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Breakthrough: Feds Credit Morgan Stanley Compliance Program

Earlier this week, when the DOJ and SEC charged Garth Peterson with FCPA violations, both agencies publicly announced that they had declined to prosecute or charge his employer, Morgan Stanley, because of its strong compliance program.

A reader suggested to us — and we think he’s right — that this was the first time the agencies publicly credited a pre-existing compliance program this way.

In its release, the DOJ said:

After considering all the available facts and circumstances, including that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials, the Department of Justice declined to bring any enforcement action against Morgan Stanley related to Peterson’s conduct.  The company voluntarily disclosed this matter and has cooperated throughout the department’s investigation.

About Morgan Stanley’s compliance program, the SEC said: ‘[A] Morgan Stanley compliance officer specifically informed Peterson in 2004 that employees of Yongye, a Chinese state-owned entity, were government officials for purposes of the FCPA. Peterson also received at least 35 FCPA compliance reminders from Morgan Stanley, but nonetheless committed the FCPA violations.’

Jeff Kaplan noted in this space in 2010 that the DOJ had publicly mentioned strong compliance programs in connection with a couple of sentencing decisions.

‘In August [2010],’ Kaplan said, ‘the Justice Department stated in the Universal Leaf sentencing memo (at page 4, footnote 2) that it was giving a company credit for its “pre-existing compliance program.” And earlier this month in a case involving Noble Corporation, the Department listed the company’s pre-existing compliance program as part of the reason the government entered into a non-prosecution agreement (page 1).’

At our reader’s suggestion this week, we looked for other announcements by the DOJ and SEC about charging decisions based on strong compliance programs. We didn’t find any.

So the agencies’ crediting of Morgan Stanley’s compliance program in the Peterson matter is a new, and welcome, development.

Many thanks to our astute reader for his help.

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