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Your Business And Compliance With The Law: How Can You Protect Your Company?

by Carmen Saginario Jr., Esq.

What’s Happening Out There?

In the last ten years, over 1,500 companies have been prosecuted and sentenced for crimes committed by their employees and agents. Seventy-six percent of the 534 businesses sentenced in 2001 alone had less than 100 employees. A total of $2.3 Billion in fines, nearly $270 Million in restitution, and over 3000 years of probation have been imposed. Whether it’s a crippling fine or penalty, or the loss of your operating license, the criminal investigation, indictment, or conviction of your company can shake the foundation upon which you exist and inflict long-term damage to your competitive edge.

Today more than ever, businesses of every kind face the possibility of criminal prosecution for the bad acts of their employees. The Enron-Andersen and other “scandals” show us that offenses that once may have been settled quietly and civilly now involve crippling negative publicity, complex and lengthy governmental investigations entailing thousands of hours of employees’ time, lost business opportunities, and criminal charges carrying stiff fines and prison terms, loss of operating licenses, frozen assets, and expensive remediation programs.

How Can You Protect Your Company?

Here’s how: Whether you’re a family-run business with ten employees or a multinational conglomerate with 100,000 employees, you should formulate, implement, and enforce programs to prevent and detect violations of the law. How is it that these “prevention and detection” measures protect you? They protect you because the mandatory sentencing scheme for businesses, called the Federal Organizational Sentencing Guidelines, specifically provides for sentencing benefits (i.e., credit) for organizations that have an effective program to prevent, detect, and report violations of law; and so does a proposed regulation by the New Jersey Department of Environmental Protection encouraging self-auditing and reporting (“businesses are eligible for a 100 percent penalty waiver for self-disclosed minor environmental violations…”).

In fact, in deciding whether to even charge a business with a criminal offense, the Federal Department of Justice considers whether or not a business has an existing and adequate legal compliance program, and whether the business’s actions after detection of a crime included any efforts to implement an effective corporate compliance program and/or to improve an existing one.

Ask Yourself These Questions

If you answer “no” to any of the questions below, we urge you to seek immediate assistance in developing, improving, and reviewing your corporate compliance program.

  • Has my business conducted a thorough “inventory” of all areas of the law which affect us to assess and identify the risks of wrongful conduct we face due to the size, nature, and scope of what we do?
  • Have we formulated and distributed policy statements from the highest levels of our company showing our commitment to preventing and detecting violations of the law in the areas which affect us?
  • Have we appointed a compliance officer and/or compliance committee with overall responsibility for preventing and detecting violations of the law by our employees?
  • Do we conduct background checks or screen employment applications to ensure that we don’t hire employees who may be “likely” to engage in wrongful conduct?
  • Do we have a comprehensive Code of Conduct which serves as the “law” of our company and which binds all of our employees?
  • Have we given our employees legal and policy statements regarding the laws, rules, and regulations which affect our business?
  • Have we institutionalized orientation, training, and monitoring systems aimed at preventing and detecting violations of the law?
  • Have we published and distributed a discipline policy which is consistently enforced at our company?
  • Do we have programs and procedures to investigate and follow up on suspected and detected violations of the law?
  • Do we offer an anonymous reporting system to encourage employees to report suspected or detected violations of the law?
  • Do our employees know that we require them to report suspected or detected violations of the law?

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The Numbers Don’t Lie!

  • Since 1991, over 1,500 businesses have been sentenced for crimes committed by their employees and agents.
  • 76% of the 534 businesses sentenced in 2001 alone had less than 100 employees.
  • The vast majority of these businesses were CLOSELY HELD and not publicly traded.
  • A total of $2.3 Billion in fines has been paid.
  • Over $270 Million in restitution has been paid.
  • Over 3,000 years of probation (in addition to fines and restitution) has been imposed.
  • Of the businesses sentenced in 2001, 97.8% of them did not have a compliance program and 98% had no prior record.

This Legal Alert was prepared by Carmen Saginario Jr. In addition to his responsibilities as an Executive Committee member, Mr. Saginario is a Shareholder in Capehart Scatchard’s Regulatory & Governmental Affairs Group. To help you minimize and avoid the risks associated with the bad acts of your employees, Capehart Scatchard provides confidential legal services, at a reasonable cost, to assist you in formulating, enforcing, and monitoring a legal compliance program specifically designed and tailored to your company. If you believe you already have an effective program in place, our services include evaluating your existing program(s) and providing confidential advice as to how to improve them.

If you would like more information regarding these or any related issues involving your business, please contact Mr. Saginario at (609) 394-2400 or at csaginario@capehart.com

© 2003 Capehart & Scatchard, PA

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