With the writing of the Yates memo and appointment of the first-ever compliance counsel of the Justice Department (DOJ), Washington is showing its teeth when it comes to compliance. Recently FINRA has actually “bitten”: a former AML compliance officer was fined $25,000 and suspended for three months. How prepared are you to avoid a similar fate?
The CLEAR Picture had the opportunity to talk with Brett Ingerman, a partner at DLA Piper and cochair of the firm’s Global Governance and Compliance practice, on the results of their first ever Compliance and Risk Report and the implications of the findings in regards to compliance professionals.
The last year was incredibly active for compliance professionals. Most notably, the Yates Memo, delivered by DOJ Deputy Attorney General Sally Yates in September 2015, now holds individuals and potential CCOs and other compliance professionals, personally liable for the company’s wrongdoing. Furthermore, the DOJ has appointed Hui Chen, their first-ever own compliance counsel, further reinforcing the focus in this area and creating concerns about increased scrutiny among the compliance industry. It was this mounting pressure that was a partial impetus for the recently formed DLA Piper Global Governance and Compliance practice group to create the 2016 Compliance and Risk Report.
The report clearly shows that the DOJ’s scrutiny impacts industries differently, but has wide-reaching effects. Even though the finance and insurance industries have responded to increased oversight and regulations in the past, they are now realizing that their current efforts may need to be increased.
While compliance is a top concern for many organizations, it remains a non-revenue-generating cost center, and is rarely as well funded as the professionals embedded in it would like it to be. According to the report, only 30% of CCOs feel they have sufficient resources to do their job. Coupled with the fact that CCOs can now be held responsible for failures, this magnifies the concern for those compliance professionals who feel financially unsupported.
A whopping 87% of all survey respondents believe that the DOJ’s recent appointment of Hui Chen will intensify the pursuit of cases against CCOs, and nearly 100% of respondents felt that the scrutiny of compliance programs would intensify. Notwithstanding this universal concern, only 21% of respondents have made any changes to their compliance programs as a result. While some of these respondents feel comfortable with their current programs, others may be caught blindsided when they discover, through a government investigation, that their programs are woefully underfunded and understaffed.
The question then becomes: How can those CCOs ensure funding and stay out of trouble, especially in this growing/dynamic environment? First and foremost, it is the CCOs responsibility to keep the board abreast of all activities and any perceived resource shortage. Answered one respondent, “I would think, if I didn’t have the right resources, that the board and management would expect me to come to them and say, ‘This is what I think I need.’ If I didn’t do that, shame on me for not raising the point.”
“Accountability rests ultimately with the board of directors” in regards to ensuring resources to remain compliant, explains Brett, citing the 1996 Caremark decision that held the board of directors responsible for failing to put in place adequate internal control systems. “The board of directors is required to not only understand the scope and effectiveness of their company’s compliance program, but take a vested interest in it,” explains Brett.
Even so, 47% of all CCOs have encountered resistance when asking for more budget. In an effort to increase funds for the compliance department, one strategy is to continually highlight the unsafe path if the company fails to adequately support the department financially. One respondent recommended sharing the cost of even one violation versus the cost of preventative measures. Compliance leaders could take a case study ripped from the headlines to demonstrate the high costs – financially and to the company’s reputation – caused by failure to support the compliance function.
This increased scrutiny will undoubtedly impact the professionals in the compliance industry. In fact, according to the report, 65% of respondents said that these changes will have an impact on their decisions to even remain CCOs. The company, industry, and level of risk will be taken into account. Brett asserts that it is up to the companies to ensure the security of their CCOs. “Companies are going to take the necessary steps to protect their compliance officer – making sure their CCO is covered by the insurance policy and making sure bylaws include indemnifications. We will see companies adjust to the specter of the liability.”
The increased pressure, new regulations, and the potential for greater individual liability will play a large role in the coming years and reshape what is expected from compliance officers. Those caught unprepared can face even stiffer consequences, beyond the $25,000 fine of that former AML officer. The CCO will face tough decisions not only with compliance strategies and activities within their company, but within their career as well. As one respondent remarked on looking for a new compliance job, “You’re going to weigh the risk of whether it could destroy your career and personal life.”
DLA Piper’s 2016 Compliance and Risk Report: CCOs Under Scrutiny is the first of its kind. View results and download the report online. DLA Piper is already working on a second compliance survey, taking a closer look at the opinions of directors and the unique issues that multinational business face.
Brett Ingerman is a partner and cochair of DLA Piper’s Global Governance & Compliance practice. His primary areas of practice are business and commercial litigation and arbitration, with a focus on complex commercial disputes and lender liability issues. Brett also has significant experience in corporate investigations and compliance involving criminal, quasi-criminal and administrative agencies. Brett has designed and implemented global compliance programs for companies large and small, and focuses on providing practical compliance advice consistent with best practices and local custom.