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Former Special
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Roger Bach

Former Special
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Former Special Agent
(U.S. Secret Service & DOJ-OIG)

Ray Yuen

Former Special
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Michael S. Koslow

Former Special
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Corporate Investigation

Three Specific Ways a Compliance Program Can Help Your Business Avoid Criminal Charges

Federal law contains countless provisions that can impose liability on corporations for the failure to comply with relevant laws and regulations.  Federal prosecutors and federal agencies have been especially eager and aggressive in prosecuting corporations that have weak or inferior compliance programs in place, as this is typically a strong indicator of internal corporate misconduct such as bribery, corruption, or fraud.  One of the best ways for a corporation to avoid becoming the subject of a protracted federal investigation is to demonstrate their continued compliance with the law.  Further, the best way to demonstrate compliance with the law is to maintain an effective, robust, and vigorous corporate compliance program.  This article discusses three reasons why an effective compliance program can help avoid or lessen criminal charges.

1. An Effective and Continuous Compliance Program Can Lead to Leniency by the Prosecutors

Prosecutors are responsible for examining a corporation’s compliance program and for determining whether the corporation contained an adequate compliance program at the time of the offense; whether the corporation utilized remedial efforts to improve a prior program; whether the corporation made certain investments and improvements to the program; and whether the program has been tested to demonstrate that it will detect misconduct in the future, as some examples.

Whether the corporation’s compliance program can lead to leniency by the prosecutors depends on the presence, nature, and effectiveness of the compliance program.  For instance, if an employee within the corporation is under investigation for allegedly bribing foreign officials, the question for the prosecutor is whether the corporation was also involved and, if not, whether the corporation had a compliance program in place that was working effectively such that it should have prevented this crime.  If the corporation did not have a compliance program in place, it would be hard for the corporation to argue that it should be exempt from liability for the individual’s crime because it is incumbent on corporations to develop a robust compliance program throughout its busines that promotes full compliance and transparency with the law.

However, if the corporation had a compliance program implemented, the prosecutor’s job would then be to determine whether it was working effectively at the time of the offense.  If it was not working effectively, then the corporation would generally not receive any leniency by the prosecutor.  On the other hand, if the corporation had an active and fully operational compliance program in place and the individual still perpetrated the crime, it is possible for the prosecutor to focus solely on the individual’s misconduct.  In these latter cases, there is not much the corporation can do to prevent a bad actor from taking advantage of their position or the corporation’s resources.

2. An Effective Compliance Program Can Help Reduce the Penalty under the Sentencing Guidelines

A compliance program can reduce the potential liability and penalties of the corporation.  Having said that, the mere fact of having a compliance program is generally not sufficient in and of itself to avoid liability or even to reduce the penalty.  Instead, in order for a corporation’s compliance program to give meaningful credit—or reduction in penalties—it needs to meet certain elements.  As mentioned in the Department of Justice’s June 2020 memo on “Evaluation of Corporate Compliance Programs,” these elements center on whether the compliance program is well designed to prevent and detect wrongdoing; whether the compliance program is adequately resourced and contains the appropriate resources needed for it to function; and whether the compliance program works in practice as well as how the corporation remedies identified instances of misconduct.

Corporations should make it their priority to ensure that their compliance program satisfies these elements.  In other words, there is no standard one-size-fits-all compliance program.  A compliance program must be designed appropriately, implemented correctly, and monitored continuously.  Only then can it be considered when trying to reduce the corporation’s liability and penalty.

3. An Effective Compliance Program Can Avoid Negative Collateral Consequences

A corporation that is actively involved in monitoring, updating, and improving its compliance program will receive less harsh treatment by federal agencies and federal prosecutors compared to corporations that have lax compliance programs or that are indifferent to revising them.  An effective compliance program can lessen the collateral consequences associated with a federal investigation such as the increased media attention and negative public opinion that follows—both of which can have long-lasting and devastating impacts on the corporation’s future.

Federal agencies such as the SEC and DOJ understand that a corporation’s compliance program is not going to detect every single instance of misconduct.  What is important is the effectiveness of the corporation’s compliance program—which can lead the prosecutor to either (1) decline to pursue charges against the corporation or (2) proceed against the corporation with leniency or offer some credit or reward for their assistance.  Both scenarios are possible regardless of whether the compliance program detected the misconduct.

Also, it is important to note that an effective compliance program should be coupled with hiring independent legal and compliance officers and collaborating with external investigations.  Retaining a team of independent legal and compliance officers adds an extra layer of protection against certain acts of misconduct and, critically, also serves as additional evidence of the corporation’s intent to be in full compliance with the law.  Voluntarily reporting violations to federal agencies or willingly cooperating with external investigations will further result in less negative consequences for the corporation.

Conclusion

While maintaining and enforcing an effective compliance program is not a guarantee that federal agencies or federal prosecutors will never go after a corporation, it does meaningfully change the attitude of the agency or prosecutor in three key respects: a compliance program can lead to (1) leniency by the prosecutors; (2) a reduced penalty; and (3) less negative collateral consequences.  The federal government understands that an effective compliance program may not catch all instances of misconduct, as this is not the purpose.  The purpose of a compliance program is to monitor and implement a corporation-wide system that emphasizes due diligence and compliance with the law, promotes whistleblowing, and embraces continuous improvement and updates to the program.

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