Over the past several months, the Department of Justice (DOJ) has made clear its expectations for compliance programs and companies which find themselves under investigation. These are areas companies need to internal review to make sure they can adequately respond to any DOJ inquiry or information brought forward internally.
Self-Disclosure
The importance of timely self-disclosure for companies to receive the benefits under the Corporate Enforcement Policy cannot be over-emphasized. Deputy Attorney General Lisa Monaco (DAG Monaco) recently stated, “ I want to be clear: no matter how good a company’s cooperation, a resolution will always be more favorable with voluntary self-disclosure. We’ve structured our Voluntary Self Disclosure (VSD) programs to encourage companies to take responsibility for misconduct within their organizations. And we’ve conditioned benefits on the company’s willingness to step up and own up — requiring it to disgorge profits, upgrade compliance systems, and cooperate in investigations of culpable employees.”
Compliance Practice Tip – Pressure test your entire reporting regime from input and triage to final report to make sure your compliance function will have all relevant information before the government comes knocking.
Artificial Intelligence
The DOJ has made clear it would seek sentencing enhancements to increase penalties for criminals whose conduct uses or includes AI. DAG Monaco has stated, “Where AI is deliberately misused to make a white-collar crime significantly more serious, our prosecutors will be seeking stiffer sentences — for individual and corporate defendants alike.” She also noted that “compliance officers should take note.
When our prosecutors assess a company’s compliance program — as they do in all corporate resolutions — they consider how well the program mitigates the company’s most significant risks. And for a growing number of businesses, that now includes the risk of misusing AI.” To assist compliance professionals with this new area of responsibility she said that “assessment of disruptive technology risks — including risks associated with AI — into its guidance on Evaluation of Corporate Compliance Programs.”
Compliance Practice Tip – Make sure your corporate compliance function is involved in the development of AI policies and procedures.
Robust Compliance
The DOJ is in the middle of an FCPA industry sweep through oil and energy trading company. In addition to Gunvor, there have been enforcement actions involving Vitol Trading, Glencore, Trafigura and Freepoint. Each of these trading companies was required to make critical enhancements to their compliance programs to prevent future violations of the FCPA.
The DOJ has noted that “Companies that take forward-leaning steps on compliance will be better-positioned to certify that they have met their compliance obligations at the end of the term of their agreements, as is now required in corporate resolutions with the Criminal Division. These prosecutions also help set the tone for the energy trading industry as a whole — they show that a robust compliance function is critical.”
Compliance Practice Tip – Review your compliance program using the 2023 ECCP as a guidepost.
Corporate Culture
The DOJ will assess both the corporate culture and will continue to assess a company’s prior misconduct in determining both the appropriate form of a resolution and the financial penalty. This is where culture becomes so critical, particularly for the recidivist because the DOJ has announced it will seek “substantial penalties — including, where appropriate, guilty pleas — for companies that show themselves to be repeat offenders.”
When you couple that statement with the superior resolution obtained by ABB and Albemarle you see that the DOJ is serious about corporate culture. Contrast that with the critiques of Gunvor and Trafigura in their areas of culture.
The bottom line is that t a company can move to a culture of compliance if senior management is committed to the effort. One need only consider the superior result obtained by the first three-time recidivist ABB. Culture is critical, and you need to be able to demonstrate that you have assessed and worked to improve your corporate culture.
Compliance Practice Tip – Assess your corporate culture and remediate as appropriate.
Clawbacks and Holdbacks
One of the key DOJ initiatives over the past year has been around financial incentives for doing business ethically and in compliance and the consequences to individuals for failing to do so. This was laid out in the 2023 Evaluation of Corporate Compliance Programs (2023 ECCP). It was also enshrined in the DOJ Compensation Incentives and Clawbacks Pilot Program, which has two components, (1) incentivization of compliance and (2) disincentives through clawbacks and holdbacks.
Clawbacks and holdbacks can provide benefits to a company. In the SAP FCPA enforcement action, the DOJ noted that “Even before its criminal resolution, SAP had adjusted its compensation incentives to align with compliance objectives and reduce corruption risk.” She also noted that “SAP also took advantage of the second part of the Pilot Program, which allows companies to reduce their fines when they withhold.
The initiatives around clawbacks and holdbacks by the DOJ has made clear “All of these policies should send a simple, but strong, message: being a good corporate citizen is not just the right thing to do. It is good business. Those who step up will be able to unlock the benefits afforded by our policies. And those who do not will face stiff punishments. And for companies that are making the tough decision of whether to disclose, take note — we now have more ways than ever to discover misconduct.”
Yet many compliance professionals have not focused as much on the first prong; that being financial incentives for doing business ethically and in compliance. This prong has been around since the first decade of the 21st Century and was enshrined in the first edition of the FCPA Resource Guide, released in 2012. Companies should also award those employees who follow the rules and do business ethically and in compliance. Whether it is a part of a discretionary year-end bonus or some other form of remuneration, promotion of individuals who work in compliance or other types of incentives; companies need to document their financial incentives for doing business ethically and in compliance.
Compliance Practice Tip – Institute a Clawback/Holdback program as well as reward employees financially for doing business ethically and in compliance.