G O V E R N M E N T E N F O R C E M E N T A N D C O R P O R AT E C O M P L I A N C EFrom the ChairBy David L. DouglassGood Governance Is atof <strong>Today</strong>’sFocusGiven the dramaticincrease in enforcement,our committee is pleasedto offer topical analysisof enforcement trends.White collar enforcement has become a regulatory tool tosecure broad internal reform within industries and companies.In this hyper-intensive environment of corporatescrutiny, the Department of Justice is acting as the preem-inent federal regulator of corporate culture.As a result, corporations and their officers,directors and management face enormousrisks. <strong>For</strong> companies, these risksinclude the draconian prospect of anindictment, monumental fines, unfetteredcourt or other third-party supervision ofthe businesses, loss of reputation in themarketplace and the cost—in economicand human capital—of defending themselves.<strong>For</strong> individuals, the risks includeincreasingly harsh and staggering terms ofimprisonment, fines and loss of livelihood.First, a little history. In 2002, in responseto the WorldCom and Enron scandals,President Bush created a Corporate FraudTask <strong>For</strong>ce to enhance the DOJ’s prosecutionof corporate entities. Based on thisinitiative, the government pursued a moreaggressive enforcement response to corporatefraud. <strong>The</strong> idea was to improve coordinationamong federal officials, accelerateinvestigations and prosecutions, motivatelocal U.S. Attorneys to bring complexfraud cases and convince corporations tocooperate.56 n <strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>October</strong> <strong>2010</strong>■ David L. Douglass is a partner in the Washington, D.C., office of Shook, Hardy & Bacon where he co-chairs the firm’s GovernmentEnforcement & Compliance Group. Mr. Douglass’s practice focuses on defending companies and corporate executivesfacing criminal investigations as well as civil and regulatory government enforcement actions, including false claims act (whistleblower)suits.
the Heart<strong>The</strong> Corporate Fraud Task <strong>For</strong>ce’semphasis on “real time enforcement” nettedhundreds of corporate fraud guiltypleas or trial convictions in the years followingits creation. Months after allegationsof accounting fraud at Adelphiainitially surfaced and only two weeksafter the task force’s creation, for example,77-year-old John Rigas, then Adelphia’sCEO, was arrested in a publicizedhandcuffing before the media. He was latersentenced to 15 years in prison. Moreover,white collar prosecutions, which had traditionallybeen the province of the SouthernDistrict in New York, became a nationalphenomenon as the task force encouragedgreater coordination between the SECand local U.S. Attorneys’ offices across thecountry. See, e.g., Birmingham, Alabama(HealthSouth Corp.), Harrisburg, Pennsylvania(Rite Aid Corp), Houston, Texas(Arthur Anderson LLP) and Alexandria,Virginia (AOL).<strong>The</strong> most enduring legacy of the corporatefraud scandals in the early 2000swas an increasing emphasis on corporateself- disclosure. Corporate self- disclosurebecame codified in certain statutes andmade a part of certain regulations. <strong>For</strong>example, the Sarbanes- Oxley Act imposeda complex web of certification and selfdisclosurerequirements on corporate officers,directors and counsel, including theso-called “reporting up” rules that obligatecounsel to report to superiors evidenceof financial or fiduciary breaches discoveredby counsel, and to make such a reportto the SEC if the corporate response wasunsatisfactory.<strong>The</strong> task force’s most important workwas its revision of the DOJ’s guidelinesfor corporate prosecutions. Despite subsequentiterations, these guidelines, as initiallyrevised by the task force, expect acompany seeking leniency from the governmentto conduct and disclose the resultsof a rigorous internal investigation intocorporate wrongdoing. <strong>The</strong>se guidelinesspawned a “culture of waiver” as companiesused self- disclosure to avoid and/or mitigate the risks of an enforcementaction. Armed with privileged corporateinformation once deemed off limits to federalprosecutors, the government began tosuccessfully prosecute those specific gatekeepersand profiteers whom it deemedresponsible for any corporate wrongdoing.<strong>The</strong> collapse of the financial sector in2006 made increased enforcement evenmore popular with the public. Passedamidst the fallout from the subprime mortgageand credit market crisis, the FraudEnforcement and Recovery Act of 2009(FERA) ushered in an era of unprecedentedinteragency collaboration in the government’swar on corporate fraud. In additionto increased law enforcement personnel,FERA has been used to replace the CorporateFraud Task <strong>For</strong>ce with the FinancialFraud Enforcement Task <strong>For</strong>ce. Unlikethe Corporate Fraud Task <strong>For</strong>ce, whichprimarily relied on the DOJ and FBI, thisnew Financial Fraud Enforcement Task<strong>For</strong>ce includes representatives from 23 federalagencies and their inspectors general,which allows it to investigate and prosecutea wider range of financial crimes.Given the dramatic increase in enforcementagainst both companies and seniorcorporate executives, the <strong>DRI</strong> GovernmentEnforcement and Corporate ComplianceCommittee is pleased to contribute to thismonth’s edition of <strong>For</strong> <strong>The</strong> <strong>Defense</strong>, offeringtopical analysis of these enforcementtrends. Jonathan N. Rosen’s article examiningthe increasingly expansive enforcementof the <strong>For</strong>eign Corrupt Practices Act(FCPA) captures much of what we are seeingin the government’s overall war oncorporate crime, including the use of additionalresources to fight foreign bribery,the trend to hold management strictly liablefor corporate misconduct, the increasein self- reporting, penalties and individualprosecutions, and the use of clandestineinvestigative techniques historically associatedwith non-white collar cases. WilliamJ. Powell and Emily M. Renzelli reviewthe ethical challenges faced by companycounsel charged with managing internalinvestigations. <strong>The</strong>ir article exposes therisk faced by company counsel who failto properly advise witnesses during thecourse of an internal investigation in whichthey may find themselves at the center ofa criminal investigation and any parallelcivil proceedings. Matthew L. Bevilleand Winifred M. Weitsen discuss the everexpansive application of the False ClaimsAct (FCA) and some important developmentsto defeat and or mitigate FCA liability.Robin Beardsley Mark analyzes theeffects of FERA on today’s white collarenforcement climate, including its impacton the mortgage industry and mortgagelenders, in particular.As these articles demonstrate, today’senforcement actions are not solely aboutdiscrete issues of culpability. An investigationof past wrongdoing leads to a focuson corporate culture and individual professionalresponsibility. In addition toother best practices, today’s business leadersmust educate all relevant corporateemployees about the legal risks attendantto a company’s business operations, institutea procedure for company personnel tolodge complaints internally before the governmentgets involved, investigate allegationsof corporate misconduct and reportmaterial misconduct to the board, auditcommittee or other reporting authority.Good governance is at the heart oftoday’s focus on corporate compliance andrequires nothing less than a genuine commitmentat the top to set the right tone forthe entire company, its officers, directors,stakeholders and agents.<strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>October</strong> <strong>2010</strong> n 57
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