DOJ says it plans to target more individuals in cases of wrongdoing. With a flurry of recent indictments, that promise appears to have already materialized. The more the enforcement stings, the more it will discourage businesses from repeat wrongdoing.
One of the most frustrating things about working in compliance is when you see people get away with illegitimate actions.
The U.S. Department of Justice, Deputy Attorney General (Lisa Monaco), delivered remarks earlier this year, indicating that DOJ was going to pursue more individuals. During the announcement of an indictment against nine individuals for various offenses related to firearms trafficking, she indicated that the department’s top priority regarding corporate crime is to prosecute the people who commit and benefit from misconduct. It’s about time!
There were a few key messages in what she had to say:
- “Accountability starts with the individuals responsible for criminal conduct,” Monaco said. That’s true, but it also extends far beyond the United States. We will only ever make real progress in fighting bribery and corruption when this is upheld not just in the U.S. but in every other country. Let’s hope other law enforcement agencies outside of the U.S. follow suit.
- White-collar prosecutions fell to an all-time low during the Trump administration, according to a Syracuse University analysis. And long before the Trump administration, the Justice Department was heavily criticized for failing to hold Wall Street executives accountable for the 2007-09 financial crisis. Sometimes we blame regulatory agencies for failing to bring about justice when perhaps blame should be aimed at politicians who control the agencies. Just as in corporate life, where we usually have to do what the boss says, agencies have to do what the officeholders at the time say they need to do.
- Between 10 percent and 20 percent of all significant corporate criminal resolutions involve repeat offenders, Monaco said. If the penalties were focused in the right direction and individuals were truly held accountable for their actions, shouldn’t this number be considerably lower?
Narcissistic leaders often believe they are either above the law or simply will never get caught. Sadly, this has often been true. It has been too easy for CEOs, senior executives and boards to point the blame elsewhere and walk off into the sunset with barely a scratch — and in many cases a lucrative golden parachute.
And even when leadership is removed, corporations sometimes repeat their crimes. As an example, pharma giant Novartis has faced numerous charges – and arrived at numerous settlements – involving repeat bribery and corruption offenses.
Similar examples are rampant, particularly in the biopharma sector, where companies have been prosecuted for repeated or multiple instances of non-compliance. GSK’s activities in China sparked almost a decade of concentrated efforts to curb bribery and corruption in that country. More recently, Orthofix, Stryker, Technip and Tyco have been accused of repeated offenses, though FCPA recidivism seems to be low as a rule (around 5.5 percent, only 13 of the 240 companies prosecuted), according to the FCPA Blog.
Regardless of whether they’re repeat offenders, senior leadership has to carry the responsibility for anything that happens inside their organization. How can the leader of an organization on the one hand permit, propagate or at the very least defend inappropriate actions and on the other hand spout about ethics, culture and doing the right thing?
Companies Must Stand up and Be Counted
The DOJ’s new focus is a welcome step in the right direction. In my mind, an important part of ethical behavior is to be transparent. When leaders take risks and subsequently get caught, they need to own up and take responsibility for their actions. Companies must also now stand up and be counted.
Michael Volkov a couple of weeks ago highlighted that companies need to ensure their compliance programs are monitoring and remediating any employee misconduct. Furthermore, companies that do not commit to compliance, fail to allocate appropriate resources and then find themselves before the Justice department for an enforcement matter will be penalized for their lack of an effective ethics and compliance program.
In other words, wrong-doers in companies will have nowhere to hide. Companies will have to disclose all individuals involved in criminal conduct. Will this be accompanied by leading executives that commit wrongdoing also being forced to forego any form of financial compensation? On too many occasions the culprits leave with their compensation prior to the investigation and incur little if any penalty. They leave behind a company of people who have to do the best they can to deal with the reputational damage and clean up the mess.
What Will Come of High-Profile Individuals?
In the past few months, there have been several examples that indicate the DOJ is serious about its announced actions, including indictments against those conspiring to commit healthcare fraud (here and here), unlawful prescribing and bribery.
Will it be enough to trap the likes of Facebook’s Mark Zuckerberg, given that he controls the majority of shares in the company, or those involved in the Boeing scandal, of which the chief technical pilot is the latest to be indicted? What will become of Elizabeth Holmes, the former Theranos CEO who is currently on trial for fraud?
An increased push for accountability in non-compliance is not unique to DOJ. Attempts to make a similar a transition was introduced some time ago in the Food and Drug Administration. That agency is increasingly issuing decrees to try to make CEOs accountable for poor regulatory compliance.
This is an important initiative by the DOJ that deserves the full support of all governments and industry alike if we are to make progress in minimizing non-compliance. If we are to have any continuing impact, it is time for wrong-doers to fall on their swords. It is too easy for large multinational companies
to pay a fine and turn around a short time later to continue the same or similar offenses. Often, this because those who initiated the action in the first place are still calling the shots or have left with cushy benefits while company culture still says this behavior is acceptable as long as you don’t get caught.