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DOJ’s Pilot Program – The Five Factors Designed to Nurture the Compliance Function

nurturePerhaps the most positive and important aspect of the FCPA Pilot Program was the announcement of forward-looking and innovative remediation requirements for corporate compliance programs.

As an aside, DOJ’s FCPA Pilot Program was a disappointment and failed to deliver meaningful incentives for companies to self-disclose FCPA violations to the Justice Department. The difference between 25, 50 and 75 percent from the bottom of the sentencing range is not exactly the most alluring carrot for companies to break their silence. A promise of corporate immunity, however, is another story – just look at the Antitrust Division’s leniency program and you can see how an effective tool encourages companies to self-disclose misconduct.

Looking back on the remediation factors, DOJ’s articulation of these compliance considerations is an important statement of commitment to the compliance function. At the heart of the DOJ’s statement is a commitment to nurturing of the compliance function. For compliance professionals, they must have read the listing as music to their ears.nurture3

As a framework for assessing a company’s compliance program, DOJ noted whether the company has “established a culture of compliance.” Of course, the Justice Department did not define a culture of compliance but the additional factors provide important context.

When you boil down the other factors, DOJ has made it clear that assessment of the compliance program will include the following:

  • The independence of the compliance function;
  • The reporting structure of compliance personnel within the company;
  • Whether the company dedicates sufficient resources to the compliance function;
  • The quality and experience of the compliance personnel; and
  • How a company’s compliance personnel are compensated and promoted compared to other employees.

All of these factors point to one underlying important consideration — the empowerment of an independent compliance function.  DOJ has consistently refrained (when asked) from defining how a corporate compliance program should be structured — within or outside of the legal department.  DOJ does not have to answer that question.  Instead, DOJ has attached itself to these five factors, which very clearly define a requirement that a company create an independent compliance function that is well-staffed, has adequate line-of-sight across the organization, consists of qualified compliance personnel who are appropriately compensated and offered promotional opportunities within the company.  In other words, companies have to create an effective, independent compliance department that is well-regarded within the governance framework.

The independence of the compliance function requirement will ensure that compliance is not subsumed within the legal department. Too many companies still cling to the “old” school of compliance – relegating compliance to a function within the legal department. That model is outdated and DOJ has stressed the importance of compliance independence as a key check on corporate misconduct.

The reporting structure of compliance personnel is important to ensure that compliance has adequate avenues to report concerns and voice compliance concerns about important issues. The presence of a compliance perspective in corporate decision-making can be the difference between legal and illegal behavior (e.g. GM and VimpelCom).

Whether the company dedicates adequate resources to the compliance function reflects DOJ’s continuing concern that chief compliance officers are not strangled by lack of resources to carry out important compliance functions.

nurture4The last two of the five factors: the quality and experience of the compliance personnel; and the compensation and promotion of compliance personnel are important factors and reflect the expertise of DOJ Compliance Counsel Hui Chen.

As Donna Boehme has often stated compliance is a field where subject matter expertise is required. DOJ’s identification of this factor reflects its understanding that compliance personnel have to be subject matter experts from the field of compliance.

Building on the SME requirement, DOJ has identified compensation and promotion opportunities for compliance personnel as an important factor that reflects corporate commitment to an effective ethics and compliance program. Compensation and promotion are two key factors that attract high-quality compliance personnel to work at a company, and can ensure high retention rates of compliance professionals.

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