The United States Department of Justice (DOJ), in a departure from past custom, has begun to give meaningful credit, and even some positive publicity, to businesses whose compliance programs were effective in detecting violations of law. In the past, DOJ typically made public mention of a company's compliance program only when the program's implementation was a mandatory condition of a settlement agreement.

Now, however, federal prosecutors are starting to explicitly publicize the credit given to companies whose preexisting compliance programs uncover unlawful conduct. This shift in custom provides businesses with more of an incentive to embrace robust corporate compliance policies that are effective in detecting noncompliance.1

DOJ's new trend is demonstrated by the recent settlement agreements with global offshore drilling contractor Noble Corporation (NYSE: NE) and tobacco company Universal Corporation (NASDAQ: UVV). In short, in both of these cases DOJ made clear that effective internal compliance efforts were important to the favorable disposition obtained by each company.

Noble's case began in 2007, when following an internal investigation triggered by its own compliance program, the company self-reported to DOJ and the Securities and Exchange Commission that its affiliates made millions of dollars in illegal cash payments to Nigerian customs officials. After a comprehensive federal investigation in which Noble cooperated, the parties entered into a nonprosecution agreement.

In announcing this noncriminal resolution, DOJ stated that its decision not to prosecute Noble was due, in part, to the company's "discovery of the violations through its own internal investigation ... [Noble's] timely, voluntary and complete disclosure of the facts ... [its] voluntary investigation of [its] business operations throughout the world ... [and its] preexisting compliance program and steps taken ... to detect and prevent improper conduct from occurring."2

Universal, a Virginia-based company with a Brazilian subsidiary accused of making payments to authorities in Thailand in violation of the Foreign Corrupt Practices Act (FCPA), entered into a settlement agreement with DOJ in August 2010. In resolving this matter, the company agreed to (1) the retention of a government compliance monitor focusing on FCPA compliance; (2) $4.5 million in disgorgement of profits; and (3) the imposition of a relatively small criminal fine of $4.4 million on the subsidiary. Further, DOJ agreed not to prosecute the U.S. parent. The penalties against Universal and its subsidiary were not more severe because of Universal's "discovery of the violations through its own internal hotline process," and the company's prompt disclosure and cooperation thereafter.3

Since 1991, the Organizational Sentencing Guidelines (the Guidelines) recognize a company's adherence to an "effective compliance and ethics program" as a mitigating factor in formulating a penalty against the company in the context of sentencing or a pretrial settlement. Although an "effective program" is one that the Guidelines define as both preventing and detecting criminal conduct, DOJ previously gave only lip service to the importance of a program's success in detecting noncompliance. However, DOJ's apparent new posture suggests that a company's detection—and timely disclosure—of credible evidence of wrongdoing may, in fact, actually begin to serve as a critical component in successfully negotiating a noncriminal resolution or a relatively modest criminal fine, as in the Noble and Universal cases.

DOJ's efforts to publicly credit companies for their rigorous compliance programs also accord with recent clarifications concerning the availability of compliance program-related penalty reductions under the Guidelines. Under amendments that took effect in November 2010, the Guidelines now make clear that a company—even where one of its high-level executives partook, approved of, or was "willfully ignorant" of the violation—may still receive a penalty reduction so long as the following:

1. The individual(s) responsible for overseeing the company's compliance policy directly report to the company's board of directors (or a pertinent subgroup of the governing authority);

2. The compliance policy detected the wrongdoing prior to outside discovery, or ahead of when discovery was "reasonably likely";

3. The company, without delay, reported the wrongdoing to the necessary government officials; and

4. Not a single individual responsible for overseeing the company's compliance policy "participated in, condoned, or was willfully ignorant of the offense."4

Of course, a business will lose its credibility with DOJ and other government agencies if it is routinely detecting illegal conduct but seldom deterring it. Thus, companies should craft compliance programs that are sufficiently comprehensive and well-resourced to both deter and detect real or potential wrongdoing.5

To do so, it is critical that such programs, at a minimum, enjoy vocal support at the senior-most levels of the company, that they are consistently enforced to take remedial action against wrongdoers, and that they promote an open channel for internal complaints without fear of retaliation.

Footnotes

1 See Jaclyn Jaeger, "Justice Department to Give Compliance Credit Before Cases Resolve," Compliance Week, January 11, 2011.

2 See Agreement Between United States Department of Justice, Criminal Division, Fraud Section, and Noble Corp. (November 4, 2010).

3 See Agreement Between United States Department of Justice, Criminal Division, Fraud Section, and Universal Corp. (August 3, 2010).

4 See U.S. Sentencing Guidelines Manual § 8C2.5(f)(3)(C) (i)-(iv).

5 For all seven criteria the Organizational Guidelines set out as comprising an effective compliance program, see http://www.ussc.gov/Guidelines/Organizational_Guidelines/ORGOVERVIEW.pdf

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