Redefining compliance recidivism

Last week Deputy Attorney General Lisa O. Monaco  announced in the Keynote Address at the ABA’s 36th National Institute on White Collar Crime:

“that all prior misconduct needs to be evaluated when it comes to decisions about the proper resolution with a company, whether or not that misconduct is similar to the conduct at issue in a particular investigation. That record of misconduct speaks directly to a company’s overall commitment to compliance programs and the appropriate culture to disincentivize criminal activity.

To that end, today I am issuing new guidance to prosecutors regarding what historical misconduct needs to be evaluated when considering corporate resolutions. This will include an amendment to the Department’s “Principles of Federal Prosecution of Business Organizations.” Going forward, prosecutors will be directed to consider the full criminal, civil and regulatory record of any company when deciding what resolution is appropriate for a company that is the subject or target of a criminal investigation.

Going forward, prosecutors can and should consider the full range of prior misconduct, not just a narrower subset of similar misconduct — for instance, only the past FCPA investigations in an FCPA case, or only the tax offenses in a Tax Division matter. A prosecutor in the FCPA unit needs to take a department-wide view of misconduct: Has this company run afoul of the Tax Division, the Environment and Natural Resources Division, the money laundering sections, the U.S. Attorney’s Offices, and so on? He or she also needs to weigh what has happened outside the department — whether this company was prosecuted by another country or state, or whether this company has a history of running afoul of regulators. Some prior instances of misconduct may ultimately prove to have less significance, but prosecutors need to start by assuming all prior misconduct is potentially relevant.

Taking the broader view of companies’ historical misconduct will harmonize the way we treat corporate and individual criminal histories, as well as ensure that we do not unnecessarily look past important history in evaluating the proper form of resolution.”

What does this mean for compliance officers?

Perhaps most importantly, companies need to review the breadth of their respective risk assessments. (Indeed, the new policy can be seen as creating a risk impact multiplier, meaning that a prior offense is, as a general matter,  more likely now than before to adversely impact a company in an investigation/prosecution.)     The same is true regarding culture and program assessments.  All of these should  be constructed/revised with the new standard of recidivism in mind, which for many companies will be more encompassing than what they currently deploy.

As well, the company’s C&E processes regarding remedial measures following discovery of wrongdoing should be robust and well documented. Even before Monaco’s announcement this was an area of weaknesses for many companies and all should take this opportunity to consider whether they need to make improvements.

Finally, and particularly for large, widely dispersed organizations, this new approach to recidivism underscores the need to have effective C&E management  and governance throughout the enterprise.  Among other things, directors should be informed of this important development.

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