This week, in a podcast series on the Compliance Podcast Network, sponsored by Affiliated Monitors, Inc. (AMI), I visit with Vincent DiCianni, founder and President of AMI, and Eric Feldman, Senior Vice President of AMI. We look at the Department of Justice (DOJ) announcements over the past year and back to the FCPA Corporate Enforcement Policy, announced in November 2017, to consider what strategies companies can use based upon these documents. The podcast series will explore how the Benczkowski Memo (the “Memo”) and other DOJ guidance into compliance programs can be used by compliance professionals to create more robust compliance programs and help to avoid a monitor imposed by the DOJ in the resolution of a Foreign Corrupt Practices Act (FCPA) enforcement action. Feldman believes the Memo can be used as both a sword and shield in furtherance of more effective compliance programs.

We began with an overview of the Benczkowski Memo and Feldman observed that its scope is far beyond simply monitor selection. Regarding monitor selection much of what the Memo said was not new but an articulation in writing of the ongoing process. Yet there were additions to the process which Feldman believes provide some direct guidance for the compliance practitioner. Moreover, it starts from the premise that a monitor is only going to be appointed in those situations where it is absolutely necessary; using terminology that the criminal division should favor the imposition of a monitor only when there is a demonstrated need for the monitor and clear benefit to be derived from a monitorship.

The Memo goes on to provide some detail on what those situations might be going forward. There are two broad considerations the Memo identifies. The first is the potential benefits that employing a monitor will bring for the corporation and the public. This considers the benefits of a monitor. The second consideration is the cost of the monitor and the impact of the monitor on the operations of a corporation.

The Memo also memorialized what Feldman believes has been internal DOJ practices around monitor selection. Now, within 20 days, the DOJ must review a potential monitor’s qualifications, including obtaining a written certification that there is no conflict of interest present with the proposed monitor candidate. The DOJ will continue to consider of each candidates background, education, training mad professional experience, in other words all of those things that you would expect DOJ to consider in the monitor selection process. The Memo spells out very clearly that the DOJ can select from the three candidates proposed by the company or they can evaluate alternative candidates. There is also the establishment of a new selection process with a standing committee at the DOJ rather than just the Deputy Attorney General to make the final decision based on the recommendation of the prosecutors as to who will be the final monitor candidate.

Feldman see the Memo as an extremely positive force for not only corporate compliance programs but also the compliance practitioner. He also sees the evolutionary scope of what the DOJ has been moving towards, as far back as the 2012 FCPA Guidance, when he stated, “First, I think they’re listening to companies which have been complaining about the cost and adverse impact in some cases of monitors. And that’s important because there are some horrendous examples out there.” Yet, he also sees this process as an “evolution of thinking about the positive impact that a monitor can have.” The Memo  highlights the objective of creating a stronger ethics and compliance program and remediating controls as one of the considerations for whether a monitor is necessary or not. The Memo provides a roadmap for a company to avoid a monitor.

Yet even beyond these guidelines, Feldman believe DOJ Guidance from 2018 on compliance can be used as both a sword and a shield to protect companies going forward. The first thing to recognize is that while laying out the criteria for monitor selection by the DOJ, the Memo also lays out a roadmap of how to avoid a monitor. Feldman believes the Memo lays  out several conditions to indicate a situation where a monitor is warranted. The first includes whether the underlying misconduct involved something as systemic as manipulation of corporate books and records or exploitation. If it does this may well be indicia that a company had an inadequate compliance program. This would further indicate that the corporate compliance program is not designed and implemented effectively.

The second factor considers whether the misconduct was pervasive across the organization or approved or facilitated by senior level management. This situation includes the concept of tone at the top and whether or not senior level managers are contributing to the misconduct or creating the kind of culture that’s necessary to prevent this conduct. A third factor is, did the corporation make significant investments in and improvements to its corporate compliance program and internal controls? If the company did remediate, what is the evidence it did so and is there evidence of the effectiveness of the remediation?

This would also include an analysis of the whether the company made significant investment in its compliance program to remediate, improve, and strengthen the controls that may have failed. This signifies the DOJ is looking for demonstrated remediation. Feldman said a fourth factor considers whether these improvements to the compliance program had been tested to demonstrate they prevent or detect similar misconduct in the future. He noted this is the “first time I’ve seen in the DOJ policy document the concept of testing a compliance program and testing internal controls.” This is clear evidence of what a company can do to try to avoid a monitor if it finds itself in a FCPA investigation. Feldman concluded that these “four factors can be a very big step for the company, not only in its negotiation with Department of Justice, but as a proactive approach to lower the threat of a FCPA violation and a potential risk recurrence.”

Feldman believes the Memo is a natural extension of the 2017 FCPA Corporate Enforcement Policy, which laid out the four steps a company must take to obtain a Declination: (1) self-disclosure, (2) extensive cooperation, (3) full remediation, and (4) profit disgorgement; most particularly in Prong 3 – Remediation. Yet, all of this is a clear continuation of DOJ policy evolution. Beginning with the 2012 FCPA Guidance, up through multiple enforcement actions, the 2016 FCPA Pilot Program, the 2017 Evaluation of Corporate Compliance Programs, the 2017 FCPA Corporate Enforcement Policy and the 2018 anti-piling on and Safe Harbor in mergers and acquisitions (M&A).

Finally, the speech by Principal Deputy Assistant Attorney General John P. Cronan, in December 2018 before the Practising Law Institute Event, where focused on an effective compliance program, not a paper compliance program. Cronan stated, “when we at the Department talk about compliance, we are referring to effective compliance. The Principles of Federal Prosecution of Business Organizations make that clear. Under those Principles, in determining whether to charge a corporation, prosecutors must consider, among other factors, the existence and effectiveness of the corporation’s preexisting compliance program, as well as the corporation’s subsequent remedial actions including efforts to implement an effective compliance program or improve an existing one. In assessing a compliance program, the Principles specifically direct prosecutors to consider “whether a corporation’s compliance program is merely a ‘paper program’ or whether it was designed, implemented, reviewed, and revised, as appropriate, in an effective manner.”

Feldman concluded by noting, “the drumbeat keeps getting stronger and stronger for accountability in corporate compliance programs.” The DOJ will take a hard look at and wants companies to demonstrate that they are holding the perpetrators accountable. If they can do so, this is evidence that “you are looking at some real basic compliance program principles and that the company will remediate misconduct if there was a bad actor in place.”

Feldman emphasized that compliance professionals should read the Memo carefully to fully understand the principals it lays out. This will help you use it as both a shield to protect your organization from getting into FCPA hot water but also, if you do, it will help act as a sword to cut off the possible requirement of a monitor.

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© Thomas R. Fox, 2019