Remarks by Bruce J. Casino:
I do a lot of work in the White Collar criminal arena. All of my
clients,
of course, are innocent, but I know of cases where people have had troubles.
I’m also an adjunct professor at George Washington University Law School
and
teach the course on White Collar Crime there.
I think what we’re seeing in this arena is part of a trend across the
board in America, and that is that what had been administrative issues are
being criminalized. Things that used to be dealt with on a purely civil or
administrative track are now coming under the scrutiny of the criminal laws.
The laws that have been passed are extremely broad and are able to catch
completely innocent persons.
If the Government decides to stick a microscope on the 515 program, and
go over it with a fine tooth comb, virtually any government-related entity
or
contractor is going to have some minor issue here or there. There is
enormous
discretion given to the auditors, investigators and criminal prosecutors
because these statutes are drafted so broadly. I think Richard and John have
done an excellent job of presenting some of the issues and statutes.
Couldn’t Prosecute — No Crime
I was disturbed to see in the government report presented by Richard
(but
it’s not atypical) a discussion of how unfortunate that the Government
couldn’t prosecute certain people and certain companies because the State
or
local office had inadvertently authorized those charges. They’d been
authorized.— there was no crime. Why, one might ask, does that make the
decision not to prosecute regrettable? Or were they unable to pursue
criminal
investigation because the State office had issued a memorandum that was
misinterpreted as permitting the fees? Misinterpreted by whom? But then
they
go on, on the same page, to say they’re going to tighten this up and issue
new regulations, including requiring owners and management agents to certify
that management agreements are in compliance with program regulations:
. . . In the other case, even though the management agent charged $35,000 in
tax preparation fees for tax returns that were considered to be expenses of
the partnerships, we were unable to pursue it for criminal investigation
because the State office had issued a memorandum that was misinterpreted as
permitting the fees.
RHS Plans to Make Prosecution More Likely
To promote a greater acceptance of these cases for criminal prosecution in
the future, RHS plans to incorporate stricter language into its regulations
that will prohibit common unallowable charges and practices, including the
unauthorized use of reserve funds, and clearer definition of unallowable
costs, such as those related to tax preparation fees. RHS will also require
owners and management agents to certify that management agreements are in
compliance with program regulations.
Whenever you have to certify something to the Government, you’re
getting
into the arena of criminal False Statements. Anything and everything that
you’re certifying to, can become the basis for a False Statement charge.
Levels of Knocks
There’s been some discussion of what to do when the Government comes
knocking. There are different levels of knocks that you can have from the
Government. There are hard knocks and soft knocks. The soft knock may be the
audit. Although, as Richard points out in his materials, there is an
Obstruction of Audit crime; so interfering with an auditor can itself be an
Obstruction of Justice charge.
But the next level is when it is referred by the auditors for criminal
investigation and you get a knock from the agents — OIG agents or FBI
agents that are working with the U.S. Attorney’s Office. They decide to
investigate further and they want to come and have a chat with you. At that
point, of course, the key thing to do is to call a good lawyer because you
don’t want to be talking; from my experience, you don’t want to just go
and
have these friendly chats with the Government agents. They come sometimes to
your house at 7 in the morning: “You know we just want to talk with you. If
there’s nothing wrong, why can’t we talk?” Those are often the most
dangerous kinds of situations you can imagine without first consulting with
experienced legal counsel.
Your friendly Government says: “I’m here from the Government, I’m
here
to help you.” This is really problematic.
What they will do is issue a subpoena for documents. You’d better be
very,
very careful to document that you really have produced the documents that
they want; that you’ve searched carefully for the documents. You need to
put
in place an effort to respond to those subpoenas for documents.
Counsel for Employees
You need to be very careful in dealing with your employees where there
may be requests for interviews. The Obstruction of Justice statutes are used
in this arena. If you tell your employee: “Mary, you just better not talk
with those agents, you have constitutional rights,” that can be construed
as
an Obstruction of Justice. The way that most investigations deal with that,
from the defense side, is you hire a lawyer for the individual or maybe a
set
of individuals and, based on the individual’s legal needs, they tell them:
“Don’t talk to the Government.” That way, you don’t have the burden
of
that; they’ve got their own individual lawyer, and that lawyer is able to
give them relevant advice.
But there are a lot of tricky issues in this whole area. You’ve got to
be
very careful.
There is another level of knocking, and that is a Search Warrant. If
they
really are concerned about your program and have no trust that you will
produce documents appropriately, they may come in with a little task force
of
agents and have a party. Knocking on the door with a search warrant:
“We’re
going in now. We want these documents now. Nobody leaves the premises.
We’re
here.” In that case, of course, you have to be very careful not to
obstruct
the agents.
You have a right to see the search warrant, and you should try to
monitor
what they’re taking. Try to get a receipt. You can ask them to make copies
of
documents they are taking. You want to get a lawyer that knows something
about this arena on the phone so he can talk with the agents about any
sensitive material, or try to negotiate with them. It is a landmine-filled
arena.
High Risk Profiles
It is very unfortunate that what had been administrative issues all of a
sudden may be pushed into the criminal arena. But that is the trend, and
that appears to be what’s happening here. Sometimes these audits are
initiated by the High Risk Profiles, including flags raised by physical
deterioration of a property and Identities of Interest issues.
As John and Richard were suggesting, you have to get out of the High
Risk
Profile. This is the key prevention strategy — probably a very good thing
to
do right out of the box. Make sure that you’re not bringing up any of
those
indicators on the radar screen, because they are going to tend to prioritize
on those areas. If there are appearance problems at a project, that of
course
adds to the sexiness of going after people. They can show photos to
Congress.
Former Employees
You also have to be careful with disgruntled former employees. I’ve
found
they can often be a source of great problems. I had a case where the lady
was
fired eventually: She kept coming to work drunk. She threw up on her desk. They got her counseling, but it just never worked out. She initiated an
investigation that went on for several years on all kinds of contract
issues.
I remember going down to meet with her and conduct an interview. She said
that would be fine, but only if I bought her a drink. She caused this
company
to spend hundreds of thousands of dollars in defending itself.
In
the end, there was no prosecution, not even a civil action. But just coming
up on the radar screen is enough to create all kinds of problems for you and
to cause you to have to deal with the likes of Richard and me: lawyers who
can cost money.
To the extent, you can stay off the radar screen, you are well served.
False Statements
Just to give you a sense of the statutes you’re dealing with, Richard
referenced the False Statements statute: Whenever you make a statement to
the
Government that is false in any material way, you can be prosecuted, as long
as you knew you were making the statement. You didn’t have to have an evil
intent, as you do with murders and other kinds of crimes. All you have to do
is be aware of the statement you’re making and that the statement is
inaccurate. You might say the materiality issue will save the day, but
materiality simply means anything that may be capable of influencing a
Government action. They look at this in retrospect. They say, “Yeah, if
I’d
really known that this or that fact wasn’t 100% accurate, or was
understated
by 10%, maybe we wouldn’t have taken this action, or approved the program,
or
something.”
False Claims
The arena of False Claims involves making a claim on the
Government
for funds, whether it is $10 or $10,000. If that claim is off by $1, there
is
a potential for the Government to come after you. One case that went to the
Supreme Court, the Halper Case, was in the health care arena: The company
had
submitted claims for about $8 more per claim than their actual cost as they
had certified it. As Richard points out in his materials, you can be
fined civilly $10,000 per violation. Sometimes government contractors are
submitting hundreds of thousands of claims. If in each claim, overhead that
should not be charged to the government is included, you may for each of
those claims have a separate violation of $10,000 a pop. And that’s
actually
recently been raised to $10,500 a pop.
Obstruction
Once you get into an Investigation, you have to be very focused on the
issue of Obstruction. As is also true with many Congressional
investigations,
it is what happens as the investigation unfolds that can create enormous
problems for you. Cap Weinberger in the Iran-Contra case was accused of
lying
to the Agents that were interviewing him. The Government has a very broad
discretion in terms of what is Obstruction. If you say something that they
interpret as misleading, you may have a problem. If you don’t find a
certain
document, you may have a problem.
I had a client that had ten contracts around the country, and they were
being audited in sequence. I heard the night before the first audit that
investigators were coming on board, and that word had gone out from the
headquarters that everyone was supposed to take home certain files and keep
them in their garage. We were able to countermand that and get those files
back in the office. They show up, those files aren’t there, statements are
made about the files, “We don’t know where they are” or something.
Bam!
You’ve got an Obstruction of Justice problem that may be bigger than the
problem that you had in the first place.
Your Internal Review
I don’t mean to be an alarmist here. Since I’m in the White Collar
arena
and on the panel here, I just want to give you a sense of some of the kinds
of problems and issues that come up. Now the typical way, in the White
Collar
arena, that you deal with these is you get counsel on board and they conduct an
internal investigation. You do it through the lawyers because they have the
attorney-client privilege so that what they uncover can’t be discovered by
the Government. It’s a privileged relationship.
You need that to stay ahead of the Government. Essentially, what the
lawyers are doing is the same kind of investigation that the Government
would
be doing. They can use some staff at your firm. They’re looking at the
documents the Government will be looking at. They’re attempting to
interview
the key persons who may be involved. In that way, they stay ahead of the
game. Then you can make judgments. You have to decide very early if you are
going to cooperate with the Government and say, “This was an aberrant
situation.” Or whether you’re going to have to fight tooth and nail because
it’s a
kind of pervasive problem, all the while being aware that the collateral
consequences may be as significant as the actual criminal consequences. If
you’re suspended from all Government relationships and can’t get any
more
funding or renewals of agreements, it is very problematic.
Corporate Liability
One of the key things you have to do in staying ahead is being sure that
your lawyer and investigation is getting all of the facts and all of the
data
in a very straightforward fashion so that you can make those judgments. You
should understand that just because you think that one aberrant, rogue
employee has gotten you into trouble — they’ve siphoned off some money
from
the program and bought a car — that doesn’t mean that the company is not
liable. Theories of corporate criminal liability are very similar to the
civil Tort arena. That is, if your agent does something that is criminal,
generally the whole company can be charged with that criminal activity. If
there is the slightest argument that there was a benefit to the company —
for instance, the person was cutting corners so they could get a bigger
bonus
— but if that in any way benefits the company — there is an extra dollar
that goes into the company’s coffers — the whole company can be liable
because of the actions of the employee.
Climbing the Ladder
The Government’s interest is in climbing the ladder. They want to send
a
message. The message is better sent by nailing to the wall the president,
the
owner of the enterprise. They want to climb the ladder. Often they go
after
a lower level employee and say, “You’re going to be in deep trouble, but
if
you give us the person above you — whoever authorized you to do this, or who
told
you to do this, or who turned a blind eye to this — then we will cut a deal
with you.” That is the kind of thing that, in the minds of some
prosecutors,
makes for bigger scalps on the wall for the agents and prosecutors, and
advances their career and sends a bigger message.
You have to be very proactive in this arena. The best way to prevent
these investigations is to do an internal review and try to make sure
everything is in proper order and that no flags indicating problems are
there
if the government does an audit.
I don’t want to breed anxiety, but I think it’s very important for
you
to understand just how serious these investigations can be and to give you a
feel for the dynamics of the situation when the government comes knocking.
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