Ethics Resource Center

Published: September 22, 2008

The Policy Report
Ethics Programs: Will Prosecutors Be Impressed?
By Paula J. Desio, ERC Chair on Ethics Policy

For almost a decade, the U.S. Justice Department has been issuing internal guidance to federal prosecutors about assessing ethics and compliance programs.  This guidance was contained in a string of  controversial memoranda named for the deputy attorneys general of the Criminal Division who authored them – Eric Holder (1999), Larry Thompson (2003), and  Paul McNulty (2006), under whose jurisdiction corporate prosecutions fell. 

Those memoranda came under constant scrutiny by corporate and defense attorneys, as well as congressional oversight by the Senate Judiciary Committee, primarily because of they addressed the role of corporate privilege waivers in prosecutors’ decisions to indict corporations.  The memos were constantly revised. 

This process of revision continues, although it now has been elevated a level. The content of the memoranda recently have been formalized and included in the official United States Attorneys Manual. At the same time the Department of Justice has made some little-noticed but potentially significant changes in its guidance to prosecutors who are assessing compliance and ethics programs that factor into both the decision whether to bring charges as well as penalty recommendations.

The nuances of every word and phrase relating to corporate privilege waiver requests and whether companies must pay legal fees for employees involved in criminal investigations are currently being parsed by commentators and critics., But it is equally important to revisit DOJ’s companion focus on  how its prosecutors should assess the  ethics and compliance programs of companies seeking lesser charges and penalties in their negotiations with federal prosecutors.

Much of what DOJ has done in its August 28, 2008 release is generally good textual editing, primarily conforming its formal statement of principles to other prosecutorial and judicial policies.  Regrettably, however, DOJ has now twice failed to adopt the more expansive terminology of the organizational sentencing guidelines, amended in 2004, that identify both “compliance and ethics” programs as essential to fostering a law-abiding corporate culture.

Incorporating the term “ethics” into DOJ’s policy statement would have done more than give semantic parity to such programs.  Having “ethics” enter the working lexicon of prosecutors and the myriad of enforcement and investigative agencies that support their work, would go a long way to embedding the same favorable awareness and consideration of values-based approaches to the programmatic approach.  DOJ’s adoption of the terminology used by the organizational sentencing guidelines would no doubt have a subtle but important effect on the very corporate leaders whose behavior DOJ is attempting to shape.

This recommended modification is especially important given the emphasis that DOJ has consistently put on evaluating and changing corporate culture as an integral part of its corporate charging principles since they were issued in 1999.  As the Ethics Resource Center’s longitudinal national surveys of workplace ethics demonstrate, changing the ethical culture of the workplace has a significant impact on reducing pressure to commit misconduct and on actual misconduct observed in the workplace. DOJ should acknowledge the equally important part that ethics programs play in fostering support for this important aspect of crime prevention and deterrence by acknowledging them in its policy documents.

One of the key changes that DOJ has made to the Holder-Thompson-McNulty memoranda is the very important and long-overdue removal of a statement that appeared on its face to call into question its acceptance of the unique role of compliance and ethics programs in corporate deterrence, as structured by the United States Sentencing Commission.
 Since 1999, DOJ had stated that:

Indeed, the commission of such crimes [by corporations] in the face  of a compliance program may suggest that the corporate management  is not adequately enforcing its program.

This observation inherently undermined confidence in DOJ’s acceptance of the fundamental premises and policy of the organizational sentencing guidelines.  The presence of this language in the heart of prior DOJ guidance seemed to contradict the guidelines’ unambiguously stated fundamental premise, at §8B2.1(a)(2), that the “failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct.”  That DOJ has deleted the offending sentence from the final formalized principles is a sound step toward restoring confidence in its understanding of compliance and ethics programs.  This demonstrated understanding in turn is essential to restoring confidence in DOJ’s charging, penalty, and deferred prosecution decisions as they are necessarily intertwined with program assessments.

Several other sections of the recently revised principles have modest but potentially important implications for corporate citizens seeking to refine their compliance and ethics programs in ways designed to satisfy even the most demanding prosecutorial standards.  For example, in assessing whether such a program works (or is “effective” as required by the organizational sentencing guidelines), a prosecutor is advised to base this assessment on whether the corporation has made an “earnest and good faith application” of its program.  In addition, prosecutors will now be looking for evidence of a “robust” program when companies are attempting to avoid strict respondeat superior (“let the master answer” – the employer is responsible for the acts of employees) liability for the act of a single employee or agent. 

Whether “robustness” will also become the standard for mitigating charges or sanctions against a company,1 or whether it will be taken as equivalent to the sentencing guidelines’ “due diligence” standard, remains to be seen.  As with many best and constantly evolving practices, a higher standard can often be bootstrapped to become the norm and continually raise the bar for conscientious corporate citizens.  This aspect of DOJ’s policies bears close watching in practice.

Finally, the increasingly important role of recordkeeping for compliance and ethics programs also emerges from DOJ’s recent revisions.  DOJ clearly expects to see ongoing compliance and ethics program activities, including “disciplinary action [taken] against past violators [as] uncovered by the prior . . . program.”    Corporations are also expected to be able to demonstrate that program modifications have been made, and that they are based upon prior “lessons learned.”   As experienced corporate leaders know, none of this is even remotely feasible without sound and regular documentation procedures that are constantly accessible. Institutional knowledge of a program’s evolution must survive personnel changes and mergers and acquisitions.  DOJ’s emphasis on these practical aspects of remedial measures should reinforce corporate executives’ support for improved recordkeeping in all matters that intersect with their compliance and ethics program. 

In This Issue

• "Straightening Sticks That Are Bent": Guest Column by George L. Procter-Smith, Ph.D.
• Please Don’t Shrink the Ethics: Column By Patricia J. Harned, Ph.D. President, ERC
• The Policy Report By Paula J. Desio, ERC Chair on Ethics Policy:
  Ethics Programs: Will Prosecutors Be Impressed?
• Book Review: The Difference Makers by Sandra Waddock.