Subject to Inquiry

Subject to Inquiry

THE LATEST ON GOVERNMENT INQUIRIES AND ENFORCEMENT ACTIONS

Government Investigations and White Collar Litigation Group
Fraud, Deception and False Claims

Lessons for Providers and Practice Entities: Ophthalmology Groups Pay Millions to Settle Co-Management, Optometrist Relationship Allegations

Two ophthalmology practice groups recently reached settlements with the U.S. government totaling nearly $20 million to resolve allegations that their third-party cataract arrangements violated several healthcare laws.

Read on to discover how the settlements offer guidance to vision providers with respect to the government’s focus on ophthalmology-optometry relationships, and whether the settlements’ lessons have broader applicability to providers and practice entities.

Anti-Money Laundering, Compliance

Beneficial Ownership Reporting Requirements under the Corporate Transparency Act

Corporate Transparency Act Beneficial Ownership Reporting Requirements to Take Effect

In 2021, the Corporate Transparency Act (“CTA”) was enacted as part of the Anti-Money Laundering Act of 2020, requiring certain business entities (“Reporting Companies”) to report beneficial ownership information (“BOI”) to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  FinCEN issued the final rule implementing the CTA’s reporting provisions on September 29, 2022.  Effective January 1, 2024, these new reporting provisions put the onus of reporting beneficial ownership information on the Reporting Companies themselves. 

The CTA’s Basic Requirements

The CTA requires certain domestic and foreign corporations, LLCs, or other entities to:

  • Report individuals’ BOI to FinCEN, including:
    • Full legal name;
    • Date of birth;
    • Complete current address;
    • Unique identifying number from a U.S. passport, state ID, driver’s license, or non-expired foreign-issued passport; and
    • An image of the identification document from which the unique identifier was obtained.
  • Disclose information about who created the entity or registered it to do business in the U.S.
  • Report any change to previously reported information within the specified time period.

Beneficial Owners are those that own, directly or indirectly, 25% of the Reporting Company, or individuals who exercise substantial control.  Substantial control means:

  • Serving as a senior officer;
  • Having authority to appoint or remove a senior officer or the board majority; or
  • Directing, determining or having substantial influence over important decisions.

FinCEN will be proposing rules to reduce duplicative reporting obligations, which exist because certain financial institutions currently must obtain similar BOI information for legal entity customers at account opening.

Exempt Entities

The CTA excludes nearly two dozen types of entities—most already registered or regulated—from reporting.  These include, among others:

  • Large operating companies (20+ full time employees and $5 million in gross receipts/sales);
  • Public companies;
  • Venture capital fund advisors;
  • Pooled investment vehicles;
  • Subsidiaries of certain exempt entities (must be wholly owned subsidiaries);
  • Insurance companies and insurance producers;
  • Certain other highly regulated entities, such as:
    • Banks;
    • Credit unions;
    • Bank holding companies;
    • Securities brokers or dealers;
    • SEC-registered investment companies or investment advisers; and
    • Exchange or clearing agencies; and
  • Inactive companies.

In the Adopting Release, FinCEN stated that it is “not implementing additional exemptions beyond the twenty-three specific statutory ones at this time, including to cover non-depository institution holding companies” but that it “will continue to consider suggestions for additional exemptions.”

Reporting Requirements

Each person filing a report of a Reporting Company’s BOI or application containing information about an individual applying for a FinCEN identifier under the CTA must certify that the report or application is true, correct, and complete.  Entities created or registered before January 1, 2024 do not need to report information with respect to any individual who directly files the document creating the Reporting Company (“Company Applicant”), but they still need to report BOI.

On or after January 1, 2024, individuals who are Beneficial Owners or Company Applicants can, upon request via an electronic web form, receive a unique identifying number from FinCEN (a “FinCEN Identifier”).  Reporting companies may report the FinCEN identifier of the individual in place of that individual’s otherwise required personal information on a BOI report (so that personal information need not be turned over to the reporting individual). 

When to File

The CTA imposes different filing deadlines depending on whether a Reporting Company is in existence, or, in the case of a foreign company, registered to do business in a state or tribal jurisdiction as of January 1, 2024.

Initial Report

For Reporting Companies created prior to January 1, 2024, the Reporting Company has until January 1, 2025, to file its initial BOI report.  For Reporting Companies created on or after January 1, 2024, the Reporting Company must file its initial report within 30 days of the earlier of the date on which it receives actual notice of creation, or a secretary of state first provides public notice of the creation of the entity.  FinCEN has proposed a rule to extend the 30-day deadline to 90 days for companies created or registered on or after January 1, 2024. 

Updated and Corrected Reports

Reporting Companies have 30 days to update their previously filed BOI reports if any of the required information regarding the Reporting Company or its beneficial owners change. 

Access to Reported Information

FinCEN will store the BOI reported under the CTA in a secure, nonpublic database referred to as the Beneficial Ownership Secure System (“BOSS”).  FinCEN may disclose the reported BOI only if requested by:

  • U.S. federal agencies engaged in national security, intelligence, or law enforcement activities, for use in furtherance of those activities.
  • A state, local or tribal law enforcement agency, if a court has authorized the agency to seek the information in connection with a civil or criminal investigation.
  • A federal agency on behalf of a non-U.S. law enforcement agency or foreign prosecutor or judge.
  • A financial institution subject to customer due diligence requirements, with the consent of the Reporting Company, to facilitate the financial institution’s compliance with customer due diligence requirements under applicable law.

Penalties for Violation and Safe Harbor

The CTA provides for civil and criminal penalties for violations, including a criminal fine of up to $10,000, and imprisonment for up to two years, or both, and/or civil penalties of up to $500 per day, for any person who willfully provides or attempts to provide false or fraudulent BOI or fails to report complete or updated BOI to FinCEN.  Penalties may also apply to Reporting Companies and individuals who cause a Reporting Company not to report or are senior officers of a Reporting Company at the time the company failed to accurately report or update BOI.

The CTA provides a safe harbor if the Reporting Company that has reason to believe that a submitted BOI report contains inaccurate information files a corrected report within 30 days after becoming aware or having reason to know of the inaccuracy. 

Next Steps for Reporting Companies

Entities with reporting obligations should carefully review these requirements before they go into effect on January 1, 2024.  Reporting Companies should consider developing compliance and communication policies and procedures with regard to beneficial ownership reporting, updating, and periodic monitoring. 

McGuireWoods has been tracking this rule and its implementation and can assist clients by:

  • Advising on whether an entity meets the definition of a Reporting Company.
  • Analyzing whether any exemptions apply.
  • Analyzing who may meet the definition of beneficial owner and substantial control person.
  • Assisting clients in establishing a CTA compliance program to ensure regular review, documentation of decisions, and reporting of material changes in BOI.

For questions about these new rules, the CTA, or customer due diligence and beneficial ownership rules more generally, contact the authors of this article or another member of the McGuireWoods Government Investigations and White Collar team, Financial Services Litigation team, Tax & Employment Benefits team, or the Corporate & Private Equity team.

Compliance

Economic Crime and Corporate Transparency Act Becomes Law: What Companies Need to Know

On 26 October 2023, the Economic Crime and Corporate Transparency Act received royal assent. The new law is designed to fight corruption, money laundering and fraud, and has major implications for businesses, including:

  1. The creation of a new “failure to prevent fraud” offence, imposing criminal liability on large organisations for wrongdoing committed by staff, agents and some third parties.
  2. Measures ensuring that businesses can be held criminally liable for the actions of senior managers.
  3. A historic shake-up to Companies House with, inter alia, identification checks soon to be required for company directors and persons with significant control (see McGuireWoods’ previous alert “Companies House Reforms: The Economic Crime and Corporate Transparency Bill”). The earliest Companies House reforms are anticipated to come into force in early 2024, with certain measures, such as identity verification, to be implemented later via secondary legislation.
  4. Enhanced powers for law enforcement agents to seize, freeze, recover and convert crypto-assets.
Compliance, Enforcement and Prosecution Policy and Trends

DOJ Announces Safe Harbor Policy for Mergers and Acquisitions

In the U.S. Department of Justice’s continuing efforts to incentivize voluntary disclosure of corporate misconduct, Deputy Attorney General Lisa Monaco announced the Criminal Division’s latest corporate self-disclosure policy this week, aimed at mergers and acquisitions specifically (remarks Here).  Pursuant to DOJ’s new Mergers and Acquisitions Safe Harbor Policy (the “Policy”), acquiring companies that promptly and voluntarily disclose criminal conduct of the company to be acquired, and that cooperate and engage in remediation, will receive the presumption of a declination.  The policy could represent a sea change in how companies evaluate the risk of self-reporting wrongdoing by acquisition targets that comes to light during and after the M&A due diligence process. 

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Compliance

California Climate Accountability Package Poised to Disrupt

During the week of September 11, 2023, the California Legislature passed a series of bills known collectively as the “California Climate Accountability Package” (“CCAP”).  The CCAP is comprised of three bills: S.B. 252 (applicable only to two California state pension funds, and not discussed further herein), S.B. 253 (the “Climate Corporate Data Accountability Act” of “CCDA”) and S.B. 261 (the “Climate-Related Financial Risk Act” or “CFRA”).  If Governor Newsom follows through on his stated intention to sign the entire CCAP into law, and if the package survives the inevitable legal challenges that are sure to come, these new disclosure laws could prove to be highly disruptive to companies across the United States—many of which are likely unaware it impacts them.

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Compliance

“There are Cops on the Beat”: DOJ’s Procurement Collusion Strike Force Leader Emphasizes Criminal Antitrust as Top Enforcement Priority

On September 14, 2023, Daniel W. Glad — Director of the Procurement Collusion Strike Force (“Strike Force”) for the Department of Justice’s (“DOJ”) Antitrust Division — gave remarks as the keynote speaker for the Virginia Bar Association’s Annual White-Collar Fall Forum, emphasizing a renewed commitment to pursuing criminal investigations in the federal procurement arena.  DOJ announced the creation of the Strike Force in November 2019 as an interagency partnership aimed at deterring and eliminating anticompetitive collusion, waste, and abuse of the government procurement process.  Mr. Glad highlighted in detail the volume of government spending in Virginia last year, including amounts in excess of $4 billion for federally funded government contracts in the next several years.   The Strike Force is tracking those investments across the country and soliciting leads for investigations as part of its mission “to root out [an] increased risk of anticompetitive collusion.”    

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Government Contracts

SBA Issues Interim Guidance After Ultima Decision Finds 8(a) Program Violates Equal Protection

Influenced by the U.S. Supreme Court’s SFFA college affirmative action decision, on July 19, the U.S. District Court for the Eastern District of Tennessee enjoined the U.S. Small Business Administration (SBA) from determining federal contractor eligibility for its 8(a) Business Development program according to a “rebuttable presumption” that individuals of certain racial groups are socially disadvantaged. The court held that the presumption, as applied, violated the guarantee of equal protection under the U.S. Constitution. The SBA, in turn, issued interim guidance on the program’s ongoing operation.

Read on for details of the Ultima Services Corp. v. U.S. Department of Agriculture decision and its impact on federal contractors.

Enforcement and Prosecution Policy and Trends

Massachusetts Attorney General Increasing Enforcement in Car Repossession Space

The Massachusetts Attorney General (AG) is increasing its enforcement in the motor-vehicle-repossession space. In a January 17, 2023 Assurance of Discontinuance (AOD), the AG stated that it is “conducting an investigation” into “entities collecting, servicing and/or funding” motor-vehicle-secured retail-installment contracts. The AG is focused on two primary areas of compliance:

  • the content of the pre-sale and post-sale repossession notices and, in particular, that the notices include a statement that a customer’s deficiency after auctioning their vehicle would be based on the vehicle’s fair-market value; and
  • the frequency of phone calls to debtors and whether those calls exceed the limits prescribed by 940 CMR 7.04(1)(f).

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Sanctions, Trade Embargo, and Export Controls

Departments of Justice, Commerce and Treasury Issue Tri-Seal Compliance Note on Voluntary Self-Disclosure of Potential Violations

On July 26, 2023, the U.S. Department of Justice’s National Security Division, U.S. Department of Commerce’s Bureau of Industry and Security, and U.S. Department of the Treasury’s Office of Foreign Assets Control issued a Tri-Seal Compliance Note (the Note) detailing updates to the three agencies’ voluntary self-disclosure policies applicable to violations of U.S. sanctions, export controls, and other national security laws.  The agencies highlighted the essential role that the private sector plays in identifying threats from malicious actors and foreign adversaries seeking to undermine the American economy and national security, and they encouraged prompt voluntary self-disclosure and remediation of apparent violations. The Department of Justice announced an updated policy that it “generally will not seek a guilty plea, and there will be a presumption that the company will receive a non-prosecution agreement and will not pay a fine” in cases “where a company voluntarily self-discloses potentially criminal violations, fully cooperates, and timely and appropriately remediates the violations.”

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Fraud, Deception and False Claims

Eleventh Circuit Affirms Order for $1.195 Million in Restitution and 48 Month Sentence in Commercial Insurance Healthcare Fraud Case

Last month, the Eleventh Circuit upheld a $1.195 million restitution order and 48-month sentence against Carlos Verdeza for three counts of healthcare fraud. See United States v. Verdeza, No. 21-10461, 2023 WL 3728960 (11th Cir. 2023). Verdeza was a case brought by the United States against a physician assistant who produced fraudulent patient files and sought reimbursement from Blue Cross Blue Shield (BCBS) commercial healthcare insurance for physical therapy treatments that were never performed. A jury in the United States District Court for the Southern District of Florida convicted Verdeza on three healthcare fraud counts. Verdeza illustrates that prosecutors can and do prosecute healthcare fraud cases that do not involve government payors.

Read the full commentary on The FCA Insider blog.

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