Hide No Harm Act of 2015: includes Criminal Penalties for Failure to Report Potential Danger or Harm

Deputy Attorney General Sally Q. Yates recently announced new guidance that the Department of Justice will focus increasingly on prosecuting high level executives for corporate wrongdoing. In addition to the recent “Yates Memo,” two United States Senators have taken up a similar cause, and have introduced the “Hide No Harm Act of 2015.” This is the second time this Act is being introduced; the first time was in July 2014.

The Act was introduced in response to corporate officers willfully concealing the possibility of harm – specifically General Motors and their ignition defect. For those who do not recall, GM’s own internal investigation concluded that, as early as 2011, high-level corporate officers at GM recognized the serious danger posed to drivers of certain GM cars, but chose to continue investigating the issue rather than notifying the consumers of the potential for death or serious physical injury. Unfortunately, GM is not alone and companies such as Second Chance Body Armor and Simplicity for Children have made similar deadly mistakes.

Several United States Senators realized that when the serious danger inevitably comes to light and civil litigation follows, the corporate officer who knowingly concealed the harm suffers very little. Meanwhile, the consequences of their actions are felt by the consumers or employees who were injured or killed as a result of the danger, by the shareholders who are financially responsible for ensuing civil damages, and by the majority of companies within the industry that take seriously their safety responsibilities but have their reputations tarnished none the less.

If the Act, introduced by Senators Richard Blumenthal (D-Connecticut) and Robert Casey (D-Pennsylvania), passes, it would be a crime for “any responsible corporate officer” with “actual knowledge of a serious danger associated with” any covered product, service, or business practice not to “verbally inform an appropriate Federal agency” within 24 hours and not to warn possibly affected individuals “as soon as practical.” The failure by a corporate officer to do so would be punishable by up to five years in prison.

One of the key components of the proposed bill is an anti-retaliation provision that prohibits companies from taking adverse employment action against any employee that “informed a Federal agency, warned employees, or informed other individuals of a serious danger of a covered product.” In addition to the anti-retaliation provision, the Act includes a safe harbor from criminal liability in cases where the corporate officer notifies a federal regulatory agency and individuals subject to danger – eliminating criminal liability is as simple as picking up a phone and telling a federal regulatory agency about the danger.

While the Hide No Harm Act of 2015 has been driven by the automotive safety crowd, it could have lasting impacts on the pharmaceutical industry as well. The bill channels a growing public concern for product safety; however, businesses need to be aware that Congress is attempting to hide new criminal laws in seemingly harmless legislation. Since the Hide No Harm Act would apply to “any business entity” “carrying out business operations relating to any product or service” that “enters interstate commerce,” someone selling lemonade in front of their home could ostensibly be affected by the law.

Drug and device manufacturers have been warned against the government’s increased efforts to hold corporate officers criminally responsible for misconduct. In addition to the False Claims Act and the Food, Drug and Cosmetic Act, the FDA revived the Responsible Corporate Officer (RCO) Doctrine last July. The RCO Doctrine allows a corporate executive to be found criminally liable for a company’s violation of the FDCA, even if there is no evidence that the officer or executive knew or should have known about the violations or misconduct, and did not play any role in the violations.

Some argue that existing laws, including state criminal liability laws, strict products liability laws, and negligence liability laws, among other avenues of recourse, already adequately deter the activity punished by this Act. When legislators leap to quickly pass overly broad, strict liability criminal laws, they are forgoing smarter, smaller measures that can better address the targeted conduct.

Rebellious, or even careless, employees can expose an entire company and its officers to significant potential liability as the law currently stands. The passage of the Hide No Harm Act would be one more avenue prosecutors have in their toolbox to come after drug and device manufacturers. It is crucial for companies to have strong and independent compliance programs to decrease, or even avoid, potential liability for corporate executives. Such programs should be aimed at preventing violations and ensuring prompt reporting of any violations to corporate officers and the appropriate federal agencies.