In 2011, the Department of Justice (“DOJ”) stated that “[i]t’s not necessarily the wisest move for a company” to challenge the definition of “foreign official” under the Foreign Corrupt Practices Act (“FCPA”), and that “[q]uibbling over the percentage ownership or control of a company is not going to be particularly helpful as a defense.” The DOJ’s prophecy rang true in the Eleventh Circuit’s recent decision in U.S. v. Esquenazi, 2014 U.S. App. LEXIS 9096 (11th Cir. 2014).
This article was originally published by Bloomberg Law.
In a much-anticipated decision, the D.C. Circuit clarified the general test for the applicability of the attorney-client privilege in internal investigations. In re Kellogg Brown & Root, Inc., 14-5505, 2014 WL 2895939 (D.C. Cir. June 27, 2014). The court unanimously rejected the district court’s holding that a communication is privileged only if it would not have been made “but for” the purpose of seeking legal advice. Although a few district courts have followed this narrow “but for” test, corporate counsel rightfully feared that other courts would follow suit and narrow the protection generally afforded to internal investigations that are often done to comply with regulatory or business requirements and to seek legal advice. In rejecting the “but for” test, the D.C. Circuit looked to the lessons learned from Upjohn Co. v. United States, 449 U.S. 383, 392 (1981) and broadly held that communications in internal investigations are privileged not only where the single primary purpose of an investigation is to provide legal advice, but also if that is “one of the significant purposes” of the investigation.
DOD Proposed Rules Seeking Contractor Business System Rule Self Assessments
The Department of Defense issued a proposed rule on July 15th that would revise the DFARS Business Systems Rule by requiring contractors with estimating, accounting, material management, and accounting systems that are currently subject to the existing Business Systems Rule to perform self-assessment reports on their business systems compliance. The proposed rule would have contractors assuming responsibility for annual self-assessments of those systems and for overseeing a triennial audit of the contractor’s compliance by an independent contractor-selected Certified Public Accountant. As drafted, the proposed rule would only apply to the contractor’s accounting, estimating, material management, and accounting systems used for DOD CAS-covered contracts. Government auditors would examine the results of the self-evaluations. Contractors will be offered no favorable credit or “safe harbor” for disclosures made in the contractor’s report.
In a stunning ruling issued on July 15, 2014, the U.S. Court of Appeals for the D.C. Circuit held that review by the Committee on Foreign Investment in the United States (“CFIUS”) and the subsequent unwinding of the investment deprived the foreign investor of due process under the 5th Amendment to the U.S. Constitution. Ralls Corp. v. Comm. on Foreign Investment in the United States, No. 12-cv-01513 (D.C. Cir. Jul. 15, 2014) (a copy of the opinion is here). If upheld, the ruling may require fundamental changes in how CFIUS conducts its reviews and may enhance foreign investors’ ability to influence or challenge the outcome of a review.
In February 2013, we reported (on our Healthcare Law Blog) that the Centers for Medicare and Medicaid Services (CMS) announced the final rule for the Physician Payments Sunshine Act. In the interest of providing more transparency for patients, the final rule requires pharmaceutical and medical device manufacturers and group purchasing organizations to report payments or transfers of value provided to physicians or teaching hospitals and to report physician ownership and investment interests. The deadline for submission of aggregate data was March 31, 2014, and the deadline for submission of detailed data is June 30, 2014. CMS has already established a website to display that data beginning in September 2014. In the meantime, also in the interest of transparency, on April 9, 2014 CMS touted the “historic” release of data showing utilization, payments, and submitted charges for services and procedures provided by physicians and other health care professionals to Medicare beneficiaries. As claimed by CMS, this data covers “880,000 distinct health care providers who collectively received $77 billion in Medicare payments in 2012, under the Medicare Part B Fee-For-Service program” and will enable “a wide range of analyses that compare 6,000 different types of services and procedures provided, as well as payments received by individual health care providers.” (See press release. The data is available here.) The consequences of such unprecedented releases of payment/investment interest and Medicare billing data are significant.
On May 7, 2014, the Office of Federal Contract Compliance Programs (“OFCCP”) issued a directive establishing a five-year moratorium on enforcement of certain affirmative obligations of TRICARE subcontractors—specifically, obligations related to affirmative action programs and recordkeeping under Executive Order (“E.O.”) 11246, as amended, Section 503 of the Rehabilitation Act of 1973 (“Section 503”), as amended, and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”), as amended.
Amended SDN Designations Under New Sanctions Programs
On May 23, the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”) published additional identifying information for persons whose property has been blocked for their activities related to the conflict in the Central African Republic. See 79 Fed. Reg. 29,842 (May 23, 2014). On May 12, President Obama issued an Executive Order that authorizes the blocking of all property in the United States of persons for activities including actions that threaten the peace or stability of the Central African Republic, actions or policies that undermine transitional institutions or democratic institutions, targeting women for acts of violence, the recruitment of child soldiers, and other human rights abuses. See Exec. Order 13,667 (May 12, 2014). The Executive Order provides authority for persons to be added to OFAC’s Specially Designated National (“SDN”) List. Once a person is added to that list, that person’s property under U.S. jurisdiction is blocked, and U.S. persons are prohibited from transacting with that person. The Central African Republic sanctions are the most recent example of sanctions programs targeting human rights violators, and a discussion of previous sanctions can be found in our Global Trade Blog.
If you are a contractor that interacts with both the Department of Defense and “electronic parts,” it is time to grab the caffeinated beverage of your choice, crack open 79 FR 26,092, and begin the bone-tingling read that is sure to keep many supply chain managers up at night. Implementing the requirements found in the National Defense Authorization Acts for FY2012 and FY2013, the DoD’s counterfeit parts rule was finalized and published in the Federal Register on May 6, 2012. Effective immediately, the new series of regulations apply to defense contractors using, relying on, or selling to the DoD an “electronic part,” as that term is now newly defined. Although it may spoil the ending and break the cardinal rule of reading any thriller, we provide here the “Cliffs Notes” version of the regulations’ lengthy preamble and the key takeaways of the new Rule and its proposed application.
On March 10, 2014, just days before trial, Halifax Hospital Medical Center and Halifax Staffing, Inc. (collectively “Halifax”) entered into an $85 million settlement with the U.S. Department of Justice resolving allegations that they violated the False Claims Act (“FCA”) by submitting Medicare claims that violated the Stark law. See Notice of Settlement and Settlement filed in U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center, Civ. Act. No. 6:09-CV-1002 (M.D. Fla.) The settlement effectively ended a qui tam action that had been filed by an insider in June 2009. The Government had intervened based on employment agreements with six medical oncologists that compensated the physicians based on the operating margin of Halifax’s medical oncology program. The compensation arrangement, referred to as an “Incentive Bonus,” covered a four-year period—from 2005-2008. There are a few lessons to be learned from this case.
DoD Issues Final Rule regarding Counterfeit Electronic Parts (79 Fed. Reg. 26092)
The Department of Defense issued a final rule on May 6, 2014 that sets forth contractor responsibilities related to the detection and avoidance of counterfeit electronic parts, including the obligation to report counterfeit or suspected counterfeit electronic parts. For a detailed discussion of this new rule, see article here.