Coordinating Compliance Incentives

Veronica Root is Associate Professor of Law at Notre Dame Law School. This post is based on her recent article, forthcoming in the Cornell Law Review.

The notion that corporations must develop effective ethics and compliance programs is uncontroversial. Earlier this month, Deputy Attorney General Rod Rosenstein explained that the “sophistication of compliance measures and tools that we see today regularly exceed the measures that were in place ten years ago.” [1] In part, this increased sophistication may be credited to the robust enforcement actions taken by a variety of governmental actors—whether regulators or prosecutors—which have served to incentivize corporations to develop robust compliance programs. And yet, there appear to be gaps within the government’s enforcement strategy when dealing with potential corporate repeat offenders.

In a recently published article in the Cornell Law Review, I utilize a case study to analyze the government’s treatment of corporate repeat offenders. I focus on companies that entered guilty pleas settling FCPA violations with DOJ Fraud from 2004 to 2016. I then looked for other, unrelated enforcement actions involving settlement agreements with the same company. This yielded a data set of ten corporate entities that settled either multiple allegations of FCPA violations or settled FCPA violations and settled charges of unrelated, unlawful conduct under a different statute within about a five year period.

The case study demonstrated that if a corporate entity appeared before the same governmental actor twice, it was treated as a recidivist and provided a heightened sanction. But if a corporation appeared before multiple governmental actors, the repeat offenses were not considered and no heightened sanction was provided. The failure to address repeat misconduct across diverse legal areas occurred even when the underlying offenses looked quite similar and all involved, for example, unlawful bribery.

There could be a number of reasons for this discrepancy, but one might be an inter- or intra-agency coordination problem. Each governmental actor has a significant interest in ensuring that its particular regulatory or statutory mandate is enforced properly, but when corporations are involved in misconduct that falls outside of that particular mandate, the governmental agent’s interest may diminish.

The article, therefore, argues that a formal mechanism for improving information, coordination, and identified responsibility amongst governmental actors might improve the ability of the government to disincentivize corporate misconduct across a variety of legal areas. In particular, adopting policies that improve inter-and intra-agency coordination might allow governmental actors to better coordinate incentives for corporations to adopt more effective compliance programs. In particular, improving coordination amongst diverse governmental agents would assist the government’s ability to detect potential recidivist behavior. Once detected, the government would be able to assess whether recidivist treatment is warranted and levy an appropriately heightened sanction.

The article argues that adopting a more aggressive enforcement stance towards corporate repeat offenders might encourage companies to look more systematically at their compliance efforts, instead of treating each offense as a one-time, isolated incident.

The complete article is available here.


1 Rod J. Rosenstein, NYU Program on Corporate Compliance & Enforcement Keynote Address (Oct. 6, 2017), available here.(go back)

Both comments and trackbacks are currently closed.
  • Subscribe or Follow

  • Supported By:

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Richard Brand
    Daniel Burch
    Jesse Cohn
    Joan Conley
    Isaac Corré
    Arthur Crozier
    Ariel Deckelbaum
    Deb DeHaas
    John Finley
    Stephen Fraidin
    Byron Georgiou
    Joseph Hall
    Jason M. Halper
    Paul Hilal
    Carl Icahn
    Jack B. Jacobs
    Paula Loop
    David Millstone
    Theodore Mirvis
    Toby Myerson
    Morton Pierce
    Barry Rosenstein
    Paul Rowe
    Marc Trevino
    Adam Weinstein
    Daniel Wolf

  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian