Today let’s return to that speech that deputy attorney general Lisa Monaco delivered last week at the Society of Corporate Compliance & Ethics annual conference. Monaco’s announcement of a new safe harbor policy for acquisitions got the headlines, but there was plenty else in her remarks that also deserves our attention.
For starters, Monaco talked at length about new remedies the Justice Department is trying to impose on companies when settling corporate misconduct. That’s something compliance officers need to watch closely, either so you can brief your board about the range of potential remedies your company might need to accept in a settlement, or simply to understand for yourself what you might need to do to put those remedies into practice.
For example, Monaco pointed to settlements with Teva Pharmaceuticals and Glenmark Pharmaceuticals announced in August, for their roles in a price-fixing scandal in the generic pharmaceuticals market. Both companies had to pay criminal penalties ($225 million for Teva, $30 million for Glenmark), which is nothing new — but they must also divest themselves of their drug lines for pravastatin, a widely used cholesterol drug at the heart of the price-fixing conspiracy. It’s the first time the Justice Department has made divestiture part of the settlement in a corporate criminal resolution.
Divestiture isn’t the only alternative remedy on the table. Monaco also talked about “specific performance,” which is lawyer-speak for “go do this specific task as part of the deal.” Here she pointed to the case against Suez Rajan Ltd., a Greek shipping concern caught transporting Iranian oil in violation of U.S. sanctions. Not only did the company plead guilty and pay a $2.5 million fine; it had to surrender 1 million barrels of Iranian oil to the United States.
And the department is pushing companies to revamp their compensation policies to include “compliance-promoting criteria.” That featured in recent settlements with Corficolombiana and Albemarle Corp.
Which brings us to the most interesting example of all. We need to talk about Albemarle.
The Albemarle FCPA Settlement
Albemarle is a chemicals company in North Carolina that paid $218 million to settle civil and criminal FCPA charges at the end of September. One line of business is to sell chemicals to oil refineries, which means Albemarle deals with a lot of state-owned oil companies. We all know what that means: corruption risk sky-high.
The misconduct in question involved Albemarle engaging with numerous sketchy intermediaries from 2009 to 2017 to secure business contracts in India, Indonesia, and Vietnam — but honestly, we can go over the details of that misconduct another day. I’m more interested in the remediation measures Albemarle had to undertake as part of its settlement.
The non-prosecution agreement with the Justice Department listed numerous remediation steps Albemarle implemented. Some were the usual fare we see in FCPA enforcement actions, such as better data analytics and firing the worst-offending employees. Three in particular, however, caught my eye:
- Transforming its sales model, from one that relied on sales agents, resellers, and distributors to a direct-sales structure. That eliminated the need for hundreds of third-party sales representatives, a prime corruption risk.
- Providing extensive training to in-house sales team and restructuring compensation and incentives, so that compensation is no longer tied to sales amounts;
- Commencing those steps (and other measures) based on Albemarle’s own internal investigation, rather than waiting until regulators conducted their own investigation.
The first two bullet points above are so telling because they were major changes to how the company operates; that’s exactly what Monaco meant when she talked about “new remedies” beyond the routine of corporate penalties and reforms to the compliance program.
The Justice Department will now consider — and where necessary, enforce — strategic changes to a company’s operations (the divestitures at Teva and Glenmark); tactical changes to those operations (new sales structures and compensation plans at Albemarle); and specific actions companies must take with the assets they have (Suez Rajan surrendering its oil).
The third bullet point is interesting in a different way. It shows that companies should be willing to undertake compliance program reforms while the regulators’ investigation is ongoing. That is, you shouldn’t investigate first and then remediate; you should remediate while you investigate, to whatever extent is possible.
What This Means for Compliance Officers
If we’re to take Monaco at her word, that the Justice Department will seek deeper and more substantive changes to corporate operations as part of misconduct settlements, that raises an important question for compliance officers.
Where do you fit into that more far-reaching enforcement environment?
That is, if your company is going to restructure its entire sales system as part of a compliance settlement, that’s a decision that typically goes to senior management and the board before it’s made. Will you get to be part of that decision process? Or look at Teva and Glenmark, divesting whole lines of business as part of a criminal settlement; that’s definitely a decision that goes to the board. Will you get to be part of those discussions?
Another way to put it is to say that if these new remedies Monaco talks about transcend the usual rigamarole of compliance policies and procedures and get to the very guts of how a company operates, then the role of the compliance function might need to transform too. You’d become more of a strategic adviser to senior management and operations about how to embed compliance goals into the business, and how to keep those operations on the true, compliant course.
That’s not a bad goal for compliance officers to have. I’m just not quite sure how many general counsels, chief operating officers, CEOs, and boards are ready to go along with it yet.