My notes, live, from former U.S. Deputy Attorney General Paul McNulty Keynote on A Tale of Two Sectors: The Challenges of Corporate Compliance – When Enforcement Increases and the Economy Declines. Mr. McNulty is now a partner at Baker & McKenzie. He is the author of the McNulty Memo on the government’s perspective on prosecuting organizations.
This issue of compliance has changed the corporate landscape. There is a sobering reality with a contrast between the government’s aggressive enforcement of white collar crime while the corporate sector is in a defensive position trying to cut costs and survive the economic downturn.
How can a company survive in this enforcement and economic environment? How can they move into emerging markets with corruption issues?
Enforcement is rising sharply. There is more effort being put into catching and punishing economic crime. FCPA is a hot issue because of a combination of increased disclosure, increased communication, and increased international cooperation. These factors are not unique to FCPA. That is why we are seeing an increase in other financial crime enforcement.
There is a lot of effort of punishing individuals, not just organizations.
How do we respond to this environment? There are several “must haves.”
- Leadership with a strong tone and strong structure.
- A risk based strategy, looking at where you are doing business and how you are doing business.
- Standards and controls to provide evidence that there is commitment and it is translated to specific things
- Training is essential. You need to get the word out.
- Monitoring so that you can see what is working and what is not working.
The cost of non-compliance is great. If you think compliance is expensive, try non-compliance.
If you are the target of a government action there are some things you should do. You want to have a thorough and cost effective investigation. You want the government to feel that they do not need to conduct their own investigation. You need to be credible and sufficiently independent. It also needs to be timely. Cost control is an issue. There is some tension between thoroughness and cost. You want to focus on the scope. You don’t want it to be too narrow, but if it is too broad the costs will be excessive. Create an investigation plan at the outset. Keep a close eye on your auditors and attorneys.
You want to get your “compliance credit.” In his memo (and the others) one of the factors is the existence of a strong compliance program. Make sure that if you think you had a strong compliance program that the government sees that there is a strong program.
You want to get your “cooperation credit.” The key is to be able to cooperate without waiving the attorney-client privilege. You want to avoid derivative lawsuits from other non-government parties.
You want to avoid a monitor. The government is looking for a hedge to avoid the risk that there is something more going on inside the organization. That means you need to convince the government that the organization wants to know the whole truth and will immediately take the steps to cure the problem.
Will prosecutors look at a decreased compliance budget as a bad mark? Maybe. You can be more effective with a smaller budget, but it means being more effective and revisiting the structure of your program. The risk increases when there are fewer resources dedicated to the program.
(These notes are taken live, so I apologize if I left out anything or misquoted someone. Please forgive any typos or grammatical errors.)