U.S. Government Continues Raising the Cost of Noncompliance

by Parker Poe Adams & Bernstein LLP
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The U.S. Justice Department, the Federal Trade Commission, and other federal agencies recently announced their 2018 increases for civil penalties. As the costs of violations continue rising, it is imperative that companies develop a strong compliance framework to prevent compliance failures.

The increases are a required part of the redundantly titled “Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.” It required that heads of government agencies adjust civil penalties yearly to account for inflation, as we explained in our 2016 and 2017 breakdowns of those adjustments. Announcements must take place by July 1 of each year.

Civil penalties can be daunting and are frequently enhanced by factors such as the number of persons affected or the duration of the violation. We have reproduced selected federal penalty increases below. (Other civil penalty increases can be found by searching the Federal Register or individual agency websites.) After the chart, you’ll find an explanation of how compliance programs can help.

Agency Pre-2016 Range 2016 Penalty Range 2017 Penalty Range 2018 Penalty Range
Department of Justice (DOJ) for violations of the False Claims Act (FCA) $5,500 to $11,000 per violation $10,781 to $21,563 per violation $10,957 to $21,563 per violation $11,181 to $22,003 per violation
Defense Directorate of Trace Controls (DDTC) for export violations related to defense articles Up to $500,000 per violation Up to $1,094,010 per violation Up to $1,111,908 per violation Up to $1,134,602 per violation
Federal Trade Commission (FTC) for violations of premerger notification requirements in the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) Up to $16,000 per day Up to $40,000 per day Up to $40,654 per day Up to $41,484 per day
Office of Foreign Assets Control (OFAC) for sanctions falling under the International Emergency Economic Powers Act (IEEPA) Up to $250,000 per violation Up to $284,582 per violation Up to $289,238 per violation Up to $295,141 per violation
OFAC for sanctions falling under the Foreign Narcotics Kingpin Designation Act (FNKDA) Up to $1,075,000 per violation Up to $1,414,020 per violation Up to $1,437,153 per violation Up to $1,466,485 per violation
Department of Homeland Security (DHS) – Knowingly hiring unauthorized aliens Between $375 and $3,200 per individual for a first offense. Between $539 and $4,313 for a first offense. Between $548 and $4,384 for a first offense. Between 559 and $4,473 for a first offense.
DHS – Form I-9 Paperwork Errors Between $110 and $1,100 per individual Between $216 and $2,156 per individual Between $220 and $2,191 per individual Between $224 and $2,236 per individual
DOJ for violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (covers violations of criminal statutes related to or affecting financial institutions and government agencies such as bank fraud) Up to $1,100,000 per violation and up to $5,500,000 per continuing violation Up to $1,893,610 per violation and up to $9,468,050 per continuing violation Up to $1,924,589 per violation and up to $9,622,947 per continuing violation Up to $1,963,870 per violation and up to $9,819,351 per continuing violation
Department of Labor (DOL) for serious violations of the Occupational Safety and Health Act Up to $1,000 per violation and up to $70,000 for willful or repeated violations Up to $12,471per violation and up to $124,709 per willful or repeated violation Up to $12,675 per violation and up to $126,749 per willful or repeated violation Up to $12,934 per violation and up to $$129,336 per willful or repeated violation
DOL for violations of minimum-wage or overtime requirements $1,100 per repeat or willful violation $1,894 per repeat or willful violation $1,925 per repeat or willful violation $1,964 per repeat or willful violations
Nuclear Regulatory Commission (NRC) for violations of the Atomic Energy Act related to nuclear power reactors $140,000 per day, per violation $280,469 per day, per violation $285,057 per day, per violation $290,875 per day, per violation
Equal Employment Opportunity Commission – violations of notice posting requirements $210 per violation $525 per violation $534 per violation $545 per violation
EPA – Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) $25,000 $53,907 $54,789 $55,907

How Can a Compliance Program Help?

Although it does require an upfront investment of money, time, and resources, putting into place a compliance plan is integral to avoiding the higher monetary and intangible costs of noncompliance. Among many reasons, it gives employees a roadmap to complying with applicable laws and regulations as well as company policy. It also provides the company with easy justification to dismiss a noncompliant employee, removing the known source of noncompliant behavior while simultaneously sending a message to others that ignoring compliance will not be tolerated.

Additionally, it makes it easier for companies to self-discover violations before a whistleblower or even a competitor report the violations to the government. And further, in certain cases, it can provide the company with mitigation credit or safe harbor protection from the government in the event a violation is discovered. The sentencing guidelines specifically provide for mitigation credit for companies who have instituted compliance programs, uncovered and addressed criminal conduct quickly, self-reported and cooperated with the government. (You can find additional information about mitigation credit for Foreign Corrupt Practices Act violations here.)

What Goes Into a Compliance Program?

What goes into a compliance program depends in large part upon the particular laws and regulations applicable to the company or industry. Some common compliance programs cover areas such as anti-corruption (bribery, gifts and entertainment), antitrust, export and trade compliance, environmental compliance, immigration (Form I-9/E-Verify), securities trading, HIPAA (personal health information), document retention, and computer usage.

Some of the minimum hallmarks of any effective compliance program are as follows:

  • A commitment from senior management and a clearly articulated policy of compliance.
  • Clearly spelled out compliance policies and procedures.
  • The assignment of somewhat autonomous oversight of compliance to a senior executive within the organization, along with sufficient resources dedicated to compliance.
  • Performance of a risk assessment to tailor compliance to the individual needs of the organization. The government expects companies to focus on those areas that provide actual risk rather than wasting compliance dollars on areas for which the company is not at risk.
  • Provision of training and continuing advice to employees and agents as to how to comply.
  • Incentives for compliance and reporting violations as well as appropriate and clear disciplinary procedures for noncompliance, up to and including dismissal.
  • Existence of a confidential reporting system and procedures for internal investigations into reported violations.
  • Periodic testing, auditing, and review to ensure the compliance procedures in place are actually being used and are working.

It is important to note that it is worse to have a compliance program that gathers dust on a shelf than not to have one at all. Why? The government can argue it is evidence that a company knew how to comply but chose not to do so.

With planning and attention, avoidance of the increasing costs of noncompliance is relatively easy and much preferable to the alternative – ask anyone who has tried to beat the house and lost their bet by going through the remedial process of noncompliance.

[View source.]

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.

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