Neil Getnick and the Failure of Law Driven Compliance Programs

All the talk in business ethics and corporate crime these days is about legal compliance programs.

Neil Getnick, a partner at the Getnick & Getnick law firm in New York, says all the talk is misplaced.

“At the end of July, the House Judiciary Committee held a hearing on the Federal False Claims Act,” Getnick told a gathering of whistleblower lawyers at the 14th Annual Taxpayers Against Fraud Education Fund Awards Dinner earlier this week at the Mayflower Hotel in Washington, D.C. “The U.S. Chamber of Commerce representative called for a weakening of False Claims Act enforcement mechanisms, emphasizing instead ‘gold standard’ compliance programs to be the primary focus for fighting fraud.”

“But, we have seen time and time again that major company legal compliance programs have met with spectacular failures.”

Getnick said that “an underlying problem is that companies typically rely on ‘law-driven’ compliance rather than ‘business-driven’ integrity programs.”

“Law-driven programs seek to avoid punishment by meeting the letter of the law without developing a deeply rooted culture of integrity,” Getnick said. “In many cases, law-driven programs are only grudgingly tolerated by executives and employees, and they often fail as a result.”

“By contrast, a business-driven integrity program is much more likely to prove effective because business people from the top down — not just the legal department — embrace and promote it as essential to the long-term success of the enterprise. A business-driven program is viewed throughout the company as a profit center and a competitive advantage, rather than a cost center or an obstacle.”

“This approach makes a fundamental difference when employees confront real-life issues such as kickback arrangements, price fixing, or insider trading,” Getnick said. “Their responses become less a matter of consulting a legal guidance memo than fulfilling the company’s basic mission and business model. The core principle is that good ethics is good business.”

Getnick said that “one of the best tests of a corporate compliance program is how the company responds to internal whistleblowers who report misconduct.”

“If the company is serious about business integrity, it will welcome the report, investigate it vigorously, and shield the whistleblower against retaliation. Here, again, good ethics is good business. When whistleblowers are ignored and penalized, often their next stop is a prosecutor’s office.”

Getnick said that “the overriding goal should be the reform of corrupt industries and markets, not just individual companies.”

“That goal can be achieved only by combining powerful business-driven integrity programs with effective law enforcement.”

Getnick said that in the United States, we take it for granted that whistleblower laws can provide for a public-private partnership.”

“But I can tell you, as many of you know yourselves, from your international work, we in the United States are unique in that we can take certain things for granted. One is honest government. A citizen can go to the Justice Department and turn over such information, and a Justice Department official is not going to corruptly take advantage of that information for his or her own agenda, reporting back to that whistleblower’s company for some private deal. It’s almost shocking to us to even think about such things, but as we know full well, they do go on

elsewhere. Not here.”

“And second is an active and engaged citizenry. With all the criticism about apathy in our society, the fact of the matter is that our citizenry is sufficiently engaged to come forward and bring these cases, knowing that there is a structure to do so, and that there is a track record of these cases going forward and being successful with rewards being paid to the individuals who bring them.”

“This captures the genius of America at its best — bipartisan support, simultaneously recognizing the potential and the limits of government, and a synergy of governmental resources, coupled with engaged citizens and their counsel.”

Why do anti-corruption laws come up short?

“Lack of information, lack of resources and lack of will,” Getnick said. “That is particularly true when you get outside the borders of the United States and are relying on international enforcement mechanisms. Whistleblower laws can be the great equalizer, developing reliable information, matching it up with public resources, and incentivizing integrity. That is exactly what is needed to make economic sense out of our international anti-bribery laws. That will help honest companies throughout the world to compete effectively in the global marketplace. It will help U.S. companies, in particular, that adhere to the U.S. Foreign Corrupt Practices Act.”

Getnick ended his talk by quoting former Attorney General Robert Kennedy from a talk Kennedy gave in 1962 about fighting corporate crime.

“It is our national faith that the system of competitive enterprise offers the best hope for individual freedom, social development and economic growth,” Kennedy said. “Thus, every businessman who cheats on his taxes, fixes prices or underpays his labor damages the free enterprise system in the eyes of the world and so does a disservice to the millions of honest Americans in all walks of life. Business crime is a problem for all America, not just the Federal Bureau of Investigation or the Department of Justice. The ordinary citizen, the businessman, the union official, and the public authority must stand up to be counted and refuse to be corrupted.”

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