By Lorraine D’Angelo & Silvia Zicherman
Corporate compliance programs are an integral part of a company’s efforts to avoid a federal investigation or prosecution for violation of regulatory laws that affect its business. When federal prosecutors are trying to determine whether to conduct an investigation of a company or to bring charges against a company for fraudulent conduct, they look to a series of 10 factors, known as “Filip Factors,” found in The Principles of Federal Prosecution of Business Organizations in the U.S. Attorney’s Manual (USAM).
Only two of these factors involve a corporation’s compliance program. The first is “the existence and effectiveness of the corporation’s pre-existing compliance program” and the second is the corporation’s remedial efforts to “implement an effective corporate compliance program or to improve an existing one.” However, until recently, the question that remained open was exactly how the compliance program could be effectively designed and implemented to satisfy these two factors.
On Feb. 8, 2017, the Fraud Section of the U.S. Department of Justice (DOJ) published a new compliance guidance called “Evaluation of Corporate Compliance Programs,” on its website. It provides valuable insight on how the Fraud Section evaluates corporate compliance programs during an investigation by providing important topics and sample questions the DOJ may ask in specific cases. The Evaluation of Corporate Compliance Program offers a company practical examples of how federal prosecutors can evaluate a company’s compliance program under the Filip Factors. Below are the 11 topics that the DOJ considers in its evaluation:
- Analysis and Remediation of Underlying Misconduct
- Senior and Middle Management
- Autonomy and Resources
- Policies and Procedures
- Risk Assessment
- Training and Communications
- Confidential Reporting and Investigation
- Incentives and Disciplinary Measures
- Continuous Improvement, Periodic Testing and Review
- Third Party Management
- Mergers and Acquisitions (M&A)
Under each of these topics, the DOJ lists several sample questions the Fraud Section can consider when evaluating the effectiveness of a company’s compliance program. One of the common themes running through the sample questions is the ability of the compliance program and personnel to have prevented the misconduct and to have adequately addressed the conduct to avoid similar incidents from reoccurring.
Another example of a key theme is the role and responsibility undertaken by management and corporate compliance personnel in monitoring the company’s conduct and in creating an atmosphere of corporate responsibility. Notwithstanding, one thing made clear from the guidance is that there is no rigid formula used by the Fraud Section to assess the effectiveness of a corporate compliance program. The Fraud Section recognizes that no two companies view their corporate risk the same; therefore, it evaluates each company’s program on an individual basis in the specific context of a compliance failure. Specifically, it noted that the topics and questions should be used as “neither a checklist nor a formula.” Some of the topics and questions may not be relevant at all while others may be more salient based on the facts of the case.
The DOJ has made it clear that fraud investigations are still a priority under the new administration. Many of the topics and questions are intuitive and should not be a surprise to compliance personnel or senior management. However, they provide valuable insight into the Fraud Section’s considerations in determining whether the corporate compliance components of the Filip Factors have been satisfied, and are sufficient to possibly avert a fraud investigation or prosecution of a company’s actions. Based on the guidance issued by the DOJ, companies will now have a clearer set of guidelines to use in designing, evaluating and defending their corporate compliance programs. With this guidance in hand, companies are in a position to effectively reexamine their current programs and structures to ensure that they address the various considerations raised by the DOJ.
A copy of the DOJ’s Evaluation of Corporate Compliance Programs, which includes all the questions, can be found here.
Lorraine D’Angelo, a nationally recognized expert on legal and regulatory risk management, is the president of LDA Compliance Consulting Inc. She has more than 25 years of experience in the construction industry, including a recent tenure as senior vice president for ethics and compliance at a global construction company. D’Angelo is an accredited ethics and compliance professional and a leading expert on small, women-owned, minority and DBE matters, programs and policy implementation. For more information, contact her at (914) 548-6369 or Lorraine@ldacomplianceconsulting.com.
Silvia Zicherman is a consultant at LDA Compliance Consulting Inc. She is an attorney and has 12 years of experience in the construction industry as a former marketing director at a national construction law firm.