On November 2, at a speech at the Securities Industry and Financial Markets Association (SIFMA) Compliance and Legal Society New York Regional Seminar, Assistant Attorney General Leslie Caldwell discussed compliance issues and the Fraud Section’s hiring of Hui Chen, the former head of compliance for Standard Chartered Bank, as its first full-time compliance expert.
Caldwell spoke about how critically important it is for companies to have strong and broad-based compliance programs that receive “adequate resources and management attention.” She noted that companies should stay away from a “narrow, cramped view of compliance – that requires only adherence to specific regulations.” As an example, she pointed to the government’s foreign currency manipulation investigation and how a target bank’s compliance program did not address certain clear risks in the F/X business because the bank believed the market was largely unregulated by the SEC and CFTC. Caldwell stated that the bank’s narrowly-tailored compliance program resulted in the bank pleading guilty and paying millions of dollars in fines when it turned out that the bank’s traders were colluding with others to manipulate the foreign currency markets.
Caldwell also provided insight into the DOJ’s recent hiring of a compliance expert, Chen, and how Chen will assist prosecutors in the Fraud Section. Caldwell stated that Chen will help the DOJ assess a company’s compliance program, “as well as test the validity of [the company’s] claims about its program, such as whether the compliance program truly is thoughtfully designed and sufficiently resourced to address the company’s compliance risks, or essentially window dressing.” Moreover, Chen “will help guide Fraud Section prosecutors when they are seeking remedial compliance measures as part of a resolution with a company, whether by prosecution or otherwise.”
Caldwell noted that the DOJ’s retention of a compliance expert is not an indication that it is moving toward recognizing or instituting a “compliance defense.” But the government’s evaluation of a company’s compliance program will be among the “many factors” considered when deciding whether to criminally charge a company or how to resolve a criminal charge.
Caldwell listed certain hallmarks of an effective compliance program such as whether the program receives support from directors and senior managers, whether policies are clear and in writing and effectively communicated to all employees, whether those policies are kept up to date with evolving risks and circumstances, and whether a company, once investigated, is candid with regulators.
It remains to be seen how exactly the Department uses Chen’s expertise. Caldwell’s speech emphasized the important role the DOJ’s new compliance counsel will play in its investigations, including FCPA investigations. While Caldwell rejected the notion that the DOJ is recognizing a compliance defense, the DOJ’s hiring of a compliance expert may lead to better informed prosecutors, which may help companies make their case that any FCPA violations were not a result of institutional failures. However, companies should also be ready for the DOJ to more critically examine their compliance efforts and claims that their compliance and training programs are truly as effective and far reaching as advertised.