PGS, a subsidiary of the large security firm Securitas Security Services, was providing security services for a Department of Energy installation between 2001 and 2005. During that time, the company was reimbursed by the DOE for all costs, including the costs of providing health insurance to employees, according to a statement by the Department of Justice. PGS allegedly overcharged for those health care costs.

The case was brought to the attention of the DOJ by two whistleblowers who filed a qui tam suit against the company under the False Claims Act. The two whistleblowers will receive a total of $172,805 from the settlement, according to the DOJ.

One of the biggest changes brought about by the new bill is the reversal of the recent Supreme Court Decision in Allison Engine Co. v. United States. That decision created a loophole in which subcontractors receiving government money would not be liable under the False Claims Act, according to a statement released by the National Whistleblowers Center.

With the new legislation, a company can be charged under the FCA if an employee “knowingly makes a false claim to obtain money or property, any part of which is provided by the Government without regard to whether the wrongdoer deals directly with the Federal Government; with an agent acting on the Government’s behalf; or with a third party contractor, grantee, or other recipient of such money or property.”

Previously, government subcontractors could only be charged under the FCA if they knowingly and intentionally defrauded the government, not the primary contractor.

The bill was first introduced by Senators Patrick Leahy of Vermont and Chuck Grassley of Iowa in February.

If you’re so inclined, you can read the full text of the bill here. Of course, the simplest way to protect yourself and keep this all straight is…just don’t defraud anyone.

It turns out that cartel and anti-trust violations may be rampant in the municipal bond world, made especially harmful due to the amount of notes and bonds that governments sell each year-about $400 billion worth. The issues surrounding Governor Richardson’s particular case could just be the tip of the iceberg.

According to The New York Times, at least three federal agencies and several attorneys general have been working for years to uncover collusion among independent specialists hired by municipalities to distribute bond packages. According to the Times, one of these specialists was recorded during a phone conversation saying, “We want you to bid on this deal, but you’re not going to get it — you’re going to get the next one. We want you to submit a sloppy bid.”

Municipalities would then obliviously pay the vendor that the specialist recommended, often at inflated prices. Combined with the minuscule regulation in municipal bonds, this activity has been able to safely occur for some time.

Despite this shocking news, it does look like there might be light at the end of the tunnel. In a related story, President Obama made his first public act in office today to enact new, stringent laws on lobbying. Perhaps this ethics-in-contracting mindset will trickle down to the smaller, municipal level in order to stop antitrust in bond markets from escalating ever further.

On Friday, a new mandatory disclosure rule took effect that dramatically alters the legal dynamic between government contractors and federal agencies. Specifically, an amendment to the Federal Acquisition Regulation (“FAR”) became operational that henceforth requires all contractors to “timely” disclose certain violations of law and overpayments to the government on penalty of suspension and debarment.

The new disclosure requirement applies not only to prospective violations, but also to violations known to a contractor “principal” as of the effective date of the rule (i.e., December 12, 2008). Also in effect as of Friday are new minimum standards for internal control systems intended to preclude violations by contractors.

For further descriptions and detail of the new rule, take a look at this Client Advisory, prepared by Kelley Drye’s Government Contracts Practice. It also provides recommendations for contractors to help ensure that they remain in compliance.

The new bill, proposed by Rep. Peter Welch (D-Vt.), will force companies to notify their contracting agency’s inspector general in writing if they find evidence of illegal behavior or suspect they were overpaid for a contract. If the contractor fails to do so, it could be suspended or debarred, according to the article.

The article points out that regulators have also opened a new case to look into the current major exemptions in the FAR regulations right now: 1) contractors who have less than $5 million in government contracts; 2) contracts dealing with commercial items; and 3) contracts performed overseas. Welch (pictured) told a congressional hearing that the latter exemption sends the message to contractors: “if you’re going to commit fraud, go overseas and do it.”

Welch has also noted concerns about the lack of a commitment by federal regulators to create a timeline concerning these regulations.

Experts say that it is highly unusual for a foreign-owned company to file suit in a U.S. federal court. Although this brings down the wrath of the Justice Department on Alcoa, it also opens Alba up for further scrutiny. According to the Wall Street Journal:

The reason it’s rare for governments to accuse U.S. companies of corruption in American courts, said attorney Dan Newcomb of Shearman & Sterling, is that “once you raise a question of corruption, the sovereign runs the risk they will be embarrassed by the requests of discovery from the private party.” In this case, he added, “They have to be prepared to withstand Alcoa coming back to them and saying, ‘We want to look at every other corrupt transaction you have been involved in.’ ” Mr. Newcomb called Bahrain’s move an indication of the level of concern in the region that oil wealth will be lost to fraud and waste.

A law professor gave a similar opinion to Bloomberg media, arguing that this case will likely be settled out of court for the best interest of both parties:

“It’s unusual for another country to come into a U.S. federal court to pursue a U.S. private company,” said Carl Tobias, a law professor at the University of Richmond in Virginia. “When you subject yourself to the U.S. court system there could be discoveries that are embarrassing to the plaintiff. It’s hard to imagine this going to trial. A settlement could be worth it to both sides not to have a public dispute.”

Because of Flowserve’s “thorough review of the improper payments and the company’s implementation of enhanced compliance policies and procedures” the DOJ will delay prosecuting the company for three years, according to a DOJ press release. If Flowserve and its subsidiaries play nice during that time, the DOJ “will dismiss the Criminal Information.”

The penalty wasn’t a surprise for the company (it had predicted a fine of $11 million in its 2007 third quarter report with the SEC), and stock value hasn’t responded to the report. In fact, the day of the announcement, Flowserve shares closed 12 cents higher than it opened.

“It’s really important that the working relationship between this office and the monitors is very, very close,” he said. “I can’t tell you how much work we do with these monitors.” He said he had selected Mr. Ashcroft to work with Zimmer, the largest of five companies in the criminal investigation, because “I knew he was somebody who understands these issues and would be taken seriously by the company as an authority figure.”

This isn’t the first time that the New Jersey prosecutor assigned no-bid contracts to friends of his.

Mr. Christie directed similar contracts in settlements with other medical-supply companies to two other former Justice Department colleagues – David N. Kelley, the former United States attorney in Manhattan, and Debra Wong Yang, his counterpart in Los Angeles – and to David Samson, the former Republican attorney general in New Jersey.

The contract is an 18 month job, worth somewhere in the range of $28 million to $52 million. Needless to say, dozens of firms would have chomped at the bit if this contract was made public and put up for bid. And, naturally, with the increased competition the cost of the deal would have been reduced.

Some Democratic lawmakers have cried out on the overwhelming conflict of interest, but none have officially accused Mr. Christie of breaking the law (he himself disputes any allegations of conflict of interest and instead “referred those questions to the Justice Department in Washington”).

Although the DOJ admits the guidelines for hiring monitors for situations like this are few and far between, that might soon change. Thanks to the public exposure of this situation an internal investigation has been raised within the Justice Department, looking into their procedures for hiring outside monitors of large settlements.

The Ashcroft Group says they didn’t lobby for the multi-million dollar contract and, of course, they’re that much more thrilled about earning it. As Mark Corallo, a spokesman for the firm says:

“I know John Ashcroft, I know his capabilities. No matter what people think of his politics, he ran an unbelievably efficient operation at Justice as a manager. He understands the law. He understands how to manage an enormous organization.”

The trips typically lasted 14 days and cost between $25,000 and $55,000 each. The money came out of Lucent’s sales department and was falsely documented as “factory inspection” or “training” trips, but little to no time was actually spent in either regard. Although by 2001 Lucent had outsourced the vast majority of its work and had no factories for customers to tour, the company still paid for factory tours across the world to countries such as the United States, Europe, Japan, Australia, Canada, etc.

The Justice Department will not prosecute Lucent should the company agree to all the terms of the agreement. This includes the aforementioned fine, as well as adding stronger internal controls, maintain fair and accurate books and records, implement a new FCPA compliance program and, most importantly, stop bribing customers. In a separate but related settlement with the SEC, Lucent agreed to pay $1.5 million but neither admitted nor denied guilt. These decisions come from alleged violations committed before Alcatel bought out Lucent in 2006.

Juthamas was running for a seat in parliament before all this was discovered, but withdrew from the race yesterday. She denies knowing anything about the bribes and says she only stepped down to save her political party from any associated fallout. She says if the U.S. Department of Justice finds her guilty of accepting the bribes, she will counter-sue, as she calls it “a case of mudslinging and a groundless accusation.”

Mr. Green, who produced “Rescue Dawn,” was arrested in the Los Angeles International Airport after arriving home on a flight from Thailand. He posted $500,000 bond and was released. His wife was arrested in Los Angeles as well, though it’s not immediately clear if she was arrested with her husband at the airport as well. She posted a $200,000 bond.

Additionally, it’s alleged the Stamford, Conn.-based manufacturer violated the Berry Amendment, which requires the Pentagon to give preference in procurement to domestically produced, manufactured or homegrown products. The government has alleged that some of Crane’s valve
products did not comply with the amendment’s provisions, as well as the Buy America Act, in that some of the components were not domestically produced.

Commentary This grew out of a whistleblower claim by a former employee of the company. While False Claims Act violations are a dime a dozen these days, the Buy America Act is far less frequently invoked.

At issue is that the four companies (which control 95% of the colostomy bag market in the country), illegally agreed to divide the country into territories where they would not compete against each other.

Commentary: In looking at the statements coming out of the Italian government, it is not clear why BMS got the biggest fine… were they the ringleader? Or simply the one that benefited most? Either way, looks like BMS could use some compliance training for their European subsidiaries.

The game went live last week on July 25th and it has already been downloaded over 100,000 times, with hundreds of players engaging online simultaneously.

Why so popular? Because the hero of the game is an “honest and upright official” whose mission is to weed out corrupt officials (along with their mistresses).

Weeding out, however, does not mean “putting in jail.” It means by torture and slaughter. Whenever the player kills a corrupt official, he or she gains “experience points.” As points add up, the player increases powers in “Combating Corruption,” “Moral Character,” and a rating of being “Corruption Free.”

The highest level of the game is the “Honest and Corruption-Free Paradise.” Reportedly, that level is full of singing birds, fragrant flowers, and representations of a “peaceful and prosperous nation.”

Commentary: To increase the game’s appeal nod to China’s long history, the designers of the game used 165 characters from history – both good and bad. For example, Hai Rui and Lord Bao represent strong and honest leaders, while corrupt and evil players are represented by such individuals as the angry enuch Zhao Gao and Heshen.

While we like the historical element of the game, we are a bit perplexed as to how all of the women in China seem to walk around in communist red bikinis. How things must have changed since our last visit! Anyhow, if you can speak Chinese (or if you can’t and simply want to see more pictures), you can visit the NanFang Daily newspaper website for more about the game.

On another interesting note, as some game users have pointed out, the graphics are heavily “borrowed” from another game, “Romance of the Three Kingdoms,” offered by a for-profit software company. Not surprisingly, this might leave some wondering if the fact that the government itself made this game means that they don’t have to respect copyrights?

In this latest settlement, CBM Environmental Services and its CEO will pay $350,000 for conspiring to rig bids for cleanup work associated with leaky underground petroleum tanks.

CBM is the eighth services firm to be implicated in the case, which started back in April 2003 when officials sued the firms after receiving uniformly suspiciously high bids to clean up tanks around the state in response to an RFP. Read more about it here.

Commentary: Not an earth-shattering case, but an interesting learning moment/vignette to share with employees. Obviously, it is not easy to get 8 firms to collude and have it be kept a secret.

ABB said the probe is uncovering payments of concern made in Asia, South America, and Europe (with a particular focus on Italy).

The company disclosed that it was investigating several cases of suspect payments and it was unclear whether they were linked. ABB said it had not made any provisions and it was not sure how much money could be involved.

Commentary: Gee… this must be an isolated incident (with payments of concern found only in ASIA, SOUTH AMERICA, AND EUROPE). We checked their website and they do not have operations in Antarctica, which could account for that continent’s exclusion. Our opinion is that this is pretty lame as ABB has had multiple scandals in recent years (such as a secret executive pay scandal in 2004 and a financial fraud scandal back in 2000). There really is no excuse at this point for not having a robust compliance program in place that could prevent the most basic of illegal business practices: bribery.

According to the SEC, Delta & Pine (which has since been acquired by Monsanto) paid $43,000 to officials of the Turkish Ministry of Agricultural and Rural Affairs via its subsidiary Turk Deltapine between 2001 through 2006. The SEC ruled that these payments were in violation of the FCPA, and that Delta & Pine did not keep accurate books and records in connection with the improper payments.

Commentary: Under the FCPA, it is accepted to make ‘facilitation’ payments of a reasonable size in order to secure a ‘routine’ government action. For example, a small ‘facilitation’ payment in order to get a business license expedited (as it appears was necessary here) or to get something cleared through customs, is not necessarily illegal. The law does not specifically list a dollar threshold at which point an allowable ‘facilitation’ payment becomes a bribe. However, $43,000 clearly is not small – thus why the SEC took issue with it.

Judge Edward Nottingham also ordered the ex-CEO, Joseph Nacchio, to pay a $19 million fine and forfeit $52 million in assets he gained from illegal stock sales.

In administering his sentence the judge summed it all up by saying, “The crimes the defendant has been found guilty of are crimes of overarching greed.”

Commentary: Chalk up another win to the Feds for this sentence. This is definitely a longer sentence than many expected (as the maximum that he could have received, seven years and three months, was only slightly more than he actually got).

Steven J. Ott and Roger Michael Young, former executives of the global telecommunications company, pleaded guilty on July 25, 2007, to separate one-count criminal charges of conspiring to violate the FCPA.

Ott served as ITXC’s EVP of Global Sales and Young served as the company’s Managing Director for Africa and the Middle East. In pleading, both defendants admitted to paying over $250,000 in bribes to employees of foreign state-owned and foreign-owned telecommunications carriers in Nigeria, Rwanda, and Senegal to obtain and retain contracts for ITXC between September 1999 and October 2004.

In a related case, a former Regional Manager of ITXC Corporation, Yaw Osei Amoakoof, was sentenced to 18 months in prison for FCPA violations stemming from corrupt payments to foreign officials in order to retain business for ITXC in Africa.

The three companies, along with Johnson & Johnson, were defendants in a suit that alleged they inflated the average wholesale prices (AWP) that they reported and which are used by insurers as a benchmark to calculate drug reimbursements.

AstraZeneca was ordered to pay damages of $4.45 million to non-Medicare third-party payers and Bristol-Myers Squibb to pay damages of $183,000.

As the Wall Street Journal noted…

The judge asked for more information before deciding on further restitution to third-party payers for co-payments for some drugs. Plaintiffs’ attorney Steve Berman said the decision “positions the litigation very well for us. In our view, the companies are now on the hook.” Mr. Berman said the damages could be significant in the next round of the litigation. Plaintiffs will be seeking damages of $500 million from AstraZeneca, which could be doubled or tripled, per individual states’ laws.

Commentary: Everyone knows that the pharma industry is rife with questionable pricing and reimbursement practices – that’s not really news. However, these companies got caught and some even bigger judgments related to AWP are likely around the corner.

What is also interesting is that the judge on the case doesn’t just focus on “legal” and “illegal” in her judgment – but goes so far as to deem these three pharma companies are “unethical” in their pricing practices which in turn causes “real injuries to the insurers and patients” who are paying inflated prices for life-sustaining medications.

And finally, we want to point out specifically that Johnson & Johnson, which had been party to this suit, DID NOT VIOLATE THE LAW. We have been accused at Ethisphere of being too hard on Johnson & Johnson in the past (including by J&J itself) so we want to give credit where credit is due and note that this is a positive reflection on J&J.

British newspaper The Daily Mail obtained legal documents under the Freedom of Information Act which covered a meeting between Britain’s ambassador to Saudi Arabia (Sir Sherard Cowper-Coles) who told the director of Britain’s Serious Fraud Office (SFO) at a meeting on November 30, 2006 that ‘British lives on British streets were at risk’.

As a result, then Prime Minister Tony Blair had the SFO investigation closed on December 14, 2006.

Commentary: BAE Systems however remains under investigation in the United States relating to the same bribery charges and we doubt that the U.S. government will as easily cave to any possible political pressure. On another note – we are very impressed how quick the UK FOIA dictated release of meeting notes that only happened seven months ago. We suspect that such notes would not have been released as quickly stateside.

Commentary: The penalties levied against ACS were relatively light as the company voluntarily self-reported to the government inappropriate conduct by several former employees.

From 1993 to 2003, Smith reportedly conspired to make bribe payments in excess of $300,000 in an effort to secure the $11 million contracts. PCI won the contracts, and the deal netted Smith over $500,000 in commissions, which he then failed to report on his 2003 tax return.

Commentary: Pacific Consolidated Industries is pinning this on Smith and may avoid criminal charges itself as as a company.

That could be hard to imagine considering that (1) the payments had been going on for 10 years (2) Smith was a friggin’ co-founder of the company who had been there for 25 years (3) the payments were sent directly via wire from PCI bank accounts to English and Spanish bank accounts of the project manager who was allegedly being bribed and (4) PCI didn’t report the payments on its 2003 Federal Tax Return (um, apparently no one over there knew anything about the books and records provision of FCPA).

The reason why PCI may go free is that it is in the hands of new owners – the new owners who bought the company in late 2003, discovered this hidden payments, and SELF-REPORTED IT TO DOJ.

Daniel Noa, the recently-hired former federal prosecutor who had led the corporation’s compliance efforts since the beginning of the year will step down by June 30. According to the Financial Times, Mr. Noa is being forced to walk the plank resigning against his will according to insiders.

As the Financial Times reported today…

“There are still a lot of people at Siemens who are saying: ’stop hurting us with the investigations, we have a business to run’,” said one manager working on anti-corruption at Siemens. Another said: “There is a lot of resistance internally still.”…

People close to Siemens said that Mr Noa was appointed in a hurry and, with hindsight, may not have been the perfect choice. His background was as a state prosecutor, not in compliance.”He was also alone and lacked support. He came up against a lot of people who didn’t want him to succeed in his job . . . [but] he was over his head in this job,” one person close to Siemens said.

Commentary: This resignation clearly raises questions about the progress of Siemens’ internal probe into more than €420m in suspicious payments made around the world. The company is under investigation in several countries, including by the US DOJ and SEC. Questions should also be raised about Siemens efforts to prevent further problems in the future.

Reportedly there was infighting between Mr Noa and the legal department to which he had to report. Mr. Noa thought he should report to the management board as he did not trust the legal department.

This is not an uncommon battle to see played out in European companies. Many times we have seen the compliance function have to report into the finance/internal audit.

In this instance, we think that Siemens is making a mistake and should have allowed for the compliance department to have some form of reporting relationship to the Board of Directors. There is too much at stake for Siemens to lose in terms of the ongoing DOJ and SEC investigations. Especially considering that this is only one in a series of problems that Siemens is having. For example, just a few weeks ago two Siemens executives in the United States were convicted of a $49 million fraud involving hospital contracts.

The company announced that until a successor to Mr. Noa has been named, Paul Hobeck, head of Siemens’ Legal Department, will take over his responsibilities.

The allegations were intially made by former EGL employees who will both receive a portion of the settlement fees under the whistleblower provision of the False Claims Act.

EGL is by no means finding itself in new territory. The company made a $4 million settlement in August with the government to settle a potential civil claims suit that accused EGL of inflating invoices for Iraq shipments under the same KBR contract.

Some of the parts, which Smith bought at discounted prices and sold to the Department of Defense as new, wound up in planes flown by the Air Force and Navy. Part of Smith’s plea agreement included admitting to his submittal of a counterfeit invoice once the investigation began.

Commentary: While the dollar figures involved here are not huge, the case is an excellent learning example for employees of government contractors. And facing up to 20 years in prison is a good deterrent worth mentioning if you decide to share this story for training purposes.