007: Violating Anti-Corruption and Anti-Kickback Laws
Violating Anti-Corruption and Anti-Kickback Laws
Video File
Learning Objectives
Upon completion of this Case Study, participants should:
- Identify potential pitfalls of temptation for an employee to commit fraud,
- Understand the concept Anti-Corruption and Anti-Kickback laws,
- Describe ways in which a company might better prevent internal fraud,
- Explain how failure to put a compliance program in place can put a company in legal jeopardy, and
- Understand how cooperation with a government investigation can lead to a more lenient settlement.
State of the Industry
When the government issues a contract to deliver a product or service, specific agencies monitor performance. Close working relationships lead to more familiarity, higher levels of comfort, and confidence that a contractor will perform the work as instructed and required – on time and in accordance with government rules and regulations.
Each government agency has its own enforcement division. In addition, the Office of Inspector General polices the various agencies.
Schneider Electric performed work for numerous government agencies. They included the Department of the Navy, the General Services Administration, Department of Agriculture, and the Office of Veterans Affairs. Investigators within those agencies are incentivized to minimize waste and catch fraudulent conduct, such as that set forth in this case study.
Background and Analysis
Schneider Electric Buildings Americas, Inc. (“Schneider”), founded in November of 1988 and located in Carrollton, Texas, offers a wide range of energy management services. The company provides electricity solutions for buildings including data meters, cable management services, circuit breakers, industrial plugs and sockets, and electrical distribution solutions. Schneider also offers renewable energy solutions for buildings and utilities throughout the world. A significant part of Schneider’s work includes bidding for and performing services under government contracts.
In 2019, the company had 2,619 employees. It generated $519.09 million in annual sales.
Bhaskar Patel served as a Senior Project Manager for Schneider. His position gave him authority to receive bids from subcontractors. He could recommend subcontractors for work under an Energy Savings Performance Contracts (“ESPC”) between Schneider and the United States government. Under the ESPCs, Schneider installed a variety of energy savings upgrades such as solar panels, LED lighting and insulation in Federal buildings.
Schneider authorized and directed Patel to negotiate change orders, price changes, and manage subcontractors in general. Patel worked on many projects during the years between 2011 through 2016. Those projects included jobs that had a cumulative valuation in the hundreds of millions, in different parts of the world.
While employed by Schneider on these projects, Patel participated in kickback schemes with eight subcontractors. Although characterized as “gratuities,” Officials concluded that those bribes totaled $2,536,119.19. Patel had made payment by check with bogus reference notations. In an effort to hide the payments, Patel’s adult children participated by receiving checks or deposits. The subcontractors paid gratuities in exchange for favorable treatment by Schneider, including selection for additional contracts. Patel disguised payments by spreading them across unrelated pricing components.
Patel’s scheme came to light when law enforcement learned that he altered and falsified a bid document by a Vermont subcontractor that bid for work on an energy savings project in White River Junction, Virginia in 2016.
Government prosecutors have many tools at their disposal, from general laws highlighting fraud to more specific statutes pertaining to Anti-Corruption and Anti-Kickback laws. They broadly utilize those laws when prosecuting actions against offending individuals. Companies too fall prey to those laws, with management and shareholders left financially, and sometimes criminally, responsible for the actions of the offending employee(s).
A grand jury indicted Patel and he pleaded guilty in 2018. He agreed to forfeit more than $2.5 million. He gave up his car, his jewelry, his cash, and even a timeshare property in Hilton Head, South Carolina. A plea agreement resulted in a sentence of probation rather than prison, suggesting that Patel provided cooperation that led to the prosecution of others.
For example, David Wikel, pled guilty in a case related to Patel. Authorities charged that Wikel paid more than $200,000 in kickbacks to Patel in 2014. Patel kicked back $85,000 to Wikel. A judge sentenced Wikel to 18 months in prison and three years of supervised release. Other subcontractors that colluded with Patel faced judicial problems.
In exchange for cooperation with the government, Schneider paid $11 million in penalties and forfeitures. It received a partial non-prosecution agreement related to improperly charged design costs uncovered during the investigation. The settlement, however, required Schneider to admit violating the Anti-Kickback Act, and suffer the consequent reputational damage.
Schneider, moreover, remains subject to continued bureaucratic interference. It agreed to participate in a three-year probationary period. The agreement requires Schneider to report any fraud that it discovers.
The following links provides a copy of Schneider’s invasive ongoing compliance requirements:
https://www.justice.gov/usao-vt/press-release/file/1345311/download.
According to an investigator, “Fraud is not a victimless crime. It steals money from American taxpayers, damages the integrity of the Department of the Navy procurement process, degrades the readiness of the warfighter by compromising the quality of goods and services used to protect the nation, and squanders more money in the funding of criminal investigations which could have been avoided simply by individuals doing the right thing.”
Recommendation
We recommend that company leaders offer training to all team members on the consequences of white-collar crime. People should know how government investigations begin, and how easily decisions on the job can lead to investigations. A person should understand how business decisions leave a paper trail. Although a person may believe that surreptitious acts like depositing proceeds from a kickback into the account of an innocent person may shield them from prosecution, once an investigation begins, people go into self preservation mode. They begin to cooperate with authorities, widening the investigation. By teaching how easily the fallout spreads, companies can lower their exposure to white-collar crime.
Building a solid compliance program that addresses corporate risk can shield against or at least mitigate government action in the face of a violation.
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