When the Government Knocks:

Transcription

1 GHBER February 2, 2011 When the Government Knocks: The Impact of Compliance/Ethics Programs in Real Cases Win Swenson, Compliance Systems Legal Group

2 My Background and Where My Non- Public Info Comes From Consultant to US Sentencing Commission in Became USSC Deputy General Counsel in 1990 and headed up staff unit that developed the organizational sentencing guidelines. A member of the Ad hoc Advisory Group to the Sentencing Commission. In private practice since 1996 have worked with many companies that have had significant compliance issues.

3 My Background and Where My Non- Public Info Comes From I have been a monitor or (other form of independent third party under a government agreement) for about a half dozen companies, including: WorldCom Boeing Halliburton I have been retained directly by the US Department of Justice to provide it with advice on the C/E program of a company, as has my partner Bill Prachar. I have been hired to provide an independent viewpoint on a monitor s reports.

4 The Policy History How Is This Supposed to Work?

5 History of Compliance Programs and Governmental Policy Prior to 1990, courts all over the map C/E programs not considered in corporate cases. Drawing on Defense Industry model, Sentencing Commission settles on carrot and stick formula for organizational sentencing guidelines in Robust ethics/compliance program entitles company to mitigation credit Justice Department initially skeptical, but Environment Division issues similar policy in 1991.

6 History of Compliance Programs and Governmental Policy In 1999, DOJ officially says C/E programs relevant to charging decision in Holder Memo. Now codified in US Attorneys Manual. Many agencies say C/E programs relevant e.g., Health and Human Services OIG, Department of Commerce Bureau of Industry and Security. OECD Good Practice Guidance. UK Anti-Bribery law Adequate procedures defence.

7 Talk Is Cheap

8 Federal Sentencing Guidelines Through FY 2009, only about a half dozen cases in which C/E program credit reportedly given out of about 3,000 corporate cases. All are minor cases. Most cases involving large companies are settled, pre-conviction with DOJ (and relevant regulatory agency).

9 Department of Justice 2009 Conference Board Study found very little evidence that DOJ is applying the C/E programs matter policy. Mellon Bank Program evaluated pre-charging decision. Medco Health Solutions Alleged lack of a program used as evidence in False Claims case.

10 The Government is not THE GOVERNMENT Individual US Attorneys offices take different approaches. The relevant regulatory agency matters. Even within DOJ, the Environment and Criminal Divisions say C/E programs count, and Antitrust says they don t only voluntary disclosure matters.

11 Practice What You Preach? The DOJ charging manual says no credit for paper compliance programs. Is DOJ s policy only a paper policy?

12 Programs Matter Really.

13 What Some Prosecutors Think Happens in the Business World

14 .And They Do Start Young

15 1) The C/E Program Can Help Eliminate Criminal Charges Voluntary disclosure is king, and cooperation a must, but C/E programs can, and coupled with self-disclosure, make potential criminal charges disappear.

16 1) The C/E Program Can Help Eliminate Criminal Charges Universal Corporation August 3, 2010 Universal maintained on its Website an employee hotline. It is because of this initiative that the improper conduct came to light. The [non-prosecution] disposition partly reflects credit given for Universal's pre-existing compliance program. Noble Corp. November 4, 2010 Noble's pre-existing compliance program and steps taken by Noble's audit committee to detect and prevent improper conduct from occurring contributed to a non-prosecution decision

17 2) The C/E Program Can Influence the Settlement May 24, 2010, Chief of Fraud Section at DOJ Criminal Division confirmed this. Only half of corporate cases get a monitor and if you have an excellent compliance program, then it will be less likely that we will install a compliance monitor.

18 2) The C/E Program Can Influence the Settlement Examples GE/Invision GE required merely to extend existing C/E program to its newly acquired subsidiary. Even when program is improved during investigation, this can shape the settlement. See Daimler case press release and sentencing memo on the DOJ Fraud Section s FCPA website.

19 3) The Experience the Company Has with the Monitor If It Gets One In one situation I am familiar with, the monitor saw that the program had not permeated the culture and the monitor saw his role as forcing the change a nightmare for senior management. In other cases I am familiar with, the C/E program is solid, with broad buy-in, and the experience becomes a positive one, where the monitor confirms the company s good work.

20 What Does the Government or a Monitor Look For?

21 Some Rules of Thumb Three kinds of evaluation: Design Implementation Impact Many initial presentations to the government focus on the design only. Opportunity to show more? Benchmarking data Survey data Credible third party evaluation

22 Some Rules of Thumb The Federal Sentencing Guidelines Model is a good starting point. DOJ relies on it. This needs to be modified given the relevant regulatory or executive branch agency with jurisdiction. Also the kind of misconduct.

23 What Approach Would a Monitor Take? Different agencies have differing approaches but design, implementation and impact reviews are all possibilities. If the matter involves healthcare billing, a series of implementation audits may be the focus. If the matter is before DOJ, the SEC (especially FCPA) the Air Force and some others, it is likely some testing of whether the program is actually working is likely i.e., impact analysis.

24 Being Prepared

25 How to Be Prepared Think about how you would prove your program. How can you convey the basic details of your program the components that meet the FSG standards? Why do you think it is best practice and how do you show that? Why do you think it is effective and how do you show that?

26 How to Be Prepared Evaluate your program now. If you leave it to the government or a monitor to do the actual testing, you may be surprised. Implementation and effectiveness are assumed at a company s peril. (Don t rely on nice sounding awards ). Remember that it takes a lot of paper to prove you don t have a paper program.

27 Peering Ahead

28 Looking Forward Some Positives SEC has divided into sections to increase professionalism. FCPA group has done training, that included compliance, for its internal staff. Justice Ministry in UK issued adequate procedures which are a defense to corruption offenses. DOJ is hearing it the emperor has no clothes. The DOJ Fraud section is posting sentencing memoranda with federal sentencing guidelines calculations including a consideration of possible credit for C/E program.

29 Looking Forward Some Positives The Ethics Resource Center, The Ethics and Compliance Officer Association and the Society of Corporate Compliance and Ethics conducted a joint survey on the importance of compliance/ethics programs in enforcement decisions. Report submitted to DOJ mid-january. Generally: 95%+ of internal ethics/compliance personnel want more transparency and info from DOJ on C/E programs. Report available at

30 Business Roundtable Article Or me at: