Corporate Compliance Programs: More Than Just FCPA
Business Law Alert 03/05/18 Edwin J. Broecker
While many people assume that compliance programs are only for large multi-national corporations trying to prevent FCPA (foreign corrupt practices act) violations, the truth of the matter is that companies of all sizes, both publicly traded or privately held, benefit when they implement and maintain effective ethics and compliance programs. For many years, most companies have realized the business benefits of establishing and maintaining an effective corporate compliance program. A number of studies have found that companies with strong governance and compliance cultures perform better than their counterparts. According to the Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices, there has been a 5% “Ethics Premium” over the last three years and 10.72% over the last five years. The data is based on comparing the stock prices of the 2018 World’s Most Ethical Companies honorees to the S&P 500.
Whether there is a direct correlation or whether companies that spend less time dealing with regulatory infractions have more time to focus on initiatives that improve competitive positioning and help gain market share, there are many benefits for maintaining (or even establishing) a strong compliance program. Last week, the U.S. Department of Justice (DOJ) added yet one more tangible benefit.
In announcing its decision not to charge (i.e., a declination) Barclays PLC in a front-running case, the DOJ announced that its criminal division prosecutors will use the FCPA Enforcement Policy guidelines (Guidelines) as nonbinding guidance in other criminal cases. At a speech to the American Bar Association (ABA) John Cronan, Acting Head of the Criminal Division, stated, “We intend to embrace, where appropriate, a similar approach and similar principles — rewarding voluntary self-disclosure, full cooperation, timely and appropriate remediation — in other contexts.” The Guidelines were announced in November 2017 and were incorporated into the U.S. Attorneys’ Manual. For more information on the Guidelines, see the following article: New FCPA Corporate Enforcement Policy: Effective Compliance Programs Now More Important Than Ever.
Initially, the Guidelines were limited to cases alleging violations of the Foreign Corrupt Practices Act. Now, after the Barclay’s decision, the Guidelines will apply to other applicable cases. The key requirement of the Guidelines is the establishment of an effective and robust compliance program. On March 2, at the ABA National Institute on White Collar Crime, Deputy Attorney General Rosenstein stated, “Corporate America is often the first line of defense for detecting and deterring fraud…. We want to reward companies that invest in strong compliance measures.”
If there is an effective and robust program, then, absent certain aggravating factors, to the extent that a company proactively discloses and effectively addresses the violations and cooperates with prosecutors, they can expect the DOJ to decline to bring criminal charges. The company will also have to disgorge its profits from the illegal conduct and make restitution.
In the Barclays case, it had to pay a combined $12.9 million in restitution and disgorgement of its profits from the alleged scheme. By contrast, in the HSBC Holdings case from January 2018, HSBC entered into a DPA (deferred prosecution agreement) and agreed to pay $101.5 million in penalties and disgorgement for similar conduct. While HSBC instituted a compliance program, HSBC did not voluntarily disclose or cooperate in the investigation from the beginning.
The Barclays case and the DOJ’s confirmation that the Guidelines will apply to non-FCPA cases is further evidence of the importance of an effective and robust compliance policy combined with voluntary self-disclosures and remediation. In the next couple of weeks, we will address in greater detail the DOJ’s hallmarks of an effective compliance program.
- Edwin J. Broecker: (317) 399-2828 / [email protected]