If a bank faces a fine of millions for money laundering and then can prove, defensibly, that the ‘accused’ had passed competency tests, would that reduce or eliminate the fine? More generally, suppose employees do something wrong and the corporation is facing a regulatory fine. Does it make a difference if those employees were certified? Is it a defence against regulatory action that you took all the measures you could to prevent error?
We are asked this question from time to time, and the answer varies considerably by regulator and by offence. But in general having competent/certified people and good compliant processes will reduce the impact to the corporation of making a compliance mistake. In some cases it might eliminate a fine, but usually not.
Here are three specific examples where a good compliance program can reduce or eliminate fines.
- The US Justice Department 2015 guidance to prosecutors specifically says that a compliance program can help stop or mitigate charges:
Prosecutors should therefore attempt to determine whether a corporation’s compliance program is merely a “paper program” or whether it was designed, implemented, reviewed … in an effective manner. In addition, prosecutors should determine whether the corporation has provided for a staff sufficient to audit, document, analyze, and utilize the results of the corporation’s compliance efforts. Prosecutors also should determine whether the corporation’s employees are adequately informed about the compliance program and are convinced of the corporation’s commitment to it. This will enable the prosecutor to make an informed decision as to whether the corporation has adopted and implemented a truly effective compliance program that … may result in a decision to charge only the corporation’s employees and agents or to mitigate charges or sanctions against the corporation.
- The UK Ministry of Justice guidance on the Bribery Act recommends communication and training around bribery and says that “it is a full defence for an organisation to prove that despite a particular case of bribery it nevertheless had adequate procedures in place to prevent persons associated with it from bribing.”
- Similarly, in Spain, the Spanish criminal code has been updated so that companies may avoid criminal prosecution if they have an effective compliance program in effect including evidence that employees have had sufficient training in the compliance program.
In general, the issue is more diffuse. For example, the UK Financial Conduct Authority, which has issued many huge fines over the years (see graph right), does not seem to explicitly reduce fines based on compliance measures.
But its Penalties Manual does say that fines should be increased if the actions are deliberate or reckless or if the breach resulted from systematic weaknesses in the firm’s procedures. Equally, if the breach was inadvertent and there is no evidence that the breach indicates a widespread problem or weakness, the fine might be lower.
So how best to summarize this?
The biggest benefit of a programme for competency testing for employees is that, in conjunction with other compliance measures, it will reduce the chances of an infraction in the first place.
Having certified or competent people is not a “get out of jail free” card but if part of a professional compliance programme, it will help with many regulators in mitigating financial penalties after an infraction.