No Result
View All Result
SUBSCRIBE | NO FEES, NO PAYWALLS
MANAGE MY SUBSCRIPTION
NEWSLETTER
Corporate Compliance Insights
  • Home
  • About
    • About CCI
    • CCI Magazine
    • Writing for CCI
    • Career Connection
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Library
    • Download Whitepapers & Reports
    • Download eBooks
    • New: Living Your Best Compliance Life by Mary Shirley
    • New: Ethics and Compliance for Humans by Adam Balfour
    • 2021: Raise Your Game, Not Your Voice by Lentini-Walker & Tschida
    • CCI Press & Compliance Bookshelf
  • Podcasts
    • Great Women in Compliance
    • Unless: The Podcast (Hemma Lomax)
  • Research
  • Webinars
  • Events
  • Subscribe
Jump to a Section
  • At the Office
    • Ethics
    • HR Compliance
    • Leadership & Career
    • Well-Being at Work
  • Compliance & Risk
    • Compliance
    • FCPA
    • Fraud
    • Risk
  • Finserv & Audit
    • Financial Services
    • Internal Audit
  • Governance
    • ESG
    • Getting Governance Right
  • Infosec
    • Cybersecurity
    • Data Privacy
  • Opinion
    • Adam Balfour
    • Jim DeLoach
    • Mary Shirley
    • Yan Tougas
No Result
View All Result
Corporate Compliance Insights
Home Risk

Fines, Penalties & Litigation Don’t Have to Bankrupt

Ability-to-pay analysis can reduce fines by 80% or more

by Ash Klass and Carolyn McDonnell
December 5, 2023
in Risk
broken piggy bank

While large fine or judgment amounts always make headlines, during periods of economic distress, they can threaten an organization’s very future. Ash Klass and Carolyn McDonnell of Forensic Risk Alliance say regulators are increasingly showing they’re mindful of companies’ financial health.

Heightened economic concerns have been lingering for years as we navigated a global pandemic. As some continue to predict an economic recession, companies are forced to continue to make tough decisions to steady the ship. Now, with the rising tides of geopolitical tensions, these decisions are not expected to get any easier.

With the rising cost of debt and reduced access to liquidity, surprises like regulatory fines, litigation or other penalties can derail a company’s financial health and put it at grave risk of bankruptcy. This is where a company’s ability-to-pay analysis comes into play and may be used as a mechanism to significantly reduce penalty and fine amounts — in some cases by 4/5ths or more.

If your company has ever been under investigation or navigated settlement negotiations, you have likely seen some very large and disconcerting potential settlement figures. Companies will typically perform internal projections during the investigation stage to get a ballpark idea of where the final settlement could land. However, these internal projections rarely capture the extent of the future potential settlement. This begs the question, why are fines so high and how can companies avoid fines sinking the ship?

bubble floating near cactus
Governance

Is Risk Management Actually Making a Difference in Your Organization?

by Jim DeLoach
September 19, 2023

Protiviti’s Jim DeLoach revisits some of his writing from half a decade ago to see if companies are making good on the promise offered by technology to deepen the effectiveness of their risk management processes.

Read moreDetails

Why are fines so high?

There are a multitude of factors that can lead to penalties being disproportionate to a company’s balance sheet and cashflow forecast. It is important to consider the punitive nature of the sentencing guidelines, which involve penalties and fines beyond simply the disgorgement of ill-gotten profits.

Penalty and fine amounts can quickly stack up depending on the treatment of certain elements. For example, if revenue rather than profits drives the calculation, the potential penalty could skyrocket, and even sometimes when the calculation is profit-driven, many relevant costs may be excluded or disallowed, such as debt service, tax and overhead. 

Regulators may also disallow losses incurred during the relevant period (e.g. on a specific contract, within an accounting period, etc.), meaning the losses cannot be offset against the profits earned elsewhere. If the maximum multiplier is applied, this could quadruple the fine amount. Additionally, if violations are treated on a per-instance basis rather than as one overarching scheme, and if the number of instances is voluminous, then the fines can soon become unaffordable.

The length of time from investigation to settlement also affects the final figure, and as time passes, fine amounts can continue to pile on as factors like pre-judgment interest and/or inflation come into play. After the regulatory settlement, companies still may not be in the clear; additional penalties and fines can continue to pile up as regulatory fines are often followed by civil litigation.

What exactly is an ability-to-pay analysis?

Ability-to-pay analyses, or ATPs, involve assessing the impact a penalty would have on the ongoing operations of a company, typically forecasting the flow-on effects for up to three to five years. The analysis also allows regulators and the company to assess the maximum penalty that a company can pay as well as the timing of penalties — for example if deferrals or installment payments are permitted and warranted.

As stipulated in the U.S. guidelines, an ATP calculates an alternative to, “an otherwise appropriate amount to resolve an alleged claim or violation of law because it lacks sufficient assets required to pay the government and meets its ordinary and necessary business and/or living expenses” … [p]rovided, that the reduction … shall not be more than necessary to avoid substantially jeopardizing the continued viability of the organization.”

Naturally, the best-case scenario is that the regulators accept the ATP analysis and factor it into the final settlement figure; however, this analysis is one with minimal downside. Even if the regulators do not accept the ATP analysis in the aggregate, the analysis at least contextualizes the severity of the fine and can be used as a negotiation point as discussions progress.

Given the significant impact that an ATP analysis can have on the final settlement amount, these analyses must be empirical and underpinned by sound objective judgment around key assumptions. Regulators typically do not disclose details around the methodology for calculating the final penalty amount, which leaves much to be desired for companies interested in crafting an ATP analysis. Though many of the details are not shared publicly, we know from our experience working on several of these types of matters where ATP comes under consideration — Petrofac, for example — that regulators are becoming increasingly conscious of a company’s financial position and potential impacts that a large penalty would have on the broader market. 

This article was first published at ForensicRisk.com; it is republished here with permission.

Tags: Risk Assessment
Previous Post

The Employee Firewall: Strengthening Your Organization’s Cyber Defenses

Next Post

Why Transparency Matters in Sustainability: A CEO’s Insights

Ash Klass and Carolyn McDonnell

Ash Klass and Carolyn McDonnell

Ash Klass is a director in Forensic Risk Alliance's Paris office. He is a qualified accountant with more than nine years of experience in forensic accounting, bribery and corruption, asset tracing, disgorgement and ability-to-pay calculations. Ash has been involved in a wide range of assignments in the aerospace, banking, oil and gas, engineering and manufacturing industries across the Americas, Europe, Middle East and Asia-Pacific.
Carolyn McDonnell is an associate director in FRA's Washington, D.C. office. She is a specialist in forensic investigations and regulatory work with over nine years of experience in forensic accounting, including disgorgement and fine calculations, monitorships, investigations, anti-money laundering, trade sanctions, False Claims Act and transaction testing.

Related Posts

ai policy

Planning Your AI Policy? Start Here.

by Bradford J. Kelley, Mike Skidgel and Alice Wang
May 7, 2025

Effective AI governance begins with clear policies that establish boundaries for workplace use. Bradford J. Kelley, Mike Skidgel and Alice...

business relationship concept hands

Relationship (Owner) Goals: Why Half Your TPRM Red Flags Stay Hidden

by Chris Audet
April 9, 2025

The front-line staff who manage vendor relationships are uniquely positioned to spot problems before they escalate, yet many organizations fail...

cute robot looking at financial volumes

AI’s Dual Role in FinServ Risk Management

by Nalini Priya Uppari
March 28, 2025

As technology evolves, so do the tools that help banks and investment firms maintain stability amid uncertainty

mineral mining operation

Why Critical Minerals Demand a Compliance Revolution

by Rebeca Vergara Gaona
February 11, 2025

Corporate compliance lessons could help strengthen intergovernmental mineral agreements before problems arise

Next Post
circular lake in middle of forest

Why Transparency Matters in Sustainability: A CEO’s Insights

No Result
View All Result

Privacy Policy | AI Policy

Founded in 2010, CCI is the web’s premier global independent news source for compliance, ethics, risk and information security. 

Got a news tip? Get in touch. Want a weekly round-up in your inbox? Sign up for free. No subscription fees, no paywalls. 

Follow Us

Browse Topics:

  • CCI Press
  • Compliance
  • Compliance Podcasts
  • Cybersecurity
  • Data Privacy
  • eBooks Published by CCI
  • Ethics
  • FCPA
  • Featured
  • Financial Services
  • Fraud
  • Governance
  • GRC Vendor News
  • HR Compliance
  • Internal Audit
  • Leadership and Career
  • On Demand Webinars
  • Opinion
  • Research
  • Resource Library
  • Risk
  • Uncategorized
  • Videos
  • Webinars
  • Well-Being
  • Whitepapers

© 2025 Corporate Compliance Insights

Welcome to CCI. This site uses cookies. Please click OK to accept. Privacy Policy
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT
No Result
View All Result
  • Home
  • About
    • About CCI
    • CCI Magazine
    • Writing for CCI
    • Career Connection
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Library
    • Download Whitepapers & Reports
    • Download eBooks
    • New: Living Your Best Compliance Life by Mary Shirley
    • New: Ethics and Compliance for Humans by Adam Balfour
    • 2021: Raise Your Game, Not Your Voice by Lentini-Walker & Tschida
    • CCI Press & Compliance Bookshelf
  • Podcasts
    • Great Women in Compliance
    • Unless: The Podcast (Hemma Lomax)
  • Research
  • Webinars
  • Events
  • Subscribe

© 2025 Corporate Compliance Insights