Word came last summer that the Justice Department planned to hire a compliance counsel. In September came a report that the department had hired Hui Chen, Standard Chartered’s former head of anti-bribery and corruption compliance, for this new position. Chen had a distinguished career in the corporate world, and during the 1990s she worked as a Justice Department trial lawyer in Washington and as an assistant U.S. attorney in Brooklyn.

Now all this has finally has come to pass. Chen started work at the Justice Department in November.

Much ink was spilled earlier this summer about the effectiveness of such a position. Some comments were substantive, that Justice Department attorneys do not need someone to instruct them on what a best-practices compliance program looks like; to the procedural, that the compliance counsel position is not a government employee but only a contractor. Those criticisms and others, however, miss the point of how this position will affect the compliance discipline in the corporate environment overall.

The creation of this position suggests that the Justice Department will be looking more closely at Foreign Corrupt Practices Act anti-corruption compliance programs to see if they meet the minimum standards or are closer to best practices. This requires companies to actually do compliance, not simply put a paper program in place and say it has an effective compliance program.

I asked Stephen Martin, managing director and founder of Baker & McKenzie’s compliance consulting practice, and someone who helps companies proactively enhance corporate compliance programs, what he thinks about the creation of this new Justice Department compliance consultant position. Martin is one of the few experts out there who has a similar background to Chen. He is a former federal prosecutor in Washington and in-house counsel and compliance officer, who helped WorldCom, Qwest, and Adelphia wade through and recover from significant compliance failures and major government investigations.  His take:  

“Historically, it has been difficult for compliance professionals to explain the return on investment in compliance programs to senior management and boards of directors. Companies questioned whether the Justice Department and Securities and Exchange Commission really credited a pre-existing compliance program or enhancements done during an investigation or resolution. The Justice Department and SEC listened to the compliance community and publicly released the rationale in the Morgan Stanley declination as resulting from the effectiveness of Morgan Stanley’s compliance program.

Now the Justice Department is furthering its focus on the importance of compliance by clearly signaling how intently the Justice Department will be evaluating compliance programs in charging decisions, resolutions, and monitorships. By retaining a compliance consultant with previous Justice Department and in-house compliance experience, the Justice Department is sending a strong message to senior management and boards of directors that it is now critical that companies have a robust, effective, and sophisticated compliance program covering both FCPA and non-FCPA risk areas. 

For the Justice Department, this is a great step forward in being able to actually understand compliance programs and how they operate in the real world, in difficult environments when investigating and resolving matters. For companies, the return on investment is clear … the benefits of an effective compliance program far outweigh the costs of the program and help mitigate government enforcement and compliance-related risks. For compliance professionals, the Justice Department’s increasing focus provides the rationale for helping companies truly move to instituting and maintaining a practical, best practices compliance program that meets the rising expectations of the Justice Department.”

Seemingly echoing Martin’s comments, and before Chen was formally announced as the new compliance counsel, Assistant Attorney General Leslie Caldwell set out the standards that Chen will use to judge a compliance program in addition to a specific roadmap for judging compliance at financial institutions.

The creation of this position suggests that the Justice Department will be looking more closely at Foreign Corrupt Practices Act anti-corruption compliance programs to see if they meet the minimum standards or are closer to best practices. This requires companies to actually do compliance, not simply put a paper program in place and say it has an effective compliance program.

In a Nov. 2 speech to the SIFMA Compliance and Legal Society New York Regional Seminar, Caldwell laid out what the compliance counsel would evaluate and the guidance Chen would provide to the Justice Department. Quoting from the text of her remarks from the Justice Department website, Caldwell said Chen “will help us evaluate each compliance program on a case-by-case basis—just as the department always has—but with a more expert eye.”

Caldwell then gave this checklist of factors Chen will be asking (taken verbatim from the Justice Department):

Does the institution ensure that its directors and senior managers provide strong, explicit, and visible support for its corporate compliance policies? 

Do the people who are responsible for compliance have stature within the company? Do compliance teams get adequate funding and access to necessary resources?  Of course, we won’t expect that a smaller company has the same compliance resources as a Fortune-50 company.

Are the institution’s compliance policies clear and in writing?  Are they easily understood by employees?  Are the policies translated into languages spoken by the company’s employees?

Does the institution ensure that its compliance policies are effectively communicated to all employees?  Are its written policies easy for employees to find?  Do employees have repeated training, which should include direction regarding what to do or with whom to consult when issues arise?

Does the institution review its policies and practices to keep them up-to-date with evolving risks and circumstances? This is especially important if a U.S.-based entity acquires or merges with another business, especially a foreign one.

Are there mechanisms to enforce compliance policies?  Those include both incentivizing good compliance and disciplining violations.  Is discipline even-handed? The department does not look favorably on situations in which low-level employees who may have engaged in misconduct are terminated, but the more senior people who either directed or deliberately turned a blind eye to the conduct suffer no consequences. Such action sends the wrong message—to other employees, to the market, and to the government—about the institution’s commitment to compliance.

Does the institution sensitize third parties like vendors, agents, or consultants to the company’s expectation that its partners are also serious about compliance?  This means more than including boilerplate language in a contract. It means taking action—including termination of a business relationship—if a partner demonstrates a lack of respect for laws and policies.  And that attitude toward partner compliance must exist regardless of geographic location.

This fall has seen some of the most dramatic changes in how the Justice Department will enforce the FCPA, from requiring corporate investigations to focus on individuals to the Justice Department actually going after individuals in criminal indictments. This new compliance counsel position takes FCPA enforcement forward in another dramatic step, and it also makes implementing and documenting the above steps all the more important. But it also gives companies a greater chance to avoid potential FCPA liability through a Justice Department declination to prosecute if they can demonstrate they have an effective compliance program.

With the September announcement of the Yates Memo and the increased pressure for corporate internal investigations to identify senior executives for prosecution, it is now even more important that companies have a robust compliance program in place. As Mike Volkov often says, the Justice Department clearly communicates the direction in which it is heading. The message could not be clearer.