Previous posts here and here highlighted recent speeches by top Department of Justice officials on topics relevant to the Foreign Corrupt Practices Act.
This post highlights additional recent speeches by Assistant Attorney General for the Criminal Division Leslie Caldwell on October 1st and by Principal Deputy Assistant Attorney General for the Criminal Division Marshall Miller on October 7th. The speeches are near carbon-copies of each other, but both are excerpted below in one space for ease of reference. Moreover, Caldwell’s speech further expounds on cooperation issues previously articulated in Miller’s September 17th speech.
Before excerpting the speeches, it is worth noting that the DOJ officials (as prior DOJ officials have in the past) made several important acknowledgments relevant to the difficulties of FCPA compliance and in support of the policy rationales for an FCPA compliance defense. (See here for the article “Revisiting a Foreign Corrupt Practices Act Compliance Defense”). In pertinent part, the DOJ officials stated:
“While the Justice Department is often the last line of defense against fraud and corruption, all of you [compliance professionals] are the first. Criminal prosecutions can and do deter future bad behavior, but they most often serve as an after-the-fact sanction for misconduct. Your collective work is designed to ensure corporate compliance and ethical practices from the outset.”
“[W]e recognize that even with proper support of a compliance program by management, perfect compliance in this increasingly global economy is incredibly difficult. Compliance departments are asked to monitor business units that are spread about the globe.”
“Every company hires human beings who, when they are in a tough and maybe unfamiliar situation with no clear guidance about what is expected, will sometimes choose the wrong path. And that becomes even harder when they are operating in countries with business cultures very different from their own.”
“Corporations do not act, but for the actions of individuals. In all but a few cases, an individual or group of individuals is responsible for the corporation’s criminal conduct.”
“Compliance must be incentivized.”
“Although increasingly rare in this day and age – more than a decade after the passage of the Sarbanes Oxley Act – we are still encountering prominent companies with no real compliance programs. Hard to believe, but true.”
“[E]ven companies with strong compliance programs can and do detect and report criminal misconduct by employees.”
“While the Justice Department is often the last line of defense against fraud and corruption, all of you who work in compliance are the first. Criminal prosecutions can and do deter future bad behavior, but your work can prevent that conduct before it happens.”
For additional writing and videos on many of the same points discussed in the DOJ speeches see:
- “How a Successful Football Organization Can Inform Foreign Corrupt Practices Act Compliance in a Business Organization“
- “The Importance of Local Language Training“
- “Understanding Risk to Reduce FCPA Scrutiny“
- “FCPA Compliance and the Important Role of Gatekeepers“
Assistant Attorney General Caldwell’s October 1st Speech
“While the Justice Department is often the last line of defense against fraud and corruption, all of you are the first. Criminal prosecutions can and do deter future bad behavior, but they most often serve as an after-the fact sanction for misconduct.
Your collective work is designed to ensure corporate compliance and ethical practices from the outset. The importance of your work cannot be overstated: it serves to protect the integrity of our public markets, the country’s financial systems, our intellectual property, the retirement accounts of our hardworking citizens, and our taxpayer dollars used to fund healthcare programs and government and military contracts.
A very large part of the mission of the Criminal Division is fighting major corporate fraud and corruption. Our Fraud Section employs approximately 100 prosecutors who are experienced in investigating health care fraud, defense procurement fraud, securities and financial fraud, and violations of the Foreign Corrupt Practices Act.
Our Asset Forfeiture and Money Laundering Section investigates and prosecutes international money laundering and violations of U.S. sanctions laws, and it recovers the proceeds of foreign official corruption by kleptocrats.
Unfortunately, in our fraud, corruption, money laundering, and sanctions cases, we have seen too many failures of corporate compliance.
In this day and age – more than a decade after the Sarbanes-Oxley Act – we come across very few companies that do not have any compliance program. In fact, we have seen a marked improvement in compliance programs over the years. In years past, it was not uncommon to see companies with only rudimentary compliance programs.
That situation is illustrated by a case resolved just last year, involving Weatherford International, a Swiss oil services company that trades on the New York Stock Exchange. Three subsidiaries of Weatherford International pleaded guilty to violating the anti-bribery provisions of the Foreign Corrupt Practices Act and export controls violations.
Before 2008, the company had little more than a weak paper compliance program. The subsidiaries admitted that the company did not have a dedicated compliance officer or compliance personnel, did not conduct anti-corruption training, and did not have an effective system for investigating employee reporting of ethics and compliance violations. Weatherford companies paid $252 million in penalties and fines.
It is increasingly rare that we encounter circumstances in which a company has such a feeble compliance program. And I doubt that anyone in this audience works for a company like that, or you probably would not be here.
More often, we encounter companies with compliance programs that are strong on paper, but much weaker in practice.”
[…]
“Now, we recognize that even with proper support of a compliance program by management, perfect compliance in this increasingly global economy is incredibly difficult. Compliance departments are asked to monitor business units that are spread about the globe.
More than the geographic divide, however, there often are cultural divides from country-to-country that you must bridge.”
[…]
“There is no doubt that monitoring compliance on a global scale is a difficult, but difficulty cannot be used as an excuse to turn a blind eye to problematic business practices. Compliance programs must be put into place and—more importantly—communicated repeatedly and enforced properly throughout the entire organization.
The emphasis on compliance must be heard not only in the executive suites at headquarters, but wherever the company operates around the globe.
When considering criminal action against a company, one factor that the Justice Department evaluates is the company’s compliance program.
Under the department’s internal guidance, the Principles of Federal Prosecution of Business Organizations, prosecutors must consider “the existence and effectiveness of the corporation’s pre-existing compliance program.”
As all of you know, the United States Sentencing Guidelines also expressly include a company’s corporate compliance program as a factor in corporate sentencing in criminal cases.
There is, of course, no “off the rack” compliance program that can be installed at every company. Effective compliance programs must be tailored to the unique needs and risks faced by each company.
But there are hallmarks of good compliance programs. The department includes many of these in our non-prosecution agreements and deferred prosecution agreements, and I’d like to discuss them with you.
1. High-level commitment. A company must ensure that its directors and senior management provide strong, explicit, and visible commitment to its corporate compliance policy. Stated differently, and again, “tone from the top.”
This means that the importance of compliance should be communicated from the very top of the company. I once heard of a large company whose prominent CEO refused to put his signature on a company-wide communication announcing the company’s new compliance program.
When asked why not, he replied: “Because we don’t hire those kinds of people.” Well, he could not have been more wrong. Every company hires “those kinds of people.”
Every company hires human beings who, when they are in a tough and maybe unfamiliar situation with no clear guidance about what is expected, will sometimes choose the wrong path. And that becomes even harder when they are operating in countries with business cultures very different from our own.
2. Written Policies. A company should have a clearly articulated and visible corporate compliance policy memorialized in a written compliance code. Again, employees need to know what to do–or not do–when faced with a tough judgment call involving business ethics. Companies need to make that as easy as possible for their employees.
3. Periodic Risk-Based Review. A company should periodically evaluate these compliance codes on the basis of a risk assessment addressing the individual circumstances of the company. Companies change over time through natural growth, mergers, and acquisitions.
Compliance policies should be live organisms that also change and grow with the company. You are only as strong as your weakest flank.
I once represented a company that had an A+ compliance program. But then they acquired a Chinese subsidiary and for several years failed to communicate to their new—and then not-so new–Chinese employees the need for FCPA compliance.
The predictable result: the Chinese employees continued doing business in the way that was familiar to them. And the US parent found itself in deep violation of the FCPA.
4. Proper Oversight and Independence. A company should assign responsibility to senior executives for the implementation and oversight of the compliance program.
Those executives should have the authority to report directly to independent monitoring bodies, including internal audit and the Board of Directors, and should have autonomy from management. Compliance programs needed to be funded; they need to have resources.
And they need to have teeth and respect within the company. For years, Wall Street banks housed their compliance programs across the Hudson River, in New Jersey. They were out of sight, out of mind. They were underpaid. And nobody paid much attention to them.
Compliance programs need to have an appropriate stature within the company, or compliance will be the last thing on the mind of an employee tempted to engage in wrongdoing.
5. Training and Guidance. A company should implement mechanisms designed to ensure that its compliance code is effectively communicated to all directors, officers, employees. This means repeated communication, frequent and effective training, and an ability to provide guidance when issues arise.
And as I said before, employees should see that the importance of compliance is being communicated from the top—whether the CEO, the Board, the General Counsel, or some other very highly respected senior-level figure within the company.
6. Internal Reporting. A company should have an effective system for confidential, internal reporting of compliance violations. I know that many companies have multiple mechanisms, which is good.
7. Investigation. A company should establish an effective process with sufficient resources for responding to, investigating, and documenting allegations of violations. What this means on the ground will depend on the company. A sophisticated multi-national corporation obviously will be expected to have more resources devoted to compliance than a small regional company.
8. Enforcement and Discipline. A company should implement mechanisms designed to enforce its compliance code, including appropriately incentivizing compliance and disciplining violations.
And the response to a violation must be even-handed. Too often, we see situations where low level employees who may have implemented the bad conduct are fired, but their boss, who saw what they were doing and did nothing—and maybe even the directed the conduct—is left in place.
This should not happen. Not only from a department perspective, but from a business perspective. Leaving in place senior managers who sanction bad behavior sends a very wrong message about the company’s true commitment to compliance and ethics.
People watch what people do much more carefully than what they say. When it comes to compliance, you must both say and do.
9. Third-Party Relationships. A company should institute compliance requirements pertaining to the oversight of all agents and business partners.
I cannot emphasize strongly enough the need to sensitize third parties, like vendors, agents, and consultants, to the importance of not compliance.
And these partners need to understand that the company really expects its partners to be compliant. This often means more than just including a boilerplate paragraph in a contract in which the partner promises to comply with the law and company policies. It means warning, and even terminating, relationships with partners who fail to behave in a compliant manner.
10. Monitoring and Testing. A company should conduct periodic reviews and testing of its compliance code to improve its effectiveness in preventing and detecting violations. Kick the tires regularly. As I said, compliance programs must evolve with changes in the law, business practices, technology and culture.
As I said, there is no “one-size fits all” compliance program. But these are guideposts that we consider important to the success of a strong program.
And as important as the compliance program itself is implementation. When we investigate a case, we look at the messages about compliance that are given to employees.
More than just reading the paper program or the code of conduct, we look at what employees are told in their day-to-day work.
We are looking at e-mails, chats, and recorded phone calls. We are talking to witnesses about the messages they received from their supervisors and management – did they receive messages about compliance, or about making money at all costs.
And we examine the incentives that a company provides to encourage compliant behavior – or not. If a company is actually encouraging compliance, if its values are to be ethical and within the law, then that message must be conveyed to employees in a meaningful way. Otherwise, the Department of Justice will not view the compliance program as credible.
And sometimes, effective implementation of a compliance program means standing apart from the other companies in your industry. We have seen significant misconduct taking place throughout an industry.
But the excuse that “everyone else is doing it” didnd’t work in grade school, and it sure won’t work when federal agents come knocking at your door.”
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“Effective compliance programs must be embedded in a company’s culture. And they need to be applied even in the face of misconduct by other companies in the same industry, even if that might mean a short-term competitive disadvantage.
A company’s executives can choose to rise above the rest — or race to the bottom. I am telling you that the Criminal Division will hold responsible companies and individuals that knowingly violate the law, no matter if the excuse is that “everyone” was doing it.
Now what should you do when your robust compliance program fails? Or, when it works, allowing you to discover criminal misconduct? I encourage you to conduct a thorough investigation and to disclose potentially criminal misconduct to the Justice Department.
When criminal misconduct is discovered, a critical factor in the department’s prosecutorial decision making is the extent and nature of the company’s cooperation.
The department’s Principles of Federal Prosecution of Business Organizations provides that prosecutors should consider “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents.”
Now let me flesh out the often discussed, but sometimes poorly understood, concept of cooperation.
Most companies now understand the benefits of voluntarily disclosing the misconduct before we come asking, and the benefits of conducting an internal investigation and providing facts about the misconduct to the government.
But companies all too often tout what they view as strong cooperation, while ignoring that prosecutors specifically consider “the company’s willingness to cooperate in the investigation of its agents.”
Corporations do not act, but for the actions of individuals. In all but a few cases, an individual or group of individuals is responsible for the corporation’s criminal conduct. The prosecution of culpable individuals – including corporate executives – for their criminal wrongdoing continues to be a high priority for the department.
For a company to receive full cooperation credit following a self-report, it must root out the misconduct and identify the individuals responsible, even if they are senior executives.
We are not asking that you become surrogate FBI agents or prosecutors, or that you use law enforcement tactics like body wires. And we do not need to hear you say that executive A violated a particular criminal law. All we are saying is that we expect you to provide us with facts. We will take it from there.
But a company that interviews its employees in an effort to whitewash the facts or spread the company’s narrative spin risks receiving any cooperation credit.
Additionally, for a company to receive full cooperation credit, the company must provide relevant documents and evidence, and should do so in a timely fashion.
We find that global companies are increasingly hasty to invoke foreign data privacy laws to avoid providing evidence to the department. While we recognize that some of these laws pose real challenges to data access and transfer, many do not.
As a result, we are looking closely – with an ever more skeptical eye – to ensure that these claims are honest and not obstructionist. A company that reads foreign data protection laws expansively, to restrict its disclosure of documents, when it could be read more narrowly, is in dangerous territory if it wants to receive full cooperation credit.
Although the department welcomes and encourages corporate cooperation, we do not rely upon it. We conduct our own robust investigations – often alongside that of the company – to build our own criminal cases and to pressure-test corporate claims of cooperation.
Companies claiming to cooperate while conducting lackluster investigations with little results should not be surprised when they do not get credit for their supposed efforts. And they should not be surprised when they face the consequences of our own investigations.
The benefits of corporate cooperation are clear. We often explicitly describe the benefits when we reach resolutions with companies. As just one example, earlier this year, the department announced Alcoa World Alumina’s guilty plea to FCPA charges stemming from its payment of millions of dollars in bribes to officials of the Kingdom of Bahrain.
As part of the plea, Alcoa paid $223 million in criminal fines and forfeiture. The department publicly commended Alcoa for its cooperation, which included conducting an extensive internal investigation, making proffers to the government, voluntarily making current and former employees available for interviews, and providing relevant documents to the department.
Alcoa’s cooperation was mentioned specifically as a factor that lowered the size of the criminal fine. In fact, absent cooperation, Alcoa could have faced a fine of more than $1 billion. Many people, however, want concrete examples of cases where we decided not to pursue charges at all in light of a company’s cooperation. The department is not typically in a position to disclose these declinations, and indeed many companies do not want the world to know that they were under department scrutiny.”
[…]
“The Criminal Division is more committed than ever to investigating corporate fraud and corruption. We will investigate regardless whether a company choses to cooperate.
But for a company to receive credit for its compliance program, it must have demonstrated effectiveness, with messages about compliance that come from the top and echo throughout the corporate hallways.
And for a company to receive full cooperation credit, it must uncover the misconduct, identify the responsible individuals, and fully disclose the facts to the department.”
Deputy Attorney General Miller’s October 7th Speech
“I suspect that everybody in this room is familiar with the Principles of Federal Prosecution of Business Organizations, or the Filip factors, upon which we base our corporate charging and resolution decisions. One of those factors expressly directs us to consider “the existence and effectiveness of the corporation’s pre-existing compliance program” in deciding whether to charge a corporation with a crime.
In fact, one is hard-pressed to find a corporate resolution with the Justice Department that does not contain a prominent reference – positive or negative – to the corporation’s compliance program. The existence of an effective compliance program can make all the difference when a corporation is in the Justice Department’s sights.
Today, I would like to highlight a few primary strengths and weaknesses that we have observed in corporate compliance programs of late. As an overarching theme, the failure to expand compliance programs to meet the needs of growing corporations – particularly global corporations – drives many of the compliance problems we have seen. On the flip side, compliance programs that have widespread prophylactic and training mechanisms – as well as procedures designed to uncover wrongdoing and expose individuals responsible for criminal behavior – are the most effective.
A corporation’s ability to use compliance to uncover misconduct and, just as importantly, identify wrongdoers is central to the Justice Department’s evaluation of a compliance program.
As you know, there is no off-the-rack, one-size-fits-all compliance program. Companies must tailor compliance programs to manage their unique risks. There are, however, characteristics that should be present in each program.
In 2012, the Justice Department and the SEC published the Foreign Corrupt Practices Act, or FCPA, Resource Guide, which contains an entire section entitled, “Hallmarks of Effective Compliance Programs.” While the hallmarks in the FCPA Guide are focused on anti-corruption compliance programs, the principles identified apply universally.
Now, I’m not going to go through all the hallmarks with you today – but I will make a couple of overarching points. First, the Justice Department’s hallmarks are designed to encourage a ‘culture of compliance,’ which begins – but doesn’t end – with ‘a tone from the top,’ and extends to actions throughout a company’s ranks.
So hallmark # 1 is high-level commitment. When employees truly understand that a company’s leadership is committed to compliance – even when it runs up against profits – only then does a company truly have a successful compliance program. The quickest way to check on that commitment is to take a look at corporate structure. If you see compliance executives sitting in true positions of authority at a corporation, reporting directly to independent monitoring bodies, like internal audit committees or boards of directors, you likely are looking at a strong compliance program. Compliance programs also need to be resourced; they need to have teeth and respect. By contrast, for years, Wall Street banks housed their compliance programs across the Hudson River, in New Jersey. They were out of sight, out of mind. Compliance programs need to have appropriate stature within corporations.
Another key hallmark is whether the program grows with the company. Any good compliance program needs to be periodically evaluated, using risk assessment models aimed at the individual circumstances of the company. As companies change over time, so must compliance policies.
A strong compliance program must also involve enforcement and discipline. It is human nature to pay more attention to what people do than to what they say. Compliance must be incentivized; violations disciplined. And the response must be even-handed. Too often we see low-level employees who implemented bad conduct fired, but bosses, who did nothing to stop the conduct – and may even have directed it – left in place without sanction.
Although increasingly rare in this day and age – more than a decade after the passage of the Sarbanes Oxley Act – we are still encountering prominent companies with no real compliance programs. Hard to believe, but true.
Just last year, three subsidiaries of Weatherford International, a Swiss oil services company listed on the New York Stock Exchange, pleaded guilty to FCPA and export control violations. Over a period of many years, Weatherford subsidiaries in Africa, the Middle East, and Iraq paid bribes to foreign officials in exchange for lucrative contracts and inside information about competitors. Some of Weatherford’s international subsidiaries also illegally exported oil and gas drilling equipment to countries under United States sanctions – countries like Cuba, Iran, Sudan, and Syria.
But more important to this audience than Weatherford’s conduct itself may be the admissions it made regarding the state of its compliance programs. Weatherford admitted that prior to 2008, the company did not have a dedicated compliance officer or compliance personnel, did not conduct anti-corruption training, and did not have an effective system for investigating employee reporting of ethics and compliance violations.
The most glaring failures occurred in its overseas offices and subsidiaries. Let me give you a revealing example: Despite its global presence, Weatherford did not even bother to translate its compliance policy into languages other than English. Think about that for a second. Weatherford had subsidiaries and operations in more than 100 countries across the globe. It operated in the high-risk environment that is the oil extraction industry. And yet Weatherford didn’t even bother to make its compliance program intelligible to many of its employees – in languages they could understand.
And there’s more. Though in 2004 it began circulating an ethics questionnaire asking if employees were aware of payments to foreign officials, Weatherford had no process to investigate affirmative responses. Indeed, Weatherford did not conduct any follow-up investigation in response to allegations of corruption.
Put simply, Weatherford’s compliance policy was a program in name only. It wasn’t worth the paper it was written on. Had Weatherford employed even a basic compliance program, it may not have found itself paying over $252 million in penalties and fines.
Just last year, three subsidiaries of Weatherford International, a Swiss oil services company listed on the New York Stock Exchange, pleaded guilty to FCPA and export control violations. Over a period of many years, Weatherford subsidiaries in Africa, the Middle East, and Iraq paid bribes to foreign officials in exchange for lucrative contracts and inside information about competitors. Some of Weatherford’s international subsidiaries also illegally exported oil and gas drilling equipment to countries under United States sanctions – countries like Cuba, Iran, Sudan, and Syria.
But more important to this audience than Weatherford’s conduct itself may be the admissions it made regarding the state of its compliance programs. Weatherford admitted that prior to 2008, the company did not have a dedicated compliance officer or compliance personnel, did not conduct anti-corruption training, and did not have an effective system for investigating employee reporting of ethics and compliance violations.
The most glaring failures occurred in its overseas offices and subsidiaries. Let me give you a revealing example: Despite its global presence, Weatherford did not even bother to translate its compliance policy into languages other than English. Think about that for a second. Weatherford had subsidiaries and operations in more than 100 countries across the globe. It operated in the high-risk environment that is the oil extraction industry. And yet Weatherford didn’t even bother to make its compliance program intelligible to many of its employees – in languages they could understand.
And there’s more. Though in 2004 it began circulating an ethics questionnaire asking if employees were aware of payments to foreign officials, Weatherford had no process to investigate affirmative responses. Indeed, Weatherford did not conduct any follow-up investigation in response to allegations of corruption.
Put simply, Weatherford’s compliance policy was a program in name only. It wasn’t worth the paper it was written on. Had Weatherford employed even a basic compliance program, it may not have found itself paying over $252 million in penalties and fines.”
[…]
While the Justice Department is often the last line of defense against fraud and corruption, all of you who work in compliance are the first. Criminal prosecutions can and do deter future bad behavior, but your work can prevent that conduct before it happens.”
