Justice Department Opens Up False Claims Files for Criminal Investigation
The Justice Department has a penchant for disclosure – they tell you what they are going to do in advance and then they do it. Companies have tried to claim they were “shocked” or “surprised” by the Justice Department’s actions but their claims have a hollow ring to them.
For example, in 2009, the Justice Department told the pharmaceutical and medical device companies they were going to bring anti-corruption cases against numerous companies in the industry – basically, announcing a sweep before the actual sweep occurred. In the years following the announcement, and continuing today, there are numerous pharma and medical device companies under FCPA scrutiny.
Recently, the Justice Department announced yet another initiative to make life difficult for compliance and legal professionals in the private sector.
Criminal prosecutors will now get early access to qui tam claims under the False Claims Act to determine whether or not a criminal investigation is warranted. That is pretty scary news – many qui tam claims involve potential criminal violations. For prosecutors, this could be a great source of information to launch new and important criminal cases.
The government’s ability to investigate a case is much better using a grand jury than using civil investigative demands. For companies, it means that False Claims Act risks have multiplied by a significant factor.
Consider the possibilities – a parallel criminal case can be opened at the same time as a civil investigation is launched. The focus of this initiative, as announced by DOJ’s Criminal Division Chief, Leslie Caldwell, will be the healthcare, defense procurement, and financial industries. DOJ routinely recovers billions of dollars each year under the False Claims Act. I have also stated that for many companies the greatest risk they face is a False Claims Act violation. This recent announcement underscores my belief that companies have to be vigilant in protecting against fraudulent activities that fall within the ambit of the False Claims Act.
Qui tam relators will respond to this initiative by reaching out to criminal prosecutors as well as civil False Claims Act attorneys. A company is much more likely to react when a case turns criminal in addition to a lengthy False Claims Act review and prosecution.
Under the False Claims Act, a qui tam relator files his/her complaint under seal with the government and the court. The civil False Claims Act section evaluates the claim to determine whether to intervene in the case. The company being investigated is not notified of the filing or the investigation until the complaint is unsealed or the compay receives a CID from the government.
With the possibility of a criminal investigation being started in this early stage, companies could face risks of proactive criminal investigation operations (e.g. recorded telephone calls, meetings, search warrants, and even wiretaps), as well as a parallel grand jury inquiry.
To the extent companies learn of or suspect a criminal investigation, the company will have to seek to identify prosecution risks, prepare for a criminal defense and possible remediation steps to avoid criminal prosecution. Companies will have to devote more energy to resolving a criminal case than a trailing civil case.
All in all, companies in the healthcare, defense and financial sectors will face a new complexity to their risks. For compliance professionals, this will mean greater proactive steps to ensure effective ethics and compliance programs.