Compliance failures are expensive. Failures result in big fines, expensive investigative costs and expensive legal fees. Plus you end up diverting valuable management resources from managing the business to managing the damage. Executives would much rather be sitting in the boardroom than in a deposition. Compliance has become a key consideration for under the federal sentencing guidelines for companies convicted of violating federal law.
Charlotte Simon of University of Houston Law Center, Ryan D. McConnell of Haynes and Boone LLP and Jay Martin of Baker Hughes, Inc. put together a paper on the role of compliance in criminal cases: Plan Now or Pay Later: The Role of Compliance in Criminal Cases
The DOJ’s focus on compliance has forced both U.S. and foreign companies that access U.S. capital markets to reevaluate their approaches toward compliance. Companies have begun to reassess, formalize, and improve what have historically been only informal or general codes of conduct. Faced with the reality that compliance is both a key federal charging consideration and a determinative factor in sentencing, companies today must ensure that their compliance programs contain carefully crafted policies and procedures tailored to minimize the risk of civil and criminal liability.
The article provides an excellent analysis and background on the role of compliance in federal criminal prosecutions.
However, they miss the point of having a compliance program. It’s to avoid ending up with criminal liability. If the case ends up with that the Department of Justice, that means the regulators found the conduct so egregious that civil liability was insufficient given the severity of the activity. Of course it also means that the activity was bad enough to catch the eyes of a regulator for action.
The authors use a chart showing that only three companies of 1349 charged from 1996 to 2009 received a culpability score reduction for having an effective compliance program. If they had an effective compliance program, they would not have ended up in the federal sentencing guidelines to begin with.
A compliance program should not be in place to reduce the sentence, it should be in place to prevent problems from occurring.