Government-Regulatory-and-Criminal-Investigations.jpgThe U.S. Department of Justice announced last week that Olympus Corporation of the Americas (OCA) agreed to pay $646 million to resolve three cases relating to its longstanding practice to bribe doctors and hospitals in the U.S. and abroad. The company entered deferred prosecution agreements (DPA) related to violations of the Anti-Kickback Statute (AKS) and Foreign Corrupt Practices Act (FCPA). It also settled a qui tam complaint filed by the company’s former chief compliance officer (CCO) John Slowik. The government awarded Slowik $51 million for blowing the whistle on the underlying issues in these cases. The OCA matters remind us of the importance of internal whistleblowing in compliance.

Overview of the Resolutions

OCA is the largest distributor of endoscopes and other medical devices in the U.S. In one case, DOJ charged it with criminal conspiracy to violate the AKS. According to DOJ’s press release, OCA admitted it “won new business and rewarded sales by giving doctors and hospitals kickbacks, including consulting payments, foreign travel, lavish meals, millions of dollars in grants and free endoscopes.” The kickbacks “helped OCA obtain more than $600 million in sales and realize gross profits of more than $230 million.” As part of the DPA, OCA agreed to pay $312.4 million in criminal penalties. It must also invest heavily in its training and compliance programs. Among other things, the DPA requires OCA to enhance and maintain its compliance program by creating a whistleblower hotline and website, requiring its CEO and board to certify compliance annually, and forfeiting compensation if executives engage in wrongdoing or fail to promote compliance.

In another case, DOJ charged OCA’s subsidiary Olympus Latin America Inc. (OLA) with FCPA violations in connection with bribes paid to government officials throughout Central and South America. From 2006 through most of 2011, OLA provided “cash, money transfers, personal grants, personal travel and free or heavily discounted equipment” to doctors at government-owned healthcare facilities in exchange for increased medical equipment sales. According to DOJ, OLA paid nearly $3 million in bribes, resulting in sales that generated more than $7.5 million in profits. OLA paid $22.8 million in criminal penalties to resolve the FCPA matter.

The last case involved federal and state false claims allegations based on the qui tam complaint filed by Slowik. Slowik’s complaint provided many firsthand details of the fraud at the company. It detailed how the company provided free medical equipment to doctors and made cash payments of up to $100,000 per year (or more) to doctors. It also explained how the company gave annual “grants” worth hundreds of thousands of dollars to programs based solely on sales potential. The company also funded all-expense paid luxury holidays for doctors and their spouses. OCA agreed to pay $310.8 million to settle the False Claims Act charges.

The Need for Open Doors, Anti-Retaliation Policies and Whistleblower Hotlines

Slowik worked for OCA for 18 years. Most recently, he served as its first CCO starting in February 2009. According to his lawyers in one news report, Slowik “boldly put aside self-interest and took swift action to let the truth be known” when he discovered that OCA’s business success relied heavily upon bribery. “He immediately put Olympus’s top brass on notice of the full nature and scope of the company’s non-compliance with the US Anti-Kickback Statute and international anti-bribery laws.” Nevertheless, management resisted Slowik’s attempts to enhance the company’s compliance efforts. Ultimately, the company ousted Slowik in 2010.

The Olympus resolutions and Slowik’s history with the company highlight the importance of internal whistleblowing in compliance. How often internal whistleblowing mechanisms are used is one possible data point for measuring success in any compliance program. In fact, if internal reporting happens on a regular basis, it is very likely a sign that a company has a thriving compliance culture built around open doors, free communication, and no fears of retaliation. Companies must ensure they have internal reporting mechanisms that are available and working.

Companies must also appropriately handle reports of wrongdoing once they are made. Essentially, they must document and address all reports—no matter how minor or incomprehensible they may seem—with the appropriate level of scrutiny. They need to write procedures that clearly outline exactly what needs to happen and when. Investigation teams should be deployed to uncover the underlying causes and issues associated with the alleged misconduct. And companies must ensure that remedial measures are available and put into practice when wrongdoing is discovered and responsible parties are identified.

Simply put, internal whistleblowers are a sign of a healthy compliance program. The Olympus resolutions remind us how ignoring this key attribute of compliance can lead to troubles down the road.