United

States Department of Justice ("DOJ") published on its website a new guidance

paper called "Evaluation of Corporate Compliance Programs" ("Evaluation") in

February 2017. The Evaluation provides insight into how the DOJ evaluates compliance

programs by setting forth the questions DOJ frequently uses when deciding on fine

mitigation or entering into a plea agreements.

While

documents such as the United States Attorney's Manual, United States Sentencing

Guidelines and A Resource Guide to the U.S. Foreign Corrupt Practices Act

("FCPA Guide") define "what" elements a compliance program is expected to have,

the Evaluation provides guidance on "how". The document does not put forward

any new elements for compliance programs, but provides compliance professionals

with a useful tool that they can use while assessing the integrity of their

compliance programs. In fact, many questions listed in the Evaluation would be

hard to answer vis-a-vis a paper compliance program. An example of such as a

question would be "Were there prior

opportunities to detect the misconduct in question, such as audit reports

identifying relevant control failures or allegations, complaints or

investigations involving similar issues?".  On that note, the DOJ is quick to assert its

caveats that the question list should not be utilized as a box checking

exercise. This is noteworthy point: as stated time and again when explaining

the intricacies of compliance programs, there is no one-size-fits-all approach

in compliance. How a compliance program should be established, operated and

emphasized depends on many factors such as the size, sector, jurisdiction or

the history (any previous FCPA violations) of the company. Hence, the question

list should be used in an analytical approach in determining the crucial elements

of a compliance program but fine tuning them in implementation, in accordance

with the individual needs of the company.

(II) Issues Covered

The

Evaluation is essentially a question list comprised of 11 sections, similar to

the categorization made for the hallmarks of a compliance program in the FCPA

Guide. Below are our analyses of the issues covered by the Evaluation.

(1)

Analysis and Remediation of Underlying Misconduct

Under

this section the Evaluation emphasizes making "a root cause analysis" and determining

"systematic" problems, if any. Questions under this section encourage the

companies to regard compliance programs not as one-time disconnected mistakes,

but as a result of the wider company climate. If in this way, the underlying

problem can be identified, analyzed and remedied, the improved compliance

program will be stronger.

(2)

Senior and Middle Management

Here

we observe an emphasis on "shared commitment" where the "concrete acts" of the

senior management is supported by, among others, middle managers. Further, we

observe potential inquiries into sensitive issues such as how a company

monitors its senior leaders' behavior.

(3) Autonomy and Resources

The

question set in this section is tough: Issues such as whether the compliance

department involved in the decision making of the relevant conduct, whether the

compliance department has a direct reporting line to the board of directors or

whether request for funding by the compliance department ever been denied.

Generally this section aims to determine whether (i) the company's compliance

department takes part in the decision-making process, (ii) is sufficiently

qualified and experienced, (iii) autonomous, (iv) empowered and (v) have

sufficient resources.

(4) Policies and Procedures

This

section is divided into two sub-sections: (i) Design and Accessibility and (ii)

Operational Integration. The first sub-section deals with issues such as

whether relevant business units have been involved in the designing of the

policy, whether the policies have been implemented effectively and whether

gatekeepers (e.g. the persons who issue payments or review approvals) have been

provided with sufficient training. The second sub-section is with regard to how

these policies and procedures are integrated in the field including vendor

management an inquiry into how the misconduct was funded.

(5) Risk Assessment

This

section demonstrates that the DOJ takes into consideration the methodology for

risk assessment and how effective that methodology is.

(6) Training and Communications

Questions

in this section aim to find out whether tailored training in accordance with

the real risks faced in the field have been provided, whether the language of

the training was appropriate, whether company's reaction to misconduct was

communicated to the employees and whether guidance have been available to

employees.

(7) Confidential Reporting and Investigation

Here,

ensuring the objectivity and independence of internal investigations have been

emphasized. Again, we see the expectation that the investigation should be

aimed at identifying the root causes of the problem. Further, merely

investigating the problem is not enough, as DOJ also inquires the responses by

the company to the investigative findings.

(8) Incentives and Disciplinary Measures

The

questions under this section tackle with the gist of the compliance program.

After all, what is the use of rules if one is not to implement them? Issues

such as whether disciplinary actions are taken in the face of misconduct,

whether managers are held accountable, whether failure to supervise has been

sanctioned and whether the company incentivized ethical behavior should be

reviewed.

(9) Continues Improvement, Periodic Testing and Review

This

section provides questions which indicate the need for testing compliance

programs by reviews and internal audits which include interviews with employees

and third parties.

(10) Third Party Management

The

questions provided in this section relate to whether the mechanism for third

party management is implemented according to the risks presented by the third

party and whether the third parties are supervised appropriately and when a

misconduct occurs how are third parties with similar red flags are managed.

(11) Mergers and Acquisitions

This

section sets forth questions with regard to the due diligence process before a

merger or an acquisition; and the integration and implementation of the

compliance program in the new entity.

(III) Conclusion

The Evaluation can help compliance professionals gain a

deeper understanding of how DOJ evaluates compliance programs, as the document

focuses on "how" a compliance program can be effective rather than "what" its

elements should be. The questions are detailed and aimed at tackling issues

that might be the common problems in different compliance programs. It is a

valuable addition to other guidance documents, such as the FPCA Guide, published

by the DOJ.

Authors:

Gönenç Gürkaynak, Esq., Ç. Olgu Kama and Burcu Ergün, ELIG, Attornesy-at-Law

First

published in Mondaq on April 24, 2017.