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Anti-Corruption Compliance Check-Ups

compliancecheckupsThe Justice Department’s message is getting through.  The two-fisted strategy of aggressive enforcement and public cajoling on the importance of compliance is being heard by the business community.  The Justice Department and the SEC have communicated the message loud and clear despite the fact that UK Bribery Act enforcement has turned out to be a bust, and is likely to remain so for the next few years.

Contrary to all the naysayers who love to criticize the government (no matter what the issue or what the cause), the business community is responding and increasing efforts to comply.  I am sure there will be surveys which may be contrary but the trend is unmistakable.

In the last five years, companies have become more familiar with anti-corruption enforcement and compliance; third parties and distributors have become familiar with requirements imposed by companies in their agreements; and the financial community recognizes the need for all companies, big and small, to dedicate resources to anti-corruption compliance.

That does not mean that every company should rest on its laurels.  Instead, now is the time to conduct an anti-corruption compliance check-up.  A quick check-up can provide an indication of whether your company is heading in the right direction, or whether a readjustment may be warranted.

Here are my Mandatory Top-5 Check-Up issues:

Tone from the Top to Culture of Compliance:  Nothing happens in any organization unless the message from the top is clear – we are committed to compliance and creation of a culture of compliance.  This does not mean that the CEO made a statement of compliance.  It means much more.  The organization has to translate an initial statement into day-to-day messaging of ethical conduct.  Senior management has to reiterate the point; middle management has to hear, translate and communicate the point; and finally, every employee has to understand the message.  In order to reinforce this message, the company has to create incentives for compliance and deterrents against violations of company policy and laws.

If a company has not translated the tone from the top to the organization, a tune-up is a must – companies have to focus on this issue and do it now.checking

Role of Chief Compliance Officer:  Many companies are finally getting the message – empowering an independent Chief Compliance Officer outside the legal department and with direct access to the compliance or audit committee on the board of directors is an effective structural change which will improve compliance.  CCOs are no longer backwater employees with little influence in corporate organizations.  The result of the new aggressive enforcement era has been the transformation of CCOs to C-Level executives with increased responsibility and resources to ensure compliance.

If a company has not empowered its CCO, it needs to do so now in order to ensure an “effective” compliance program.

Risk Assessment and Tailoring: One of the most important takeaways for compliance programs from the FCPA Guidance was the importance of a credible risk assessment process.  It makes sense when you think about it – how can an organization design an effective compliance program without understanding its risks.  DOJ and SEC provided a great public service when they pointed out the danger of companies spending hours reviewing specific gifts, meals or entertainment requests while ignoring the real risk of a multi-million dollar government contract.  What a breath of fresh air – the message was clear, stop contemplating your navel and focus on the real risks.  Companies need to respond with a real and legitimate risk assessment, not a blanket, knee jerk response to CPIs, and color-coded Transparency International maps.

If a company is not conducting a real risk assessment as the foundation for its compliance program, time is ticking, the company’s compliance car is running rough and the company needs to fine-tune its compliance program.

complaincecheckupThird Party & Acquisition Due Diligence: Sometimes compliance professionals are good at restating the obvious.  Or maybe a question would work better – what percentage of FCPA compliance actions have involved deficiencies in third party and/or acquisition due diligence.  Nearly 99 percent? Whatever the exact percentage, companies have to implement robust due diligence policies which vary in complexity depending on the number of agents, distributors, and acquisitions.  Building a due diligence process is not so difficult but it requires commitment, coordination among parts of a company and effective policies and procedures.

If a company has not revised its due diligence procedures for third parties or acquisitions, the company is living the risky life.

Whistleblowers: Companies understand the risk of whistleblowers, and they certainly understand the increased risk created by the new SEC whistleblower program.  Anytime you offer anyone financial incentives, and lawyers can join in the riches, there is no question that whistleblowers activity is going to increase.  Companies need to develop proactive strategies to respond to this risk.  This means more than reiterating a company’s commitment to avoiding retaliation against whistleblowers – it means a proactive strategy to identify possible whistleblower claims and instituting procedures and affirmative steps to listen to whistleblowers, respond to their concerns and develop strategies to dissuade whistleblowers from reporting complaints to the government.

If a company has not addressed this risk, it needs to quickly institute whistleblower triage policies and procedures.

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2 Responses

  1. jill sperber says:

    I agree with Michael’s observations. However, as someone trying to enter the ethics and compliance field, I notice that while more companies now have a CCO, they are often acting as lone rangers, strapped for resources with few staffing positions to support the program. Reluctance to staff ethics and compliance suggests that companies still view E & C as a profit suck and mere cost center.

  2. Kevin L. Warmack, E.J.D. says:

    Jill, I agree with you on the view that the Chief Compliance Officer is most times acting as the Lone Ranger. Its unfortunate that many companies as well as the regulatory authorities don’t understand the role that Compliance plays in a firm. In some cases, the CCO is looked at as a supervisor when really all he does is observe, review and recommend certain action be taken. Compliance has to be considered by all to be the moral conscious of a firm and not a cost center.