Internal Investigations Blog

News and Opinions on Corporate Inquiries


Self-Help Not the Prescription for Physician Investigations

Here’s a tough call. Is it better to do a little – knowing that it is wholly inadequate – in the face of trouble, or to do nothing at all? While something seems innately superior to nothing, that probably is not the case with a do-it-yourself tool for medical practice-related internal investigations that is made available online for use by physicians’ offices.

An online resource for doctors, Physician Practice no doubt has the best of intentions when it provides the following investigation report template to its members for use in conducting internal investigations in their physician practice groups and solo offices:




Date reported: _____________________________
Reported by: ______________________________   Reported to: _______________________________
Title: ____________________________________    Title:_____________________________________
Department: ______________________________     Department:_______________________________

Incident Description: (Attach a reporting form if available)






(Continue on separate sheet if necessary)

Action Taken:

Date: __________ Action: _______________________________________________

Date: __________ Action: _______________________________________________

Date: __________ Action: _______________________________________________

(Continue on separate sheet if necessary)

Date of Discussion with Reporting Person Regarding Action Taken: ______________________

Date Incident Report Closed: ________________________

Approved: _________________________________________________

Title: _________________________________________________

Original form provided by All rights reserved. Complements of


Give credit where some is due. At least the organization recognizes that compliance and ethics breaches cannot be ignored or simply left by default to law enforcement to investigate. But the notion that a physician or his office manager can conduct and document a bona fide internal investigation by completing whatever underlying tasks may be required in order to fill in these blanks and “close” the report is dangerous.

With some tweaks – and not the methamphetamine kind – this document could serve as an excellent triaging document for an internal probe of any variety. But as a template for a serious final report on an internal investigation of anything of substance, it is tremendously lacking.

Of course, given the ever-thinner margins of small doctor practices now competing with all-inclusive, multi-campus wellness centers and hospitals this short-cut handling of internal investigations is, no doubt, financially attractive to that first group. It suggests that C&E problems in those small offices can be handled in house, quickly, at little or no cost. Except that you get what you pay for and trying in turn to sell this report to the Medicare OIG as evidence of the serious investigation and remediation of a problem would be a very tough one.

Indeed, it could even backfire. One could make a credible argument that a report patterned on the template above would indicate a lack of seriousness about a problem, particularly if it is a health care fraud or narcotics compliance one. So while Physician Practice should once again be given a nod for thinking proactively and trying to help its members to do the right thing, the truth of the matter is that serious C&E breaches – even in the smallest of doctors’ offices – ought to be left to specialists. After all and for good reason, you don’t see too many ex-prosecutors doing tonsillectomies.

SCCE Wraps Up 10th Annual Compliance and Ethics Institute

The Society for Corporate Compliance and Ethics just completed its annual Compliance and Ethics Institute in Chicago on Wednesday. This was the fourteenth year for the CEI and it brought together compliance officers from around the globe and from businesses both big and small for updates and continuing education on all facets of their profession, including internal and external investigations.

As described in a post-conference press release:

“Representatives from 30 countries including China, Great Britain, France, Germany, Austria, United Arab Emirates, Hungary, Switzerland, Russia, Mexico, Brazil, Zambia, and the United States, assembled this past week in Chicago for the 2014 Compliance & Ethics Institute. The Society of Corporate Compliance and Ethics hosted 1500 participants, including 57 exhibitors, and celebrated its 10th Anniversary during the 2014 Compliance & Ethics Institute.

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Keynoters at this year’s conference included leaders from government enforcement community including Joyce Branda, Acting Assistant Attorney General, Civil Division, U.S. Department of Justice, James B. Comey, Director, U.S. Federal Bureau of Investigation, Sean McKessy, Chief, Securities and Exchange Commission Office of the Whistleblower.

[CEO, Roy Snell, said:]

‘The scope of compliance and ethics programs just keeps increasing. As it does we’re expanding the number of sessions available and topics addressed at this meeting. These days compliance teams need to both stay on top of current risks but also looking to new areas of risk as well.’

On Monday evening, September 15, Donna C. Boehme, Principal, Compliance Strategists LLC, Daniel R. Levinson, Inspector General, U.S. Department of Health and Human Services, Smith Debnam LLP, Raleigh, North Carolina Smith Debnam LLP, the first law firm to have a compliance program of its own, and The WSJ’s Risk and Compliance Journal were honored during the International Compliance & Ethics Awards Dinner.

‘We’re at a critical point in the development of compliance,’ said Snell. ‘The people we honored are working to ensure that the profession has the independence and the expertise it needs to continue to thrive.”

Growing that expertise was helped by hearing the G-men and women listed above talk about investigations: where government ones were trending and what was expected of internal probes. To give them more on that subject and its best practices, attendees also had the option of getting into an Investigations Workshop and another series of lectures and presentations on pressing investigations topics. These included sessions that would help SCCE members on the investigations track to do the following:

  • Determine the precise allegation needing investigation;
  • Understand the critical role of documents in an inquiry;
  • Identify and explain the purpose of documentary evidence;
  • Review and discuss key issues involving documentary evidence;
  • Stick to the facts;
  • Know the key considerations for the report; and
  • Know the benefits of preparing a good report.

And even for those on other study tracks, who might be most concerned with set-up, training, monitoring, reporting lines, and continuous improvement, engaging them revealed that interest in the subject of investigations – both internal and external – almost always lay just a scratch away, beneath the surface.

What CCOs and their staffs seemed particularly concerned with were the efficiencies associated with conducting internal probes.  Whether a particular compliance officer pulled the trigger on hiring outside investigators or yielded that power to some other executive or board, cost was always a tremendous concern.   As a result the idea or retaining outside investigations counsel that was not Big Law – whether for the largest of small-company inquiries or for the mid-sized and smaller investigations of their larger, publicly-traded brethren – was met with overwhelming support.

This bodes well for smaller, highly specialized investigations law firms – admittedly like McGrath & Grace – to continue to secure and perform high-quality work for these clients.

[In the interest of full disclosure, the author is a proud member of SCCE.]

Calling the Play on NFL’s Investigation of Commissioner’s Office

The National Football League announced late yesterday that it has retained former FBI director Robert Mueller to commence an internal investigation into its handling of the Ray Rice disciplinary fiasco under the guiding hands of New York Giants owner John Mara and Pittsburgh Steelers owner Arthur J. Rooney, II. The comedy of errors that has been the NFL’s modus operandi to date on this matter once again underscores the Watergate Principle that the cover-up is almost always worse than the crime itself. In that vein, Muller ought to look for league efforts to manufacture willful ignorance and plausible deniability of the full extent of Rice’s actions, despite its representations to the contrary.

For those who have been living under a rock, earlier this year the NFL suspended Baltimore Ravens running back Ray Rice for two games after he punched and knocked unconscious his fiancé in an Atlantic City hotel elevator. Coming under fire from many corners for the comparative lightness of that punishment relative to others – Cleveland Browns wide receiver Josh Gordon was almost simultaneously suspended one year for his second violation of the league’s substance abuse policy – the league defaulted to “ domestic violence is not covered in our collective bargaining agreement” to justify its action. Apparently, Gordon merited the stiffer penalty for hitting a blunt twice as many time as Rice hit his girlfriend.

The league had almost lived down the Rice decision when the intrepid TMZ got and posted surveillance video from the hotel elevator that showed, in all of its swift brutality, Rice’s knockout of the woman to whom he is now married. While gratuitous and appealing only to a prurient interest, it made Mike Tyson’s 30-second KO of Marvis Frazier look like a war of attrition.  It did, however, manage to re-ignite questions about the NFL’s light treatment of the Ravens’ running back.

Commissioner Roger Goodell stepped in it when he told the media that the league had not seen the elevator video and that the league could not obtain it from law enforcement. This spurred incredulity among a media class that rightfully marveled that an organization whose security people are largely former Homeland Security, FBI, DEA, and state law enforcement officers, could not manage to get their hands on a videotape that Harvey Levin could. There were myriad ways that this might have been accomplished, one of which surely included buying a black-market copy.

Goodell committed this story to paper in a correspondence to team owners that was obtained by ESPN. In a story earlier yesterday on, the network reported that:

In the letter, the NFL explains that it never saw a copy of the videotape from inside the elevator that showed Rice punching then-fiancée Janay Palmer in the face, which was posted by TMZ on Monday. The league has received a great deal of criticism for not being more aggressive in trying to get the tape and to better understand the contents on it.

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The letter states that the league requested the tape from multiple authorities, including the New Jersey State Police, the Atlantic City Police Department, the Atlantic County Police Department and the Atlantic County Solicitor’s Office. All requests were denied. The league said it made the requests at the beginning of the legal process and after Rice’s legal case concluded.”

When that statement came out of Goodell’s mouth, the first thought in this corner was the possibility of the NFL manufacturing its own ignorance in this matter.

Rice had been a terrific back for the Ravens, with the possibility of becoming its standard-bearer in the absence of a now-retired Ray Lewis, himself familiar with the inside of a courtroom. Indeed, the league-owned NFL Network has produced and repeatedly aired a glowing, hour-long biography of Rice during the past off-season. In a league increasingly populated by reprobates and criminals, Rice’s transgression was just another among many and probably did not raise eyebrows around a league office that anticipated its falling out of the news cycle relatively quickly. In that pursuit, it would have sorely benefitted the league not to look too hard at the underlying facts of the Rice assault and get him back on the field, particularly if it viewed him as an income-generating player.

Now sooner were these thoughts hashed out here, than the Associated Press broke a story asserting that the NFL had the elevator video all along:

“A law enforcement official says he sent a video of Ray Rice punching his then-fiancee to an NFL executive five months ago, while Commissioner Roger Goodell has insisted the league didn’t see the violent images until this week.

The person played The Associated Press a 12-second voicemail from an NFL office number on April 9 confirming the video arrived. A female voice expresses thanks and says: ‘You’re right. It’s terrible.’

The law enforcement official, speaking to the AP on condition of anonymity because of the ongoing investigation, says he had no further communication with any NFL employee and can’t confirm anyone watched the video. The person said he was unauthorized to release the video but shared it unsolicited, because he wanted the NFL to have it before deciding on Rice’s punishment.

The NFL has repeatedly said it asked for but could not obtain the video of the Baltimore Ravens running back hitting Janay Palmer — who is now his wife — at an Atlantic City casino in February.

The league says it has no record of the video, and no one in the league office had seen it until it was released by TMZ Monday. When asked about the voicemail Wednesday, NFL officials repeated their assertion that no league official had seen the video before Monday.”

Around the same time, CBS was seconding an ABC News report that Rice’s attorney had a copy of the elevator video, as well, that was not sought by the league:

“ . . . ABC News reported Wednesday evening that the team knew shortly after Ray Rice hit Janay Rice that a video from inside the elevator existed and that Rice’s lawyer had a copy but the organization never asked to see it. Rice’s lawyer reportedly asked the Atlantic City hotel for the full tape, and the hotel gave it to him.

More from ABC News:

The Ravens team also asked the hotel for the full video, but were told by the Revel they couldn’t give it out to anyone except someone who was a party to what’s on the tape or to law enforcement, the sources said. But Revel officials told the team that Rice’s attorney had a copy and the Ravens should ask the lawyer for the tape, the sources told ABC News.

The Ravens did not ask Rice or his lawyer for a copy of the video. Instead, the Ravens and the NFL asked law enforcement for the video which declined to give it up. It’s not clear whether the league was in contact with the Ravens about the incident at this time.”

When it was reported by multiple outlets that Mueller would be conducting the investigation for the NFL under the guidance of two owners, a Baltimore Sun columnist, among others, questioned the independence of the probe. Others have questioned the independence of Mueller, whose law firm has done work for the league.

As with Louis Freeh’s Penn State inquiry, however, the extraordinarily high level of publicity and Mueller’s own integrity should ensure a pretty straight shot here and its direction should be pretty clear. Whether it is a matter of the Commissioner protecting his league or NFL subordinate(s) seeking to give Goodell and the organization cover, what seems to need proving or disproving is whether anyone at the NFL really looked into what Ray Rice had done and, if not, whether anyone tried to hide not doing so.

Veteran’s Administration Scandal: What’s Not Good for the Gander

Famed opera singer Maria Callas once said, “Don’t talk to me about rules, dear. Wherever I stay, I make the goddam (sic) rules!” The underlying notion that “the rules” are morally relative apparently holds true when the rule makers themselves get into a jam. To get a little perspective on this, one need only contrast what is acknowledged as an acceptable public response to scandal by a the private sector company versus a government agency, in this case, the Veteran’s Administration.

According to a report released by the Department of Veterans Affairs Office of Inspector General last week, the investigation of 93 VA facilities across the country has morphed to a joint effort with the Justice Department and the FBI to probe allegations of obstruction of justice at dozens of them. The VA operates 150 hospitals and 820 clinics across the United States that serve roughly six million veterans each year.

As reported by USA Today, the epicenter of the scandal is Phoenix, where reports of veterans dying while awaiting care first surfaced and the most brazen wrongdoings seems to have occurred.

Sharon Helman, the Phoenix hospital’s director, launched a program last year that was touted for improving access to care for veterans. Indeed, she cited the program in a self-assessment that was used to calculate her job rating and led to a pay increase from $169,900 to $172,449 and a bonus of $8,495. However, the OIG’s investigation found that Helman’s signature program was filled with inaccurate or misleading data. Contrary to claims of improved access, investigators found thousands of veterans who were not seen by doctors and whose names were kept on secret lists to hide them from official records that would reflect scheduling problems.

In one instance, staff was discovered to have tried to set up a promised appointment for a veteran three months after he died. In another, a coronary bypass was performed on a veteran five months late because no cardiology appointment was ever scheduled. In another, a veteran waited ten months for lesions that he feared might be skin cancer to be examined and ultimately declared benign. In yet another example, a veteran in his 70s tested likely for prostate cancer but waited eleven months to get a biopsy that led to a diagnosis.

Investigators also learned that dozens of Phoenix scheduling staffers penciled into records the wrong dates or “fixed” other appointment data to mask delays in care. Some of these workers claimed to have been instructed to do so by superiors and it is clear that hospital executives and senior clinical staff were aware that false scheduling practices were being used.

It is plain that these findings should provide the launching pad for a probe for evidence of larger conspiracies, across the entire VA system or sub-sets thereof, to falsify records and to cover up the same. Presumably, that is where the joint OIG – DOJ referenced above will be headed.

Public displeasure with this scandal mimics the outcry over Enron, Walmart, and GM, but the demands and expectations of the watchers is curiously different. When those private sector businesses were found to have run off their rails, the government and the media stoked the citizenry’s demand that the scoundrels’ heads be chopped off and mounted on stakes for all to see. No excuses or explanations for their conduct or that of their companies needed. And this may be the right moral and legal perspective to take.

But look at the indifferent, if not, admiring coverage of the post-investigation efforts to spin the VA findings in the same USA Today story referenced above:

“The anticipated release of the report Tuesday prompted VA officials to prepare a full-court public relations response ahead of time. Selected news media were granted interviews with top VA officials days in advance. President Obama delivered remarks before the American Legion on Tuesday in Charlotte heralding steps to correct failings.

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Talking points and a news release assembled by the VA ahead of the report’s release emphasized apologizing for what went wrong but also highlighting the investigation’s finding that none of the dozens of deaths of veterans waiting for care at the Phoenix VA hospital could be linked conclusively to the delays.”

One can’t help but think that Enron or Walmart or GM or any of hundreds of other for-profits who have been through enforcement actions would be pilloried for attempting to spin their apparently getting caught red-handed. The excoriation normally reserved for this type of behavior is curiously missing. Instead, there is government and media admiration at the VA’s scheme to urinate on taxpayer heads and tell them that it is raining. Sadly, for veterans, their families, and the tax-paying public, the most transparent thing about the VA is this public relations campaign.

Casual Dining Industry Should Act on News of Slavery in Shrimp Supply Chain

Last month, it was reported that major players in the supermarket game were to meet in Thailand to tackle the problem of slavery in the shrimp production industry in Southeast Asia.  The abhorrent conditions of human trafficking and involuntary servitude are said to occur in the supply chains of Charoen Pokphand Foods, a Thailand-based shrimp supplier to global retailers, with annual sales of $33 billion.  While such a risk has been identified for years in private counsels from this corner, it has now made a big splash on the pages of one of the world’s most-read newspapers.  Businesses obtaining seafood products from the Pacific Rim should take renewed stock of their own due diligence and internal investigations efforts as regards identifying slavery and human trafficking among participants in their supply chains, if any.

On July 30, 2014, The Guardian reported that U.S. and British supermarket groups were in Thailand that same week to create a task force to tackle human trafficking and forced labor in the shrimp feed industry.  The three-day meeting was hosted by CP Foods, the world’s largest prawn farmer, which The Guardian had earlier found to be buying fishmeal from suppliers that own, operate or buy from boats manned with slave labor.  Among U.S. retailers, Whole Foods had already cancelled contracts with CP Foods, while Costco US was expected to attend the talks before deciding how to proceed.  International catering and food-service giant Sodexo was also likely to be there.

According to the same article, the aim of the meeting was to agree on the terms of an industry action group, which will work with CP Foods to establish a global benchmark in sustainable shrimp-feed production. It will also help the Thai government create a strategy to halt human trafficking and slave labor in the seafood supply chain.  To date, the results of that meeting and what steps toward achieving these goals have been taken are unknown.

The late-July report of this meeting by The Guardian was preceded by an earlier story on June 10, 2014, revealing the findings of its own investigation of the shrimp industry in Thailand.  It found that that:

“ . . . large numbers of men bought and sold like animals and held against their will on fishing boats off Thailand are integral to the production of prawns (commonly called shrimp in the US) sold in leading supermarkets around the world, including the top four global retailers: Walmart, Carrefour, Costco and Tesco.

The investigation found that the world’s largest prawn farmer [CP Foods] buys fishmeal, which it feeds to its farmed prawns, from some suppliers that own, operate or buy from fishing boats manned with slaves.

Men who have managed to escape from boats supplying CP Foods and other companies like it told the Guardian of horrific conditions, including 20-hour shifts, regular beatings, torture and execution-style killings. Some were at sea for years; some were regularly offered methamphetamines to keep them going. Some had seen fellow slaves murdered in front of them.

Fifteen migrant workers from Burma and Cambodia also told how they had been enslaved. They said they had paid brokers to help them find work in Thailand in factories or on building sites. But they had been sold instead to boat captains, sometimes for as little as £250.

‘I thought I was going to die,’ said Vuthy, a former monk from Cambodia who was sold from captain to captain. ‘They kept me chained up, they didn’t care about me or give me any food … They sold us like animals, but we are not animals – we are human beings.’

Another trafficking victim said he had seen as many as 20 fellow slaves killed in front of him, one of whom was tied, limb by limb, to the bows of four boats and pulled apart at sea.

‘We’d get beaten even if we worked hard,’ said another. ‘All the Burmese, [even] on all the other boats, were trafficked. There were so many of us [slaves] it would be impossible to count them all.’

CP Foods – a company with an annual turnover of $33bn (£20bn) that brands itself as ‘the kitchen of the world’ – sells its own-brand prawn feed to other farms, and supplies international supermarkets, as well as food manufacturers and food retailers, with frozen or cooked prawns and ready-made meals. It also sells raw prawn materials for food distributors.

In addition to Walmart, Carrefour, Costco and Tesco, the Guardian has identified Aldi, Morrison’s, the Co-operative and Iceland as customers of CP Foods. They all sell frozen or cooked prawns, or ready meals such as prawn stir fry, supplied by CP Foods and its subsidiaries. CP Foods admits that slave labour is part of its supply chain.

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The supply chain works in this way: Slave ships plying international waters off Thailand scoop up huge quantities of ‘trash fish’, infant or inedible fish. The Guardian traced this fish on landing to factories where it is ground down into fishmeal for onward sale to CP Foods. The company uses this fishmeal to feed its farmed prawns, which it then ships to international customers.”

In light of this investigation, not only should U.S. and supermarket chains elsewhere look to re-tool due diligence and internal investigations into their seafood supply chain, but so too should the restaurant industry.  This is particularly true for the casual dining chains that dominate much of the U.S. market.  One would have to think that not just every bag of bulk shrimp at Costco, but every Fillet-o-Fish from McDonald’s, runs the risk of having been caught, processed, flash-frozen, and/or shipped by workers held in involuntary servitude, if any of those functions occur in Southeast Asia.  The cost of doing a deep dive into those suppliers to make sure that is not the case pales in comparison to the costs of not doing so.

Amazon Should Break Out Shovels on In-App Sales

One can only guess that in advance of its being sued by the Federal Trade Commission, Amazon conducted an internal investigation into the alleged sales of its In-Apps to children without parental approval.  If not, it is certainly digging for the facts as it ramps up its defense to the injunctive relief, damages, and disgorgement  requested by the FTC in the United States District Court for the Western District of Washington.  Amazon’s supposed and last stop-gap solution to the problem – which wasn’t – is one place where the digging should be especially deep.

As reported last month by Joe Mont of Compliance Week, the government sued the online retailer for allegedly doing nothing to prevent millions of dollars in unauthorized In-App purchases by children despite internal warnings among Amazon employees as early as 2011 that allowing unlimited charges without any parental passwords was causing problems for many customers.  According to his story:

“The complaint alleges that Amazon’s setup allowed children . . . to spend unlimited amounts of money to pay for virtual items within the apps such as ‘coins,’ ‘stars,’ and ‘acorns’ without parental involvement or authorization. [It further] alleges that when Amazon introduced in-app (sic) charges to the Amazon Appstore in November 2011, there were no password requirements of any kind on in-app (sic) charges, including in kids’ games and other apps that appeal to children. Amazon pockets 30 percent of all in-app (sic) charges.

In March 2012, according to the complaint, Amazon updated its in-app (sic) charge system to require an account owner to enter a password only for individual in-app (sic) charges over $20. Amazon, however, continued to allow children to make an unlimited number of individual purchases of less than $20 without a parent’s approval. An Amazon employee noted at the time of the change that ‘it’s much easier to get upset about Amazon letting your child purchase a $99 product without any password protection than a $20 product,’ according to the complaint. In July 2012, internal emails again described consumer complaints about in-app (sic) charges as a ‘house on fire’ situation. ‘Even Amazon’s own employees recognized the serious problem its process created,’ FTC Chairman Edith Ramirez said in a statement.

 And then this, at Paragraph 21 of the Complaint:

 “Not until early 2013 did Amazon adjust its in-app (sic) charge framework to require password entry in connection with any other in-app charges. Even then, Amazon’s modifications took effect at different times for different device models and, in some instances, have operated in different ways for different apps and different account holders. The password prompts also function differently from the password prompt described in paragraph 20, in that completing the prompt “caches” (that is, stores) the password for a billing window ranging from fifteen minutes to an hour. The net result was that, unbeknownst to many consumers, Amazon sometimes would present account holders with a password prompt to confirm an in-app (sic) charge and sometimes would not.”

What this meant – as noted by CW – was that even when a parent was prompted for a password to authorize a single In-App charge made by a child, that one authorization often opened an undisclosed window of fifteen minutes to an hour during which the child could then make unlimited charges without further authorization.

This is where someone should be moving  a lot of dirt on behalf of Amazon, so as to explain these workings to a number of people, including its Board, FTC enforcers, and a prospective jury in on the West Coast full of parents and others who like kids and hate losing money.  Because, while the first two efforts by Amazon can be characterized as software design oversights, the allegation contained in Paragraph 21 looks more like an ingeniously-crafted component of a larger illicit scheme to continue to permit unauthorized purchases by children while – this time around – providing plausible deniability.  And that could prove very costly to Amazon in the end.


The Humphrey – Yu Verdicts and What They May Mean

Last Friday, the Shanghai No. 1 Intermediate Court found Briton Peter Humphrey and his American wife, Yu Yingzeng, guilty of illegally obtaining private information about Chinese citizens.  Humphrey’s company, ChinaWhys, was known to have done work for GlaxoSmithKline and it is assumed that his conviction and that of his wife was tied to work being done for the British pharmaceuticals giant, although that was never explicitly stated.  Whether it is material or not depends upon your perspective.

Initial reports on the arrest and detention of Humphrey and Yu just over a year ago were sketchy at best.  They painted a drab picture of a pair of westerners who had gotten caught buying information that they shouldn’t have.  Not much to see here, keep on moving people. Indeed, one long-time China handicapper expressed thoughts over late-night cocktails in Miami Beach as being a not-so-shocking example of Humphrey and his wife (whom he knew and had worked with) crossing the wrong people and paying the unfortunate price for it.

This evaluation – whether prescient or informed from the inside – seemed to be confirmed with later stories that spiced up the notion of a cross as the trial approached.  Indeed, as the trial drew near, it was learned that sex, lies, videotape, and family connections lay at the heart of Humphrey’s and Yu’s work.  BBC News China – among others – reported that:

“Early in 2013, an [anonymous] e-mail was sent to GSK’s London-based CEO Andrew Witty accusing GSK China’s general manager Mark Reilly of being behind systematic corruption in the company’s China operation.

A sex tape featuring Mr Reilly and his girlfriend was later also sent.

Mr Humphrey’s corporate investigations company, ChinaWhys, was asked to find out who had sent the email and how the video had been filmed.

GSK suspected a former senior staff member, [Vivian Shi,] said to have top-level political connections. [She is reported to have family at the top echelons of power in Shanghai.  GSK had tasked Mr. Humphrey with investigating her for possibly orchestrating a smear campaign against the company.]

In June, ChinaWhys delivered its report. Chinese authorities shortly afterwards opened a bribery investigation into GSK and then arrested Mr Humphrey and his wife.”

With these later-developing facts, the Humphrey – Yu prosecution and conviction last week certainly seemed to fit the simple revenge template.  If were as easy as that, then the lesson learned would be to tread lightly when doing an investigation or due diligence project in China.  But at least one author sees the Humphrey case not as an isolated instance of Shanghai vengeance realized, but as a symptom of a much larger political disease emanating from Beijing that not only continues to be a hazard for westerners working in-country, but also one that threatens to set China’s economic development tumbling backwards to the Mao era.

At Forbes, contributor Gordon C. Chang wrote:

“Everyone, however, links the Humphrey – Yu case to Glaxo. In the course of their work for the company the husband and wife investigated Vivian Shi, head of government affairs in China for Glaxo until she was fired in 2012 for submitting false expense reports. Shi, who denied the accusation, was the wrong person to cross. She is the daughter of a Shanghai government official and is known to b e well connected in the city. The criminal prosecution against the ChinaWhys principals, many suspect, is payback.

Whether or not those suspicions are correct, the case is a reminder that, despite more than three decades of economic reform and progress, foreigners remain very much at risk in the People’s Republic. Chinese leader Xi Jinping has presided over a period during which foreign companies have been under increasing attack by the central government, especially since July of last year. The essential problem up to now has been highly discriminatory enforcement of the law. As Time asked at the end of last month, ‘Is no famous foreign brand safe in China?’

The answer, as we now know, is no. Xi has essentially declared open season on outsiders, and there will be no early end to what is certainly an orchestrated campaign against them.

Unfortunately, the Humphrey – Yu case, which is shaking the foreign community in China, adds a critical obstacle for business there. The ChinaWhys firm had a multitude of multinational clients, and now China has criminalized its business. The official Xinhua News Agency reports that this is the first prosecution of foreigners for illegal investigation.

The case against the couple is an intensification of Beijing’s effort to undermine foreign competitors. ‘The verdict is the latest in a string of signals from Chinese authorities that suggest an increasing desire to control access to information, often in ways that limit the scope for foreign businesses to use it,’ noted The Wall Street Journal on Friday, after the announcement of the two convictions.

Another of those signals, according to the paper, is the central government’s persistent efforts to classify accounting data as “state secrets,” even data of companies listed abroad. Similarly, Beijing has been doing its best to make sure that foreign auditors no longer work in China for such companies.

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 Modern economies run on information. The conviction of Mr. Humphrey and Ms. Yu—and the torture and incarceration of Mr. Xue—means that China is condemning itself to a backwater of the global economy.

 China flourished when it opened up its economy after the isolationism of the Maoist decades. Now, however, Xi Jinping is reversing course. He often talks about reform but is in fact sponsoring regressive economic moves. Perhaps it is too early to say he has abandoned Deng Xiaoping’s transformational policies—encapsulated by the phrase “reform and opening up”—but he is cutting China off from the rest of the world.

 No country today can prosper for long by retreating from an increasingly globalized economy. Not surprisingly, foreigners are cooling on China recently. In the first half of this year, foreign direct investment increased only 2.2%. It will fall as multinationals begin to think through the meaning of Beijing’s assault on information.”

Whether the Humphrey – Yu prosecution is a one-time payback or something larger, the near-future result will be the same.  Investigators and due diligence professionals in China are going to tread very carefully in getting their information.  But if Chang is correct that a full-fledged war on western business is unfolding there – be reminded of the massive industrial espionage being conducted on American companies from People’s Liberation Army Building No. 61398 in Beijing – then internal investigations and due diligence may ultimately be grinding to a halt in China.

“Victim” Donks Ohio State Marching Band Investigation

The Ohio State University Marching Band – “The Best Damned Band in the Land”, as it is known – is caught in the midst of a scandal that has probably gone unnoticed in most other places.  After the release last month of a report into the “sexualized” character of the OSUMB that was determined to be violative of the school’s Sexual Harassment Policy 1.5 and Title IX, Director Jonathan Waters was fired.  In something that is rarely seen, one of the investigation’s interviewees and alleged victims spoke out against the investigation, the report, the black mark given the Marching Band, and the firing of Waters.

The Investigation Report into the Complaint against Jonathan Waters, Director of the OSU Marching Band was sparked by a complaint from the parent of a band member to Ohio State’s Office of University Compliance and Integrity.  The parent was “concerned that the Band’s culture was sexualized and that its members were made to swear secrecy oaths about objectionable traditions and customs.”  The parent requested – and got – an investigation.

Within the pages of the report, it is learned that the OSU band geeks (used here with affection) – like most other college kids – talk and joke about sex.  They annually march into the famed Horseshoe at midnight in their underwear as a right of passage; give each other bawdy, single- or double-entendre nicknames; harass each other; roughhouse and change clothes on event buses; and compose incredibly creative but obscene versions of alma maters and fight songs.  Think back to the Pi Delta Pi sisters serenading the Lambda, Lambda, Lambda nerds with “♫ Alpha Betas are okay, if you like sweat socks.  ♫ We prefer your high IQs to their . . . ” and you get the idea.

The band has such a gas with this stuff that even the OSUMB alumni are in on the act.   And, of course, Director Waters and his right hand men, Associate Director Christopher Hoch and Assistant Director Michael Smith, sort of ride shotgun over these shenanigans.  Some of these things they see and some they don’t, but the report makes clear that they know what the OSUMB is about when it’s not playing.  Unfortunately, it is about violations of a very serious school rule and federal law.

None of the foregoing tongue-in-cheekedness is meant to diminish the investigation. It was very capably done in-house and pursuant to the guidelines set forth by OSU’s Office for Civil Rights.  The documentation contained in its appendices is very good and its random-sampling interview strategy _ assuming that it was – a common audit practice.  Yet, according to one former OSUMB member, Jocelyn Smallwood a.k.a. “Donk”, the investigation is fatally flawed.  On her Facebook page, she wrote:

“I have spent a great amount of time the past few days weighing whether or not I should write to you. I ultimately chose to do so only because I felt my comments would add a unique and valuable perspective to the conversation regarding the recent dismissal of Jonathan Waters. Like several of my female colleagues in the band, my name was included in the 23-page report released last week. However, so far as I know, I was one of the few who were actually interviewed during the investigation. 

While I take issue with much of the report that was compiled by the university, my greatest concern was echoed recently by several of my female colleagues in the band. Many of us were surprised to find ourselves included in a list of “sexually explicit” nicknames. Even more surprising to me was that at no time during my interview can I remember being asked about the details of my nickname, the circumstances under which it was given to me, or, perhaps most important, my feelings about my nickname. While the authors of the report may feel confident in their ability to draw their own conclusions about the feelings, opinions and intentions of others without asking them, I would argue that in this case, their clairvoyance has failed them miserably. Thus, I feel it is my right and duty to clear up several issues about the fourth name listed in the report: Donk.

Donk is not a malicious or offensive nickname. Donk is a person. Donk is a five-year member of the band, a former i-dotter, and a two-time squad leader of KL-Row, which also happens to be a predominately male row. Donk is a daughter, sister, friend, a woman and, most importantly, an independent, clear-minded person. Donk is not a moniker that was placed upon me without my consent, and it is most certainly not something of which I am ashamed.

What angers me the most is that, in spite of my feelings, I along with several others on the list have been mischaracterized as victims of “sexual harassment” without being asked directly for our input. Never in my life have I felt uncomfortable being known as Donk. It has appeared on shirts, social media, in papers for classes; in the label I stuck in my band hat and on a piece of duct tape in my raincoat not because it is a joke, but because it is my name. It is who I am.

Although when I say ‘never in my life,’ what I really mean is never before last Thursday. I now find my nickname listed in myriad news reports as proof of the alleged horrible, sexually aggressive culture of the OSUMB. While I am just as disappointed in the media for not bothering to do their homework, I would hope that a report dealing with an issue as serious as terminating the employment of one of the university’s most visible, respected figures would have been undertaken with more care. In my five years in the band and since my graduation, I’ve discussed my nickname and where it came from with my friends, family, coworkers, bosses, alumni and random people passing me on the street. Odd then, that seemingly the only people who were uninterested in learning more about my nickname were those responsible for putting together a report about sexual harassment in the band.

But, at the center of this issue is an investigation that I feel was deeply flawed and executed with great carelessness and little concern for finding the truth. As someone with a deep understanding of the band, I would think that the hour I spent in the interview would have been used to gather the information I have about these issues and experiences. But as I recall, I was asked only a few general questions about the majority of the content in this report. Had you asked me, I could have told you that many of the examples in the report occurred long before Jonathan Waters was director. I could have told you that before we name rookies, we speak to each of them individually to ensure that nothing in their name touches upon any area they might find offensive. Had you bothered to ask, I could have told you that a large amount of the evidence on which the report relies is outdated or inaccurate. Or, perhaps, that is why they didn’t ask me?

I am well aware of the fact that the opinions of individuals often differ greatly. And I would guess that few people are making the argument that there is nothing in the culture of the band that needed to change. I am also certain that you have heard numerous examples of how the man you fired last week was the fiercest advocate for culture change in the band, joined in his efforts by Chris Hoch and Mike Smith and the majority of the band members. And had I been asked, I also could have offered numerous examples.

The truth is that this band makes strong women. It makes strong, smart, witty, confident and, therefore, beautiful women. As I have said before publicly, this band creates strong women because it treats us as equals. To make the band, individuals must be proficient in two areas: they must play well and march well. Gender, race, sexual orientation, religion, political view and socioeconomic status do not matter. In November, 2012, an African-American woman named Donk dotted-the-i against Michigan. It wasn’t because the men in my section decided to let me. It was because I worked hard and emerged on top. And on November 24th, when I realized my dream in front of more than 105,000 screaming fans, my fellow band members celebrated alongside me, not because I had broken a gender/racial barrier, but because we’re family and that’s what we do. Appropriately, last Thursday night, I once again found myself being supported by those same people. They are not nicknames on a list. They are not details in an investigation. They are not examples of harassment. They are my family. And the report does little justice to the truth that this band supports and nurtures women.

Please do not insult me as an individual by suggesting that I am so ignorant and so helpless that I somehow have managed to spend five years being consistently sexually harassed and not realize it. Do not treat my name as something that should be condemned when it is something I will continue to wear as a badge of pride.

There are negative things in our world—this is a fact of life. That does not mean that nothing can or should be done about them. However, it seems a shortsighted response to paint an entire organization with a broad brush when you only bothered to interview a handful of people about what has happened. The characterization of my name is simply one facet of this carelessness.

In closing, I still care deeply not only for the band, but for my university. That is why I write to you. The manner in which this report was put together is alarming. And if it is alarming to a twenty-three year old recent college graduate, I would hope that after hearing my story you as leaders, would, at the very least, look at this report and the manner in which it was produced with more scrutiny than you have up to the present time. Good management decisions must be based on accurate, well-researched, timely information. The report produced by the University’s compliance office, which served as the basis for the decision to fire Jonathan Waters, was none of those things.”

Smallwood’s missive is terrific – well thought out, well written, obviously passionate – but wrong. 

Despite her indictment of the investigation for allegedly interviewing too few people, talking to another one hundred or another one thousand people would not have changed the results, because the facts are not really in dispute.  And when Waters – himself an alumnus of the organization – admitted in varying degrees to not only observing and participating in the offending behavior as a student, but also as the OSUMB’s leader, his goose was cooked.  There is no such thing as being a little pregnant.

What Smallwood’s complaint really speaks to is the harshness of policies and codes that are rooted in zero tolerance.  Even if OSU investigators had interviewed all of the band’s 225 current members and all of its alums and together they unanimously said that they did not feel sexually harassed or subject to a harsh environment while in the Band, as long as one potential offended person is out there, the complained-of rules violations would have been and will be found to exist.

Despite being a political favorite, zero tolerance policies have a way of working harsh results, particularly on voluntary associations of seemingly like-minded people.  Being a very bright young graduate, Donk may want to challenge the wisdom of having rules that do this.

Time for FCPA-Style Due Diligence in Health Care Sector?

Due diligence investigations are warranted whenever, wherever businesses are caused to rely on third parties.  In the world of the Foreign Corrupt Practices Act, it has exploded into an industry unto itself thanks to ramped-up enforcement by the Department of Justice and the Securities and Exchange Commission.  Probes of potential suppliers, vendors, and partners can goes as wide and as deep as necessary to satisfy whomever or whatever is making the call, in order to ensure that those third parties are clean.  Perhaps some of that ought to be adopted in at least one domestic pursuit.

Margaret Scavotto, of Management Performance Associates, on its Breaking Compliance News Blog, recently wrote of an Iowa Nursing home that got dinged by the DOJ for the actions of a third party provider that it contracted with for patient services.  Paraphrasing the original DOJ release she noted that:

“The United States Department of Justice recently entered a $500,000 settlement with an Iowa skilled nursing facility, to resolve allegations that the SNF billed the government for improper therapy provided by a third party therapy services contractor.

The Medicare claims at issue involved therapy services that ‘were not justified by…residents’ conditions’ The government also asserted that ‘by including costs for the therapy services in cost reports submitted to the Medicaid program, [the skilled nursing facility] erroneously submitted inflated cost reports.’” [Emphasis original.]

Her ensuing analysis indicates that:

“This is an eye-opening settlement for nursing homes and therapy companies. Nursing homes often believe that if the government finds false claims arising out of unnecessary therapy, the therapy company will be responsible (after all, they provided the services). Likewise, therapy companies often believe the nursing home will be responsible (after all, the SNF is submitting the bills under its Medicare number). We have known for some time that the government holds therapy companies responsible.  Now we know SNFs will be held accountable, too.” [Emphasis added.]

What then, to do?

Certainly, more careful oversight of providers and billing practices are a large part of the solution.  And this ought to entail random audits and similar samplings and reviews to ensure that patients both require and are getting the care for which they are prescribed.  But maybe borrowing a bit from the FCPA crime-fighter’s tool belt might not be a bad idea.  Advance, boots-on-the-ground due diligence in the area of third-party medical providers might not be too bad an idea for skilled nursing facilities and similar institutions that outsource care for which they bill or re-bill the government and private insurance companies.

And boots on the ground is probably the key in all of this.

Surely, SNFs or consortiums of SNFs could hire due diligence vendors to provide them with laundry lists of third party providers who have run afoul of the government or been sued to recover overpayments by private insurance carriers.  But to take one look at the news releases at Stop Medicare Fraud is to quickly discover that shady providers change names and morph into other entities with the same frequency that most people change shirts.

Winnowing the good from the bad in the giant field of ever-changing third-party providers should require some good old gum-shoeing in order to be truly effective.  That may not be happy news to the business units of SNFs, but the cost ought to be far cheaper that the penalties paid if the unplanned-for happens.

GM Investigation Misses Chance to Size Up Milliken for Haircut

Because analysts can never get enough . . .

After the initial General Motors post in this corner, a loyal reader and former GC-type expressed a bit of disappointment that it did not tear into the General Counsel’s office like Mr. Plow on a snow-drifted highway. While it’s not the aim of this forum to take scalps, they do occasionally appear as a by-product of commentary on the targets, methodologies, and scopes of internal probes.  This post takes the initial review of the GM internal investigation to the next step and gives a closer haircut to Michael Milliken without deviating from the purpose of this space.

The premise behind The Most Disturbing Facet of GM’s Ignitiongate was that it is inconceivable that worker bees, supervisors, and senior executives in any silo at GM – research and development, product testing, customer service, legal – could know that consumers had perished in their vehicles because of unknown causes and not considered whatever the issue was a safety risk.  This especially includes the Law Department.

Recall that, according to Page 103 of the Valukas Report, awareness of the fatalities associated with the ignition switch failures hit GM legal when wrongful death litigation landed on its desks in 2006.  At Page 104, it is made known that the lawyers in charge of safety issues and those tasked with product litigation both had reporting tie-ins at the General Counsel of GM North America.   These divisions of labor were headed by top-notch in-house attorneys with a crossover of information to ensure that safety lawyers knew of litigation developments and that litigators knew of issues coming down the safety pike.

When it came to resolving lawsuits, GM had three tiers of settlement approval as described on Page 106, et seq. Cases valued at less than $100,000 could be settled on the authority of product liability staff attorneys.  Those from $100,000 to $1.5 million (later $2 million) had to be approved by “The Roundtable”, a group of GM lawyers that was led by its Litigation Practice Area Manager.  Settlement of cases valued between $2 million and $5 million had to be approved by the Settlement Review Committee, another group of GM lawyers that included the GC of North America and GM’s Counsel for Global Engineering Organization.  Various ignition defect cases passed through each of these levels of review.

That’s a lot of supposedly smart people – lawyers – at Ground Zero and yet nobody sought or felt compelled to ring the alarm that an obvious safety issue of some sort was involved when GM customers were dying in GM vehicles under questionable Or at least to pass it up the chain of command to a C-suite that should know to do the right thing.

As the loyal reader referenced above so eloquently pointed out:

“GC 101: A general counsel that claims “I never knew” has failed, miserably.  As a GC, you make it clear to your people that not sharing critical information will shorten their careers dramatically.  In addition, you develop redundant sources so that if one of your subordinates does not follow Dictate #1 above, you find out anyway.  And then you find out why you weren’t told.  I understand that there has been a lot going on at GM, but not knowing information of this magnitude is simply inexcusable.  You either address the span of control or bandwidth or “tell me the bad news or else” issue, whatever you want to call it, or you need more or different warm bodies”.

Dale Buss over at Forbes detailed others seeing it the same way in “Barra is Protecting GM Top Lawyer Milliken – But Should She Be?” where he wrote:

“Mary Barra may have developed a blind spot with her resolute defense of General Motors chief legal counsel in the wake of Michael Millikin’s suspect role in the company’s handling of safety recalls as GM’s approach became sclerotic and even irresponsible over the years.

That’s the view of some expert observers with legal and GM backgrounds. They believe Barra should be nudging Millikin to fall on his sword — into resignation or “retirement” — instead of stoutly defending a performance by her 65-year-old chief counsel that, at best, suggested awful things happening on his watch and, at worst, may have made him at least negligent  in some of the most inexcusable aspects of the company’s continuing recall crisis.

                                     *                                   *                                   *                                   *

And Sen. Dean Heller (R., Nev.) told The Wall Street Journal: “I was surprised at the bear hug that [Barra] gave Millikin in that hearing. Even if he didn’t know, he had an obligation to know.” Sen. Richard Blumenthal (D., Conn.) told the newspaper that Barra has “a blind spot” in regard to Millikin.

                                     *                                   *                                   *                                   *

[An] attorney with long ties to GM, added that “it looks like the secretive nature of the legal department played a big role in the delay. Even if [Millikin] didn’t know, he should have known. He was in charge of a department that screwed up.”

And that’s but one of a number or avenues that this internal investigation should have driven down to its very end:  What did Michael Milliken know and when did he know it?  Or, if he didn’t know anything about the mystery crashes and mystery deaths, why not?

[Thanks, BW.]

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