With the increase in the number of anticorruption cases and the sky-rocketing fine amounts that the US Department of Justice ("DOJ"), the US Securities and Exchange Commission ("SEC") and other governmental authorities around the world have imposed in recent years, the importance of compliance as a concept and as a practice has increased exponentially. Today, many large companies either have an established compliance program, or aim to have one in the future. One of the most significant advantages of a compliance program that springs to mind is that compliance programs are necessary for fostering a culture of compliance, and that they help to detect and deter misconduct within a company. However, this is not the sole reason why many companies across the world are dedicating substantial resources to their compliance programs. This article seeks to illuminate these and other concrete benefits of compliance programs for companies both within and outside of the Foreign Corrupt Practices Act ("FCPA") jurisdiction, in addition to explaining what types of compliance programs best qualify for the concrete and extensive benefits.
(I) When the FCPA Applies: Compliance as a Mitigating Factor
A compliance program provides numerous benefits to a company—it helps to create and foster a compliance culture, and it detects and deters irregularities within the company. With that said, the most tangible benefit of a compliance program for those companies subject to FCPA jurisdiction is that an effective compliance program can qualify as a mitigating factor for reducing an FCPA fine. In addition, enforcement authorities may take the existence of a compliance program into account when considering whether to prosecute (or decline to prosecute) a case or enter into a plea agreement with the corporation under investigation. Therefore, compliance programs not only act as mitigating factors, they are even part of the prosecutorial calculus that may allow the company to evade a criminal judgment in the first place. Many legal documents and guidelines recommending the establishment of a compliance program also advise that such a compliance program needs to be a fully functioning, effective one, and not just a "paper program." A paper compliance program could be characterized as one with a well publicized anti-corruption policy, but where the company has a de facto policy of ignoring the policies outlined in the compliance documents and pressuring its employees to engage in unethical behavior, while the upper management looks the other way. Furthermore, a company that has an anticorruption policy but that has not established any other components of a proper and effective compliance program could also be viewed as a "paper program", which looks good on paper, but is not effective or functional in the real world.
According to the Principles of Federal Prosecution of Business Organizations[1] ("Principles"), prosecutors should consider, among other factors, "the existence and effectiveness of the corporation's pre-existing compliance program"[2] when determining whether to bring charges or negotiate plea agreements with a corporation. According to the Principles, when evaluating a compliance program, the prosecutors should ask the following three questions: (i) How well is the compliance program designed? (ii) Is it applied sincerely and in good faith? (iii) Does it work? The prosecutors should determine whether a compliance program is only a "paper program" or an effective one designed, implemented, reviewed, and revised appropriately[3]. In a similar vein, the U.S. Sentencing Guidelines ("Guidelines") also advise that the existence of an effective compliance and ethics program can be considered as a mitigating factor when organizations are being sentenced. The SEC's Seaboard Report[4], which lists the criteria that the SEC takes into consideration when determining whether to take any enforcement action or to bring reduced charges against a company, lists the existence of compliance programs among its criteria.
A benchmark case in which the enforcement authorities declined to prosecute a corporation, largely due to its existing compliance program, is the 2012 Morgan Stanley case. According to the DOJ's press release, even though Morgan Stanley's former managing director for its real-estate business conspired with others to enrich himself and a Chinese official, the DOJ declined to prosecute Morgan Stanley. This was because, "Morgan Stanley maintained a system of internal controls meant to ensure accountability for its assets and to prevent employees from offering, promising or paying anything of value to foreign government officials. Morgan Stanley's internal policies, which were updated regularly to reflect regulatory developments and specific risks, prohibited bribery and addressed corruption risks associated with the giving of gifts, business entertainment, travel, lodging, meals, charitable contributions and employment. Morgan Stanley frequently trained its employees on its internal policies, the FCPA and other anti-corruption laws. Between 2002 and 2008, Morgan Stanley trained various groups of Asia-based personnel on anti-corruption policies 54 times. During the same period, Morgan Stanley trained Peterson on the FCPA seven times and reminded him to comply with the FCPA at least 35 times. Morgan Stanley's compliance personnel regularly monitored transactions, randomly audited particular employees, transactions and business units, and tested to identify illicit payments. Moreover, Morgan Stanley conducted extensive due diligence on all new business partners and imposed stringent controls on payments made to business partners."[5]
At the opposite end of this scale is the VimpelCom case of 2016. VimpelCom was fined $397 million by the US authorities for conspiring to violate the FCPA[6]. The DOJ heavily criticized VimpelCom's compliance program and its operation in the deferred- prosecution agreement that was entered into between the parties:[7]
(i) VimpelCom had no Chief Compliance Officer ("CCO") at the time it entered the Uzbek market,
(ii) When a CCO was finally appointed, the junior executive selected for the position had no background in compliance and was not given any staff or support,
(iii) VimpelCom had no dedicated compliance function until 2013, and the CCO only became a senior management position in 2014,
(iv) VimpelCom had little to no anti-corruption compliance program for the duration of the conspiracy; in fact, VimpelCom's only anticorruption policy was summarized and encapsulated in two paragraphs within VimpelCom's code of conduct,
(v) FCPA training for employees was inadequate and performed in an ad hoc manner during the course of the corruption conspiracy, (vi) As the DOJ stated in the deferred- prosecution agreement, "In short, rather than implement and enforce a strong anti-corruption ethic, VimpelCom sought ways to give itself plausible deniability of illegality while proceeding with business transactions known to be corrupt."[8]
(II) Outside FCPA Jurisdiction - The Benefits of a Compliance Program
Even for companies that are not subject to FCPA jurisdiction, having a compliance program is becoming increasingly more important. In recent years, many governments have adopted legislation that either introduces compliance programs as a defense for corruption offenses[9] or establishes their existence as mitigating factors[10]. Even the B20 Cross-Thematic Group on Responsible Business Conduct & Anti-Corruption advised G-20 governments to recognize the compliance efforts of the private sector[11].
Moreover, even if a company is not under FCPA jurisdiction, it may still conduct business with and have commercial ties to other companies that do fall under FCPA jurisdiction. Finally, companies that do fall under FCPA jurisdiction may require a local company with whom it does business to maintain a compliance program for self-protection purposes, when doing business outside the US. Therefore, establishing a robust compliance program may be an excellent way for a company to distinguish itself from its competitors. Global companies are mindful of their reputation and the FCPA risks that they may confront. In fact, third- party due diligence is one of the essential elements of an effective compliance program. Thus, a local company that wishes to enter into a business relationship with a global company may be one step ahead of its competitors if it proves that it does have a compliance program in place, even though it does not fall within FCPA jurisdiction.
(III) Conclusion
There are numerous benefits to establishing and sustaining a robust compliance program: companies may be able to get plea agreements instead of criminal judgments, they may use the compliance program as a mitigating factor when fines are imposed, and compliance programs may even qualify as defenses in corruption cases. Furthermore, compliance programs detect and deter wrongdoings within the company, and they may confer competitive advantages, particularly to local companies who aim to do business with a global company. However, companies wishing to enjoy these advantages should not lose sight of one crucial fact: Effective compliance programs comprise more than just a code of conduct, and "paper programs" may not fool enforcement authorities.
[1] USAM § 9-28.000 (2008).
[2] USAM § 9-28.28.300 (2008).
[3] USAM § 9-28.800 (2008).
[4] U.S. Securities and Exchange Commission, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions (2001).
[5] https://www.justice.gov/opa/pr/former-morgan-stanley-managing-director-pleads-guilty-role-evading-intemal-controls-required
[6] https://www.justice.gov/opa/pr/vimpelcom-limited- and-unitel-llc-enter-global-foreign-bribery-resolution-more-795-million
[8] Ibid.
[9] "In Spain, a recent amendment to the Spanish Criminal Code (SCC) has introduced an affirmative defense of compliance.", Spain: New Affirmative Compliance Defense, (19 June 2017, 22:20), http://www.traceintemational.org/blog/136/Spain_N ewAffirmativeComplianceDefense
[10] "(...) the enforcer will take into account the 'existence of internal mechanisms and procedures of integrity, audit and incentive for the reporting of irregularities, as well as the effective enforcement of codes of ethics and codes of conduct within the organization' (free translation)", Art. 7, VIII of the Brazilian Clean Companies Act, http://fcpacompliancereport.com/2015/03/compliance- programs-under-the-brazilian-clean-companies-act/ (last visited 16 July 2017).
This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in September 2017. A link to the full Legal Insight Quarterly may be found here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
