Last April, the U.S. Department of Justice, through its Criminal Division, released a guidance document entitled “The Evaluation of Corporate Compliance Programs,” (the “Guidance”) for use by U.S. Department of Justice’s white-collar prosecutors on the evaluation of corporate compliance programs.
The evaluation of the corporate compliance program is one of the factors that prosecutors should consider when conducting an investigation of a corporation that has allegedly committed an offense or misconduct, to determine whether to bring charges or negotiate a plea or, in other cases, to calculate the amount of the applicable corporate fine.
Although the Guidance is addressed to the prosecutors (in other words, is not applicable to the corporations), it serves as practical guidance for corporations on the U.S. Department of Justice’s expectation of an effective corporate compliance program. In addition, it reminds corporations of the type of documentation that they should have available (including at the Board level) to demonstrate their fulfillment of some of the elements described throughout the Guidance.
The Guidance sets forth topics that the U.S. Department of Justice has frequently found relevant in evaluating a corporate compliance program, organizing them around three key questions:
- Part I – Is the corporate compliance program well-designed? Discusses risk assessments; policies and procedures; training and communications; confidential reporting structure and investigation process; third-party management; and, mergers and acquisitions.
- Part II – Is the corporate compliance program effectively implemented? Highlights the commitment by senior and middle management; the autonomy, resources and incentives; and, the disciplinary measures.
- Part III – Does the corporate compliance program actually work in practice? Details mechanisms to assess if the compliance program is operating effectively such as metrics, testing, investigations of potential misconduct.
It becomes clear from reading the Guidance, but particularly Part II therein, that the U.S. Department of Justice expects Board members to play an active role to ensure the existence and maintenance of an effective corporate compliance program. It is no longer enough for Board members to simply be aware of the existence of the corporate compliance program and receive periodic updates.; instead, Board members should clearly evidence their commitment to the successful implementation and operation of the corporate compliance program.
Assessing if the corporation has created and foster a culture of ethics and compliance with the law is one of the relevant elements to review, as per Part II of the Guidance. To achieve the foregoing, the corporation requires a high-level commitment by its leadership, including the Board members, setting the ‘tone from the top’; serving as role models for the rest of the organization; and, taking concrete actions to model and encourage proper behavior. Specifically, prosecutors are likely to assess if the Board:
- Actively oversees the effectiveness of the corporate compliance program and periodically holds executive or private sessions with Compliance personnel;
- Maintains reasonable expertise available within its members;
- Provides the Compliance function full and direct access to the Board and/or its committees;
- Ensures that the Compliance function is appropriately staffed and has sufficient funding allocated to effectively perform its responsibilities; and
- Ensures that the Compliance function is independent from management, which may even include the establishment of reporting lines to anyone on the Board and/or its Audit Committee.
Why is this information useful for Mexican corporations, senior executives and Board members, if it discusses a document published by a U.S. authority, targeted to a specific audience (U.S. prosecutors) and not even mandatory for U.S. companies?
I believe it is very useful because:
- It constitutes a clear framework that may be used to further educate the Board about the importance of developing, implementing and maintaining a corporate compliance program;
- In light of the current, limited, compliance-related regulatory framework in Mexico, it can guide corporations in their efforts to develop, implement and maintain an effective corporate compliance program;
- Given the fact that the Guidance is risk-based, it facilitates the definition of priorities, based on the corporation’s evolving risk profile;
- It promotes and facilitates the early identification of risks, allowing the prevention of problems down the line.
- The U.S. Department of Justice has always played a significant role in industry developments in the U.S. and U.S. practices and trends have traditionally influence the Mexico market;
- Subsidiaries and affiliates of U.S. corporations with presence in Mexico will most likely incorporate and follow this guidance, eventually leading other entities to adopt similar practices;
- Even though nowadays the number of prosecutions in this field, in Mexico, is limited, it evidences the corporation’s character towards promoting a healthy risk and ethics culture within the organization, which may be a favorable evaluation factor when determining the imposition of a fine.
You can read the full text of U.S. Department of Justice’s Guidance document by clicking here.