For The Defense, February 2012 - DRI Today

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Government Enforcement and Corporate Compliance From the Chair By Jonathan N. Rosen Recent actions by the government appear to undermine the efficacy of corporate compliance efforts. Monitoring Government’s Changing Attitudes ■ Jonathan N. Rosen is a partner in the Washington, D.C., office of Shook, Hardy & Bacon, L.L.P., and a member of the Government Enforcement and Compliance Group. His practice focuses on representing corporate and individual clients in complex white collar matters. 52 ■ For The Defense ■ February 2012 Today’s enforcement climate clearly underscores the need for an effective compliance program. The lack of an effective compliance program, which could have averted the wrongdoing, may be used by government regulators to
suggest a corporate intent to both enable and benefit from an employee’s or agent’s errant conduct. In addition, compliance has now become a part of the statutory and regulatory landscape. Section 404 of Sarbanes- Oxley Act (SOX) requires that certain management of issuers file an internal control report regarding the effectiveness of the company’s internal controls structure with the SEC. Section 404 also requires the company’s auditor to attest to and report on the company’s assessment of its internal controls over financial reporting. An “effective” compliance program is also necessary to mitigate the sentence arising from some errant corporate misconduct. The United States Sentencing Guidelines identify several factors that constitute an “effective” compliance program. See U.S.S.G. §8B2.1(b). In addition, amendments to the guidelines allow a company to obtain credit for an effective compliance program, even where a high-level executive was involved in the misconduct, so long as the head of compliance reports directly to the board, among other factors. Notwithstanding this emphasis on compliance programs, more recent actions by the government appear to undermine the efficacy of corporate compliance efforts. For example, the SEC implemented rules designed to incentivize employees to take advantage of the Dodd-Frank Act’s whistleblowing protections and benefits. These rules now offer huge awards for reporting alleged violations of the securities laws to the SEC, without a requirement of first resorting to existing corporate compliance programs. See Rule 21F-6 (17 C.F.R. §240.21F-6). Some have argued that this regime may turn company employees into bounty hunters, thereby undermining the role and effectiveness of corporate compliance procedures that companies put in place after SOX. Similarly, the SEC requires that any qualifying disclosure be “voluntary,” which excludes information provided to the SEC pursuant to a contractual duty to the SEC. See Rule 21F-4 (17 C.F.R. §240.21F-4). The SEC’s commentary underscores that the definition of “voluntary” excludes a statement made to the SEC pursuant to a cooperation or similar agreement with the Department of Justice obligating the individual to provide information to government agencies in general. Although the SEC identifies participation in internal compliance systems as a factor that can increase the bounty (Rule 21F-6 (17 C.F.R. §240.21F- 6), a whistleblower may rationally elect not to risk such preemption by disclosing the alleged violation to the company. One way to vindicate, and not undermine, compliance programs is to make effective compliance programs an affirmative defense to criminal wrongdoing. This is exactly what occurs under the UK bribery bill, which creates an affirmative defense for “adequate procedures” to prevent bribes. As a result, a corporation can escape criminal liability if it can demonstrate that any failings were not systematic. In the past, however, the United States Department of Justice has specifically objected to an analogous procedure. The government’s opposition is entirely consistent with its good faith interest in achieving greater and greater leverage over corporations and their individual officers and directors. The heart of the matter is this: the government’s attitude about how best to achieve corporate compliance has changed. Today, there is a real suspicion on the part of federal regulators that entity- driven penalties and agreements are insufficient to deter corporate wrongdoing. Regulators now feel compelled to go after individuals to effect greater corporate compliance. As a result, the government will continue to use various tools at its disposal, including not only bounty programs but also corporate monitors and elastic statutes to obtain maximum leverage over those individuals whom the government targets in its investigations. The following articles submitted by the Government Enforcement and Corporate Compliance Committee (GECCC) underscore this theme. Aaron Danzig’s article, “In Search of a More Flexible Approach: Uneven Practices in False Claims Act Settlements,” analyzes how the Department of Health and Human Services Office of Inspector General uses corporate integrity agreements to monitor corporate conduct, even where less draconian remedies would be equally consistent with OIG guidance. In addition, GECC Steering Committee Member Julianne Balliro’s article, “The Detention Provision of the National Defense Authorization Act for Fiscal year 2012: Is It Worth the Cost to Liberty,” examines the Act’s elasticity to demonstrate how American citizens may become subject to indefinite detention based on little more than suspicion of terrorism or suspicion of failing to report another person suspected of terrorism. Thank you to our authors and to GECCC Publications Chair Patrick Sullivan for their efforts in helping our committee sponsor this month’s For The Defense. For The Defense ■ February 2012 ■ 53
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