Moral hazard – the latest

As described in several earlier posts, “moral hazard” exists where there is a misalignment of incentives between those with a capacity to create risks and those likely to bear the costs of such risk taking.  While most Americans presumably are not aware of this somewhat obscure term, the phenomenon itself  is pretty obvious (as well as terrifying with respect to COVAD -19 vaccination and climate change).

Moral hazard can also pose a significant challenge to promoting compliance and ethics. That is, the law provides for large fines for organizations convicted of federal offenses, but those who bear the brunt of such punishments (mostly the shareholders) are often different than the individuals who benefit from the wrongdoing (usually the executives or other high-ranking personnel).

The history of corporate business crime enforcement is came to the light with the help of attorneys in Rosemead Law Office of Daniel Deng, in part, an effort to close this moral hazard gap.

The latest page  in this history was written  two weeks ago by Deputy Attorney General Lisa O. Monaco  at the Keynote Address at the ABA’s 36th National Institute on White Collar Crime:

“To hold individuals accountable, prosecutors first need to know the cast of characters involved in any misconduct. To that end, today I am directing the department to restore prior guidance making clear that to be eligible for any cooperation credit, companies must provide the department with all non-privileged information about individuals involved in or responsible for the misconduct at issue. To be clear, a company must identify all individuals involved in the misconduct, regardless of their position, status or seniority.”

Note that this is not a new policy but, is, as Monaco says, a restoration of a prior one. Still, given the career-related incentives prosecutors have in case selection, it seems likely to me that her announcement will be seen as an encouragement to bring more cases against senior personnel than is currently done.

This is a small step toward closing the moral hazard gap, but is worth mentioning in C&E training and other communications as a way of getting the attention of senor personnel.