A CEO receives an anonymous call claiming that someone is stealing company trade secrets or that an employee is taking kickbacks from a vendor. A GC gets a call from the HR director who has an employee accusing the company of submitting false bills to a government agency. You are served by a government agency with a subpoena seeking records indicating a criminal investigation is underway for violations of environmental laws, insider trading, tax laws or fraud. Your company receives a credible threat of litigation. These are all real scenarios that occur daily in companies of all sizes all over the world. They trigger critical internal investigations that require substantial time and resources. Regardless of the nature of the investigation, it is vital that it be conducted efficiently, with clear direction and attention to preservation of the attorney-client privilege. This article sets out best practices for doing so.
Sheppard Mullin government contracts partner David Douglass was recently quoted at length in an article discussing the defense of False Claims Act cases. Although the Government is all too often using the False Claims Act as an all-encompassing fraud statute, Mr. Douglass notes that companies are having more success defending against these allegations in recent years. The entire article can be found here.
1. Proposal to Amend FAR to Implement Revised SBA Regulations
On February 3, 2014, DoD, GSA, and NASA proposed to amend the FAR, via FAR Case 2012-022, to implement revisions made by the SBA to its regulations implementing section 8(a) of the Small Business Act “to provide additional FAR coverage regarding protesting an 8(a) participant’s eligibility or size status, procedures for releasing a requirement for non-8(a) procurements, and the ways a participant could exit the 8(a) Business Development program.” In addition to several editorial changes, the notice proposes the following substantive changes:
On November 14, 2013, the U.S. Department of Justice announced a False Claims Act settlement with Basco Manufacturing Company, a maker of shower enclosures, for $1.1 million related to misstatements on U.S. Customs and Border Protection (CBP) entry forms. The alleged misstatements were intended to allow the company to avoid antidumping duties (ADD) and countervailing duties (CVD) on aluminum extrusions used in its products that were actually from China, but transshipped through Malaysia in an attempt to avoid the duties. The settlement against Basco does not resolve the entire matter, as Basco was one company of many involved in an alleged conspiracy to conceal the Chinese origin of the aluminum extrusions at issue. Aspects of the settlement highlight certain risks posed by the False Claims Act that compound general U.S. enforcement of trade laws, and a reminder that diversion for inbound products to the United States may be a significant compliance issue of which companies should be aware.
The DOJ has released its Fiscal Year (“FY”) 2013 totals for civil settlements and judgments recovered under the federal False Claims Act (“FCA”). To say that the Department had a successful year in prosecuting fraud against the government would be putting it mildly. According to the DOJ release, the government recovered $3.8 billion under the FCA in FY 2013. That total is second only to the approximately $5 billion recovered under the FCA in FY 2012; and it marks the fourth time in as many years that the government’s recoveries under the Act exceeded $3 billion.
In a recent False Claims Act (“FCA”) opinion that has already been heavily criticized, the Fourth Circuit held that a $24 million penalty was not “excessive” under the Constitution even where damages were not proven at trial and where the government had paid only a total of $3.3 million for the services in question. United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., No. 12-1369 (4th Cir. Dec. 18, 2013).
On January 2, 2014, the Government Accountability Office (“GAO”) provided its Annual Report to Congress with data concerning overall protest filings for Fiscal Year (“FY”) 2013 and a summary of the most prevalent grounds for sustaining protests during the preceding year.
On December 10, 2013, the U.S. Court of Appeals for the Ninth Circuit denied a request for a rehearing en banc in United States v. Olsen, 2013 WL 6487376 (9th Cir. 2013) (ord. denying reh’g en banc). The defendant, Kenneth Olsen, sought to vacate, set aside, or correct his sentence on grounds that the Government had committed a Brady violation by failing to divulge evidence that called into question the integrity of the lab analyst who determined that Olsen had laced allergy pills with ricin. The Government had used the lab analyst’s testimony to convict Olsen of developing ricin for use as a weapon in violation of 18 U.S.C. § 175.
1. Final Rule Requiring Accelerated Payments to Small Business Subcontractors.
On November 25, 2013, the FAR Councils published a final rule that, inter alia, amended the FAR to require accelerated payments to small business subcontractors in certain circumstances. The final rule adds a new FAR clause, 52.232-40, Providing Accelerated Payments to Small Business Subcontractors, which must be included in all subcontracts with small business concerns. The new clause requires prime contractors to make accelerated payments to small business subcontractors “to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract” once the Government has issued an accelerated payment to the prime contractor and once the small business subcontractor has submitted “a proper invoice and all other required documentation” for receipt of payment. The final rule, which became effective on December 26, 2013, does not provide any new rights under the Prompt Payment Act.
Sheppard Mullin’s Government Contracts, Investigations & International Trade Group Wishes You And Yours The Happiest Of Holidays In 2013 And Much Success In 2014.