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Plan Now or
Compliance failures are expensive. Failures result in big
fines, expensive investigative costs and expensive legal fees. Plus you end up
diverting valuable management resources from managing the business to managing
the damage. Executives would much rather be sitting in the boardroom than in a
deposition. Compliance has become a key consideration for under the federal
sentencing guidelines for companies convicted of violating federal law.
Charlotte Simon of University of Houston Law Center, Ryan
D. McConnell of Haynes and Boone LLP and Jay Martin of Baker Hughes, Inc. put
together a paper on the role of compliance in criminal cases: Plan Now or
Pay Later: The Role of Compliance in Criminal Cases
The DOJ's focus on compliance has forced both U.S. and
foreign companies that access U.S. capital markets to reevaluate their
approaches toward compliance. Companies have begun to reassess, formalize, and
improve what have historically been only informal or general codes of conduct.
Faced with the reality that compliance is both a key federal charging
consideration and a determinative factor in sentencing, companies today must
ensure that their compliance programs contain carefully crafted policies and
procedures tailored to minimize the risk of civil and criminal liability.
The article provides an excellent analysis and background
on the role of compliance in federal criminal prosecutions.
However, they miss the point of having a compliance
program. It's to avoid ending up with criminal liability. If the case ends up
with that the Department of Justice, that means the regulators found the
conduct so egregious that civil liability was insufficient given the severity
of the activity. Of course it also means that the activity was bad enough to
catch the eyes of a regulator for action.
The authors use a chart showing that only three companies
of 1349 charged from 1996 to 2009 received a culpability score reduction for
having an effective compliance program. If they had an effective compliance
program, they would not have ended up in the federal sentencing guidelines to
A compliance program should not be in place to reduce the
sentence, it should be in place to prevent problems from occurring.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.