CORPORATE CRIME REPORTER
Swenson: KPMG Compliance Program Didn't Meet Thompson Memo Criteria
20
Corporate Crime Reporter 2(1), January 4, 2006
The former head of KPMG’s compliance and ethics consulting group says
that KPMG itself did not have a compliance program that met the Thompson memo’s
standard for such programs.
Win Swenson was with KPMG from 1996 to 2000.
And he is considered the father of the U.S. Sentencing Commission’s organizational
sentencing guidelines, upon which the Thompson memo criteria are based.
Swenson was deputy general counsel at the Sentencing Commission from 1990 to
1996.
In August 2005, KPMG admitted to criminally engaging in a fraud that generated
at least $11 billion dollars in phony tax losses which cost the United States
at least $2.5 billion dollars in evaded taxes.
Nonetheless, KPMG was granted a deferred prosecution agreement.
The deferred prosecution deal with KPMG was reportedly cut over the objections
of the U.S. Attorney in New York, David Kelley, who believed that because of
the widespread criminality and obstruction of justice, the firm deserved to
be prosecuted to conviction.
Swenson says that “there is a legitimate question as to whether this was
an appropriate use of a deferred prosecution – and I would look to the
Department of Justice's own charging criteria in what is commonly referred to
as the Thompson memo.”
In an interview with Corporate Crime Reporter, Swenson said that while
he was with KPMG, it bothered him that KPMG’s compliance program was so
weak and this was one reason he left the firm.
“In my view, KPMG did not have a compliance program that could possibly
meet the standards set by the Department of Justice in the Thompson memo or
in the federal sentencing guidelines,” Swenson said. “I didn't feel
comfortable advising other companies to adopt such programs when my firm hadn't.”
“And if you run through (the Thompson memo) criteria – pervasiveness
of the misconduct, past history, and so on – there are a number of factors
that would point strongly toward prosecution (of KPMG)” Swenson said.
“And there are also some factors that point the other way. The most notable
Thompson memo factor supporting prosecution is that there is no indication that
KPMG had an effective compliance program.”
“In fact, based on my experience there, it is pretty clear that KPMG would
have a tough time making the case that it did have such a compliance program,”
Swenson said. “And to me, this factor is as important as any in deciding
whether to prosecute. Why? Because a key question to resolve in making the prosecution/no
prosecution decision is whether the offense was, on the one hand, aberrational
– in other words – it happened despite the firm's best efforts to
prevent and detect these kinds of things – or whether the offense actually
reflected the way things were really done there, with a cavalier attitude toward
preventing and detecting misconduct.”
“If you are going to prosecute and thereby impact employees and owners
of an entity, partners in partnerships and shareholders in companies, gauging
whether the offense accurately reflected the core of the company is highly material,”
Swenson said. “Bad things do happen at good companies. But bad things
also happen because the company didn't seriously care. And the quality of the
company's or firm's compliance program is the best way to measure how seriously
it did care.”
Swenson said he is concerned that “if Department of Justice fails to follow through with its policy to prosecute when the Thompson memo criteria favor prosecution, the impression is given that once a company makes a mistake, if they throw a few people under the bus and otherwise cooperate, they get a free pass.”
“It is sort of a slap on the wrist, except for the people who are thrown
over the side, and the Thompson memo is in danger of being seen as policy on
paper only,” Swenson said. “Only after misconduct is discovered
by the government does the company have to take its compliance and ethics program
seriously.”
(For a complete transcript of the interview with Win Swenson, see 20 Corporate
Crime Reporter 2(8), January 9, 2006, print edition only)
Corporate Crime Reporter
1209 National Press Bldg.
Washington, D.C. 20045
202.737.1680