Since the NEOACC presentation on August 16, 2012, Roetzel has received e-mails from attendees who went back and reviewed compliance programs within their company and are now asking what a compliance program should include. In response, we are providing what the Office of Inspector General (“OIG”) has set forth as the necessary, fundamental elements for an effective compliance program:

  • Implementing written policies and procedures;
  • Designating a compliance officer and compliance committee;
  • Conducting effective training and education;
  • Developing effective lines of communication;
  • Conducting internal monitoring and auditing;
  • Enforcing standards through well-publicized disciplinary guidelines; and
  • Responding promptly to detected problems and undertaking corrective action.

These elements are included in previous guidances issued by the OIG. As with previously issued guidances, this compliance program guidance represents the OIG’s suggestions on how businesses can establish internal controls to ensure adherence to applicable rules and program requirements. These elements should not be viewed as mandatory or as an exclusive discussion of the advisable elements of a compliance program, as it is imperative that a compliance program is designed to the needs of a company. The document is intended to present voluntary guidance to the industry and not to represent binding standards for businesses.

In a recent decision, the Financial Industry Regulatory Authority (“FINRA”) applied the necessity of implementing an effective compliance program and a policy to detect and prevent manipulative trading practices to expel a corporation and bar its CEO from further trading activity. FINRA found that during various periods from June 2007 to June 2010, Biremis, Corp. (“Biremis”) and its President and Chief Executive Officer Peter Beck, failed to establish a supervisory system reasonably designed to achieve compliance with the applicable laws and regulations prohibiting manipulative trading activity. Per FINRA, “Among other things, Biremis' supervisory system failed to include policies and procedures designed to detect and prevent layering on U.S. markets. Layering involves the placement of non-bona-fide orders on one side of the market in order to cause market movement that will result in the execution of an order entered on the opposite side of the market, after which the non-bona-fide orders are then canceled. Biremis also failed to establish policies and procedures reasonably designed to detect and prevent manipulative activity designed to affect the closing price of a security. As a result, Biremis failed to detect and prevent potential layering activity and potential manipulation of the closing price of equity securities on U.S. markets.” This is a great example of non-governmental agencies applying the lack of an effective compliance program as evidence of negligence and thus liability.

What is also disturbing is that within the Department of Justice (“DOJ”), corporate compliance programs are not treated equally among the agency’s various divisions. As indicated at the NEOACC seminar, The U.S. Attorneys’ Manual expressly “recognizes that no compliance program can ever prevent all criminal activity by a corporation’s employees.” All but one of DOJ’s divisions applies this principle. However, the Antitrust Division believes that an antitrust violation directly correlates to a “failed” compliance program, one not deserving of credit under the Federal Sentencing Guidelines.

Rather than rewarding compliance efforts as a means of overall prevention of antitrust violations, the Antitrust Division applies the illogical assumption that if criminal or negligent conduct occurred, even when a compliance program is in place, that the compliance program is de facto noneffective and not properly implemented. Thus, a significant emphasis within a compliance program must be placed on conducting effective training and education, developing effective lines of communication, conducting internal monitoring and auditing, and responding promptly to detected problems and undertaking corrective action.

When reviewing a company's compliance program, ascertaining the existence of the fundamental seven elements is necessary and must be part of the evaluation as to the effectiveness of the compliance program and implementation. We are still available to respond to questions attendees may have regarding the implementation and effectiveness of a compliance program.