Don't Think About Profits When Weighing Compliance, South Florida Feds Warn
The regional director of the U.S. Securities and Exchange Commission and the Miami U.S. attorney warn corporate compliance flaws come with costly consequences.
November 20, 2019 at 05:00 PM
4 minute read
Corporate compliance comes with a price tag, but two federal enforcement officials on Wednesday stressed the higher potential cost of keeping compliance programs in the original shrink wrap, as Enron Corp. literally did.
"Do not look at it from a profit perspective," said Eric Bustillo, regional director of the U.S. Securities and Exchange Commission in Miami. "You've got to look at it from the perspective of, if something goes awry, you could end up paying $5 billion."
That was a shorthand reference to Facebook's record-setting settlement with the Federal Trade Commission in July. The SEC reached a settlement of its own worth $100 million.
"They obviously had a defective tone at the top," said Holland & Knight partner Mitchell Herr, a former SEC attorney. Corporate culture was a theme in discussions of compliance at the Florida Enforcement Summit hosted by Holland & Knight in Miami.
"You can't just say I've bought a compliance system and it's on the shelf," Bustillo said. "At the end of the day, it's the leadership of the organization that sets the tone for employees."
And the simple adoption of a compliance program isn't sufficient. The enforcers repeatedly said they are looking for "robust" programs that are regularly updated, require annual employee training and answer to top executives.
Bustillo ticked off whistleblower numbers to reinforce the value of internal compliance efforts, saying his agency received 5,200 tips from more than 70 countries in the past year with upticks in Foreign Corrupt Practices Act, financial and cybersecurity complaints.
Holland & Knight partner Wifredo Ferrer, a former Miami U.S. attorney, said eight of 10 whistleblower complaints received by prosecutors were delivered by employees because their companies didn't listen to them. He said they were "ignored, fired or just swept to the side."
Bustillo added, "If it goes unaddressed, you run the risk the employee is going to give a tip to us."
On the FCPA front, Miami U.S. Attorney Ariana Fajardo Orshan noted the FBI formed a task force in Miami this year focused on violations in Latin America.
"We are trying to say look, we can have these businesses work in this country," she said. "But they can't be something nefarious."
She linked tanking economies in Venezuela, Bolivia, Ecuador, the Dominican Republic and Guatemala to natural resource markets and money flows into South Florida.
"Anything dealing with petroleum seems to be a red flag for us," Fajardo said.
Her office has pushed out a string of cases tied to money laundering through Venezuela's state-owned oil company PDVSA and others involving foreign public corruption.
Naturally, the enforcement panel emphasized self-reporting — find problems, try to resolve them and report them to government agencies.
The SEC has offered cooperation credit to companies since 2001. In contrasting examples, Harris Corp. avoided charges in 2016 by offering "exemplary cooperation," but Walgreens Boots Alliance Inc. didn't self-report and faced a $35 million penalty for securities violations last year.
Herr said companies often can put themselves in the advantageous position of a victim reporting a crime by a rogue employee.
Noting the wheels of justice grind slowly in her department, Fajardo said corporate executives already could be under scrutiny when they ask themselves whether to come forward.
Bustillo offered a warning to companies that federal interagency cooperation has greatly expanded and takes advantage of better technology.
SEC whistleblowers get a chance at awards if their cases settle, and last year's top collector took home $37 million. The Justice Department's antitrust division is offering a free pass to the first whistleblower to come forward on government contract procurement violations.
Bustillo offered the ultimate silver lining: self-reporting could result in his agency quickly waving off an investigation, never mind litigation.
"Depending on the facts and the circumstances, that may be all that happens," he said.
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