FIFA Cases Hold Lessons for FDA-Regulated Companies – Organizations can be Victims of Their Own Employees’ Criminal Conduct

It is a well-accepted fact that even well run ethical and compliant organizations can have serious problems.  The Sentencing Guidelines, the DOJ Manual, and the HHHS OIG–among others–all recognize that reality.  In its Compliance Guidance for Pharmaceutical Manufacturers, the HHS OIG notes:

The OIG recognizes that the implementation of a compliance program may not entirely eliminate improper conduct from the operations of a pharmaceutical manufacturer. However, a good faith effort by the company to comply with applicable statutes and regulations as well as federal health care program requirements, demonstrated by an effective compliance program, significantly reduces the risk of unlawful conduct and any penalties that result from such behavior.

Generally speaking, that recognition has limits, however.  While the Organizational  Sentencing Guidelines provide for a sentencing reduction for companies with an effective compliance and ethics program, that reduction is presumptively not available “if an individual— within high-level personnel of a small organization; or within substantial authority personnel, but not within high-level personnel, of any organization, participated in, condoned, or was willfully ignorant of, the offense.”  The Guidelines rationale is that “[o]rganizations can act only through agents and, under federal criminal law, generally are vicariously liable for offenses committed by their agents.”  The Justice Manual on the Principles of Federal Prosecution of Business Organizations further expounds on this notion:

Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To hold a corporation liable for these actions, the government must establish that the corporate agent’s actions (i) were within the scope of his duties and (ii) were intended, at least in part, to benefit the corporation . . . .

Agents may act for mixed reasons—both for self-aggrandizement (direct and indirect) and for the benefit of the corporation, and a corporation may be held liable as long as one motivation of its agent is to benefit the corporation. . . . . Moreover, the corporation need not even necessarily profit from its agent’s actions for it to be held liable.

In light of the above, the government generally resists the notion that an organization is a victim of its own employees.  Earlier this year, in denying a restitution request from a company, Judge Rakoff in the Southern District of New York wrote that a company’s “efforts to root out misconduct, however extensive, do not ‘immunize the corporation from liability when its employees, acting within the scope of their authority, fail to comply with the law.’” He further noted that “the mere fact that the defendants may have misled other employees or agents of [the company does not relieve [the company of its criminal liability under the principle of respondeat superior, especially where, as here, the wrongdoing was committed by company’s highest officers.

In sum, a company seeking to show that it is not responsible for the bad acts of its employees faces an uphill fight. Which brings us to the FIFA prosecutions, a topic that would not typically be blogworthy for the FDA law blog.

At a very general level, starting in 2015, in a high profile series of prosecutions, the DOJ accused a number of top FIFA officials of widespread criminal conduct.    At that time, DOJ noted that “[t]he defendants charged in the indictment include high-ranking officials of the Fédération Internationale de Football Association (FIFA), the organization responsible for the regulation and promotion of soccer worldwide.”  That type of headline typically signals that the organization is going to be a defendant, not a victim, but earlier this week, DOJ announced that FIFA would be receiving victim compensation in the form of remission.  In that same announcement, DOJ noted that:  “To date, the prosecutions have resulted in charges against more than 50 individual and corporate defendants from more than 20 countries, primarily in connection with the offer and receipt of bribes and kickbacks paid by sports marketing companies to soccer officials in exchange for the media and marketing rights to various soccer tournaments and events.”  In other words, despite a widespread and seemingly systemic fraud, the organization was a victim.  These types of resolutions are intensely fact-specific, and for all the reasons noted above a company that simply claims that it’s a victim without laying the factual and legal basis for such a claim is unlikely to get very far, but nevertheless, this case is relevant precedent for companies who find themselves investigating employee misconduct and navigating government investigations.