Justice Department to Give Compliance Credit Before Cases Resolve

Good news for compliance officers: The Justice Department has decided to publicize cases where it rewards companies for having a strong compliance program at the time of their offense.

That's a marked departure from its former policy, where the department would only publicly identify cases where credit was given for compliance programs implemented after a violation occurred, usually as part of a settlement agreement. Such an approach has frustrated compliance officers quite a bit, who would like to know whether or not their programs are effective before a deferred-prosecution agreement lands on their desk.

Critics say the old policy gave the impression that the government values good compliance programs only as a post-violation remedy. “If all that matters is that you put in a compliance program after you get caught, there's no reason to put one in before you get in trouble,” says Jeffrey Kaplan, a partner of law firm Kaplan & Walker. “That's not good public policy.”

The Justice Department's about-face came after groups such as the Society of Corporate Compliance and Ethics and the Ethics and Compliance Officer Association expressed concerns that the old policy rewarded wrongdoers rather than those that institute strong compliance programs. The Justice Department recently published two enforcement actions supporting this initiative.

In the latest case, Noble Corp., an offshore drilling contractor for the oil and gas industry, entered into a non-prosecution agreement with the Justice Department and the Securities and Exchange Commission over improper payments made by Noble's Nigerian subsidiary to customs agents in Nigeria.

The department cited “the existence of Noble's pre-existing compliance program and steps taken by Noble's audit committee to detect and prevent improper conduct from occurring” as part of the reason it entered into a non-prosecution agreement with Noble.

Iris Bennett, of counsel to law firm Jenner & Block, says it's notable that prosecutors gave credit for Noble's audit work, because an important element of any rigorous compliance program has to be more than reactive. “It has to be vigilant,” she says.

The new policy may help compliance officers make the case to their boards and senior executives that implementing a high-quality compliance program is worth the cost, Kaplan says. “Hopefully it will help strengthen compliance programs,” he adds.

“To me, it clearly sends the message that they're not just interested in big headline cases; they're actually interested in preventing these violations, and that's very encouraging,” says Joe Murphy, director of public policy at the Society of Corporate Compliance and Ethics.

“To me, it clearly sends the message, that the DoJ is not just interested in big headline cases; they're actually interested in preventing these violations, and that's very encouraging.”

—Joe Murphy,

Director of Public Policy,

Society of Corporate Compliance and Ethics

It might also stop companies that are tempted to cut back their compliance departments on the premise that they add no value. “If there's a way of getting the government to be even more communicative about why [good compliance programs] matter, it can only help,” Kaplan says.

In the second case, Universal Brazil, a subsidiary of leaf tobacco producer Universal Corp., was charged with violations of the Foreign Corrupt Practices Act based on corrupt payments Universal Brazil paid to foreign officials in Thailand. As stated in the sentencing memo: “Pursuant to Universal's internal compliance program, Universal maintained on its Website an employee ‘hotline' that allowed current and former employees to report improper conduct. It is because of this useful compliance initiative that the improper conduct came to light. The agreed upon disposition partly reflects credit given for Universal's pre-existing compliance program.”

In a similar case, Global Industries announced that it, too, was able to avoid an enforcement action based in part on the company's strong FCPA compliance program. The Justice Department and the SEC further credited Global Industries' strong internal controls, culture of compliance, enhanced compliance program, and its thorough investigation and cooperation with the enforcement authorities.

Had Global Industries not taken such steps, it would have faced the same outcome as logistics firm Panalpina and five of its oil and gas services customers, which agreed to a combined $236 million settlement for paying thousands of bribes to foreign officials on behalf of customers for customs clearance in several countries.

NOBLE'S NPA

The following text relates why the Department of Justice chose not to criminally prosecute Noble, Corp.:

On the understandings specified below, the United States Department of Justice, Criminal Division, Fraud Section (the "Department") will not criminally prosecute Noble Corporation, a Swiss Corporation ("Noble" or the "Company"),l or any of its subsidiaries except as set forth below for any crimes (except for criminal tax violations, as to which the Department does not make any agreement) related to the making of improper payments by employees and agents of Noble and/or its subsidiaries to officials of the Nigerian Customs Service in connection with Noble's and/or its subsidiaries' import and export of goods and items relating to its operations in Nigeria from January 2003 to July 2007, and the accounting and record-keeping associated with these improper payments, as described in Attachment A (Statement of Facts). The Department enters into this Non-Prosecution Agreement based, in part, on the following factors:

A. Noble's discovery of the violations through its own internal investigation;

B. Noble's timely, voluntary, and complete disclosure of the facts;

C. Noble's extensive, thorough, real-time cooperation with the Department and the U.S. Securities and Exchange Commission;

D. Noble's voluntary investigation of the Company's business operations throughout the world;

E. The existence of Noble's pre-existing compliance program and steps taken by Noble's Audit Committee to detect and prevent improper conduct from occurring;

F. Noble's remedial efforts to enhance its compliance program and oversight that have already been undertaken;

G. Noble's agreement to continue to implement enhanced compliance measures; and

H. Noble's agreement to provide annual, written reports to the Department on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures.

Source

Noble Corporation's Non-Prosecution Agreement.

All three cases, legal and compliance experts agree, represent a positive move toward greater transparency by the Justice Department. “For the DoJ to be more transparent and more explicit about preexisting compliance programs, that definitely will encourage companies to really pay attention to this,” Bennett says.

More Transparency Needed

While the department's efforts are to be commended, lawyers say more transparency is still needed on exactly what compliance practices enforcement agencies consider credit worthy. The more specific prosecutors can be about why a particular compliance program received the credit it did, the more that benefits other companies. “Getting [more detail] from the government will be so important in improving the quality of compliance programs,” Murphy says.

That is highlighted by increased FCPA financial sanctions, the implementation of a whistleblower rewards program under the Dodd-Frank Act, and passage of the Bribery Act in Britain. Altogether, those pressures only increase the need for stronger compliance programs. According to Kaplan, the “harder edges” of compliance—auditing, monitoring, investigating, sound internal controls—are going to count for more as time goes on.

New amendments to the U.S. Sentencing Guidelines that went into effect in November also underscore the importance of compliance programs. The amendments allow companies to receive more cooperation credit even if high-level executives are involved in misconduct—but only if the company's compliance program encourages a strong, independent chief compliance officer, among other criteria.

Now that the government has taken the initiative to be more transparent, Kaplan stresses that compliance professionals must continue giving feedback on how helpful these case examples are toward deterring criminal violations. That may further encourage the Justice Department “to be more specific about the parts of individual compliance programs that they feel are creditworthy.”