Back in February 2017, the U.S. Department of Justice, Criminal Division, Fraud Section, published its ‘Evaluation of Corporate Compliance Programs’.
The 8-page PDF document can be accessed and downloaded at: https://www.justice.gov/criminal-fraud/page/file/937501/download .
As protiviti recently highlighted in its article titled, ‘Insights/DOJ Fraud Section Puts Boards of Directors on Notice Regarding ‘Conduct at the Top’’ (protiviti’s article can be accessed at https://www.protiviti.com/US-en/insights/doj-notifies-board-directors), what actually made the noticeable difference in the U.S. DOJ Guidance, is the express reference made to ‘conduct’ at the top as opposed to the usual ‘tone’ at an Organisation’s ‘top’.
Henceforward, the peculiar title of this ECA article. So ‘what’ is it that makes this article insightful as opposed to a mere reiteration of developments trending across the Atlantic in the so-called compliance space?
Here is the catch. For boards of directors, senior management personnel, and governance, risk and compliance professionals, it is important to raise awareness that ‘People with Significant Control – PSCs’ in organisations who might be tried in criminal courts for potential wrongdoing in the business environment, they will be risking sentencing for their material ‘conduct’ as opposed to their ‘tone’ at the top of the corporation.
This is precisely what is trending across the Atlantic. In U.S. criminal justice terms and, very soon at the international level, an executive officer’s ‘conduct’ at the top of an organisation’s decision-making pyramid will substitute the more abstract term that we were used to refer to as the so-called ‘tone’ at top.
Of course, there is more to seek after in the U.S. DOJ ‘Evaluation’ Guide than the substitute of ‘conduct’ for ‘tone’ i.e. ‘acts’ as opposed to ‘perceptions’.
The Guide reveals that its Fraud Section places under the microscope of U.S. criminal justice ‘117’ interrelated questions concerning an organisation’s compliance programme targeted for evaluation.
Moreover, the so-called ‘toll’ of the ‘material’ culpability of the board and senior management can and will be widened subject to the following key findings during the evaluation:
- The board’s and senior management’s involvement in the organisation’s compliance decision-making;
- The board’s performance of risk-governance oversight vis-à-vis the organisation’s compliance function;
- The allocation of resources (financial, human and IT) and the level of ‘continuous’ support provided to the organisation’s compliance department and to its intertwined frameworks across the different lines of business;
- The adequacy of the findings of internal investigations with regards to the extent to which the organisation can clearly demonstrate that early warning signs and red flags were traced by internal systems and controls and appropriate remedial actions were taken after thorough internal investigation (logged in the risk register) to prevent and control potential business misconduct, i.e. financial corruption in the organisation’s control environment.
In the context of a DOJ examination of board of directors and senior management for evaluating the organisation’s corporate compliance programme, all of what has been outlined previously can best be summarised as follows:
- Conduct at the top
- Communicating and sharing commitment from top to bottom and vice versa
- Risk-governance oversight by the board
- Compliance efficacy and stature within the organisation
- Autonomy and independence of controlled functions
- Qualitative scoping in investigations and qualifications of investigators
- Correctional actions taken by the organisation in the aftermath of investigations
- Accountability for misconduct and lessons learned
What are the lessons learned beyond substituting ‘tone’ with ‘conduct’ in the interests of establishing material culpability for executives’ misconduct within the organisation?
The answer is that individual accountability ranks at the top of the agenda of any good corporate compliance programme. This is precisely what the Yates Memo and the FCPA Pilot Programme in the U.S. are promoting. And, of course, individual accountability is currently trending across the Atlantic and will soon be introduced as a key evaluation criterion in other jurisdictions.
Undoubtedly, the message is crystal clear for board of directors and senior management across the world. They will have to answer to regulators and to judicial authorities for compliance failures within their organisations.
Setting the tone at top is no longer perceived to be fully adequate for the prevention and control of financial corruption within enterprises. Effective boards and senior management professionals need to realise that the tone at the top has become the conduct at the organisation’s pyramid.
The ECA encourages all its members and the readers of this article to read carefully and to download (the 8-page PDF) U.S. Department of Justice, Criminal Division – Fraud Section ‘Evaluation of Corporate Compliance Programs’.
Prof. Dr. Emmanouil Ioannidis