Compliance, Culture and COVID

(Non)Compliance in 2020

I, for one, was very glad to see the back end of 2020. It was the year of COVID, which is putting the last pandemic (the swine flu in 2009 and 2010) into insignificance. It has also been a year of cultural challenges as we try to navigate a safe path through COVID while still attempting to retain some normality, such as going to work or (at a minimum) staying sane.

Against the background of COVID and in the world of compliance, things still moved forward at a record pace. There is always room for corruption and noncompliance in our world, it would seem. Our battle with COVID and our battle with corruption are both underpinned by compliance and culture, two words that go hand in hand.

The DOJ and SEC brought FCPA enforcement actions against 12 companies in 2020 and imposed financial penalties (fines and disgorgement) totaling $6.4 billion. A number of major settlements were reached with corporate bodies – Goldman Sachs, Herbalife, Airbus and Novartis to name a few.

As is often the case, the underlying problem with these companies hinges on culture. Consider the case of Goldman Sachs, who last year “topped the charts” in FCPA cases with nearly $4 billion in settlements to the DOJ and SEC. They were a major contributor to the record year for FCPA enforcements.

As Michael Volkov elaborates in the first of a four-part series, the culture of noncompliance at Goldman Sachs was firmly embedded over a number of years. Similarly with Airbus, it would seem that poor culture was well-embedded across the U.S., the U.K. and France, resulting in prosecutions of over $2 billion to those three countries, all from a network of third parties in China.

We saw Novartis pay a $234 million penalty (and Alcon, which was sold by Novartis in 2019, an additional $8.9 million) to the DOJ for bribery in Greece and Vietnam. The SEC secured a total penalty of $112 million for bribery in Greece, Vietnam, South Korea and China. Then there was the Herbalife settlement for a total of $55 million to the DOJ and $67 million to the SEC. This was a long, drawn-out settlement involving bribes to Chinese officials and the falsification of records.

Throughout each of these cases, the common thread is poor culture!

When Corporate Culture Goes Bad

Culture is a funny thing: It can be changed by one person and become “a way of life” inside an organization. It is contagious – in both good and bad forms. It can bring a company to its knees and, as we have seen with aspects of COVID over the last year, can also have a huge influence on the behavior of others.

It is hard to believe that no one knew what was going on inside each of these companies, and if employees were aware, it was probably fear that stopped them from doing anything about it. COVID has provided a very salient example of what a bad culture can do. Consider the people who refused to comply with restrictions, quarantine and social distancing guidelines and the resulting effects they have had on the spread of this pandemic.

Often, employees blindly follow a culture (good or bad) in one direction or the other. We would like to think corrupt behavior is the exception in companies or the broader society in which we live, but – when you consider the extent of some cases that have come to light – clearly, this is not the case.

COVID’s Impact on Compliance and Culture

The start of the new year brings new challenges for company culture. Large or small, COVID will add further confusion to and have a big impact on compliance. First and foremost, compliance officers all around the globe will need to be extra vigilant, extra cautious and inventive to re-establish a compliance culture.

Add to the legacy of COVID extensive periods of businesses operating remotely and employees being left to their own devices, and you have the perfect storm for noncompliance. Trying to re-establish and confirm the principles of a company’s culture amidst the pressure to catch up financially will prove a difficult challenge for many.

There are still notable cases from 2020 that need to be worked through by the DOJ and SEC, but they will provide apt reminders of where things can go wrong at the intersection of compliance and culture.

As companies venture into 2021, many will be trying to pick up the pieces from 2020, and one wonders how many new situations will be unearthed. It is hard to say whether COVID led to more incidents of noncompliance (while the cat is away…!) or fewer because everyone was focused elsewhere.

For some, this year will be a continuation of trying to deal with “sins of the past.” For example, Purdue Pharma LP agreed to the imposition of the largest penalties ever levied against a pharmaceutical manufacturer, including a criminal fine of $3.5 billion and an additional $2 billion in criminal forfeiture. For the $2 billion forfeiture, the company will pay $225 million within three business days following the entry of a judgment of conviction in accordance with the plea agreement for violating the FDA’s federal anti-kickback statute.

Johnson & Johnson’s long battle with regulators to settle some 2,000 lawsuits around the use of its talc-based powders and links to ovarian cancer looks to go another round, as it latest appeal in November of 2020 was rejected and the company was told the $2.1 billion verdict would stand. Last year, J&J moved to settle around 1,000 lawsuits for more than $100 million.

This year will also see the start of the much anticipated-trial of Elizabeth Holmes and Theranos. The trial will begin in March, before a face-masked jury and a socially distanced courtroom – an apt reminder that even a pandemic cannot stand in the way of justice.

Even in Australia, compliance and culture have hit the headlines in the COVID era. Most recently, a former senior executive from the troubled Leighton Holdings (renamed as CIMIC Group) sparked renewed interest upon his arrival in Australia from his French Renaissance castle. He supposedly collected $18 million in illicit funds. Leighton Holdings’ culture is called into question in part because of the company’s links to the infamous Unaoil, which has been described as the company that bribed the world. This is on the back of Westpac agreeing last year to pay $920 million in fines to settle a lawsuit accusing the bank of money laundering and enabling millions of payments to people exploiting children.

Not even COVID can stop corruption, and we may see that in some situations, it has added a seemingly effective smoke screen for noncompliance and bad culture. Only time will tell.

What is for sure is that companies will have a challenge in the coming year to re-establish a culture of compliance in an environment that changed drastically as a result of COVID. Every company has to deal with the relationship between compliance and culture, but now we have another “C word” to contend with: COVID.