Companies doing business in the United States are required to act honestly in their business dealings. Companies that have affirmative compliance and reporting requirements may suffer significant penalties if they are determined to violate applicable laws, rules and regulations. The U.S Sentencing Guidelines (USSG) provide for reduced sentencing for companies that have an effective compliance program. The Department of Justice (DOJ) Manual’s “Principles of Federal Prosecution of Business Organizations,” outlines those factors that DOJ will consider in determining whether to investigate, prosecute, and/or settle charges against a company. The Manual includes provisions on whether and to what extent a company has a working compliance program.
This week, the DOJ Criminal Division issued updated evaluation factors for the evaluation of corporate compliance programs when considering what penalties to assess against a wrongdoer. Under the updated guidance, DOJ will consider “the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of a charging decision,” and the corporation’s “remedial efforts to implement an adequate and effective corporate compliance program or to improve an existing one.”
The new guidance confirms that prosecutors are to consider whether (1) the compliance program is well designed (providing a clear message that misconduct is not tolerated; having appropriate policies and procedures to detect and prevent the most likely types of misconduct given the company’s line of business and applicable laws, rules and regulations; and ensuring integration of the compliance program into the company’s operations and workforce); (2) the compliance program is applied earnestly and in good faith (it is not just a paper process; senior and middle management are committed to a compliance culture and the company has provided adequate resources, incentives and disciplinary measures to permit effective functioning of the program and updating as necessary to address changing situations and lessons learned); and (3) the compliance program actually works in practice (misconduct alone does not mean that the program does not work and where there is actual or suspected misconduct, the company effectively identifies and investigates the misconduct, conducts a root cause analysis of the causes of the problem, and then effectively remediates and self-reports; the company also self-audits and addresses identified issues).
Government contractors are held to high standards of ethics and integrity. Under the Federal Acquisition Regulation (FAR), contractors are required to have compliance programs suitable to the size of the company and its level of involvement in government contracting. Contractors’ compliance programs should include a written code of business ethics and conduct, as well as an employee business ethics and compliance training program and internal control system. Under the program, contractors are required to timely discover and disclose improper conduct in connection with government contracts and subcontracts, and ensure that they take prompt corrective measures. FAR 3.1003 also provides for mandatory disclosure where the company, its officers or directors, become aware of credible evidence of actual or suspected violations of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations under Title 18 of the U.S. Code or a violation of the civil False Claims Act. A contractor as well as its principals may be suspended or debarred from government contracting if they fail to timely report credible evidence of such violations, or a significant overpayment. This means that, not only may a contractor suffer criminal or civil penalties for violations but its failure to timely report also may cause it to lose the right to have the government exercise options under existing government contracts as well as receive awards of new contracts.
Given this background, the Department of Justice’s amendment of the factors it looks at to evaluate company compliance programs and to determine whether to investigate, prosecute and/or settle a matter of alleged misconduct is highly relevant to government contractors of all sizes, engaged in all types of work. Contractors, and their subcontractors, should review the amended guidance against their current compliance programs to assess (i) their level of compliance and risks, and (ii) what is causing and what should be done to remediate any identified deficiencies or risk areas.
The more contractors engage in government contracting, the greater the risk that something may go awry at some point. No contractor is always perfect. Having an effective compliance program can make a difference to your ability to compete, win and retain business.
If you have questions about the content of this article, or government contractor compliance programs and issues, contact Susan Warshaw Ebner, Stinson’s Government Contracts & Investigations practice group, or your Stinson counsel.