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Enough About CCO Liability!

Compliance officers should welcome the arrest several days ago of Volkswagen’s head of U.S. regulatory compliance—because, at long last, that action seems to be snapping us out of our misplaced fears of compliance officer liability.

The compliance executive in question is Oliver Schmidt, who headed VW’s emissions compliance office here in the United States from 2013 through 2015. As such, Schmidt was always destined to play an important role in Volkswagen’s emissions testing scandal.

According to the affidavit against him, it simply looks like Schmidt decided to play the wrong one.

For example, allegations that Volkswagen might have been lying about its emissions testing results first emerged in 2014. In an email Schmidt sent to fellow managers on April 2, the exact day he learned about the questionable results, he said: “It should first be decided whether we are honest. If we are not honest, everything stays as it is.”

Full stop. Schmidt, a compliance officer, asked whether the company should respond to regulators honestly or use deception as a strategy. That is grounds to be evicted from the compliance officer club right there and then.

Other details in the affidavit do Schmidt no favors. In July 2015 he gave a presentation to senior VW executives in Germany, where they talked about a crucial meeting he would soon have with U.S. regulators. Schmidt told the group that without a satisfactory explanation, “Indictment?” might be the result. (Seriously, he had “Indictment?” on the PowerPoint slide.)

Even after that meeting, the affidavit said, “VW management authorized its continued concealment.”

In other words, Schmidt was arrested because he may well be complicit in VW’s misconduct. Compliance officers should not find that alarming in the least. This is the way investigations into criminal misconduct are supposed to happen.

CCO Liability Phantoms

Thankfully, other voices in compliance world see that point. Roy Snell, head of the Society of Corporate Compliance & Ethics, made the distinction that Schmidt isn’t an ethics & compliance officer, as much as he is an operations executive with compliance in the title. Therefore, this isn’t a case of compliance officer liability in any sense that should alarm compliance officers.Snell is correct that Schmidt played no role in ethics training or development of a strong culture at VW. Still, even regulatory compliance officers should have some sense that lying is a problem.

CCO liabilityWe also had a Wall Street Journal item earlier this week trying to raise the question of CCO liability. Not many people taking the bait, because the case against Schmidt looks pretty bad. As fellow compliance enthusiast Michael Volkov put it, “A compliance officer is not immune from criminal liability: Just like every other executive and employee, if they commit a crime they should be prosecuted.”

The plain truth is that we’ve seen very few compliance officers face liability for corporate misconduct under any circumstances. Even those working at registered investment firms, where the rules could be interpreted to mean the compliance officers are responsible for compliance failures, don’t need to fear that they will be hauled off in handcuffs. It has hardly ever happened. Now that Republicans are about to take control of the SEC again, it definitely won’t happen in the future.

The rest of the compliance community, working in businesses like automotive, or manufacturing, or oil & gas—put your mind at ease. Unless you’re directly engaged in misconduct (as Schmidt appears to have been), you have nothing to worry about here.

1 Comment

  1. Leon on January 13, 2017 at 3:09 am

    Nice article Matt! Makes you rethink your own job and responsibility

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