Yikes: The Perils of Remediation and Corporate Monitors
The Justice Department has raised the stakes on anti-corruption compliance. In other words, DOJ prosecutors expect companies to have more sophisticated and mature compliance programs. If a company walks into the Justice Department to begin the voluntary disclosure process, the company better have a mature compliance program.
If the company presents only a paper program that has not been “operationalized,” the company can expect a rough time in convincing DOJ prosecutors that it has an “effective” anti-corruption compliance program.
The Justice Department has created trend lines with regard to compliance program expectations. With each new enforcement action, the Justice Department has outlined new concerns, reinforced prior statements, and/or pushed new compliance initiatives. All of this was confirmed in the 2012 (almost five years ago, how time flies!) FCPA Guidance and the Hallmarks of an Effective Compliance and Ethics Program.
In April 2016, the Justice Department built on this foundation and added new requirements for remediation in the FCPA Pilot Program. If there is one significant theme from the FCPA enforcement program in 2016, it is the importance of remediation and enhancement of a company’s compliance program to prevent the recurrence of FCPA violations.
The Justice Department has adopted a stringent test when it comes to remediation, especially with regard to termination and disciplinary actions of “responsible” individuals. I quoted the term “responsible” because the Justice Department has extended its expectations to include: (1) officers and employees directly responsible for the FCPA violations; (2) officers and employees who supervised the offending officers and employees; and (3) officers and employees how “should have known” or intervened to stop the offending individuals from committing FCPA violations.
For each of these categories of offenders and responsible officials, the Justice Department has made it clear – those who were directly involved in the misconduct have to be terminated; those that were in the direct line of supervision and knew or should have known about such conduct should be terminated, or at a minimum reprimanded and denied all potential financial benefits (bonuses etc.); and those who were in the line of responsibility and should have known about such misconduct should be reprimanded and denied any financial benefits.
The Justice Department’s standard for remediation is tough and requires companies to adopt and implement an aggressive disciplinary cleaning of the proverbial house. Companies that disclose a violation and seek the benefits of the FCPA Pilot Program should be mindful of these requirements.
In actions and in statements, Justice Department officials have made it clear – they are dissatisfied with offending companies and their efforts to remediate their compliance programs. As a result, the Justice Department has enlisted corporate monitors to ensure that companies implement appropriate remediation. It is a sad state of events when a company undergoing an investigation cannot be trusted to implement remedial program enhancements and is forced to do so under the watchful eye of a corporate monitor.
If you ask any compliance staff that has been under a corporate monitor, they will tell you the good and the bad. On the positive side, compliance officers are happy to receive the support and resources mandated by a corporate monitor. On the negative side, they will tell you it is hard to operate a compliance program when everything you do is second-guessed or dictated by a corporate monitor. In reality, the corporate monitor becomes the chief compliance officer with the unlimited support of senior management and the ability to dictate exactly how a compliance program should be implemented.
A compliance monitor, however, can create a foundation on which a compliance program can operate for years. It may be a painful experience but a compliance monitor can ensure that appropriate reforms and controls are implemented in order to avoid future problems. It is a good and bad result but one that can be turned into a positive development for a company.