We asked industry experts, colleagues and compliance officers what they believe will be the top issues impacting workplace ethics and corporate compliance programs in 2015. We gathered their best thinking and prepared our annual summary of trending issues and the steps you should consider taking as you plan for the coming year.
On the accountability and punishment front, three trends bear watching:
1) Deferred Prosecution Agreements (DPAs)
DPAs and Non-Prosecution Agreements (NPAs) allow prosecutors to require corporate reforms and penalties in exchange for avoiding or delaying the filing of charges if there is satisfactory completion of the requirements. As we noted in last year’s review, the use of these and similar agreements has continued to be an important enforcement tool for the U.S. Department of Justice (which first used DPAs in 2000) and the SEC. And in in healthcare, the Corporate Integrity Agreement (CIA) has been a similar enforcement tool used by the Office of the Inspector General of the U.S. Department of Health and Human Services since the late 1990s.
Now it appears that DPAs will become a more common enforcement tool in the U.K. Recent legislation authorizing U.K. authorities to use DPAs has provided an important new tool for the U.K.’s SFO and other U.K. authorities. Most importantly, the Code of Practice guidance that governs the use of DPAs sets up significant incentives for companies to “self-report” potential violations of the law and to cooperate fully with the government if investigated—including future cooperation in prosecution of individuals.
DPAs can allow authorities to utilize scarce resources more efficiently by deferring prosecution instead of bringing a case and taking it through a lengthy (and expensive) trial. DPAs also can result in significant fines, which then can be used to help fund further enforcement activities. Given the potential benefits to governments, it seems only a matter of time before DPAs become a common feature of the U.K. enforcement landscape—and perhaps elsewhere.
2) Jail Time for Executives
With the exception of punishments imposed under repressive regimes, jail time has rarely been used as a deterrent for corporate wrongdoing. In fact in recent years the public and many commentators have been increasingly frustrated that no individuals have been sent to jail for the abuses that sparked the financial crisis. There may be signs that this is about to change.
In August, 2014, three former U.K.-based executives of a specialty chemicals company were sentenced to jail for their part in a bribery scheme. The U.K. SFO settled the criminal case against the company resulting in a relatively modest $12.7 million in fines, but went on to prosecute individual executives and senior managers.
Testimony in the case showed that the bribery was a calculated business decision.
In his sentencing statement, the U.K. judge summarized the rationale for jail time: “The corruption was endemic, ingrained and institutional,” and he also noted that companies are not automated machines, rather that, “decisions are made by human minds. It follows that those high up in the company should bear a heavy responsibility under the criminal law.”
Time will tell whether this argument resonates with other judges and enforcement agencies outside the U.K.
3) Compliance Officers in the Crosshairs
Since the role was first created in the 1980s, compliance officers have always harbored some worries about personal liability. Recent regulatory actions like the following have brought this to a fuller and more open discussion:
- Total Wealth Management: In an on-going case, the chief compliance officer (CCO) along with an investment advisor, were charged with failing to disclose conflicts of interest and concealing kickbacks for investment recommendations to clients.
- GunnAllen Financial: The former CCO was fined $15,000 in 2011 for failure to set policies “reasonably designed” to protect customer financial information.
- Brown Brothers Harriman: The former global anti-money laundering compliance officer for the organization was fined $25,000 for the company's related compliance failures.
Key Steps For Organizations To Take:
When compliance officers have been held liable it has primarily been for intentional violations of the law.
The simplest way to minimize escalating risk for compliance professionals is to scrupulously avoid legal wrongdoing and not assist others who are breaking the law, as well as:
- Document important decisions and formal advice that you provide.
- Be sure that policies and procedures that govern your work are in writing and have been reviewed and approved. In particular, to avoid the possibility of supervisory liability, when misconduct occurs, make sure the company documents which supervisor is responsible for handling it.
- Committees on which you serve should also document in their charters that your role is only advisory. And, have a formal charter in place that clearly addresses your position’s duties and responsibilities.
- Have a board-approved, formal escalation policy and escalate when appropriate.
- Check your organization’s directors and officer’s liability insurance to ensure that adequate coverage extends to the compliance role.
- Don’t go it alone. Share compliance responsibilities with others.
