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By William K. Perry, Linda S. Dakin, Anahid Gharakhanian
Over half of the state attorney general offices that responded to a recent survey encourage implementation of voluntary corporate compliance programs. They are also inclined to consider such programs in investigation and/or enforcement proceedings as well as in the determination of penalties.
The Survey
In late 1992 and early 1993, Chadbourne & Parke, a law firm headquartered in New York City, conducted a survey on behalf of CCQ on the impact of corporate compliance programs at the state attorney general level. This survey was inspired in part by the Organizational Sentencing Guidelines and by the New Jersey Attorney General's recent environmental enforcement initiative which describes environmental compliance elements that should be on a business' check-list, if it wants to convince a prosecutor not to bring criminal charges. (fn1)
In an attempt to determine other state attorneys' general positions on voluntary compliance programs, a survey was sent to all state attorney general offices, posing the following questions:
1. Does a voluntary compliance program have any impact in criminal, regulatory or inves- tigative proceedings conducted by your office?
2. Does your office provide guidance on what constitutes a good compliance program in any legal or regulatory area?
3. Does your office provide regulatory or other incentives (such as reduced oversight or award programs) for companies making compliance efforts either generally or in specific areas (such as workplace safety or restaurant sanitation).
The Responses in Summary
Fifteen of the twenty-eight offices responding to the survey suggested that voluntary corporate compliance programs have a positive impact in regulatory and enforcement proceedings, at least with respect to civil and regulatory matters. Mississippi was the only state which responded that a voluntary compliance program has no impact in criminal, regulatory or investigative proceedings. (fn2) The other twelve states did not provide substantive responses to the survey questions for various reasons, such as a policy against giving legal advice, time and budgetary constraints, or lack of familiarity with the subject matter. (fn3)
Positive Impact of Compliance Programs
Some of the state attorney general offices responding positively to the survey appear to formally recognize the impact of corporate compliance programs; some have only a semiformal policy of assessing the impact of a compliance program; and others consider such programs on a case-specific informal basis. All of these offices, however, strongly encourage the implementation of voluntary compliance programs; they "commend" (fn4) the promotion of such programs and regard them as a "positive response", (fn5) promot- ing "affirmative law. (fn6)
AG Offices Take Compliance Efforts into Account
Based on the survey responses, voluntary compliance efforts appear to be given some degree of formal recognition by the Attorney General Offices of Arkansas, Illinois, Minnesota, Nebraska, Nevada, New Hampshire, North Dakota, Oregon and Wyoming.
For example, the North Dakota Attorney General's Office considers a compliance program during the course of its civil and criminal investigations. (fn7) The program may have a bearing on the enforcement action and, in any event, information which companies develop through their compliance programs is not utilized by the office in an enforcement action. (fn8) In addition, the North Dakota Attorney General's Office advises that an "efficacious voluntary compliance program" may have some bearing on the severity of the penalty or the type of enforcement action to be utilized. (fn9)
Similarly, in Illinois "criminal prosecution may be deferred where the violations are voluntarily reported by the violator."(fn10) Voluntary compliance programs may also result in "mitigation in the assessment of civil monetary penalties." (fn11)
Voluntary compliance programs also make a positive impact on the Nevada Attorney General Office's investigative, enforcement and penalty-setting decisions in various areas:
-Environmental law: a voluntary compliance program will affect regulatory or investigative proceedings, as well as whether and in what amount civil penalties are imposed, since "a company with an existing program will likely have better records, a better explanation for an instance of non-compliance and a better compliance record". -Public health and welfare: administrative sanctions may be avoided through voluntary compliance;
-Securities: a "good faith compliance program" might lead to the choice of a less drastic remedy among the criminal, civil and administrative remedies available;
-Antitrust: a voluntary compliance program may be a factor in criminal, regulatory or investigative proceedings in the antitrust area. (fn12)
Other attorneys general have advised that a voluntary compliance program would be a factor in deciding whether to pursue an enforcement action. For example, in bringing civil actions for violations of Arkansas' Deceptive Trade Practices Act, the Arkansas Consumer Protection Division advises that a "company's compliance efforts would be one of several factors considered in determining which companies to sue." (fn13) The New Hampshire Attorney General's Office advises that "voluntary compliance is a factor to be considered, along with many others, in the exercise of the attorney general's prosecutorial discretion." (fn14)
Compliance programs are also considered in the application of Minnesota's penalty policies. (fn15) In addition, Minnesota's Pollution Control Agency ("MPCA"), working closely with the Attorney General's Office, has recently entered into an agreement with the Printing Industry of Minnesota ("PIM") designed to encourage and facilitate compliance audits of printing companies; in the event of an instance of noncompliance, participants in the audit program may be given good faith consideration by the MPCA. (fn16)
The Attorney General Offices of Oregon and Nebraska have also advised that they regard voluntary compliance programs positively, but did not further elaborate. Wyoming's Attorney General Office noted that over the last two years the Office of Consumer Affairs has considered voluntary compliance programs as a "positive response" and a factor in deciding whether to take "formal or informal action." (fn17)
Informal and Case Specific Impact of Compliance Efforts
Although some state attorney general offices do not formally recognize the impact of voluntary compliance programs on criminal, regulatory or investigative proceedings, they do encourage implementation of such programs and on a case-by-case basis may take such a program into consideration. The Attorney General Offices of Connecticut, Delaware, Iowa, North Carolina, West Virginia and Wisconsin responded to the survey along these lines.
For example, the Iowa Attorney General's Office would "likely consider, on a case-by- case basis, substantial good faith efforts to achieve compliance with the law" as a factor in determining what action to take and relief to seek.(fn18) Similarly, Wisconsin's Attorney General's Office and Department of Natural Resources encourage compliance efforts related to pollution control laws and on a "case specific" basis will look to the compliance program in determining a penalty amount. (fn19) The Virginia Attorney General's Office, in an effort to promote "affirmative law," also encourages positive efforts by companies to comply with regulations; accordingly, compliance programs in Virginia may help avoid civil fines and penalties, though not restitution. (fn20) The Virginia Attorney General's Office further advises, however, that compliance programs have less impact in the civil antitrust area. (fn21)
In Connecticut, "there is at best an informal procedure with this office which takes cognizance of voluntary compliance programs" in the antitrust area.(fn22) And in North Carolina, "the general feeling is that voluntary compliance is something to be encouraged throughout the Department and might informally be a mitigating factor in certain situations."(fn23)
Finally, although in Delaware it would seem that "sincere efforts" to create and adhere to a compliance program would be taken into consideration by "any reasonable prosecutor or regulator," the Attorney General's Office explains that they view compliance programs "as a matter of corporate self-interest insofar as the law mandates compliance.” (fn24) As an example, the office suggests that in the securities law context "the legal duty to supervise sales agents would seem to necessitate the maintenance of a compliance program. (fn25)
AG Criteria for a good Compliance Program
Only a few of the responding state attorney general offices provided guidance on what constitutes a good compliance program. Perhaps the scarcity of such guidance can be explained by one state’s response that "(t)here are no established criteria ... at this time simply because there has not been a sufficient track record of a given type of problem to establish benchmarks.” (fn26) Another office explained that "the Attorney General's Office cannot compromise its enforcement and prosecution responsibilities by endorsing the adequacy of individual compliance programs. (fn27) The states that provide guidance to compliance programs apparently do so on a case-by-case basis. The North Dakota Attorney General's Office, for example, advises that on a "case-by-case basis, the North Dakota Department of Health and Consolidated Laboratories provides information to the regulated community on elements of compliance programs."(fn28) Similarly, the Illinois Attorney General's Office provides input to the regulated community regarding "case- specific and global compliance issues.” (fn29)
The offices responding to the survey also provided information regarding specific areas where compliance criteria have been indirectly established. For example, the labor section of the North Carolina Attorney General's Office refers employers who request information concerning guidance for compliance with OSHA standards to the Education and Training Division of the North Carolina Department of Labor.(fn30) Another example is Minnesota's Attorney General's Office, which has participated in the publication of advertising guidelines for the airline industry, car rental companies and environmental marketing, that interpret state statutes prohibiting false, deceptive or misleading advertising as applied to the specific activities.(fn31) The Minnesota Attorney General's Office explains that these guidelines "provide businesses with a I safe harbor' if their advertising practices adhere to the guidelines.” (fn32)
INCENTIVES FOR COMPLIANCE EFFORTS
Only two states responding to the survey--Minnesota and North Dakota--provide regulatory or other incentives, such as reduced oversight or award programs, for companies making compliance efforts.
North Dakota's Attorney General office advises that the Department of Health and Consolidated Laboratories "periodically" gives awards and citations for voluntary compliance efforts, such as "waste management facilities with good compliance records and awards to operators of water treatment and waste water facilities.” (fn33)
Minnesota's Attorney General office also provides an incentive for businesses making compliance efforts and is considering expansion of its current incentive program. (fn34) Currently, pursuant to the Minnesota printing industry agreement discussed earlier, involvement in the auditing program will be weighed in applying the state's environmental penalty policy.(fn35) Furthermore, the Minnesota Attorney General's Office is examining "whether a broader compliance incentive program might help achieve wider voluntary compliance with environmental laws in the state.” (fn36)
THE COMPLIANCE MESSAGE
The survey responses indicate that voluntary compliance efforts generally have a positive impact on state attorneys general. The lack of established compliance criteria and incentive programs, however, suggests that most state attorneys general have not yet fully accepted and incorporated the role of voluntary compliance efforts into their investigative, enforcement and penalty determinations. The impetus of the Federal Organizational Sentencing Guidelines, which stands to fill the definitional vacuum with its standards for an "effective" compliance program, may well provide a substantial boost to these state efforts. Despite the existing uncertainty, alert company managers should view the favorable survey responses as encouraging and should take these responses into account in deciding whether to implement or strengthen a compliance program.
1. "NJ Steps Forward," 2 CCQ 16 (Summer 1992).
2. Letter from Office of Attorney General, State of Mississippi (December 16, 1992).
3. The twelve states which did not provide substantive responses to the survey are: California, Florida, Georgia, Hawaii, Idaho, Missouri, Montana, Oklahoma, Commonwealth of Pennsylvania, South Carolina, Vermont and West Virginia.
4. Letter from Office of Attorney General, State of Delaware (January 21, 1993) (hereinafter 'Delaware letter").
5. Letter from Office of Attorney General, State of Wyoming (March 17, 1993) (hereinafter "Wyoming letter").
6. Office of Attorney General, State of Virginia telephone response to the survey on December 29, 1992 (hereinafter "Virginia response").
7. Letter from Office of Attorney General, State of North Dakota (March 9, 1993 (hereinafter "North Dakota letter”).
8. Id.
9. Id.
10. Letter from Office of Attorney General, State of Illinois (March 22, 1993) (hereinafter "Illinois letter").
11. Id.
12. Letter from Office of Attorney General, State of Nevada (March 4, 1993).
13. Letter from Office of Attorney General, State of Arkansas (February 8, 1993).
14. Letter from Office of Attorney General, State of New Hampshire (March 24, 1993).
15. Letter from Office of Attorney General, State of Minnesota (April 22, 1993) (hereinafter Minnesota letter).
16. Id.
17. Wyoming letter, supra note 5.
18. Letter from Office of Attorney General, State of Iowa (January 28, 1993).
19. Letter from Office of Attorney General, State of Wisconsin (February 5, 1993).
20. Virginia response, supra note 6.
21. Id.
29. Illinois letter, supra note 10.
22. Letter from Office of Attorney General, State of Connecticut (December 18, 1992).
23. Letter from Office of Attorney General, State of North Carolina (April 13, 1993 [hereinafter "North Carolina letter"]).
24. Delaware letter, supra note 4.
25. Id.
26. Wyoming letter, supra note 5.
27. Illinois letter, supra note 10.
28. North Dakota letter, supra note 7.
30. North Carolina letter, supra note 23.
31. Minnesota letter, supra note 15.
32. Id.
33. North Dakota letter, supra note 7.
34. Minnesota letter, supra note 15.
35. Id.
36. Id.
William K. Perry is a partner at the Washington, D.C. office of Chadbourne & Parke. Linda S. Dakin and Anahid Gharakhanian are associates at the firm’s Los Angeles office. Discussion of the results of the State Attorneys General Survey also appears in a chapter authored by Mr. Perry and Ms. Dakin in the forthcoming Compliance Programs and the Corporate Sentencing Guidelines: Preventing Criminal and Civil Liability (published by Clark Boardman Callaghan), edited by CCQ's Joseph E. Murphy, Winthrop Swenson and Jeffrey M. Kaplan.
©Copyright 1996 Corporate Conduct Quarterly, Rutgers, the State University of New Jersey. All rights reserved.
MESSAGE FROM THE STATES
(an insert, originally appearing with the text of the above article)
CCQ's survey of state attorneys general gives the encouraging message that many states are taking a positive view of voluntary compliance efforts, and that some are even ahead of the Federal government. These enlightened officials are to be commended.
Unfortunately, some prosecutors still place the litigator’s tactical concerns over the public's interest in having business know and follow the law. For state officials who consider themselves too busy to provide advice on how to compliance with the law, or who fear that giving advice will compromise their ability to litigate, we urge them to reexamine their priorities. If they can do something that helps prevent violations, is not that really the first priority for government?
The news that states are starting in earnest to see the value of compliance programs may help open the eyes of those in industry who have not recognized the change that has been coming in the legal system's acceptance of voluntary compliance efforts. For some business people, who are stuck in the thinking of a different era when "compliance programs" were nothing more than paper policies ignored by government zealots, it is time to start reexamining old, untested assumptions. This survey confirms that the trend toward a cooperative approach is still early and developing, but it is ',I distinct trend driven by government's need to prevent business misconduct without devoting more resources to endless litigation.
This survey his a message, then, for two groups, one in government and one in business. who are seeming opposites, but in fact think very much alike. They see the battlefield of litigation as the only point of contact between business and government In this view, government should just continue to wait in ambush for companies caught in violations. But this survey tells us that those in government who are results-oriented shun the simple faith in litigation and seek to work with those in industry who share their determination to try a cooperative approach. In business, too, there is a substantial group of managers who believe they can use management tools to help prevent wrongdoing and who are prepared to work with government for this result.
Perhaps, as the Minnesota Pollution Control Agency is showing in that state, and Lou Bezich has shown in Camden County, N.J., leadership outside of the Federal government may be at the cutting edge in taking government and industry away from exclusive reliance on expensive litigation, and toward a more cost effective, cooperative approach.
©Copyright 1996 Corporate Conduct Quarterly, Rutgers, the State University of New Jersey. All rights reserved.