Ryan D. McConnell – Compliance Building

handcuffs

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 begin with.

A compliance program should not be in place to reduce the sentence, it should be in place to prevent problems from occurring.

Lawrence D. Finder, Ryan D. McConnell & Scott L. Mitchell drafted a paper surveying the sixteen corporate deferred prosecutions and non-prosecution agreements entered into by the Department of Justice in 2008.

Betting the Corporation: Compliance or Defiance? Compliance Programs in the Context of Deferred and Non-Prosecution Agreements – Corporate Pre-Trial Agreement Update – 2008

In 2008, every agreement contained some sort of corporate compliance reform provision – continuing a trend we have seen over the last few years. This trend is the focus of this update. Aside from building on prior observations, this piece attempts to draw empirical observations about the types of compliance programs that come out of corporate pre-trial agreements. The authors recognize there is no one-size fits all template for corporate compliance programs. But by examining compliance programs in the context of DPAs and NPAs, the authors strive to provide a picture of what types of compliance measures are negotiated by the DOJ and corporate targets to resolve internal control and other business deficiencies that resulted in criminal wrongdoing. We hope that this will provide some guidance for attorneys and other professionals who deal with compliance issues.

The authors note that one of the big changes in 2008 was the DOJ’s implementation of a new charging policy. (You can find it at 9-28.000 of the U.S. Attorney’s Manual.) Although the policy is no longer associated with a particular person (like the 2006 McNulty memo, the 2003 Thompson memo and the 1999 Holder memo), the nine factors for charging a corporation are still the same:

the nature and seriousness of the offense;
pervasiveness of wrongdoing;
the company’s history of similar conduct;
the company’s timely and voluntary disclosure;
the existence and effectiveness of a pre-existing compliance program;
the company’s remedial actions;
the collateral consequences (including harm to shareholders) of a conviction;
the adequacy of prosecution of individuals; and
the adequacy of civil or regulatory remedies

There is a new statement in USAM 9-28.200:” In certain instances, it may be appropriate, upon consideration of the factors set forth herein, to resolve a corporate criminal case by means other than indictment. Non-prosecution and deferred prosecution agreements, for example, occupy an important middle ground between declining prosecution and obtaining the conviction of a corporation.”

A second change in 2008 was the issuance of the Morford Memo that addresses the use of corporate monitors, providing guidance on issues that may arise in the selection of a monitor and the monitor’s duties.

2008 STATISTICS:

Total Number of Agreements:	16
Number of Privilege Waivers:	2 (13%)
Number of Agreements with Compliance Monitors:	6 (38%)
Number of Agreements With Compliance Reforms:	16 (100%)

The link above is to a draft copy of the paper. The final version is scheduled to be published in the South Texas Law Review in May 2009.