-year ineligibility period for suppliers, with no scope for reduction due either to the gravity of the offending conduct or the remediation efforts of the business involved. In contrast with the U.S. and similar regimes elsewhere, which give credit for mitigating circumstances and remediation efforts in determining or subsequently reducing debarment penalties, companies doing significant business with the Canadian government have had little incentive to admit to and redress corrupt conduct and potentially a strong disincentive to do so.

The 2014 amendments also expanded the ineligibility conditions to include foreign offences “similar” to the listed domestic offences. Since the Integrity Framework already extended to the conduct of far-flung affiliates, this meant that Canadian businesses could face automatic 10-year debarments from most federal procurement not only for their own corrupt conduct but for the foreign conduct of remotely related entities over which they exercised no oversight or control. Increasing international enforcement of regulatory laws, such as anti-corruption, economic sanctions, antitrust and competition offences, meant that Canadian companies could face automatic debarment in ever expanding circumstances with no connection to Canada.

Key Elements of the New Integrity Regime

The new Integrity Regime remains under the primary authority of PWGSC and its Minister. The elements of the Regime are set out in a new PWGSC Ineligibility and Suspension Policy. The new Regime introduces key changes in relation to (i) the potential to reduce the length of debarment through remediation in certain circumstances; (ii) interim debarment prior to conviction; (iii) the consequences of “affiliate” conduct, (iv) the impact of conviction for foreign offences, and (v) new administrative and review process within PWGSC.

Potential Reduction of 10-year Debarment

The Regime maintains the 10-year ineligibility period for participation in procurements, which will apply for any convictions for covered offences within the previous three years. However, suppliers, other than those convicted of fraudulent conduct in a government procurement, will have the opportunity to reduce their ineligibility by up to five years by co-operating with law enforcement authorities or implementing appropriate remediation to address the causes of the misconduct. To restore their eligibility, suppliers also will need to obtain independent third-party certification that they have successfully addressed the causes of the misconduct. Suppliers convicted of fraud in connection with Canadian government procurement will remain ineligible indefinitely until they have received a pardon.

Ineligibility extends to sub-contractors as well. Suppliers who without prior Ministerial approval perform government contracts using sub-contractors deemed ineligible under the Integrity Regime will themselves face five-year debarments.

Interim Debarment

In addition to the 10-year ineligibility period, suppliers that have been charged with or admitted to any of the covered offences may be suspended from participating in procurement processes pending completion of the criminal proceedings.

PWGSC will maintain a list of ineligible and suspended companies and individuals.

Affiliates

The actions of an affiliate no longer render the supplier automatically ineligible. Instead, a supplier will be ineligible for the conduct of an affiliate only where the supplier can be shown to have “directed, influenced, authorized, assented to, acquiesced in or participated in” the conduct that would give rise to ineligibility. The Integrity Regime also establishes a review process under which suppliers will have 30 days to contest determinations of ineligibility based on the conduct of affiliates.

Foreign Offences

“Similar” foreign offences remain a basis for ineligibility or suspension under the Integrity Regime. The regime now explicitly contemplates an assessment of that similarity as well as the fairness and legitimacy of the proceedings that produced the foreign conviction. However, it is unclear who will be charged with making those assessments; the Ineligibility and Suspension Policy contemplates suppliers hiring independent third parties to provide information about foreign conviction but states rather vaguely that the “opinion of Canada” will be determinative.

Administrative Process

As under the Integrity Framework, the Government will be able to enter into a contract with an otherwise ineligible supplier where doing so is deemed necessary to the public interest, such as where no other suppliers can perform the contract or where failure to enter into the contract would pose risks to national security or public health.

The Regime contemplates the use of administrative agreements imposing conditions and compliance measures that an ineligible supplier must take to have its 10-year ineligibility period reduced or suspension following charges lifted, or when the Government invokes the public interest exemption or maintains an existing contract with a supplier who has become non-compliant. Supplier compliance with these agreements will be subject to independent third-party monitoring.

Impact Assessment

The new Integrity Regime addresses the overreach and potential unfairness that were inherent in the Integrity Framework’s application to foreign convictions of supplier affiliates. More generally, it adds transparency to the process by which ineligibility decisions will be made.

The elimination of automatic 10-year ineligibility is also a welcome development as it, to some degree, recognizes and encourages cooperation and remediation efforts by suppliers who have committed listed offences.

However, the revised policy fails to make a clear distinction between punishment and deterrence of misconduct (the domain of criminal law) and protecting the integrity of federal procurement and taxpayer dollars (the domain of procurement rules). The growing severity of corporate fines and the risk of individual imprisonment in corporate criminal cases, together with the reputational harm suffered by companies found guilty of white collar crimes, are a very strong deterrent for repeat offences and a general deterrent for other companies. It is unlikely that an automatic five-year debarment from Canadian public procurement will contribute significantly further to deterrence. It will, however, have a detrimental impact on Canadian companies (and their employees) even when they have substantially overhauled their management and practices. The automatic debarment will also harm Canadian taxpayers by eliminating potential suppliers and reducing the number of competitors bidding on public contracts (with the consequential pricing impact of reduced competition).

PWGSC’s claim that the new Regime will encourage suppliers to proactively disclose misconduct seems similarly misguided. Unlike the U.S., which can offer deferred or non-prosecution agreements to enable companies that voluntarily confess their sins to avoid debarment, the only benefit the Regime will offer such companies is that their ineligibility period can begin sooner. Those companies will still face a minimum ineligibility period of five years, more than long enough to have serious or even existential consequences if they are heavily dependent on federal procurement contracts. Companies facing legal exposure in Canada or abroad that include potential ineligibility under the Integrity Regime therefore will want to consider their options carefully, with the assistance of expert legal counsel.