The cornerstone of a best practices compliance program is its written standards. These include a Code of Conduct, policies and procedures. These requirements have long been memorialized in the US Federal Sentencing Guidelines (FSG), which contain seven basic compliance elements that can be tailored to fit the needs and financial realities of any given organization. From these seven compliance elements, the DOJ has crafted its minimum best practices compliance program, which is now attached to every Deferred Prosecution Agreement and Non-Prosecution Agreement. These requirements were incorporated into the 2012 FCPA Guidance. The FSG assumes that every effective compliance and ethics program begins with a written standard of conduct; i.e. a Code of Conduct. What should be in this “written standard of conduct? The starting point, as per the FSG, reads as follows:
Standards of Conduct, Policies and Procedures (a Code of Conduct)
An organization should have an established set of compliance standards and procedures. These standards should not be a “paper only” document, but a living document that promotes organizational culture that encourages “ethical conduct” and a commitment to compliance with applicable regulations and laws.
In the 2012 FCPA Guidance, the DOJ and Securities and Exchange Commission stated, “A company’s code of conduct is often the foundation upon which an effective compliance program is built. As DOJ has repeatedly noted in its charging documents, the most effective codes are clear, concise, and accessible to all employees and to those conducting business on the company’s behalf.” Indeed, it would be difficult to effectively implement a compliance program if it was not available in the local language so that employees in foreign subsidiaries can access and understand it. When assessing a compliance program, DOJ and SEC will review whether the company has taken steps to make certain that the code of conduct remains current and effective and whether a company has periodically reviewed and updated its code.”
In each DPA and NPA since that time, the DOJ has said the following as item No. 1 for a minimum best practices compliance program.
- Code of Conduct. A Company should develop and promulgate a clearly articulated and visible corporate policy against violations of the FCPA, including its anti-bribery, books and records, and internal controls provisions, and other applicable foreign law counterparts (collectively, the “anti-corruption laws”), which policy shall be memorialized in a written compliance code.
Your Code of Conduct, policies and procedures should be grouped under the general classification of written standards, comprising three levels of written standards. First, every company should have a Code of Conduct, which should, most generally express its ethical principles. But simply having a Code of Conduct is not enough. A second step mandates that every company should have policies in place that build upon the foundation of the Code of Conduct and articulate Code-based policies, which should cover such issues as bribery, corruption and accounting practices. From the base of a Code of Conduct and policies, every company should then ensure that enabling procedures are implemented to confirm those policies are implemented, followed and enforced.
Best practices now require companies to have additional written standards, including, for example, detailed due diligence protocols for screening third-party business partners for criminal backgrounds, financial stability and improper associations with government agencies. Ultimately, the purpose of establishing effective written standards is to demonstrate that your compliance program is more than just words on a piece of paper.
Policies and Procedures
The written policies and procedures required for a best practices compliance program are well known and long established. As stated in the 2012 FCPA Guidance, “Among the risks that a company may need to address include the nature and extent of transactions with foreign governments, including payments to foreign officials; use of third parties; gifts, travel, and entertainment expenses; charitable and political donations; and facilitating and expediting payments.” Policies help form the basis of expectation and conduct in your company and procedures are the documents that implement these standards of conduct.
The role of compliance policies is to provide guidance and to protect companies, despite an occasional hick-up. Policies provide a basic set of guidelines for employees to follow. They can include general dos and don’ts, work process flows, specific issue guidelines. By establishing what is and is not acceptable compliance behavior, a company cans mitigate the compliance risks posed by employees who might make foolish decisions or otherwise engage in unethical behavior.
While policies are not a guarantee that things will not go sideways, they are a line of defense if they do. The effective implementation and enforcement of compliance policies demonstrate to the government that a company is operating ethically and proactively for the benefit of its stakeholders, its employees and the community it serves. If it is a company subject to the FCPA, it is an international company so that can be quite a wide community.
The 2012 FCPA Guidance ended its section on policies with the following, “Regardless of the specific policies and procedures implemented, these standards should apply to personnel at all levels of the company.” It is important that policies are applied fairly and consistently across your company for if compliance policies are applied inconsistently, there is a greater chance for employee dissatisfaction. This point cannot be over-emphasized. If an employee is going to be terminated for fudging their expense accounts in Brazil, you had best make sure that same conduct lands your top producer in the US with the same quality of discipline.
There are numerous reasons to put some serious work into your Code of Conduct, policies and procedure. They are certainly a first line of defense when the government comes knocking. This means the regulators will take a strong view against a company that does not have well thought out and articulated policies, procedures or Code of Conduct; all of which are systematically reviewed and updated. Written policies, signed by employees provide a vital layer of communication. Together with a signed acknowledgement, these documents can serve as evidentiary support if a future issue arises. In other words, the ‘Document, Document and Document’ mantra applies just as strongly to this area of anti-corruption compliance.
Three Key Takeaways
- A Code of Conduct, together with policies and procedures have long been recognized as cornerstones of a best practices compliance policy.
- Each level of written standards builds upon one and other so you need to consider this integration step.
- The Fair Process Doctrine applies to your written standards.
Written standards are your first line of defense in the event of a FCPA violation.
This month’s sponsor is the Doing Compliance Master Class. In 2018 I am partnering with Jonathan Marks and Marcum LLC to put on training. Look for dates of one of the top compliance related training going forward.