Compliance officers should be ‘friends of the court’

Judge Jed S. Rakoff, U.S. District Judge for the Southern District of New YorkWhen a pioneering jurist and friend of the compliance profession publishes an essay read by global thought leaders, and the essay has nothing to say about the compliance profession, we have to ask ourselves what we did wrong.

Judge Jed S. Rakoff is justly famous for breaking taboos against criticizing the SEC and DOJ policy of settlements without an admission of wrongdoing. He is one of the judges I thanked in the FCPA Blog’s Thanksgiving Day post for his courage and vision of strong enforcement.

Nevertheless, his essay in the New York Review of Books ignores compliance — other than one unfortunate reference to how compliance imposed through deferred prosuction agreements (DPAs) is ‘window dressing.’

Judge Rakoff wrote:

Although it is supposedly justified because it prevents future crimes, I suggest that the future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing.

Compliance measures and the COs who put them into practice are never window dressing. When they’re rendered superfluous, it’s because they are misused. That’s why the same C-level officers who should be prosecuted for illegality often are also the ones who obstruct and frustrate a compliance program. But that can be prevented.

The Society of Corporate Compliance and Ethics has pressed for reforms such as: independent chief compliance officers reporting to the board of directors, compliance measures covering the C-suite, tough prosecutions of both companies and individual executives, and the protection of COs by the DOJ and SEC.

Compliance programs work well when adopted by responsible companies or when imposed by a DPA, with a monitor if necessary. They deliver exactly those prophylactic benefits a judge would be seeking — heading off scandals and avoiding prosecutions. It is not an either/or choice. Both the prosecution of individuals and strong compliance programs are necessary and complementary.

Maybe Judge Rakoff had in mind (but didn’t mention) strong compliance programs that are obstructed by senior management when they are most needed. And maybe he had in mind compliance officers who cannot make compliance programs work because they are threatened with career-ending retaliation, or who are not protected when the DOJ or SEC fail to indict or sanction corporate executives that lie to COs or retaliate against them for doing their jobs.

The compliance profession could have made these points to the court in amicus (friend of the court) briefs during legal proceedings before Judge Rakoff. Many business groups submit amicus briefs advocating for their interests. We missed this opportunity to educate and support the Judge and to make our point of view clear. This is another example of why the compliance profession needs better advocacy.

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Michael Scher is a contributing editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He is affiliated with ethiXbase, the owner of the FCPA Blog. He can be contacted here.