This week I have been writing about the speech Deputy Attorney General (DAG) Lisa O. Monaco gave as a Keynote Address at ABA’s 36th National Institute on White Collar Crime last week (Monaco Speech). Her remarks were noted by many commentators, including on two Compliance Into the Weeds podcasts where Matt Kelly and myself took two deep dives into her speech our podcast. Her remarks reframed a discussion about this Department of Justice’s (DOJ) priorities on white collar criminal enforcement, including under the Foreign Corrupt Practices (FCPA). Her remarks should be studied by every compliance professional as they portend a very large change in the way the DOJ and potentially other agencies enforce the FCPA. This has significant implications for every Chief Compliance Officer (CCO), compliance professional and corporate compliance programs.
Today, I am going to end with what it all might mean for the compliance professional. First note the emphasis on culture. Monaco’s remarks were, “Now, I recognize the resources and the effort it takes to manage a large organization and to put in place the right culture. The Department of Justice has over 115,000 employees across dozens of countries and an operating budget equivalent to that of a Fortune 100 company. So, I know what it means to manage and be accountable for what happens in a complex organization. But corporate culture matters. A corporate culture that fails to hold individuals accountable, or fails to invest in compliance — or worse, that thumbs its nose at compliance — leads to bad results.” This means that the DOJ will be assessing the entirety of corporate culture. As a compliance practitioner how do you demonstrate culture? Or to phrase the question using the Tom Fox mantra, how did you Document, Document, and Document your culture? Culture obviously starts at the top, but it must imbue and be embedded into an organization.
Equally important is compliance. Here Monaco said, “Let me also be clear: a company can fulfill its fiduciary duty to shareholders and maintain a commitment to compliance and lawfulness. In fact, companies serve their shareholders when they proactively put in place compliance functions and spend resources anticipating problems. They do so both by avoiding regulatory actions in the first place and receiving credit from the government. Conversely, we will ensure the absence of such programs inevitably proves a costly omission for companies who end up the focus of department investigations.” Note the significance of “company can fulfill its fiduciary duty to shareholders”.
This is a clear tip of the hat to Caremark and other legal requirements for a compliance program based upon civil statutes. This is not the DOJ saying we will punish a company for simply not having a compliance program. Yet make no mistake that if a company does not have a compliance program, not only will there be a very large chance of regulatory violation such as under the FCPA; if your organization does not have a compliance program, it will not receive credit when the penalty phase comes around. Monaco is pointing out as clearly as she can do so the potential legal costs not only from civil shareholder lawsuits but also from regulatory fines and penalties.
Another area which is new to the compliance function will be the DOJ’s review of all corporate malfeasance when assessing a company’s culture, commitment to compliance and possible fines and penalties. Here Monaco stated, “Today, the department is making clear that all prior misconduct needs to be evaluated when it comes to decisions about the proper resolution with a company, whether or not that misconduct is similar to the conduct at issue in a particular investigation. That record of misconduct speaks directly to a company’s overall commitment to compliance programs and the appropriate culture to disincentivize criminal activity.”
Typically, compliance dealt with anti-corruption compliance, trade compliance, anti-trust compliance and perhaps others. However now a CCO must be apprised of all corporate misconduct as it will be reviewed by the DOJ. For any multi-national organization, that alone will be daunting as how many compliance professionals have visibility into tax, Equal Employment Opportunity Commission (EEOC) claims, labor relations issues or the myriad of other legal issues that every corporate faces every day, literally across the globe? Yet Monaco said that prosecutors would look at just that, stating “A prosecutor in the FCPA unit needs to take a department-wide view of misconduct: Has this company run afoul of the Tax Division, the Environment and Natural Resources Division, the money laundering sections, the U.S. Attorney’s Offices, and so on? He or she also needs to weigh what has happened outside the department — whether this company was prosecuted by another country or state, or whether this company has a history of running afoul of regulators. Some prior instances of misconduct may ultimately prove to have less significance, but prosecutors need to start by assuming all prior misconduct is potentially relevant.” This is literally a sea change.
Finally, what might be the changes in how corporations are assessed under the FCPA Corporate Enforcement Policy, enacted by prior DAG Rod Rosenstein? Will there continue to be a presumption of declination if you (1) self-disclose; (2) extensively remediate; (3) thoroughly cooperate; and (4) disgorge any ill-gotten gains? If there is no presumption, will there be robust self-disclosure? There is nothing illegal about failing to self-disclose but if a whistleblower then steps forward or the DOJ then opens an investigation based upon other sources and it determines a violation has occurred the opportunity for a declination may well be out the window. Moreover, if there is no self-disclosure and the issue reappears or the remediation is not successful, the company now appears to have actual knowledge of a violation, once again potentially increasing the penalty.
As I wrote yesterday, there are many open questions from these changes. One thing is clear to me, the CCO role and job of the compliance function just got much more challenging.
Korrine Kohm is CSS’s Director of Retail Wealth Manager Services. Prior to CSS, Korrine was the Chief Compliance Officer and Head of Operations at Estabrook Capital Management where she was responsible for all compliance functions of this SEC-registered, $2.1B investment advisory firm. Korrine began her regulatory career while working at Allied Irish Bank (NY) in the Operations Department where she was a key member of AIB’s Compliance Committee, responsible for ensuring compliance with Federal and State regulations. An active member of the National Society of Compliance Professionals for over 10 years, Korrine earned her Investment Adviser Certified Compliance Professional (IACCPTM) designation in 2006, is a member of the Association of Certified Fraud Examiners, and obtained her Certified Fraud Examiner designation. In addition to her experience in compliance and banking, Korrine began the 16-week intensive training course in Quantico, Virginia, to become a Special Agent with the Federal Bureau of Investigation. She has particular experience in crafting customized policies and procedures, developing and implementing compliance programs, conducting on-site compliance reviews, acquisition due diligence reviews, risk assessments and mock SEC examinations. She routinely councils clients on various regulatory matters, including SEC registration issues, social media and advertising, policies related to diminished financial capacity, disclosures and the annual review process.
