DOJ’s Criminal Division Updates Guidance for Evaluation of Corporate Compliance Programs
When the Department of Justice takes aim at a corporation, the effectiveness of the corporation’s compliance program at the time of corporate wrongdoing and afterwards can be key to federal prosecutors’ decision-making. Likewise, they can be key to a corporation achieving a favorable result. The effectiveness of a corporate compliance program can drive the prosecutor’s charging decision, spawn a resolution, reduce monetary penalties, and lessen the need for adherence to subsequent compliance obligations.
Federal prosecutors have generally evaluated the effectiveness of corporate compliance programs through the lens of three “fundamental questions”: (1) Is the corporation’s compliance program well designed?; (2) Is the program being applied earnestly and in good faith?; and (3) Does the corporation’s compliance program work? Although deemed “fundamental”, the questions are rather vague. On April 30, 2019, however, DOJ’s Criminal Division released an updated guidance document entitled “Evaluation of Corporate Compliance Programs”. The guidance document was intended to provide context to the above questions and assist prosecutors tasked with answering them.
To that end, the guidance document provides that “prosecutors may evaluate [a corporation’s] performance on various topics that the Criminal Division has frequently found relevant in evaluating a corporate compliance program.” In brief, the “various topics” involve the review of the quality of a corporation’s: risk assessments; policies and procedures; training and communication for officers and employees; confidential reporting structure and investigative processes; management of third parties; and due diligence efforts on acquisition targets during mergers and acquisitions. The topics also include:
- the level of commitment by corporate management to fostering a culture of compliance;
- the quality of resources devoted to compliance efforts;
- the systems in place, if any, to incentivize compliance and punish non-compliance;
- whether the corporation stress-tests, improves, and reviews its compliance programs over time; and
- the steps taken to identify root causes of discovered offenses, hold offenders accountable, and reduce the occasion of future offenses.
Notably, in a given case, not every topic will be relevant. And “others may be more salient given the particular facts at issue.” Relatedly, federal prosecutors are not to rely on a “rigid formula” when evaluating the effectiveness of corporate compliance programs. DOJ, moreover, insists that its prosecutors evaluate the effectiveness of compliance programs “in the specific context of a criminal investigation” and in the specific context of the particular corporation. Thus, the same program that might be considered effective for Corporation A (small corporation) in Case X (wire fraud) will probably not be considered effective for Corporation B (large international corporation) in Case Y (bribery in violation of the Foreign Corrupt Practices Act).
Corporations would be wise to review their compliance programs in light of the guidance document and topics it details. The guidance document provides corporations with key insight into what federal prosecutors will be looking for when evaluating the effectiveness of compliance programs and making informed decisions during an investigation. Corporations can seize on the guidance to create, enhance, and implement compliance programs in the areas where they bear risk. And when the DOJ investigates, those corporations can hope to prevent, among other things, the imposition of severe penalties and significant damage to their business reputation.
For more information, please contact the authors of this Alert.