Department of Justice Updates Its Corporate Compliance Evaluation Guidance Used in White Collar Crime Investigations
In June, the US Department of Justice updated its guidelines for the evaluation of corporate compliance programs, which describes the factors that prosecutors consider in determining whether to bring charges, negotiate plea agreements, and assess criminal fines in their prosecution of white collar crimes.
In general, prosecutors are interested in whether corporate compliance programs are effective at the time of both the offense and charging decision. In evaluating them, there are three fundamental questions that they ask:
- Is the program well designed?
- Is the program applied earnestly and in good faith? I.e. is it adequately resourced and empowered to function effectively?
- Does the compliance program work in practice?
Is The Program Well Designed?
In looking at whether the program is well designed, prosecutors are interested in whether corporate management is preventing wrongdoing or passively encouraging and/or pressuring employees to engage in misconduct. They are interested in not only the message being sent, but also explicit policies, procedures, incentives and discipline.
Specifically, they look at:
- Risk assessment: How the company analyzes and addresses the risks presented; for example, in the choice of its operation location, the regulatory landscape it operates in, business partners, third parties, political donations, etc. Prosecutors look at how the company identifies the risks, how it detects them, where it prioritizes its time, whether its risk assessment is subject to periodic review, etc.
- How it designs and updates policies and procedures, who is involved in doing so, associated communications to employees and third parties, etc.
- What training has been provided, including in the areas where the misconduct occurred, is its form appropriate for the audience, does it allow for employees to ask questions
- What senior management has done to communicate the company’s position on misconduct, what resources have been made available to employees
- Whether there is an anonymous reporting mechanism for employees to report misconduct, whether the company ensures that associated investigations are independent, whether these mechanisms are sufficiently funded
- What the rationale is for using third parties, how the company’s risk management systems apply to third-party management, how they are monitored, how their compensation incentive structures are considered, how due diligence done on third parties, mergers and acquisitions
Is The Program Adequately Resourced And Empowered To Function Effectively?
In this endeavor, prosecutors are looking at whether the program is a “paper program” or one that is implemented effectively. In doing so, they look at:
- Commitment by management: How have company leaders encouraged or discouraged compliance, including the type of specific misconduct involved in the investigation, how have they provided model behavior to others, what actions have stakeholders taken, what compliance expertise has been available on the board of directors
- Has the compliance function operated with autonomy and resources, do associated personnel have the right experience and qualifications for their roles and responsibilities, is there sufficient staffing for compliance personnel to function effectively, do they have autonomy, have any compliance functions been outsourced
- What kinds of disciplinary measures and incentives does the company have, is the same process followed for every instance of misconduct; and if not, why not? Have disciplinary actions been consistently applied, how has compliance been incentivized
Does The Program Work In Practice?
In assessing whether the program actually works, prosecutors are instructed to consider how the misconduct was detected, whether there are resources in place to investigate it, and the thoroughness of the company’s efforts to remedy the issue (in other words, whether the company took an “adequate and honest root cause analysis” to prevent it from happening again). This includes incorporating continuous improvement, testing, and review, which involves internal audits, risk assessments, reviewing policies and procedures, seeking input from them, ensuring that any investigations of misconduct are conducted by qualified personnel, and essentially engaging in significant reflection on the cause of the misconduct, how it could have been prevented or detected, what changes have been made to make sure it does not happen again, what disciplinary actions were taken, etc.
Work With A White Collar Crime Defense Attorney
The updated guidance document has made it clear that simply having a compliance program in place is not enough—it also needs to be reviewed, updated, and enforced regularly, especially in advance of any audits and investigations. This is key to ensuring that investigations are resolved and penalties reduced.
If your company is being investigated for a white-collar crime, contact the office of New York criminal defense attorney Phillip J. Murphy for a free consultation today on how we can help ensure that you are protected.