Corruption Policy Changes Highlight Compliance Programs

By Paul Donato, CPA, CFE, Irina Lazieva, JD, and Jennifer Riddle, JD 

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The Biden administration has called for a collaborative, multiagency task force to develop strategies to mitigate the global corruption threat. On Dec. 6, 2021, the administration announced a strategy with five pillars of action: 

• Modernizing, coordinating, and resourcing U.S. efforts to better fight corruption, with an emphasis on intelligence collection and sharing
• Curbing illicit finance via measures that include disclosure requirements for financial service providers and regulations on real estate transactions
• Holding corrupt actors accountable
• Strengthening the multilateral anti-corruption architecture
• Improving diplomatic engagement and leveraging foreign assistance to advance policy goals 

The Department of Justice (DOJ) has announced its plans for battling corruption, including no “default” presumption against monitorship (i.e., an independent authority empowered as part of the settlement agreement to evaluate the effectiveness of the company’s compliance program). Additionally, the DOJ added new resources to fight corruption, including the Corporate Crime Advisory Group and the Corporate Enforcement, Compliance Policy Unit, which is a revamp of the DOJ Fraud Section’s now-defunct Strategy, Policy, and Training Unit. 

While the administration addresses many changes, DOJ’s policies on the following have not been altered: 

• The privilege waiver remains unchanged, as do the investigation steps necessary to successfully qualify for cooperation credit.
• Prosecutors will continue to focus on investigating individual misconduct, and a timely production of relevant evidence for assessing individual culpability is required to receive full cooperation credit. 
• Companies that voluntarily self-disclose misconduct can expect more favorable resolution terms.
• There will be a continued emphasis on the importance of an effective compliance program. 

The DOJ expects companies to review their compliance programs to ensure they have implemented programs that are well-designed, are adequately resourced and empowered to function effectively, and work in practice. Corporate compensation structures should be designed to reward compliant behavior and penalize misconduct. Specifically, prosecutors are directed to examine if compensation systems allow for retroactive discipline, including “claw back” provisions, to levy penalties against current and former employees implicated in criminal wrongdoing.  

There has been increased enforcement among foreign authorities in the corruption space recently, as well as an increased emphasis on cooperation in investigation and prosecution. This is a trend that is expected to continue. 

It is important to note that, under the new strategy, there will no longer be a presumption either against or in favor of the use of monitors. The ambiguity on the use of monitors hightens the focus on the ethical culture as vital to compliance. As such, key elements of an ethical culture include the following: 

• Tone from the top and “walk the talk” – Strong and consistent communications from senior leadership is important. To resonate with personnel at all levels, ethics and compliance messaging should also come from immediate supervisors.
• Employee engagement. 
• Employee and third-party training. 
• Autonomy and authority of compliance professionals within the company. 

To be effective, compliance processes also need to be integrated with other business processes. While a company’s compliance department provides subject-matter expertise and tools to ensure compliance, the business in its entirety owns the risk of noncompliance; thus, it should incorporate compliance tools in its risk mitigation efforts. In practice, third-party management processes often help flag business and reputational risks, which can include a lack of a reliable business footprint or professional teams, poor financial standing, or poor reputation with clients. 

When evaluating whether a company’s compliance program is well-designed, the DOJ looks at whether the program addresses key risk areas that match the company’s specific risk profile. While the DOJ does not typically second-guess a company’s assessment of its own risk profile, it has historically wanted to see that the risk assessment is performed regularly and addresses changes in the company’s business and regulatory environment. 

The general expectation is that a third-party management program should be risk-based. Each company can develop its own risk-evaluation criteria, taking into account its unique business model, markets/clients, and operations footprint. 

In new guidance to prosecutors, the DOJ has emphasized that a monitor-selection process must promote consistency, predictability, and transparency. Companies should keep this in mind when assessing their goals for monitorship and interviewing potential monitors. Considerations can include the following: 

• How does the DOJ define the monitor’s responsibility and scope of authority? Will the monitor be expected to focus on investigating the company, conducting a risk assessment, or helping the company structure and improve its compliance program?
• What is the monitor’s experience and qualifications? This question is about more than being a subject matter expert in the Foreign Corrupt Practices Act and corporate compliance programs; it is about knowing how to balance the company’s interest against the DOJ’s interest and creating a clear workplan that meets both.
• How reasonable is the scope of the proposed review? Can the monitor stay on task and on budget while keeping disruptions to a minimum?  

Experienced monitors know how to conduct an evaluation, how to create cost-effective work plans, how to communicate these plans to the corporate organization, and how to leverage in-house resources without compromising the monitor’s independence. 

A company in the middle of an investigation or attempting to reset its compliance program may be better served by an independent assessment by an outside accounting firm and law firm to get a fresh, objective perspective that only external firms can bring. Their experiences provide a valuable perspective that may not be available internally.