Boston Brussels Chicago Düsseldorf Houston London Los Angeles Miami Milan Munich New York Orange County Paris Rome San Diego Silicon Valley Washington, D.C. Strategic alliance with MWE China Law Offices (Shanghai) © 2010 McDermott Will & Emery LLP. McDermott operates its practice through separate legal entities in each of the countries where it has offices. This communication may be considered attorney advertising. Previous results are not a guarantee of future outcome. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery/Stanbrook LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, MWE Steuerberatungsgesellschaft mbH, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. This communication may be considered advertising under the rules regulating the legal profession. Avoiding & Defending Against Government Actions Managing in a World of Whistleblowers Jon Dean Charles E. Weir

1 Overview of Topics Steps to take to avoid government actions – Protecting You & Your Organization Against Whistleblowers Hiring, Internal Policies to Avoid Whistleblowers, and Termination Initial considerations when faced with government actions Questions

2 Growth of Whistleblower & Employment- Related Claims The number of government referrals, agency investigations and qui tam actions filed has grown exponentially over the last 20 years – Financial incentives for former employees to blow the whistle: Relator gets 15% to 30% of any recovery from the litigation, based on alleged damages that the government suffers, not the relator FCAs anti-retaliation provision 3730(h) and other common law protections – Dodd-Frank has similar provisions (FCPA) – OSHA and other statutes also have whistleblower provisions Increasingly, the government action is the result of an internal whistleblower

3 Growth of Qui Tam Settlements and Judgments Since 1988 (in Millions)

4 Rise in Qui Tam Actions In January 2011, there were 1,341 qui tam cases under seal for which the government had yet to decide whether to intervene According to the DOJ, 638 new whistleblower complaints under the qui tam provisions of the federal False Claims Act were filed under seal in 2011 – Represents a peak in such filings over prior years The DOJ recovered more than $3 billion under the FCA in 2011, of which $2.8 billion was generated from qui tam actions

5 5 Top 10 FCPA Enforcement Actions: New Whistleblower Incentives 1.Siemens (Germany): $800 million in KBR / Halliburton (USA): $579 million in BAE (UK): $400 million in Snamprogetti Netherlands B.V. / ENI S.p.A 5.(Holland/Italy): $365 million in Technip S.A. (France): $338 million in JGC Corporation (Japan) $218.8 million in Daimler AG (Germany): $185 million in Alcatel-Lucent (France): $137 million in Magyar Telekom / Deutsche Telekom (Hungary /Germany): $95 million in Panalpina (Switzerland): $81.8 million in 2010.

6 Protecting You and Your Organization Against Whistleblowers Hiring Internal Policies to Deter Whistleblowers Termination Facing Government Actions

7 Who are the typical whistleblowers? Examples: – Controller – Financial services employees – Assistant Director, Dept. of Engineering – Sales Reps / Sales Agents – Director of Human Resources – Lab technician (U.S. v. Poehlman) – Research assistant (U.S. v. Cornell School of Medicine) Identifying Potential Whistleblowers

8 What are the risks associated with a particular employee, partner or agent? What information should you gather to analyze risks? Identifying Potential Whistleblowers

9 Background Checks

10 Prior Litigation Checks

11 International Hiring: What Do You Look At? Background Information – Corporate structure; Incorporation documents Scope of Business – Services performed; Engagement in other businesses Management and Employees – Criminal, litigation and investigation records; Skills and training Business Development – Process; Client contacts Financial Controls – Record keeping; Cash management

12 International Hiring: What Do You Look At? Anti-Corruption Policies and Practices – Formal policies and programs – Compliance training Relationship with Government – Shareholders, officers, directors, employees Investigations – Bribery convictions or anti-corruption violations – Prior government investigations or disciplinary actions

13 How Do You Perform the Due Diligence? Due diligence review should be managed by centralized authority at the corporate level to ensure consistent application of compliance protocols Sources of information – Public Databases (availability of information differs greatly by country) Criminal and litigation history Corporate records (incorporation documents, shareholders, officers) Internet and media searches US based anti-corruption databases

14 How Do You Perform the Due Diligence? Sources of information (continued) – Local personnel Business justification Information about the how the agent was identified – Agent or JV partner Due diligence questionnaire Document requests (financial records, corporate policies) Interviews of management Site visit – Third party references Other customers Industry groups

15 Protecting You and Your Organization Against Whistleblowers Hiring Internal Policies to Deter Whistleblowers Termination Facing Government Actions

16 To combat the huge financial incentives posed by whistleblower program, companies need to re-evaluate their compliance programs What are the hallmarks of an effective compliance program? – Setting the tone from the top – Having a clear written policy that is well known – Regular training of staff and related parties – Strong internal controls – Consistent and fair enforcement – Continual monitoring – Making changes when needed Incentivizing Compliance

17 In order to create a culture of compliance, an organization should: – Develop compliance goals for senior managers and include in performance evaluation/compensation metrics – Compensate managers who achieve compliance goals – Reward employees who are compliance-minded and file accurate internal reports – Strengthen anti-retaliation protections for employees – Reward business units where compliance shown to be a key driver – Enforce policies consistently (use of carrots and sticks) Incentivizing Compliance

18 In order to encourage accurate internal reporting, an organization should: – Set up anonymous hotlines and surveys for employees to raise issues – Treat all employees with respect, even if they raise a non-issue – Stress confidentiality and promptly investigate reported concerns – Document the resolution of every compliance issue that is raised by employees Whistleblowers always claim they tried to get management to correct noncompliance, but were rebuffed Incentivizing Internal Reporting

19 Two kinds of squeaky wheels – Ones who want to be heard – Ones who want to protect their hide, includes bad actors Either way, have a good compliance program, and follow procedures consistently Avoid trap for the unwary with bad actors: – Dont allow yourself to be provoked: be patient, consistent and keep in mind that you need to show you treated the same as others – Underlying claim need not have merit Working with Whistleblowers

20 Ordinary employment actions that are not unfavorable – Business as usual, but document all interactions – Consider designating a liaison – Train managers and employees in your anti-retaliation policies Unfavorable employment actions – Must show you treated whistleblower the same way you treated similarly situated employees who were not whistleblowers – Scrutinize documentation (dont take manager assertions on their face) and objectively look at comparators – Best evidence is when you can show decision-maker had no knowledge of the protected activity and the investigation. Working with Whistleblowers

21 Whistleblowers routinely steal company documents during and at the end of their employment to bolster their case – Have clear policies that documents are considered company property and may not be taken for personal use – At exit interview have terminated employees certify that they have returned any company property, including documents and electronic data Electronic Mail: Precautions and Policies – Assume it will exist forever – Assume it will be the permanent record of your conduct – Do not use company for chat – Make these policies for your employees Minimize Risk of Whistleblowers

22 Some executives do not understand the Attorney-Client and Work Product Privileges Some executives prefer to keep lawyers out of their business Some executives prefer to direct the work of consultants themselves and not involve legal counsel What can go wrong? – Business-to-business communications lack attorney-client protection – Consultant reports create a roadmap for fraud/negligence claims – Qui tam relator Use Attorney-Client Privilege (When Appropriate)

23 Treat privileged communications in Board meetings/minutes with the same care as other privileged communications Maintain privileged communications separate from other documents and in a secure (locked) location Lead by example Use Attorney-Client Privilege (When Appropriate)

24 Protecting You and Your Organization Against Whistleblowers Hiring Internal Policies to Deter Whistleblowers Termination Facing Government Actions

25 Initial motivation for going to the government and/or seeking to sue the employer often stems from the employees perception of and attitude toward the former employer How to Head Off Potential Employment- Related Claims

26 Consider doing the following during the departure of any employee: – Be honest about the reasons for termination (voluntary or involuntary) but consider the feelings of the employee, as well – Consider the timing of any involuntary terminationsFor example, try to avoid terminating an employee during the holidays – Have an internal company policy on how to handle terminations Consistency is important Treat Outgoing Employees with Dignity and Respect

27 Take notes and document the interview Two interviewers are better than one Obtain a proper release of liability Obtain a return of property certification Require disclosure of any compliance concerns and take concerns seriously – Many Whistleblowers first raise their claims after they are terminated for cause Require another certification at employment exit interview identifying any compliance issues Inform company management of any concerns raised or allegations made against the employer Consider involving counsel in conducting any post-interview review or investigation Conducting an Effective Exit Interview

28 Identify compliance issues Document Corrective action – Important if any government investigation ensues or if litigation is ultimately filed – Innocent conduct can become willful once notice of noncompliance is received Document Steps Taken to Address Concerns Raised During the Exit Interview

29 Remember that current and former employees still talk to each other Do not ignore a former employees concerns Avoid talking about the employee in a negative light Even After the Employee is Gone…

30 Summary: Dealing with Whistleblowers Do ensure all employees are trained and understand anti- retaliation provisions of the companys compliance policy Do document all employment decisions concerning whistleblowers in real time and retain records for 10 years Do promptly investigate all reports made and document the results contemporaneously Do assure whistleblowers that they will not be retaliated against for making good faith reports of wrongdoing

31 Protecting You and Your Organization Against Whistleblowers Hiring Internal Policies to Deter Whistleblowers Termination Facing Government Actions

32 Government Actions You received a subpoena – what do you do? Instruct your employees to notify management and the legal department. – Employees should be trained that they are not authorized to decide whether to disclose information to a government agent. They may only do so upon management instructions. Immediately suspend all routine document destruction processes that could result in the loss of records potentially relevant to the litigation or investigation. Be careful in providing oral information. – Most subpoenas are for the production of records and do not entitle the subpoenaing party to obtain information from the party being subpoenaed by interview, deposition or testimony. Any oral information provided in these circumstances is done so voluntarily, and is unwise, and should be avoided.

33 Government Actions Conducting internal investigations: Demonstrates your good faith and is taken into account by the government in making decisions Independence is important: Look to third parties (law firms, auditors, etc.) that do not have a long-standing relationship with the company Individual responses should be carefully thought out – false statements are chargeable Handling uncooperative employees can be a problem, particularly in the face of government pressure

34 Government Actions What to consider when faced with a government action Identifying targets and securing counsel The advancement of fees and maintaining order Handling the inevitable divergence of intereststhe companys tools – Privilege waivers – The timing and order of actions

35 Government Actions Identifying targets and securing counsel Sometimes the targets are obvious, and sometimes they are not Identify those groups that could and/or should be jointly represented by counsel Fees need only be reasonableideally you hire counsel that can handle both the civil and criminal components of the case Securing counsel in the face of government pressure to cooperate

36 Government Actions The advancement of fees and maintaining order Paying your employees legal fees – The advancement of fees is typically permissive – Have an established practice or plan of action Whether the government may consider the companys payment of legal fees when analyzing company cooperation and making charging decisions Counsel should be able to effectively work together

37 Government Actions Handling the inevitable divergence of intereststhe companys tools Pressure to waive the privilegeto waive or not to waive ProsCons Credit given by prosecutors and regulators Growing debate as to whether voluntary disclosure has value May provide additional defensesWaiver to government is a waiver to all parties

38 Government Actions The timing and order of actions The criminal case will likely be the driver Managing the impact on related civil litigation Motions to stay litigation. See, e.g., Volmar Distributors, Inc. v. New York Post Co., 152 F.R.D. 36, 39 (S.D.N.Y. 1993); Pacers, Inc. v. Superior Court, 162 Cal. App. 3d 686, 690 (1984) (recognizing that a stay of civil proceedings is in accord with federal practice where it has been consistently held that when both civil and criminal proceedings arise out of the same or related transactions, an objecting party is generally entitled to a stay of discovery in the civil action until disposition of the criminal matter)

39 Questions? Jon Dean Charles E. Weir