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Thursday
Apr072016

The DOJ Pilot Program: Financial considerations for both companies and their executives

The DOJ Fraud Section’s recently released FCPA Enforcement Plan and Guidance outlines a novel one-year pilot program for corporate self-reporting and cooperation, with specific fine reduction incentives.

“Appropriate remediation” is one of the pre-requisites for qualifying for these incentives, focused largely on compliance program characteristics and other preventive measures.

And a predominant theme to the DOJ Plan’s overall effective compliance approach is the commercial sector mantra (also used by the infamous 1930’s bank robber Willy Sutton): go where the money is. Financial considerations are integral to the DOJ Plan’s structure and remedial expectations.

With companies, for example, “sufficient resources” for the compliance function is specifically cited as an effective program requirement, albeit qualified by organizational size and overall resource considerations. Shortly after DOJ Compliance Counsel Hui Chen first assumed her role last November, she announced that compliance resource availability would be one of her areas of focus --  and the Plan maintains that emphasis.

Practically, the subjectivity and lack of benchmarking data inherent in any analysis of sufficient resources continues to make this a difficult task. But compliance chiefs should now explicitly (and carefully) consider proactively treating and documenting this aspect of program management -- drawing on as many outside quantitative (and qualitative) references as possible.

It is far better, of course, to have data of this type in hand and prepared in the normal course than to be scrambling to produce these and other materials in response to a DOJ or SEC inquiry or investigation.

Factors involving compliance personnel are also specifically covered.

An effective program under the Plan will have qualified and experienced compliance personnel who are compensated and promoted in a manner that is comparable to other employees. In other words, compliance positions and the persons occupying them have to be appropriate for the company’s FCPA risk facts and circumstances. Taking a corruption risk-inexperienced Director from HR and giving that person the VP – Compliance title and de minimis resources is no longer an option.

Even for companies not considering participation in the pilot program, documentation outlining thoughtful and objectively reasonable compliance personnel hiring and compensation processes and decisions should now be part of a thorough FCPA compliance program’s records.

The Plan’s most radical financially-oriented departure from past DOJ FCPA policy and enforcement practice involves appropriate discipline.

The stated requirement (treated separately from the effective compliance program considerations) consists of two parts: appropriate discipline of employees responsible for the misconduct; and “a system that provides for the consideration of disciplining others with oversight of the responsible individuals, and considers how compensation is affected by both disciplinary infractions and failure to supervise adequately.” 

Corporate officers and others overseeing personnel involving high corruption risk activities take note: in addition to possible personal liability (recently underscored by the Yates Memo), for direct involvement with FCPA misconduct, DOJ is now encouraging organizations to take a more holistic view towards rectifying instances of misconduct to include assessing the conduct of and possibly penalizing (financially and otherwise) those supervising the bad actors.

As the corporate legal and compliance functions dealing with sales personnel know all too well, talk is cheap. If you want that group to take something seriously, hit them in the paycheck if they cross the line.

In the Plan and its pilot program, the DOJ appears to be taking a similar approach with companies seeking to take advantage of the Plan’s incentives. Show us that the company’s seriousness about compliance is real and recognizable from the financial perspectives of:

(1) the company’s compliance budget, to include qualified and reasonably compensated compliance personnel, and

(2) compensation and/or disciplinary plans that contain, among other penalties relating to inadequate supervision, provisions that cover reduction, disqualification or claw-backs as applied to the various aspects of an employee’s compensation.

Though currently limited to the Plan these signals should be taken to heart by companies and their FCPA compliance practitioners going forward. DOJ clearly intends to follow Willy Sutton’s Law.

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Worth MacMurray is the U.S. General Counsel and Chief Compliance Officer of GAN Integrity Inc. in McLean, Virginia. He can be contacted here.