Ethics and compliance officers, take note of the Justice Department’s newest statement about its new FCPA Corporate Enforcement Policy: it wants to drop the “FCPA” bit.
two senior Justice Department officials recently said, the department wants to extend the principles of the FCPA Enforcement Policy
As two senior Justice Department officials recently said, the department wants to extend the principles of the FCPA Enforcement Policy — voluntary disclosure of a violation, cooperation in investigations, remediation of internal control problems, and disgorgement of ill-gotten proceeds — to all cases of criminal corporate misconduct. Federal prosecutors already have used that standard to end an investigation of improper foreign exchange trading against Barclays without a prosecution.
Other regulators may soon follow suit. For example, the Labor Department just launched a pilot program for employers to audit payroll practices themselves, and then voluntarily disclose any wage and hour violations. In exchange, the Labor Department will monitor the payment of back wages but not pursue litigation. We’re likely to see more regulators embrace this posture.
Corporate compliance officers should prepare themselves. Some pointed conversations about the merits of disclosing misconduct are likely to happen in your C-suite and boardroom, although the payoff for adopting a “pro-disclosure” stance is likely to be significant, too.
First, remember the FCPA Enforcement Policy’s primary objective: more voluntary disclosure of violations. Even if a company discloses a violation with “aggravating circumstances” (say, a senior executive perpetrating the FCPA violation), where it still may face criminal prosecution, the policy allows for discounts of up to 50 percent in possible criminal penalties.
Contrast that to a company that doesn’t disclose a violation, but the Justice Department ends up knocking on the door anyway. (Hello whistleblower risk!) In that case, the company is only eligible for discounts of up to 25 percent, even if the violation had no aggravating circumstances.
That point is worth repeating: self-disclosure makes a company eligible for larger breaks, even if the violation in question is a more serious offense. Disclosure makes the difference.
Then Again, Maybe Not
All this might sound great for compliance officers eager to preach the gospel of a speak-up culture. After all, voluntary disclosure of corporate misconduct is the ultimate act of speaking up. Employees will see that gesture and know the company tries to take ethical conduct seriously.
After all, voluntary disclosure of corporate misconduct is the ultimate act of speaking up.
Your legal department might be less sanguine about the new Enforcement Policy and voluntary disclosure. First, even under the best outcomes, companies will still need to spend money on investigations and remediation; that work isn’t cheap. Disgorgement of profits is no company’s idea of a good time, either.
The Enforcement Policy also has enough vagueness to leave corporate lawyers uneasy. Individual U.S. attorneys can still interpret “aggravating circumstances” with considerable discretion. For offenses other than the FCPA, prosecutors aren’t even required to adopt the new enforcement policy at all. Senior leaders at the Justice Department only encourage them to adopt it.
Inevitably, some corporate lawyers will argue against self-disclosure. They’ll warn that the definite cost of cooperation is high, but the probability of regulators discovering the misconduct on their own is low. So why invite a bop on the nose?
The situation gets even more fraught with whistleblower risk, because that does give regulators a way to discover misconduct on their own. If the misconduct is especially egregious, whistleblowers are more likely to report the company — both because it’s the right thing to do, and for the lure of larger whistleblower rewards.
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The Compliance Conversations to Come
So this is the tension that’s likely to arise: on one side, the legal department urging a case-by-case analysis of whether disclosing misconduct is the right move; on the other side, the ethics and compliance department reminding the C-suite that voluntary disclosure and a speak-up culture are two sides of the same coin.
From the ethics and compliance perspective, the question isn’t so much “Do we disclose this particular violation, given the facts at hand?” but more “Do we pursue a policy of self-disclosure across the board, any time we find misconduct?”
That, in turn, means the ethics and compliance officer must argue for an enterprise-wide culture of self-disclosure — and then implement one when (ideally) senior executives agree.
Could that be an awkward conversation for compliance officers to have? Yes, especially if the compliance function answers into to the legal department. (Hence the best practice of keeping compliance separate from legal.)
Then again, this is when senior leaders can put their money where the company’s core values are. If they want employees to speak about misconduct to them, it’s logically and morally consistent that they should speak about misconduct to regulators.
A speak-up culture benefits a company immeasurably. Companies discover problems, risks, and inefficiencies early, and they become stronger for it. (If they listen to the warnings and correct their problems.)
But employees are a sharp-eyed bunch, too. If they see senior leaders perform a cost-benefit analysis of whether to admit wrongdoing, all your exhortations for them to speak up to you will ring hollow.