Government Claims Under the False Claims Act

Recently the United Technologies Corporation (UTC) made national headlines in the defense industry, but this was not an article you would take home to show mom! UTC was penalized to the tune of $473 million for failing to include in a price proposal “historical discounts” that it was accustomed to receiving from suppliers.

The offense occurred in the last half of the 1980s when UTC was performing on a contract for F-15 and F-16 aircraft engines. Nearly a decade later in 1999 the Government discovered these discrepancies and brought a suit against UTC. The case made its way through a Federal District Court, to the Sixth Circuit, and then back down to Federal District Court.

When all was said and done the District Court awarded the Government $364 million in damages under the False Claims Act and an additional $109 million in damages under common law claims. To make matters worse for UTC, the Court will also calculate prejudgment interest to be levied against UTC that will likely bring the total north of $500 million.

So what is one to learn from this? Well, in the words of the Department of Justice (DOJ): “The department will relentlessly pursue justice against those who knowingly submit false claims to the government and abuse the public contracting process. It is vital that companies who do business with the government provide full and accurate information, and if they do not, they will pay the consequences.”[1]

The DOJ is looking for violations, and even actions a decade or more past may be brought to light. To ward off these actions and comply with the law, it is not enough that you tell the Government everything; you must also review the historical models of your business and ensure that you are disclosing any discounts that you can expect to receive. In short, discipline in evaluating price and writing a proposal will go a long ways when complying with the False Claims Act.

To see a complete list of recent enforcements please visit the DOJ’s website here: http://www.justice.gov/nsd/docs/export-case-fact-sheet.pdf

---

[1] Delery, Stuart, Acting Assistant Attorney General for the Civil Division. As quoted on Department of Justice release 13-696, http://www.justice.gov/opa/pr/2013/June/13-civ-696.html

Don’t Bribe the Officials; The Foreign Corrupt Practices Act (FCPA).

The FCPA is the U.S. law prohibiting the bribing of foreign officials. As a general prohibition the law is broad enough to ensure that any nefarious activity can be prohibited under its umbrella. Thus the law includes more than the proverbial ‘bags of cash’ and ‘brown envelopes.’ The law applies to all U.S. persons including corporations and other business organizations with operations in America. Natural persons, i.e. people, acting as agents, employees, officers, etc. for a company can incriminate not only themselves but also the company. However, Congress understood that rogue actors may exist and the law provides that some fines and penalties imposed directly upon individuals cannot be paid by the company for which the individual acted.

 So exactly what is illegal? The ‘payment,’ or gift, offer, promise, or authorization to pay, ‘anything of value’ to a ‘foreign official’ to secure that official’s assistance in obtaining and/or retaining business. ‘Foreign official’ includes political parties, members of the same, candidates for office, business executives of government owned companies, and close family to anyone in this group. ‘Anything of value’ is just that and could even be a meal, drink, or a ‘minor’ gift if such is lavish in the country where the “foreign official” serves.

Minimizing Your Risks

Failure to comply with the FCPA could result in millions of dollars in fines against the company and / or individual and subject the individual actor to criminal penalties including imprisonment. Due to the immense risks posed to companies and employees for violating the FCPA, it is important that companies doing business in the U.S. and engaging with foreign entities create, implement, and follow a robust anti-bribery/FCPA compliance policy. The Defense Management Group can assist U.S. and Foreign Companies in developing appropriate guidelines to ensure full compliance with the FCPA and so ensure continuance of lawful and ethical dealings with governments and foreign entities throughout the World. Please contact DMG for further information on general rules, other considerations and reporting requirements.

US Defense Exports Facing Delays due to Sequester

Recent reports coming from the US Defense Department warn of delays in response time to export requests due to Sequester. Furloughs across multiple agencies have slowed the Government’s actions, and the consequences are reaching the export community. Now more than ever it is important to plan ahead and secure export permission long before it is required. The discipline to sit down and evaluate what TAAs, DSP-5s, or DSP-73s are needed when a project begins will now mean the difference between on time success or painful delays.

To see the full article visit Defense News here. 

ITAR: Keeping America Safe

The International Traffic in Arms Regulations (ITAR)¹ are the Federal Government rules controlling the export of defense products and technical data. More than a mere export control law, ITAR affects the governance of a company due to the broad definitions of technical data and export. If you are a defense manufacturer you must register with the DDTC whether or not you intend to export. Additionally, you must ensure that your systems, computer and otherwise, prevent the unintended export to a foreign national even if that person is on U.S. soil. Violations of ITAR can carry a multi-million dollar fines in addition to incarceration for willful violations. Critically, ITAR can apply to a foreign national operating outside of the U.S. if that person is involved in the unauthorized supply of controlled supplies and services. (Please see the forthcoming  DMG Briefing Note on DDTC).

For the mundane, ITAR controls how and when physical products can be sent out of the US. Exporters are required to apply for a license and identify all parties that will receive the product. Importantly, foreign recipients are required to agree to abide by U.S. law for any re-export or onward supply to a third party.

This however pales in comparison to the restrictions placed upon digital information as technical data. Technical data is any information more than a basic marketing description that describes any defense product or service. This includes training manuals, diagrams, parts lists, and work product from those involved in designing a defense product. For defense contractors, technical data abounds on the network and in their computers.

Exports include transfers to foreign nationals even if within the US. These so called deemed exports restrict who can work on any given defense project. Involving a top notch university with your project will carry special hazards if their program includes foreign students. Likewise, for multinational companies it is imperative that U.S. projects remain in the U.S. and are not sent abroad.

 DMG Expertise and Assistance

 DMG personnel are fully aware of and experienced in ITAR. We understand the consequences for violating the law. Establishing a compliance policy and providing ITAR secure cloud storage are just two ways in which we can help you meet your ITAR compliance requirements.

Want to learn more? Join us for one of our upcoming ITAR Symposiums or Seminars. Look here to see what is available.

1. As confusing as the ITAR is, we provide this link to the annotated version of the ITAR regulations created by James Ellwood Bartlett III. available here.

DMG Blog: Company Establishment

Laying Your Company Foundation is Everything.

Establishing any new company is fraught with many unknowns. From choosing a legal entity and drafting by-laws, or an operating agreement to hiring employees and entering into a lease, an entrepreneur is faced daily with decisions. To be successful, you will need to know your state and local requirements to do business, ensure you comply with all tax laws and business license requirements, and be aware at all times of your risks. 

When you first enter Federal Government contracting or defense manufacturing, the number of unknowns increases exponentially. Entering the world of government contracting is more than proposal writing and negotiating a contract. Acquiring a DUNS number and registering with FedBizOps is just the start. Contractors must be prepared to deal with the NISP, TINA, FAR and DFARS when drafting a proposal and progressing through the negotiation phase. (Please see forthcoming DMG Briefing Notes on FedBizOpps, NISPOM, TINA, FAR and DFARS).

Once a contract is won compliance requirements become a major concern. Contractors must know and comply with FCPA, ITAR, EEOC, and Veteran employment reporting in addition to a myriad of other Federal laws that apply to all companies. Depending on the terms of the contract and the size of the company, the contractor may have to draft a Business Code of Ethics, an Affirmative Action Plan, and policies to implement compliance programs for applicable Federal law. (Please see forthcoming DMG Briefing Notes on FCPA, ITAR and EEOC).

Performing the contract on time and within budget is a requirement, but it is not all that is required. You must be prepared for a government audit from one of the Federal audit agencies such as the DCAA. Ensuring that your accounting is in proper order and that all materials are tracked correctly will go a long way to minimizing any disruption caused by an audit. It is essential that you prepare for this possibility on day one when you begin to develop your first proposal.

The founders at DMG have established defense contractors and have first hand experience setting up a successful company. From drafting proposals to building a compliance department, DMG can deliver advice and guidance that will allow you to focus on the core of your business. We have been through government audits and we know the disruption they can cause. More importantly, we know how to prepare for one starting with a proper proposal draft.