At a recent pharmaceutical industry conference, a top Securities and Exchange Commission (SEC) enforcement official reiterated the role of strong compliance programs in helping companies avoid or mitigate the results of FCPA violations (see Ceresney, 2015).
Andrew Ceresney, director of the SEC Division of Enforcement, emphasized that “the best companies” have adopted strong FCPA compliance programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance.
Although he did not specifically mention hotlines in his speech, he did reference the Resource Guide to the U.S. Foreign Corrupt Practices Act. That publication provides guidance on what it calls the hallmarks of effective compliance programs, to include confidential reporting mechanisms, such as ethics hotlines.
Specifically, the Guide states “an effective compliance program should include a mechanism for an organization’s employees and others to report suspected or actual misconduct or violations of the company’s policies on a confidential basis and without fear of retaliation. Companies may employ, for example, anonymous hotlines or ombudsmen.”
Ceresney stated that the existence of compliance programs places companies in a good position to detect FCPA misconduct. As Ethical Advocate and others have said before, a well-run ethics hotline (part of an effective ethics and compliance program) can provide an early-warning system that helps detect potential problems and actual misconduct.
Ceresney took the opportunity to emphasize the importance of self-reporting misconduct when it is discovered and of cooperating with FCPA investigations. Such behavior can result in reduced penalties (the most common response), deferred prosecution agreements, and even non-prosecution agreements.
He said, “When we find the violations on our own, and the company chose not to self-report, the consequences are worse and the opportunity to earn significant credit for cooperation often is lost. This risk of suffering adverse consequences from a failure to self-report is particularly acute in light of the continued success and expansion of our whistleblower program.… if we learn of the misconduct through other means, including through a whistleblower, the result will be far worse.”
Clearly, it is in a company’s best interest to create and sustain a culture that promotes ethical behavior and that has mechanisms and procedures in place to detect and respond appropriately to misconduct. Ceresney’s speech is a reminder that the SEC looks for those things as well.
Please contact Ethical Advocate if you have questions about how to set up and manage an ethics hotline or program.
Ceresney, Andrew. FCPA, Disclosure, and Internal Controls Issues Arising in the Pharmaceutical Industry [speech transcript]. March 3, 2015. http://www.sec.gov/news/speech/2015-spch030315ajc.html#.VPoelK10whm
U.S. Department of Justice and U.S. Securities and Exchange Commission. A Resource Guide to the U.S. Foreign Corrupt Practices Act, November 2012. http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf