How do you evaluate compliance programs? One government agency has the answer, but no one has noticed!

Joe Murphy

 By Joe Murphy

Recently the ABA Antitrust Section, led by the Compliance and Ethics committee, put on an excellent program about the Monaco memo.  The presenters were Rebecca Ryan, Eyitayo “Tee” St. Matthew-Daniel, and Sarah Flanagan, with Lauren Briggerman as moderator.  The coverage of the key topics was very useful.  But an important point was made in the discussion that it is likely no one noticed.  Yet it contains a strong answer for a perceived dilemma in the compliance field that academics who write about our field have been missing, and one that those who question how to assess compliance programs have mostly overlooked. 

In the literature about compliance and ethics, academics have bemoaned the idea of “cosmetic compliance” or the assumption that governments were too naïve to assess compliance programs. In this hypothesis the company lawyers would just say the company had an excellent compliance program and the poor government types would be overwhelmed and fall for the fake program.  These writers create this enormous dilemma that dooms any effort by government to encourage or recognize compliance programs.  Mostly this is based on no actual experience, either in developing programs or in assessing them. 

I have argued for years that this supposedly unsolvable dilemma is for the most part a product of those who have never actually tried to assess a compliance program.  For example, one truly amazing point in the literature is that, as far as my review of the most prominent publications has revealed, no one in academia has ever tried to examine their own university’s compliance program to get a sense of how programs actually work. (Universities are among the largest industries and typically have very substantial compliance programs.  The lists of violations and misconduct taking place in universities is every bit as significant as those in other industries.)  All this would involve might be walking across a leafy campus to the compliance office and taking a look.  But no one in academia that I know of apparently does that.

So what revelation came from this ABA program?  Eyitayo “Tee” St. Matthew-Daniel, who formerly served in the Antitrust Division, revealed the secret that has been in plain sight since 2019.  She described how, when the Division was conducting an investigation in a criminal case, investigators actually asked witnesses about the company’s compliance program.  That was it!  Big mystery solved!  You ask the employees. This was apparently such a novel concept that no scholar could discover it. 

Tee then explained how this remarkable method worked.  She said that in regular interviews of businesspeople they ask if the person knows of the compliance program.  They ask about the compliance training.  They ask where the person would go if they thought there was a concern. 

Later, Becca Ryan, currently in the Division, confirmed Tee’s point.  She noted that Division prosecutors ask compliance questions during the course of their investigation, directly to employees.  They ask about the implementation and effectiveness of the program.

Perhaps in writing this piece my years of frustration are showing. The Antitrust Division, in its remarkable 2019 guidance document on evaluating compliance programs, produced a guide that, in my opinion, was even better organized and more insightful than one issued earlier by the Criminal Division.  In the opening language it set out its approach in language that has been almost universally overlooked.  There it states:

“Division prosecutors should evaluate compliance programs throughout the course of their investigation, including asking relevant compliance-related questions of witnesses, and should not wait for companies to offer a compliance presentation before beginning their evaluation of a company’s antitrust compliance program.” U.S. Department of Justice Antitrust Division, Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations 2-3 (July 2019). 

(It should be noted that this document represented a dramatic improvement in the Division’s approach to compliance programs, which had previously been to ignore compliance programs.)

When Tee spoke she confirmed how this is, in fact, being done.  

In the past I believe compliance program assessment by government was perceived to be limited to what I refer to as the Dog and Pony show, where a company’s outside counsel comes in with the dogs and ponies (codes of conduct, policies, training attendance records, etc.) and supposedly wows the government folks in the room.  At least this is how the critics saw it.  

There is certainly value in having an opportunity to talk with the government and present what you have.  There can be cases, like the Criminal Division’s MorganStanley case, where an employee perpetrator would have denied the compliance program was effective, but the record showed how wrong he was.  

Perhaps Tee, with her straightforward explanation of the real world, will start causing people to be more realistic about this assessment process.  And for companies, we should think about this.  Do your people even know you have a compliance program?  If someone sitting next to them on their next airline flight asked about the company’s program, what would they say?  If you are concerned about how the government will perceive your compliance program, maybe for now you can put the ponies out to pasture and just let the dogs out for a while. Instead, talk with your people and let that be your first measure.  If they can’t answer Tee’s question, then there is your answer.  You simply do not have an effective compliance program, no matter how many files you have on your laptop about your program.  

Want to evaluate a compliance program, whether you are inhouse or in the government?  The Antitrust Division has your answer:  ask your people.  Yes, there are many evaluation and measurement tools that can also help.  But nothing replaces talking with and listening to your employees.  Can the government effectively evaluate and test your compliance program?  Now we have an answer.  Thank you, Tee.  And thank you, Ann O’Brien, formerly at the Division, who helped bring about the 2019 Guidance Document and the course the Division has taken that others should follow.

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