Post on 20-Jan-2016
COMPLIANCE AND ETHICS
CAN AN EFFECTIVE PROGRAM REDUCE YOUR CRIMINAL OR CIVIL LIABILITY?
CRIMINAL
WHEN THE GOVERNMENT AIN’T YOUR FRIEND
OR
HOW I LEARNED TO STOP WORRYING
AND LOVE SOX
SOX: Lonely (and scary) at The Top
• personal responsibility
• fraudulent certification is a crime: 18 U.S.§1350
• up to ten years in prison
Side Trip: The Philosophical Purposes of Sentencing
• Punishment: demonstrate respect for the offense.
• Rehabilitation of the offender
• Deterrence
• Protection of the Public
Principle of Parsimony
18 U.S.C. § 3553(a):
The court shall sentence to a term of imprisonment no higher than necessary to achieve the purposes of
sentencing.
The SOX Paradox
How effective was your compliance program if
you’re trying to buy some mercy with it at
sentencing?
Chapter 8: Organizations
It’s all about money:how big is the fine?
Sentence Reduction
Cooperation
Self reporting
Admission of responsibility
“Effective” program
US Sentencing Commission Sourcebook
2000-06 Entity Sentencing
FY
# w. guidelin
es applied
# w/out Complian
ce Program
# w. Complian
ce Program
# w. "EFFECTIVE
" Compliance
Program
2000 132 118 14 0
2001 92 90 2 0
2002 143 143 0 0
2003 90 90 0 0
2004 49 49 0 0
2005 20 20 0 0
2006 108 108 0 0
634 0Sourcebook of Federal Sentencing Statistics
US Sentencing Commission Sourcebook
2000-06 Entity Sentencing
FY
# w. guidelin
es applied
# w/out Complian
ce Program
# w. Complian
ce Program
# w. "EFFECTIVE
" Compliance
Program
2000 132 118 14 0
2001 92 90 2 0
2002 143 143 0 0
2003 90 90 0 0
2004 49 49 0 0
2005 20 20 0 0
2006 108 108 0 0
634 0
Not in any
case yet!
Criminal Organization
§8C1.1
divest company of all assets and net worth.
Broke Organization §8C2.2
fine can be reduced … to avoid substantially jeopardizing
the continued viability of the organization
Size matters
Who knew
How pervasive
Obstruction or Violation
Bad, Badder, Baddest§8C2.5
Not That Bad? §8C2.5(f)1
If the offense occurred even [with] an effective compliance and ethics program
Merely stating or publishing such policies without diligently enforcing them is not enough to place the acts of an employee…outside the scope of his employment. US v. Beusch, 596 F.2d 871 (9 th cir. 1979)
OR BADDER STILL
No reduction if there was
a delay
in reporting conduct
“Effective”?[not really]
rebuttable presumption:
the organization did not have
an effective… program if a person with authority [knew or should have]]…
of, the offense.
COMPLIANT AND ETHICAL? §8B2.1
exercise due diligence
promote an organizational culture
generally effective program
CEOs
CEOs
Ebbers
Waskal
Kumar
Skilling
Koslowski
Rigas
CEOs
McNulty:
You may be able to avoid indictment if you put a compliance and ethics program in place
What the clients think[whether you are in or out house]
MGR.: Here…run this by our attorney [indicating the doucment]
UNDERLING: May I vigorously hit myself with a hammer instead?
The SOX Paradox
How effective was your compliance program if you’ve been found in
violation?
Outside the scope?
Merely stating or publishing such policies without diligently enforcing them is not enough to place the acts of an employee…outside the scope of his employment. US v. Beusch, 596 F.2d 871 (9 th cir. 1979)
A Defense?
Our willingness to credit such behavior in deciding whether and how to take enforcement action ….
When businesses seek out, self-report and rectify illegal conduct, and otherwise cooperate with Commission staff, large expenditures of government and shareholder resources can be avoided and investors can benefit more promptly
What happened?
tone of lawlessness?
How high up did it occur?
How was it detected?
How long …did it take to respond?
Did the company commit to learn the truth, and cooperate with us?
What assurances that the conduct is unlikely to recur?
So, Do you or Don’t you?
Yes
No
Well, sort of…
If “yes”…
…a corporate agent’s willful violation …will not be imputed to the corporation because of the corporation’s reasonable diligence in attempting to comply…
If “yes”…
…a corporate agent’s willful violation …will not be imputed to the corporation because of the corporation’s reasonable diligence in attempting to comply…NO
US v. Twentieth Century Fox Film Corp., 882 F.2d 656 (2d Cir. 1989)
…SOX certifications give rise to an inference of scienter because they provide evidence either that the defendants knew…or, alternatively, knew that the controls they attested to were inadequate…..
Lattice Securities Litigation,
2006 WL 538756 (D.Or. 2006)
If “no”…
At the very least, the Government claimed that Medco’s compliance programs were either non-existent or insufficient, in satisfaction of the “reckless” requirements [under the FCA]
US v. Merk-MEDCO 336 F.Supp.2d 430 (E.D.Pa. 2004)
In re Caremark Intl. Der. Lit., 698 A.2d 959 (Del. Chancery 1996)
Board Liability?
…unconsidered inaction…
The [Sentencing] Guidelines offer powerful incentives…to have in place compliance programs to detect violations…,promptly to report…when discovered, and to take prompt, voluntary remedial efforts
…a director’s …duty [is] to attempt in good faith to assure that a[n adequate] corporate information and reporting system…exists…failure to do so … may, in theory at least, render a director liable for losses caused by non-compliance….
What the clients think[whether you are in or out house]
MGR.: Here…run this by our attorney [indicating the doucment]
UNDERLING: May I vigorously hit myself with a hammer instead?
My pleasure!
will