Paper Tigers And Paper Compliance

by Michael Volkov
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paper2The FCPA Guidance is an extraordinary document filled with excellent ideas, defined safe harbors and important enforcement and compliance principles.   It is a lesson in good government, and a testament to an instructive process for government and business communications and interaction.

The hypothetical scenarios and basic advice set out in the document have provided valuable insights to FCPA practitioners.  At the same time, the FCPA Guidance includes important warnings from the Justice Department and the SEC that reflect their experience in enforcing the FCPA.

One of the most important statements reflects  the Justice Department’s and SEC’s frustration with anti-corruption compliance programs.

Specifically, DOJ and the SEC noted that many companies have compliance programs on paper but fail to execute their policies and programs with a real commitment and resources.

Here is the quote:

DOJ and SEC have often encountered companies with compliance programs that are strong on paper but that nevertheless have significant FCPA violations because management has failed to effectively implement the program even in the face of obvious signs of corruption.

Most companies have adopted anti-corruption compliance policies, posted them on their Internet site, and included them in their codes of conduct.paper6

They look good on paper.  They look like they are committed to compliance.  But there is something missing – commitment and execution, two important principles for creating an effective anti-corruption compliance program.

A half-hearted compliance program is frustrating to observe.  It reflects directly the company’s lack of commitment and adherence to a “check-the-box” approach to ethics and compliance.  No one should be surprised when the company later discovers that managers and employees have engaged in bribery.

In fact, it can be expected to occur because a “paper” program sends exactly the wrong message – we are committed to compliance in name only but not in action.

Much of this is explained by the lack of senior management and board commitment to real compliance.  What is hard to understand in these situations is the role of the Chief Compliance Officer?

A CCO sitting on top of a “paper” compliance program knows full well what the company is missing.  In these situations, the CCO is usually carrying a mountain of frustrations – trying to get the attention of senior management, writing memos requesting additional resources, and seeking to navigate the political intricacies of the company to implement an effective ethics and compliance program.

A CCO knows what a paper compliance program looks like and would not accept such a program as an effective approach to compliance.  One reliable sign of a paper compliance program is turnover in the CCO position.

paper7CCOs who leave a company often move in frustration.  They joined the company based on management promises of commitment and resources.  When those promises start to let away into delays and denials, CCOs know that the company is not committed.

The lack of company commitment quickly turns into increased risks and eventually violations.  CCOs know what is going to happen and usually leave to avoid a disaster.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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Michael Volkov
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