ELIG Gürkaynak Attorneys-at-Law | View firm profile
United
States Department of Justice ("DOJ") published on its website a new guidance
paper called "Evaluation of Corporate Compliance Programs" ("Evaluation") in
February 2017. The Evaluation provides insight into how the DOJ evaluates compliance
programs by setting forth the questions DOJ frequently uses when deciding on fine
mitigation or entering into a plea agreements.
While
documents such as the United States Attorney's Manual, United States Sentencing
Guidelines and A Resource Guide to the U.S. Foreign Corrupt Practices Act
("FCPA Guide") define "what" elements a compliance program is expected to have,
the Evaluation provides guidance on "how". The document does not put forward
any new elements for compliance programs, but provides compliance professionals
with a useful tool that they can use while assessing the integrity of their
compliance programs. In fact, many questions listed in the Evaluation would be
hard to answer vis-a-vis a paper compliance program. An example of such as a
question would be "Were there prior
opportunities to detect the misconduct in question, such as audit reports
identifying relevant control failures or allegations, complaints or
investigations involving similar issues?". On that note, the DOJ is quick to assert its
caveats that the question list should not be utilized as a box checking
exercise. This is noteworthy point: as stated time and again when explaining
the intricacies of compliance programs, there is no one-size-fits-all approach
in compliance. How a compliance program should be established, operated and
emphasized depends on many factors such as the size, sector, jurisdiction or
the history (any previous FCPA violations) of the company. Hence, the question
list should be used in an analytical approach in determining the crucial elements
of a compliance program but fine tuning them in implementation, in accordance
with the individual needs of the company.
(II) Issues Covered
The
Evaluation is essentially a question list comprised of 11 sections, similar to
the categorization made for the hallmarks of a compliance program in the FCPA
Guide. Below are our analyses of the issues covered by the Evaluation.
(1)
Analysis and Remediation of Underlying Misconduct
Under
this section the Evaluation emphasizes making "a root cause analysis" and determining
"systematic" problems, if any. Questions under this section encourage the
companies to regard compliance programs not as one-time disconnected mistakes,
but as a result of the wider company climate. If in this way, the underlying
problem can be identified, analyzed and remedied, the improved compliance
program will be stronger.
(2)
Senior and Middle Management
Here
we observe an emphasis on "shared commitment" where the "concrete acts" of the
senior management is supported by, among others, middle managers. Further, we
observe potential inquiries into sensitive issues such as how a company
monitors its senior leaders' behavior.
(3) Autonomy and Resources
The
question set in this section is tough: Issues such as whether the compliance
department involved in the decision making of the relevant conduct, whether the
compliance department has a direct reporting line to the board of directors or
whether request for funding by the compliance department ever been denied.
Generally this section aims to determine whether (i) the company's compliance
department takes part in the decision-making process, (ii) is sufficiently
qualified and experienced, (iii) autonomous, (iv) empowered and (v) have
sufficient resources.
(4) Policies and Procedures
This
section is divided into two sub-sections: (i) Design and Accessibility and (ii)
Operational Integration. The first sub-section deals with issues such as
whether relevant business units have been involved in the designing of the
policy, whether the policies have been implemented effectively and whether
gatekeepers (e.g. the persons who issue payments or review approvals) have been
provided with sufficient training. The second sub-section is with regard to how
these policies and procedures are integrated in the field including vendor
management an inquiry into how the misconduct was funded.
(5) Risk Assessment
This
section demonstrates that the DOJ takes into consideration the methodology for
risk assessment and how effective that methodology is.
(6) Training and Communications
Questions
in this section aim to find out whether tailored training in accordance with
the real risks faced in the field have been provided, whether the language of
the training was appropriate, whether company's reaction to misconduct was
communicated to the employees and whether guidance have been available to
employees.
(7) Confidential Reporting and Investigation
Here,
ensuring the objectivity and independence of internal investigations have been
emphasized. Again, we see the expectation that the investigation should be
aimed at identifying the root causes of the problem. Further, merely
investigating the problem is not enough, as DOJ also inquires the responses by
the company to the investigative findings.
(8) Incentives and Disciplinary Measures
The
questions under this section tackle with the gist of the compliance program.
After all, what is the use of rules if one is not to implement them? Issues
such as whether disciplinary actions are taken in the face of misconduct,
whether managers are held accountable, whether failure to supervise has been
sanctioned and whether the company incentivized ethical behavior should be
reviewed.
(9) Continues Improvement, Periodic Testing and Review
This
section provides questions which indicate the need for testing compliance
programs by reviews and internal audits which include interviews with employees
and third parties.
(10) Third Party Management
The
questions provided in this section relate to whether the mechanism for third
party management is implemented according to the risks presented by the third
party and whether the third parties are supervised appropriately and when a
misconduct occurs how are third parties with similar red flags are managed.
(11) Mergers and Acquisitions
This
section sets forth questions with regard to the due diligence process before a
merger or an acquisition; and the integration and implementation of the
compliance program in the new entity.
(III) Conclusion
The Evaluation can help compliance professionals gain a
deeper understanding of how DOJ evaluates compliance programs, as the document
focuses on "how" a compliance program can be effective rather than "what" its
elements should be. The questions are detailed and aimed at tackling issues
that might be the common problems in different compliance programs. It is a
valuable addition to other guidance documents, such as the FPCA Guide, published
by the DOJ.
Authors:
Gönenç Gürkaynak, Esq., Ç. Olgu Kama and Burcu Ergün, ELIG, Attornesy-at-Law
First
published in Mondaq on April 24, 2017.