United States: Department Of Justice Issues New Guidance On How It Evaluates Compliance Programs

Steven D Gordon is Partner in Holland & Knight's Washington D.C. office

Rodney M Perry is Associate in Holland & Knight's Washington D.C. office

Robert K Tompkins is Partner in Holland & Knight's Washington D.C. office

Kwamina Thomas Williford is Partner in Holland & Knight's Washington D.C. office

Last week, the DOJ Criminal Division published a guidance document entitled "Evaluation of Corporate Compliance Programs" (ECCP). This document is meant to assist prosecutors in determining what credit should be given to a corporation for having an effective compliance program when prosecutors decide whether to bring charges, what charges to bring, what amount of penalties to seek, or whether to impose a monitorship or reporting obligations on a corporation. The document is equally useful to companies that want to assess their current compliance program and determine whether any changes need to be made.

The new ECCP is an update of an earlier version published in 2017 by the Fraud Section of the Criminal Division. The new ECCP expands on and reorganizes the prior version but does not make any major substantive changes.  However, it contains some subtle shifts in emphasis. In particular, it elevates the importance of conducting risk assessments and calibrating compliance program elements to address high-risk areas. It also signals that DOJ may scrutinize more closely the actual effectiveness of compliance programs.

The Three Fundamental Questions

The new ECCP commences by noting that there are three fundamental questions a prosecutor should ask when evaluating a compliance program:

  1. Is the program well designed?
  2. Is the program being implemented effectively?
  3. Does the program work in practice?

The rest of the ECCP addresses each of these three issues. It breaks them down into discrete topics and poses a number of subsidiary questions that should be asked to explore each topic. These questions are largely unchanged from the 2017 version of the ECCP, but they are now woven into the DOJ's risk-based approach. The relevant topics and the key questions relating to each one are as follows.

I. Is the Compliance Program Well Designed?

A. Risk Assessment

  • Has the company properly identified, assessed, and defined its risk profile?
  • What methodology has the company used to identify, analyze, and address the particular risks it faces?
  • What information or metrics has the company collected; how has it used them?
  • Does the company give greater scrutiny, as warranted, to high-risk transactions?
  • Is the risk assessment reviewed and updated periodically?

B. Policies and Procedures

  • Does the company have a code of conduct that is accessible and applicable to all employees?
  • How are compliance policies and procedures designed and implemented?
  • Are the policies comprehensive – do they deal with the full spectrum of risks?
  • Are the policies and procedures communicated to all employees and relevant third parties? What about employees who speak another language?
  • Who is responsible for integrating policies and procedures? Are they rolled out in an effective fashion?
  • What guidance and training is provided to key gatekeepers – those with approval authority or certification responsibilities?

C. Training and Communications

  • Is training risk-based? Is there tailored training for high-risk and control employees and for supervisors?
  • Has the training been offered in the form and language appropriate for the audience?
  • How has the company measured/tested the effectiveness of its training?
  • How has the company addressed employees who fail the testing?
  • What communications are made to other employees when an employee is terminated or disciplined for misconduct?
  • What resources are available to employees to provide guidance relating to compliance?

D. Confidential Reporting Structure and Investigation Process

  • Does the company have an anonymous reporting mechanism?
  • How is the reporting mechanism publicized to employees?
  • Is the reporting mechanism effective – has it been used? With what results? Do compliance personnel have full access to the information reported?
  • How does the company determine which complaints merit further investigation?
  • Who conducts an investigation and how is that decided?
  • Are investigations independent, objective, appropriately conducted, and properly documented?
  • Does the company have a process for monitoring the outcome of investigations, their timeliness, and ensuring a response to any findings or recommendations?
  • Are the reporting and investigating mechanisms sufficiently funded?
  • Does the company analyze the reports and investigative findings for patterns of misconduct or compliance weaknesses?

E. Third Party Management (Agents, Consultants, Distributors)

  • Does the company have an understanding of the qualifications and associations of its agents, consultants, and distributors, i.e. third parties who are commonly used to conceal misconduct?
  • How has the company's third-party risk management process been integrated into the procurement and vendor management processes?
  • How does the company ensure there is an appropriate business rationale for the use of third parties?
  • How does the company monitor its third parties? Does it have and exercise audit rights?
  • How does the company incentivize compliance and ethical behavior by third parties?
  • Does the company keep track of third parties that do not pass due diligence or that are terminated, and does it take steps to ensure they are not hired or re-hired at a later date?

F. Mergers and Acquisitions

  • Does the company subject its acquisition targets to appropriate scrutiny?
  • How has the compliance function been integrated into the merger, acquisition, and integration process?

II. Is The Compliance Program Being Implemented Effectively?

A. Commitment by Senior and Middle Management

  • How have senior leaders, by their words and actions, encouraged or discouraged compliance? What concrete actions have they taken?
  • Have managers tolerated greater compliance risks in pursuit of new business or greater revenues?
  • Have managers encouraged employees to act unethically to achieve a business objective, or impeded compliance personnel from effectively implementing their duties?
  • What actions have senior leaders and middle managers taken to demonstrate their commitment to compliance or compliance personnel?
  • Has the board held executive sessions with the compliance and control functions?
  • What types of information have the board and senior management examined in exercising oversight in the area in which the misconduct occurred?

B. Autonomy and Resources

  • Where within the company is the compliance function housed? To whom does it report? Does the chief compliance office wear more than one hat? Do compliance personnel have other responsibilities? Why has the company chosen the structure it has?
  • How does the compliance function compare with other strategic functions in the company in terms of stature, compensation, rank/title, reporting line, resources, and access to key decision makers? What is its turnover rate?
  • Has the company actually responded when compliance has raised concerns? Were transactions or deals stopped, modified, or further scrutinized?
  • Do compliance and control personnel have the appropriate experience and qualifications? Who reviews their performance and through what process?
  • Has there been sufficient staffing and funds for compliance efforts? Have requests for resources ever been denied and, if so, on what grounds?
  • Does compliance have direct reporting lines to the board and/or audit committee? How often does compliance meet with directors? Is senior management present? How does the company ensure the independence of compliance and control personnel?
  • If the company has outsourced all or parts of its compliance functions, who oversees the external firm? What level of access does the external firm have to company information? How has the effectiveness of the outsourced process been assessed?

C. Incentives and Disciplinary Measures

  • Who participates in disciplinary decisions?
  • Is the same process followed for each instance of misconduct? If not, why not?
  • Are the actual reasons for discipline communicated to employees? If not, why not?
  • Have disciplinary actions been fairly and consistently applied across the company?
  • How does the company incentivize compliance and ethical behavior?
  • Have promotions or awards been denied because of compliance or ethical considerations?
  • Who determines the compensation, promotion, and discipline of compliance personnel?

III. Does The Compliance Program Work In Practice?

A. Continuous Improvement, Periodic Testing, and Review

  • How does the company determine where and how often it will conduct internal audits?
  • How are audits carried out?
  • If misconduct has occurred, what types of audits would have identified it? Did those audits occur and what were the findings?
  • What audit findings are reported to management and the board on a regular basis?
  • How have management and the board followed up?
  • What testing of controls, collection and analysis of compliance data, and interviews of employees and third-parties does the company undertake?
  • How are the results reported and action items tracked?
  • How often has the company updated its risk assessments and reviewed its compliance policies, procedures, and practices?
  • Does the company measure its culture of compliance and seek input from all levels of employees about their perceptions of senior and middle management's commitment to compliance?
  • What steps has the company taken in response to measuring its compliance culture?

B. Investigation of Misconduct

  • How has the company ensured that investigations have been properly scoped, independent, objective, appropriately conducted, and properly documented?
  • Have the investigations identified root causes, system vulnerabilities, and accountability lapses, including among supervisors and senior executives?
  • How high up in the company do investigative findings go?
  • What has been the response to investigations?

C. Analysis and Remediation of Any Underlying Misconduct

Finally, if misconduct has occurred, the following questions come into play:

  • What was the root cause of the misconduct? Was it systemic? Who in the company analyzed the room cause?
  • What controls failed? Were any applicable policies and procedures not followed?
  • How was the misconduct funded? What processes could have prevented or detected improper use of funds?
  • If vendors were involved in the misconduct, what was the process for vendor selection?
  • Were there any prior opportunities to detect the misconduct? Why were they missed?
  • What specific changes has the company made to reduce the risk of recurrence? Have those changes addressed the root cause and missed opportunity analyses?
  • What disciplinary actions did the company take and were they timely? Were managers held accountable for misconduct that occurred under their supervision? What is the company's disciplinary track record in similar situations?

Conclusion

This is a long list of topics and questions. Not all of them may apply to every company, but they provide a comprehensive, sound framework for analyzing the compliance program of almost any company. Because of their breadth and detail, it is not possible to summarize these questions in a few paragraphs or takeaways. This is not surprising because there are no shortcuts when it comes to designing, implementing, or assessing an effective compliance program.

These questions are important not only for companies that are facing an investigation, but for all companies. Prudent companies should ask these questions of themselves to assess and enhance their compliance programs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions