Corporate Compliance Officer
The New Enforcement Target?
Medical Technology Learning Institute
Audio Conference
January 30, 2008
Discussion Agenda
 U.S. Sentencing Guidelines: Expectations for an effective compliance and
ethics program and the role the Compliance Officer in meeting those
expectations.
 Enforcement actions and legal liability theories.
 Strategies to identify and respond to ethical and legal challenges posed to
Compliance Officers in the discharge of Compliance Program duties.
 Factors to assess in evaluating the effectiveness of a Compliance Officer.
Kathleen McDermott, Esq.
Washington, D.C.
U.S. Sentencing Guidelines
 Section 8B2.1 Effective Compliance and Ethics Program.
 Exercise due diligence to prevent and detect criminal conduct.
 Promote an organizational culture that encourages ethical conduct and a
commitment to compliance with the law.
 Implement a Compliance Program that is generally effective in preventing and
detecting criminal conduct.
 High level personnel of the organization must ensure an effective
compliance and ethics program and have overall responsibility for
compliance and ethics program.
 Specific individuals, i.e., Compliance Officer, must be delegated day-today operational responsibility for compliance and ethics program.
Kathleen McDermott, Esq.
Washington, D.C.
U.S. Sentencing Guidelines
 Compliance Officers must be able to report to the governing authority of
the company, or an appropriate subgroup of the governing authority, on the
effectiveness of the Compliance Program.
 To carry out operational responsibilities, Compliance Officer must be given
adequate resources, appropriate authority and direct access to the governing
authority or appropriate subgroup.
 Effectiveness of a Compliance Program may be judged by qualifications of
Compliance Officer, resources dedicated to Compliance Program and
access.
 An organization’s compliance with industry standards or practice for
regulatory compliance is a factor in effectiveness.
 Small organizations may implement Compliance Program requirements
more informally and with greater flexibility and training, provided key
areas covered.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
United States v. Caputo
 Compliance Officer and Corporate President indicted and convicted of
federal felonies associated with off-label promotion and other fraudulent
conduct.
 Judicial opinion sets forth legal standard for Compliance Officers in
discharge of compliance duties.
 Court explains role of Compliance Officer in ensuring ethical and legal
corporate environment.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
United States v. Caputo
 AbTox - medical device manufacturer marketed a single product: AbTox
Plazlyte™ sterilizer for hospitals for use in sterilizing reusable medical
devices.
 AbTox subject to regulation by FDA. AbTox product marketed off-label.
 After FDA noticed, AbTox continued selling sterilizers to hospitals under
misimpression they were buying a sterilizer cleared by the FDA for certain
corneal eye procedures.
 Series of FDA communications regarding promotion of sterilizer for offlabel use.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
United States v. Caputo
 Off-label promotion had direct patient impact, causing serious eye
infections. The sterilizer did not work with certain medical instruments
causing a failure of sterilization.
 Routine eye surgery resulted in corneal decompensation, a rare and
devastating eye injury involving destruction of the endothelial cell wall
separating the cornea from vitreous matter and leading to permanent
blurred vision.
 Compliance Officer was on notice of FDA concerns and reports of patient
harm.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
United States v. Caputo
 AbTox never obtained FDA clearance for expanded use but continued
marketing sterilizer, causing continuing outbreaks of devastating corneal
decompensation from routine surgery.
 Compliance Officer made aware of toxicology information, concealed
information, and advised FDA of false reason for eye infections (lack of
soap).
 Compliance Officer’s inaction was “last clear chance” to avoid additional
devastating eye injuries for patients.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
United States v. Caputo cont’d
 Corporate President and Compliance Officer believed FDA violations
technical and the FDA a nuisance. Compliance Officer motivated by
economic factors.
 Twenty-five patients at five hospitals known to have suffered corneal
decompensation in at least one eye after ocular surgery performed with
instruments sterilized in the illegal AbTox sterilizer.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
United States v. Caputo
 Court: By any measure, AbTox system of corporate compliance was a
failure from top to bottom. Compliance Officer Riley selected as Chief
Compliance Officer for all the wrong reasons.
 President could manipulate and dominate Compliance Officer.
 Compliance Officer did not have real training as a Compliance Officer.
Marketing and business background prior to working in health industry.
 Lack of commitment to mission of regulatory bodies, such as FDA.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
United States v. Caputo
 Corporate Compliance Officers are fire personnel and first responders.
 Must be proactive to be effective, prevent crime and promote corporate
ethical behavior.
 AbTox behavior turned the concept of corporate compliance on its head.
Compliance Officer assisted business leader in subverting standard
compliance expectations.
 Used regulatory expertise to shield and cover-up offenses rather than
proactively advance compliance.
 Failed to self-report adverse scientific or health care results of the sterilizer
to the FDA.
 Willfully participated in the submission of numerous misleading regulatory
filings and statements with the FDA.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
United States v. Caputo
 Corporate crime remains one of nation’s largest problems.
 The need for general and specific deterrents is important to support
regulatory safeguards.
 Head-in-the-sand ostrich behavior by Compliance Officer will not be
accepted in evaluating criminal conduct. Cannot pass the buck.
 Court advised that ostrich pro-knowledge instruction will be given in
corporate trials involving compliance issues. Knowledge inferred from a
combination of suspicion and indifference to the truth.
 Rejects Compliance Officer defense that they did not understand actions
were illegal.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
U.S. v. Sulzbach
 False Claims Act action against former Tenant Chief Compliance Officer
for false certifications of compliance in Corporate Integrity Agreement
annual report.
 Corporate Compliance Officer signed allegedly false declarations stating to
the best of her knowledge, company was in material compliance with all
federal program legal requirements.
 Alleged false declarations allowed corporation (Tenet) to bill Medicare for
millions of dollars in claims in violation of the Stark self-referral
prohibition.
 Government’s efforts to find truth were obstructed as well by reliance on
certification.
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
U.S. v. Sulzbach
 Compliance Officer’s certification made in highly complex regulatory
matter.
 Compliance Officer had engaged outside counsel to review findings.
 Annual Compliance Report required under OIG Corporate Integrity
Agreement, including sworn declaration of compliance, required shortly
after outside counsel’s findings provided to Chief Compliance Officer.
 What level of diligence is required by compliance officials before
providing any certification of compliance?
Kathleen McDermott, Esq.
Washington, D.C.
Case Study:
United States v. Patricia Syling
 Corporate Compliance Officer indicted for scheme to defraud employer in
award of contract to family. Concealed conflict of interest.
 Compliance Officer employed as a Corporate Compliance Administrator
for hospital and various health entities involved in processing procurement
matters, specifically vendor and service contracts with respect to billing
and collection operations. Responsible for selecting vendors.
 Failed to disclose conflict of interest in selection of vendor. Vendor was
sole proprietorship business owned and operated by Corporate Compliance
Administrator.
 Danger Zone: Compliance Officer wearing too many hats-business,
regulatory, compliance.
Kathleen McDermott, Esq.
Washington, D.C.
Legal Theories of Liability
 False Claims Act: Knew or Should Have Known Causation Standard
 Mail fraud and conspiracy (Caputo). Participant in crime by omission or
commission.
 Participation in transmission of information that is false and misleading to
regulatory agency.
 False certification causing fiscal or other impact to program integrity.
Kathleen McDermott, Esq.
Washington, D.C.
Factors in Assessing Effective
Compliance Officer
 Qualifications and training for position.
 Actual experience in industry.
 Commitment to compliance as profession beyond mission of company.
 Skills in evaluating electronic and other business information.
 Skills at tracking and organizing information.
 Professional demeanor and ability to inspire confidence in business and
operational personnel.
 Willingness to engage in continuous education of legal and industry
developments.
Kathleen McDermott, Esq.
Washington, D.C.
Factors in Assessing Effective
Compliance Officer
 Willingness to learn business on-site, not behind the desk. Commitment to
visible profile.
 Willingness to disagree with business decisions and use good judgment in
knowing when disagreement is legal issue.
 Advocate for resources to governing body, CEO, CFO, Board of Directors.
 Use of internal and external expertise to evaluate compliance and
regulatory issues.
 Commitment to complete and open dialogue with regulatory bodies.
Kathleen McDermott, Esq.
Washington, D.C.