Kusserow on Compliance: Growing use of the responsible corporate officer doctrine increases importance of effective compliance programs

For decades the Department of Justice (DOJ) and Office of Inspector General (OIG) has been increasing their usage of the responsible corporate officer (RCO) doctrine. The DOJ has been using the doctrine for decades in an ever widening set of circumstances in order to change the corporate culture of companies. Yet, the agency found that financial penalties alone are insufficient to do this.

The doctrine imposes strict liability on corporate officers based solely on their area of responsibility within the corporation, regardless of their knowledge of the underlying criminal activity or their participation in it. In 2010, the OIG issued a position paper on the doctrine that underscored the agency’s commitment to use its permissive exclusion authority against executives and board members that permitted wrongful activity through negligence.

On September 9, 2015, the DOJ came out with new guidelines on corporate conduct. It reflects an increased focus on individual accountability for corporate wrongdoing, both civil and criminal, and on the importance of corporate cooperation with prosecutors. The new guidance has the objective of directing attention on individual accountability for corporate wrongdoing to increase deterrence by holding individuals responsible for their actions. It also addresses the importance of corporate cooperation in the context of governmental investigations.

Key provisions of the DOJ prosecutor guidelines

  • Credit for cooperation. There must be complete disclosure of all relevant facts, including identification of all those involved in or responsible for the misconduct, regardless of their position, status, or seniority, and all facts relating to that misconduct. It will also depend upon timeliness of the cooperation; diligence, thoroughness, and speed of the internal investigation; and the proactive nature of the cooperation.
  • Prosecutors focus on individuals. The guidelines call for prosecutors to concentrate on individual wrongdoing from the inception of the investigation through the resolution of the case, including how a health care provider approaches a voluntary disclosure of billing errors; how employees respond to internal requirements for cooperation; and how employees conduct business with material legal implications in the absence of any government inquiry.
  • Protection of individuals not included in corporate settlements. The discouragement of agreeing to release officers, directors, and current and former employees from individual civil liability as a condition of the corporate resolution has been common in the past. This preserves the DOJ’s ability to pursue responsible individuals.
  • Civil enforcement against individuals not limited to ability to pay. The DOJ will no longer evaluate actions against wrongdoers solely on the basis of an ability to pay, but will focus more on deterrence on others. As such, the DOJ may pursue civil monetary penalties against lower level employees who likely lack the ability to recompense the government for its alleged losses or for applicable civil penalties.

10 tips for compliance officers

  • Study the RCO doctrine, know how it is being applied, and inform executives and board members of its significance in terms of personal liability.
  • Stress to management and board that the best RCO defense is an effective compliance program and that executive support of the program reduces their personal risks.
  • Provide annual education to the board on its fiduciary compliance obligations and duties.
  • Expect boards and executives to demand more evidence of compliance program effectiveness.
  • Look to developing and providing metric evidence of compliance program effectiveness.
  • Ensure program managers are engaged in ongoing monitoring of their programs.
  • Ensure an ongoing audit plan for all high risk areas to verify ongoing monitoring and validate that it is effective in addressing vulnerabilities.
  • Arrange for annual independent review of the compliance program by experts, as well as an independently administered compliance survey of employees, alternating methods employed.
  • Ensure that all allegations or complaints of wrongdoing are promptly and thoroughly investigated.
  • Verify executives are provided definitive written legal opinions before entering into agreement with referral sources or making decisions in compliance high risk areas.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.