The 2012 Annual Meeting of the American Society of Criminology featured a roundtable discussion entitled, “Building (and then Crossing) Bridges: A Discussion of Multi-Disciplinary Approaches to the Study of Corporate Crime.” Comprised of academics in the fields of criminology, law and business ethics, the panel was organized on the premise that although corporate crimes cause multidisciplinary problems, there has been little cross-disciplinary collaboration among policymakers, practitioners, the business community, and academics to address them. Nonetheless, the panelists, including myself, found ample common ground in discussing how to optimize internal controls on corporate crime. Our discussion can best be summarized by four “takeaways” for the manager addressing compliance in a global setting.
Incentivize officers and employees to comply with the law and company anti-corruption policy
In the wake of any corporate malfeasance, managers ask both retrospective and prospective questions. Retrospectively, what went wrong? Prospectively, how does a firm incentivize employees to comply with the law and company policy? The answer to the latter is that at least three significant incentives exist:
First, along with corporate boards of directors, managers must convey the severity of criminal and civil penalties imposed for the range of white collar crimes. For example, individuals convicted under the anti-bribery provisions of the Foreign Corrupt Practices Act face a civil penalty up to $10,000; a criminal fine up to $250,000 or twice the gross gain or loss resulting from the corrupt payment; and imprisonment up to 5 years on each count of conviction. Penalties for individuals found to violate the accounting provisions of the FCPA are only more severe, including a civil penalty up to $100,000; a criminal fine up to $5 million or twice the gain or loss caused by the violation; and imprisonment up to 20 years. Moreover, the FCPA mandates that companies can’t take the fall for employees: a criminal fine imposed on an individual cannot be paid directly or indirectly by the company on whose behalf the person acted.
Neither the company nor its employees should dismiss these penalties as theoretical. On the contrary, the aggressive enforcement of the FCPA in recent years by the Department of Justice and the Securities Exchange Commission is well-established, as indictments have skyrocketed around the country. 2011 saw the record high sentence imposed for an individual conviction under the FCPA (15 years for scheming to bribe officials at Haiti Teleco); the largest corporate settlement of FCPA allegations came from Siemens in 2008 ($800 million to U.S. authorities to resolve an investigation into Siemens subsidiaries paying kickbacks to the government of Iraq, plus additional payouts to international authorities).
Second, the manager must back up the external controls of law enforcement with the internal controls of company compliance policy. In other words, if employees believe they’ll be fired for engaging in corrupt conduct, they will be incentivized to steer clear. DOJ has repeatedly emphasized that it considers company policy on employee misconduct in weighing criminal liability of firms:
Among the factors prosecutors should consider and weigh are whether the corporation appropriately disciplined wrongdoers ... Although corporations need to be fair to their employees, they must also be committed, at all levels of the corporation, to the highest standards of legal and ethical behavior. … Prosecutors should be satisfied that the corporation's focus is on the effectiveness of its remedial and disciplinary measures rather than on the protection of the wrongdoers.
Third, employees may be incentivized to comply with internal controls because it is consistent with the ethical culture of the company--i.e., everyone else is complying. This is consistent with the second takeaway from the roundtable:
Establish an ethical culture for your workforce
The ethical culture is most easily defined by its converse, the culture of corruption. The culture of corruption develops in the context of weak constraints, including weak enforcement--both internally and externally--and weak social sanctions. Weak social sanctions that breed a culture of corruption might include norms of bias or favoritism; norms of gift-giving; and “relationship building” in countries with relationship-based governance, such as the business practice of guanxi (which literally means, “relationships”) in China.
In the eyes of the Department of Justice, a corporation’s culture is controlled by its management:
Charging a corporation for even minor misconduct may be appropriate where the wrongdoing was pervasive and was undertaken by a large number of employees, or by all the employees in a particular role within the corporation, or was condoned by upper management. … Of these factors, the most important is the role and conduct of management. Although acts of even low-level employees may result in criminal liability, a corporation is directed by its management and management is responsible for a corporate culture in which criminal conduct is either discouraged or tacitly encouraged.
In light of the powerful effect a culture of corruption can extend over a firm, the third takeaway is key:
Create and implement an effective anti-corruption compliance program complete with policies and procedures and training that can be delivered to your global workforce
Compliance programs are established by corporate management to prevent and detect misconduct and to ensure that corporate activities are conducted in accordance with applicable law. To pass muster when a firm is under government scrutiny, this internal control must be much more than window dressing. Like the acts of upper management, DOJ considers the extent of a corporation’s compliance program when investigating corporate criminal liability. The recently released FCPA “Resource Guide” issued by DOJ and SEC describes the protective net a vigorous compliance program can cast over a firm:
An assessment of a company’s compliance program, including its design and good faith implementation and enforcement, is an important part of the government’s assessment of whether a violation occurred, and if so, what action should be taken. In appropriate circumstances, DOJ and SEC may decline to pursue charges against a company based on the company’s effective compliance program, or may otherwise seek to reward a company for its program, even when that program did not prevent the particular underlying FCPA violation that gave rise to the investigation.
The extent to which a corporation controls both culture and the conduct of its employees is an argument for a thoughtful, individualized compliance program.
When in doubt, check with counsel
With the advice of counsel, bold and creative business practices can happily co-exist with an ethical culture. In other words, guidance regarding ethics and compliance doesn’t inhibit innovation, but rather complements it. In the words of one audience member with a corporate background, firms turn to counsel to “keep us out of hot water, even if it costs a ton of money.”
The “IBGYBG” (I’ll be gone, you’ll be gone) mindset as applied to corporate risk-taking undermines both a firm and its employees. Instead, strong internal controls, including legal counsel, an active compliance program and an ethical culture, should be factored by managers into a sustainable business model as a worthwhile investment. On that front, there’s no room for disagreement.
Juliet S. Sorensen is a Clinical Assistant Professor of Law at Northwestern University, where her teaching and research interests include international criminal law and corruption.
The content on this page has been prepared for general information purposes only; it neither is legal advice nor is it intended as legal advice. Please see the full disclaimer on this website.
The content on this page has been prepared for general information purposes only; it neither is legal advice nor is it intended as legal advice.
Please see the full disclaimer on this website.