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Something’s changing in corporate compliance – and fast. From record-breaking settlements to new DOJ guidance, 2023’s final quarter brought significant shifts in how companies need to think about their compliance programs. This discussion between industry experts explored the rising stakes of compliance failures, evolving regulatory expectations, and practical strategies for building more effective programs.

This weeks episode of The Ethicsverse covered critical developments in corporate compliance, focusing on recent DOJ guidance, major enforcement actions, and evolving compliance program requirements. The conversation explored themes of resource allocation, fraud prevention, merger-related compliance challenges, and the increasing importance of quantifiable compliance metrics. Key industry experts shared insights on practical approaches to building effective compliance programs and responding to regulatory expectations.

Meet The Ethics Experts:

• Karen Moore, Principal, Sounding Board Compliance LLC
• Matt Kelly, CEO & Editor, Radical Compliance
• Nick Gallo, Chief Servant & Co-CEO, Ethico

DOJ Guidance Evolution and Resource Allocation

• The Department of Justice has expanded its expectations for effective compliance programs, emphasizing the need for proportionate resource allocation as companies grow. Companies must now demonstrate that compliance resources scale  with business expansion and new risk areas.
• The guidance specifically calls for mechanisms to measure the commercial value of compliance investments, suggesting a more quantitative approach to program evaluation. Organizations are expected to show how compliance budgets align with business growth, particularly when entering new markets or acquiring new business lines.
• This marks a shift toward more concrete metrics in compliance program assessment. The guidance also emphasizes the importance of tailoring training to employee needs and values, representing a more nuanced approach to compliance education.

Corporate Culture and Risk Management

• TD Bank’s record anti-money laundering settlement highlights the role of corporate culture in compliance. Their “zero expense growth strategy” led to compliance failures by keeping static resources during business expansion.
• The $3.1 billion settlement shows how targeting compliance functions for cost reduction creates systemic risks. Resource decisions signal cultural priorities throughout organizations.
• Companies must link business strategy to compliance capabilities, ensuring growth includes program expansion.

Strategic Preparation and Rehearsal

• Recording and reviewing your delivery multiple times helps ensure you communicate bad news effectively and professionally. A good practice approach includes watching yourself with the sound off to check body language, listening with the video off to assess your tone, and reviewing the complete presentation to evaluate overall impact.
• Taking time to prepare reduces nervousness and helps you anticipate potential questions or concerns. This investment in preparation significantly improves your credibility and message effectiveness.
• The more prepared you are, the better you can focus on the recipient’s needs during the actual conversation.

Merger and Acquisition Compliance Challenges

• The RTX (Raytheon) case, resulting in a $950 million settlement, illustrates the complexities of maintaining compliance through corporate mergers and acquisitions. The case revealed multiple compliance failures across different business units, including FCPA violations, export control issues, and price gouging.
• Pre-merger due diligence processes often fail to adequately assess compliance risks, particularly in fast-tracked strategic acquisitions. Companies need to develop more sophisticated approaches to evaluating compliance risks during M&A activities.
• The case emphasizes the importance of compliance officer involvement in early stages of merger discussions.

Third-Party Risk Management

• Recent enforcement actions highlight the critical importance of robust third-party risk management systems, particularly in relation to sanctions and export controls. Companies must develop more sophisticated approaches to screening and monitoring business partners, especially in high-risk jurisdictions or industries.
• This requires integration of various due diligence processes across the organization, including anti-corruption, sanctions compliance, and export control measures. Organizations need to leverage technology effectively while maintaining appropriate human oversight of third-party relationships.
• The increasing complexity of global trade restrictions demands more sophisticated risk management approaches.

Compliance Officer Authority and Independence

• Recent cases underscore the importance of compliance officers having sufficient authority and independence to effectively manage organizational risks. This includes having direct access to board committees and the ability to raise concerns about resource constraints or strategic decisions that may impact compliance effectiveness.
• Compliance officers must be prepared to escalate significant concerns through appropriate channels, including executive sessions with board committees when necessary.
• The role requires both technical expertise and the ability to effectively communicate risks to senior leadership and board members.

Technology and Compliance Program Evolution

• Artificial intelligence and other advanced technologies are becoming increasingly central to effective compliance programs. The DOJ guidance specifically addresses expectations around technology use in compliance programs, including both how organizations use AI and how compliance functions oversee AI-related risks.
• Companies must balance the efficiency gains from technology with appropriate human oversight and risk management controls.
• Organizations need to develop clear frameworks for evaluating and implementing new compliance technologies while ensuring they maintain appropriate control and oversight.

Speaking Up and Organizational Culture

• Recent enforcement actions highlight the critical importance of creating environments where employees feel comfortable raising concerns about potential misconduct. Organizations must focus on developing robust speak-up cultures that encourage reporting at all levels, particularly through middle management.
• Companies need to ensure that employees understand both internal and external reporting options, including whistleblower protections.
• Training programs must effectively communicate reporting processes and protections while demonstrating organizational commitment to addressing concerns raised through these channels.

Resource Allocation Strategy

• Compliance programs must develop more sophisticated approaches to resource allocation, particularly in determining how to distribute limited resources across various risk areas.
• This includes developing clear frameworks for prioritizing risks and allocating resources accordingly, while maintaining minimum effective coverage across all risk areas. Organizations need to be able to clearly articulate their resource allocation strategies to regulators and board members, demonstrating thoughtful approaches to risk management within resource constraints.
• This requires developing clear metrics for measuring program effectiveness and resource utilization.

Future Regulatory Environment

• The compliance landscape continues to evolve, with increasing focus on areas such as export controls and sanctions compliance. Organizations must prepare for potential regulatory changes while maintaining effective core compliance programs.
• This requires developing flexible compliance frameworks that can adapt to changing regulatory requirements while maintaining consistent core functions.
• Companies need to stay informed about emerging regulatory trends and prepare for potential changes in enforcement priorities, particularly in areas such as technology transfer and international trade restrictions.

Conclusion

The discussion highlighted the increasing complexity of corporate compliance requirements and the need for more sophisticated approaches to program management. Organizations must balance growing regulatory expectations with practical resource constraints while maintaining effective risk management programs. Success requires both technical expertise and the ability to effectively communicate program value to organizational leadership. The evolution of compliance programs continues to demand new approaches to measurement, resource allocation, and risk management.