The Danger of a “Paper” Compliance Program
The FCPA Guidance contains many important compliance reminders which should be incorporated into every anti-corruption compliance program. Perhaps the most important observation included in the FCPA Guidance was the statement that:
DOJ and SEC have often encountered companies with compliance programs that are strong on paper but that nevertheless have significant FCPA violations because management has failed to effectively implement the program even in the face of obvious signs of corruption.
DOJ/SEC’s observation should be taken seriously. Every company should ask itself this basic question: Have we “effectively” implemented our compliance program?
It is fairly easy to answer this question. Companies can honestly answer this question by looking at several key elements of every compliance program. Here are some basic questions:
1. Did we conduct a meaningful risk assessment? If so, how did we incorporate the risk ranking into the compliance program?
A risk assessment is the foundation of every compliance program. A “paper” risk assessment is often limited to a recitation of known risks without any specific facts which demonstrate that the company collected and assessed important information from offices in the company.
2. What steps have we taken to communicate our compliance commitment throughout the organization?
A “paper” communication strategy is limited to a statement from senior leadership at the board or CEO level and a basic training program. DOJ/SEC expect more from a company – affirmative efforts to communicate the importance of compliance at every level of a company. In addition, a company should include rewards for compliance and evaluate employees on ethical conduct. Employee bonuses for ethical conduct should be awarded and publicized inside the company.
3. What specific policies and procedures have been adopted and followed?
Companies need to adopt specific policies and make sure they are followed. These include gifts, entertainment, meals and travel expenses; charitable contributions; facilitation payments; due diligence of third parties; and training programs. A policy which is not followed is worthless. Bare bones policies which are not designed in response to specific risks and are followed with rote forms and analyses are nothing more than “paper” compliance. Whatever policy is being implemented, a company has to make sure to follow the policy, modify the policy when needed, and document every step taken in response to individual circumstances.
4. What internal controls are being used to identify potential risks and prevent bribery?
A company with only “paper” compliance will not have robust internal controls. In these cases, companies usually rely on “financial” audits of specific offices to demonstrate how its controls are working. That is a recipe for disaster since financial audits, by definition, only examine “material” transactions and do not include any attempt to identify non-material expenditures which can be used for bribery.
5. What specific proactive programs do we use to monitor and improve our compliance program?
If you skip the first four questions listed above, I guarantee that the answer to this question is the most reliable indicator of a “paper” compliance program. Most companies that adopt a paper program and fail to implement the program avoid any monitoring or improvement program. Frankly, most companies do not have adequate monitoring and improvement programs. It is a task which is not very difficult or time intensive but can be very important to improving a compliance program. A basic program can include regular questionnaires, review of compliance information and coordination with forensic internal audits.