chief&compliance&of/icers&in&the&crosshairs:&& …...

©"2014"NAVEX"Global,"Inc." " " " " " " " " " " " " " " """"""""www.navexglobal.com""All"Rights"Reserved."©"2014"NAVEX"Global,"Inc." " " " " " " " " " " " " " " """"""""www.navexglobal.com""All"Rights"Reserved."

Chief&Compliance&Of/icers&in&the&Crosshairs:&&Addressing&Escalating&Risk&

NAVEX"Global"Advisory"Council"–"February"26,"2015"

Event&Number:&&570&629&656&

"


P"R"E"S"E"N"T"E"D""B"Y"

Chief"Compliance"Officer"and"Senior"Vice"President,"Advisory"Services"

NAVEX"Global"

"

Susanna&McDonald& Carrie&Penman&

Associate"General"Counsel"&"Senior"Director"of"Compliance"&"Resources"

AssociaUon"of"Corporate"Counsel"


I.  Compliance"Officer"liability"II.  Shared"worries:"General"Counsel/

Gatekeeper"liability"

III.  Top"five"behaviors"that"create"CCO"risk"

IV.  Defenses/protecUons"in"the"face"of"growing"regulatory"challenges"

V.  Shared"responsibiliUes:"gaining"increased"authority"influence"with"the"Board"of"Directors"and"C[suite"execuUves"

VI.  Seven"habits"to"reduce"risk"

VII.  QuesUons"

Agenda&


•  Chief"Compliance"Officers"have"secretly"worried"about"personal"liability"since"the"role"was"first"created."

•  Recent"regulatory"acUons"have"brought"this"to"a"fuller"and"more"open"discussion."

The&Secret&is&Out…&


Chief&Compliance&Of/icer&Liability&


Survey&Question&Do"you"believe"that"liability"risk"for"CCO’s"is:"

1.  Less"than"previous"years"

2.  About"the"same""

3.  Increasing"somewhat"

4.  Increasing"significantly"


Chief&Compliance&Of/icer&Liability&&

Source:"Thomson"Accelus"Cost"of"Compliance"Survey"2014"


CondiUons"for"Aiding&&&Abe8ng"!  A"viola<on;"

!  Provision"of"substan<al&assistance&with"violaUon;""

!  Knowledge"by"offending"party"that"the"violaUng"ac<on&is&wrong;"and""

!  Recklessness&

CondiUons"for"Causing&a&Viola<on"!  A"viola<on;"

!  An"act&or&omission&that&causes&a&viola<on&and"associated"liability;"and""

!  (In"some"cases)"negligence&

"

Liability&Conditions&


Total&Wealth&Management:"CCO"along"with"investment"advisor"charged"with"failing&to&disclose&COIs&and"concealing"kickbacks"for"investment"recommendaUons"to"clients"(ongoing)"GunnAllen&Financial:""Former"CCO"fined"$15K"in"2011"for"failure&to&set&policies"“reasonably"designed”"to"protect"customer"financial"informaUon"Brown&Brothers&Harriman:"Former"AnU[money"Laundering"CO"fined"$25K"for"company’s"an<Imoney&laundering&compliance&failures&"

Recent&Actions&Against&Compliance&Of/icers&


US&Dept.&of&Treasury&v.&Thomas&E.&Haider&&(14LcvL09977&SDNY)&

•  FinCEN"direct"charge"against"the"former"Chief"Compliance"Officer"

•  $1"million"fine"and"bar"from"parUcipaUng"in"the"affairs"of"a"financial"insUtuUon"

•  No"allegaUons"of"acUve"parUcipaUon"in"AML"violaUons"

•  Charges"are"failure"to"implement"and"maintain"a"compliance"program"designed"to"protect"against"money[laundering"and"to"report"suspicious"acUvity"


Survey&Question&Do"you"think"CCO’s"outside"the"financial"industry"will"be"targeted?"

1.  Yes"and"soon"

2.  Yes,"but"not"in"the"next"year"

3.  No"


SecuriUes"Exchange"Commission"(SEC)"

Financial"Industry"Regulatory"Authority"(FINRA)"

Treasury"Department"Financial"Crimes"Enforcement"Network"(FinCEN)"

"

Government&Agencies&Taking&an&Interest&(So&Far)&


Shared&Worries:&General&Counsel/Gatekeeper&Liability&


•  Where"were"all"the"lawyers?"

•  Sarbanes[Oxley"and"subsequent"regulaUons,"have"put"in[house"counsel"in"the"crosshairs"in"a"very"aggressive"manner."""

•  GCs"should"not"be"liable"for"the"acUons"of"their"clients."""

•  Invoking"privilege"is"not"evidence"of"lack"of"cooperaUon"(Thompson"Memo)."

Shared&Worries:&ACC&Position&on&General&Counsel&Liability&


The"Ongoing"Debate:""!  Should&the&general&counsel&also&be&the&compliance&officer?&

A"New"QuesUon"for"this"Topic:""

!  Is&there&more&liability&protec<on&if&the&CCO&is&also&inIhouse&counsel?&

"

Opinions"vary"widely"on"this"issue"and"one"government"agency"has"taken"a"longstanding"strong"posiUon"here."

"

CCOs&and&GCs—Roles&and&Risks&&


“It&doesn’t&take&a&pig&farmer&from&Iowa&to&smell&the&stench&of&con/lict&in&that&arrangement.”&

!"Sen."Charles"Grassley,"in"letter"to"Tenet"CEO"2003,"opining"on"Tenet’s"combined"GC/CCO"role"


•  The"government"should"not"mandate"how"a"company"structures"its"compliance"program."

ACC&Position&on&Separation&of&Duties&


Top&5&Behaviors&that&Create&CCO&Risk&•  Not"understanding"supervisory"liability"

•  Not"ensuring"reported"issues"are"appropriately"addressed,"escalated"or"documented"

•  Not"maintaining"a"robust"compliance"program"

•  AccepUng"full"responsibility"for"organizaUonal"compliance"

•  And,"of"course,"contribuUng"to"a"violaUon"


Supervisory&Liability&•  CCOs,"by"giving&advice&and&making&rules,"may"be"seen"as"supervisory."

•  SEC"has"clarified"that"Legal"and"CCOs"are"NOT&supervisors&due&to&the&advice&giving&and&rule&se8ng"they"do"as"part"of"their"job.&

•  HOWEVER,"there"are"a"few"steps"to"take"to"protect"yourself"from"this"and"other"liabiliUes…"


Ensure"supervisory"policies"are"wriQen.&

When"misconduct"occurs,"make"sure"the"company"documents"which&supervisor&is&responsible"for"handling"it."

Commioees"on"which"a"CCO"serves"should"have"documented&in&their&charters"that"the"CCO’s"role"is"only&advisory.&&

CCOs"should"escalate&serious&concerns&about"legal"violaUons"to"designated"senior"management"[per&escala:on&policy]."

"

Defense:&Supervisory&Liability&

Source:&While&You&Were&Complying:&SEC&and&FINRA&Disciplinary&Actions&Taken&Against&Chief&Compliance&Of/icers&(Again)&Rubin,&BL,&Kelly,&AL,&Practical&Compliance&&&Risk&Management&for&the&Securities&Industry,&JanLFeb&2011,&pages&35L41&


Ensure"you"have"a"board[approved"escalaUon"policy:"

!  Content"of"policy"determined"with"Board"and"CEO"based"on"what"they"want"to"know"and"when.""

!  Development"beoer"done"in"“the"abstract.”"

!  EscalaUon"should"occur"within"24[48"hours"and"should"not"wait"for"the"compleUon"of"an"invesUgaUon."

"

Defense:&Escalation&Policies&


•  CEO,"board"member"or"senior"exec"(including"CCO)"is"named"in"an"allegaUon—escalate"to"board"(or"designated"commioee"member)."

•  Anything"with"potenUal"to"cause"reputaUonal"harm."

•  Any"significant"financial"or"accounUng"issue;"these"must"be"defined"(and"generally"escalated"to"chair"of"the"Audit"Commioee)."

•  Remedial"acUon"commioed"to,"but"not"executed,""by"an"execuUve"or"director."

What&Should&be&Escalated?&


Repor<ng&Structure&!  Codifies"high"level"nature"of"posiUon."

Du<es&and&Responsibili<es&!  Addresses"duUes"related"to"eight"elements"of"an"effecUve"compliance"program."

!  Includes"cross[funcUonal"responsibiliUes,"for"example"giving"input"into"hiring"and"promoUon"decisions;"performance"review"tools;"exit"interview"quesUons."

!  Language"to"limit"supervisory"liability."

Defense:&Formal&Charters&


AuthoriUes—may"include:"

!  DelegaUon"of"maoers"for"invesUgaUon."

!  Ability"to"raise"issues"directly"with"CEO,"chair"of"board"commioee"or"full"board"commioee."

!  Ability"to"conduct"internal"invesUgaUon"of"maoers."

!  Ability"to"access"any"company"document"when"invesUgaUng"a"relevant"compliance"maoer."

!  Ability"to"retain"outside"counsel"on"maoers"of"personal"professional"risk,"in"collaboraUon"with"GC."

What’s&in&a&Compliance&Of/icer&Charter?&


Survey&Question&Do"you"follow[up"and"have"input"on"the"outcomes"of"reported"issues"referred"to"HR"or"other"departments"for"invesUgaUon?"

1.  Yes,"informally"

2.  Yes,"and"we"don’t"close"a"case"in"the"system"unUl"we"have"reviewed"and"concurred"with"the"findings"and"any"acUons"taken."

3.  No,"once"we"make"a"referral,"we"close"the"case"in"our"system."

"


•  Ensure"all"maoers"raised"to"you"are"tracked"to"compleUon"including"documentaUon"of"any"appropriate"discipline."

•  SEC"FAQ:"Inform"direct"supervisors"of"business"line"employees"about"conduct"that"raises"red"flags"and"conUnue"to"follow"up"in"situaUons"where"misconduct"may"have"occurred."

•  Be"prepared"to"go"to"the"CEO"or"board"if"maoers"are"not"adequately"addressed."

•  Beware"of"execuUng"disciplinary"acUon"against"those"not"reporUng"to"you—may"be"considered"a"“supervisory"responsibility.”"

Defense:&Ensure&Issues&are&Appropriately&Addressed&


Survey&Question&How"do"you"document"your"compliance"decisions"or"advice?"

1.  I"document"everything"and"have"a"formal"process"

2.  I"document"most"things""

3.  I"document"only"the"key"decisions"

4.  I"document"only"case"outcomes"


•  Document"important"decisions,"outcomes"of"reports,"formal"advice,"escalaUons,"commioee"minutes,"and"policy"reviews."

•  Ask"commioee"or"other"party"to""review"decisions,"where"appropriate."

•  Create"and"follow"a"documentaUon"retenUon"plan"for"all"compliance"program"documents."

•  Cite"major"decisions"in"board"reports."

Defense:&Documentation&&


•  Risk"assessment"•  Structure"and"leadership"•  Standards"and"procedures"•  Training"and"communicaUons"•  IntegraUon"with"HR"PracUces"•  Monitoring"and"audiUng"•  ReporUng"systems"and"fear"of"retaliaUon"

•  InvesUgaUons"and"appropriate"response"to"issues"found"

"Organiza<onal&Culture&

Defense:&Maintain&a&Robust&Compliance&Program&


Survey&Question&Is"your"CCO"covered"by"your"company’s"directors"and"officers"liability"insurance,"or"equivalent?"

1.  Yes"

2.  No"

3.  I"don’t"know"


Survey&Question&If"covered,"do"you"know"what"the"coverage"is"and"what"any"exclusions"are?"

1.  Yes"

2.  No"

"


Defense:&D&O&Insurance&Covering&Personal&Liability&

•  Don’t"be"afraid"to"ask"if"you"are"covered"

•  Understand"the"scope"of"coverage"

•  Get"the"answer"in"wriUng"

•  For"addiUonal"informaUon"see"arUcle"in"September"2014"Compliance"&"Ethics"Professional"Magazine:"Compliance&Officers’&Roles&in&Corporate&Compliance&Programs:&Are&you&at&Risk&for&Personal&Liability&by"Janice"Anderson,"Esq."and"Ryan"McAteer,"Esq.&


•  A"good"lawyer"

Defense:&Contributing&to&a&Violation&


Shared&Responsibilities:&Gaining&Increased&Authority&&&In/luence&


Defense:&Shared&Responsibilities&–&Don’t&Limit&Ownership&to&Just&You&•  ExecuUve"Compliance"Commioees"

!  Deepen"understanding"of"risks"through"execuUve"level"responsibility""

!  Further"embed"risk"management"into"decision"making"process"

•  Strong"network"of"Regional"Ethics"and"Compliance"Officers"

•  Risk"management"assigned"to"key"Subject"Maoer"Experts"

!  CFO,"CTO,"GC,"HR,"E&C"


LIABILITY&ENVIRONMENT&GLOBALLY&


How&Do&You&Feel&About&Your&Liability&Now?&


Reality&•  Liability"risk"for"CCOs"outside"the"financial"industry"is"relaUvely"low"

•  Some"acUons"were"for"clearly"intenUonal"violaUons"

•  If"you"do"your"job"and"raise"issues"appropriately"you"are"at"lower"risk"


1.  Do"not"help"others"do"what"you"know"is"wrong."

2.  Do"what"you"say"you"will"do—especially"if"you"say"it"in"wriUng."

3.  Have"a"formal"escalaUon"policy"and"escalate"when"appropriate."

4.  Check"your"D&O"insurance."5.  Document,"document,"

document."6.  Don’t"limit"compliance"

responsibility"to"only"you."7.  Follow"CCO"advocacy"iniUaUves.""JUST&DO&YOUR&JOB&TO&THE&BEST&OF&YOUR&ABILITY!&

7&Habits&to&Reduce&CCO&Liability&Risk&


Please&Type&in&Your&Questions&

chief&compliance&of/icers&in&the&crosshairs:&& …...

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