7 Corporate Compliance Takeaways for 2013

Catherine Dunn

Corporate Counsel

01-09-2013

Did you know five of the 10 largest federal criminal fines levied against corporations—ever—were meted out in 2012? They ranged from Barclays Bank’s $450 million settlement over the LIBOR manipulation scandal to GlaxoSmithKline’s $3 billion settlement in connection with off-label marketing and other charges.

All of which goes to show that skimping on compliance can be “pennywise, but pound foolish,” says Gibson, Dunn & Crutcher’s Michael Li-Ming Wong, himself a former federal prosecutor.

CorpCounsel.com listened in on the firm’s recent ninth-annual webcast, entitled “Challenges in Compliance and Corporate Governance.” Here’s what we learned—and what you can start putting to work in the new year:

1. Broaden Your Focus

Between new conflict minerals rules and sanctions on Iran—both of which fall outside the traditional emphasis of the Securities and Exchange Commission—“there is no question that a broader compliance effort is needed,” says Washington D.C.-based partner Amy Goodman, who co-chairs the firm’s securities regulation and corporate governance practice group.

Start by figuring our whether such regulations apply to your company. The conflict minerals rule, which governs the use of tin, tungsten, tantalum, and gold from the Congo, could affect upwards of 5,000 U.S. companies. And the Iran sanctions also have a broad reach, encompassing the activities of a company’s foreign affiliates—which could include joint ventures, controlled subsidiaries, and other entities, Goodman says.

2. Take Cues from Morgan Stanley

While a former managing director at Morgan Stanley was charged with violating the Foreign Corrupt Practices Act last year, the company wasn’t. And although the government has declined to prosecute corporations before, “this is the first time [an enforcement agency] made a public announcement that they were not going to prosecute a company after an FCPA investigation,” says Wong, who co-chairs Gibson Dunn’s securities enforcement practice group out of the San Francisco office.

The outcome is thanks to a strong compliance program at the financial institution—the hallmarks of which are included in the FCPA guidance released last fall. “The Morgan Stanley case demonstrates that a robust compliance program can act almost as an unwritten safe harbor,” Wong says.

Remember, though, that there’s no one-size-fits-all approach. “What makes a difference is that you not only have a program in place, but that you’re executing it faithfully,” says Wong.

3. Compliance Officers are Government Targets, Too

In-house counsel and corporate compliance officers are also on the hook for their actions (or their failure to act). At least three chief compliance officers settled charges last year with the SEC, according to Gibson Dunn. One CCO of an investment adviser, “settled allegations that she failed to supervise an employee who misappropriated $7 million from clients,” the firm reports. In another case, the firm says, a registered broker dealer’s CCO “settled charges that he and his firm aided and abetted manipulative trading by ignoring multiple red flags.”

So document everything—including communications, actions, and advice—regarding compliance training and certifications, says Wong. It’s “no longer just for the company’s protection, but your protection as well,” he adds.

4. Clawbacks as a Consequence

If company executives need more reason to get behind compliance efforts, how about the threat of losing their bonuses? Clawbacks for non-culpable executives are prevalent in settlement agreements with the government, Gibson Dunn reports. And such provisions are also showing up in Corporate Integrity Agreements and plea agreements in the healthcare space. In other words, clawbacks are “an enforcement imperative,” says F. Joseph Warin, chair of the litigation department in the firm’s Washington D.C. office.

“Somebody’s looking over your shoulder, looking to take back bonuses,” he adds.

5. Whistleblowers Are Out There

Don’t ignore the fact that whistleblowers are willing to go to the government—and that many try reporting internally first, says Warin. The volume of whistleblower reports to the SEC—3,0001 tips in 2012—breaks down to more than 8 tips a day, or one every three hours. “This is being used very, very extensively,” says Warin.

The commission announced its first whistleblower award last year—for nearly $50,000 (30 percent of the amount the government collected in penalties in the case). But, says Goodman, “it’s just a matter of time before we see some much more sizeable awards being paid.”

6. Boards Want Info on Compliance

Compliance efforts matter to directors. “We’re seeing boards themselves ask for more information in this area,” Goodman points out.

General counsel and corporate secretaries shouldn’t bog directors down with too many details, but they do want to see information on trends and whether there have been significant developments involving competitors.

7. Don’t Forget the Tone in the Middle

Tone from the top is crucial to enacting an effective compliance agenda, but “it’s got to permeate the organization,” says Goodman. “What a lot of compliance officers are most concerned about is making sure the middle managers and supervisors are trained” to report information up the chain when they receive a complaint from an employee, she adds.

And once again, document everything—all of your compliance efforts and responses to employee complaints. Federal prosecutors will want to see documentation, says Wong: “They may trust, but they want to verify.”