Compliance Officer Liability Explained
Compliance Officers Can Face Liability When They Fail to Fulfill Their Duties
Compliance officers play an important role in many types of businesses and organizations. Compliance officers are responsible for ensuring that their companies’ policies and procedures are up to date, that the company is following its policies and procedures, and that the company is not at risk for failing to comply with applicable laws and regulations.
While compliance officers must have free reign to do their jobs effectively, they must also be held accountable for their failures. While corporate compliance officers have faced civil liability for some time, they are now facing criminal liability as well.
Recently, the U.S. Department of Justice (DOJ) criminally charged two individuals for their failures in the compliance space. These cases, which the DOJ announced in February 2024, involved:
- A cryptocurrency exchange’s Chief Compliance Officer who was charged with obstruction of justice, wire fraud, and conspiracy based on his alleged role in the company’s efforts to evade anti-money laundering (AML) requirements; and,
- A healthcare technology company’s former Chief Compliance Officer who was charged with conspiracy and wire fraud based on his alleged role in a fraud scheme targeting Medicare and other insurance programs.
According to the DOJ, “Compliance officers have a duty to foster ethical compliance and report wrongdoing, not to failed up their own crimes and cover up their co-conspirators’ crimes.”
The DOJ’s Focus on Corporate Compliance Officers
The DOJ has made clear that it is prioritizing the prosecution of corporate compliance officers who breach their duties. While the DOJ didn’t need to make this clear after publicly announcing charges against two Chief Compliance Officers, it did so regardless. Here is what other U.S. Attorneys had to say in connection with these criminal compliance cases:
- “Compliance professionals serve as an important check to ensure that companies and their employees follow the rules. These charges send a clear message that the Department will investigate and hold accountable any compliance professional who abuses their position of trust by failing to address, or actively participating in, misconduct.”
- “As alleged in the indictment, the defendant exploited his position as Chief Compliance Officer not to ensure compliance, but to avoid it—which raises costs for patients and American taxpayers and undermines confidence in the healthcare system.”
- “Healthcare executives, such as compliance officers, have a special obligation to ensure that the companies they help run operate in compliance with the law. Those who instead choose to abuse their positions of trust and engage in self-serving criminal conduct will be held accountable.”
Specific Risks for Compliance Officers
For corporate compliance officers across all industries, the DOJ’s recent indictments and statements raise several important questions. While it is clear that the DOJ is prioritizing the criminal prosecution of compliance officers, the DOJ has said relatively little about the specific circumstances in which it will pursue criminal charges. As a result, compliance officers are left to wonder, “Could I face criminal charges for failing to meet my compliance obligations?”
The answer is, “It depends.” Prosecutors within the DOJ will decide whether to pursue criminal charges against a corporate compliance officer based on a variety of factors. Chief among these factors are:
- The compliance officer’s intent – In most cases, criminal prosecution will be warranted only when a compliance officer either (i) intentionally facilitates a corporate compliance violation, or (ii) intentionally ignores a corporate compliance violation that the compliance officer has an obligation to prevent.
- The scope of the violation – Not only do prosecutors within the DOJ have limited resources, but they will also want to make examples out of compliance officers who have facilitated large-scale violations of federal law. The DOJ’s recent prosecution of a compliance officer who was allegedly complicit in a global AML violation is a case in point.
- The harm caused to the public – Along with making examples out of corporate compliance officers, the DOJ also has a strong interest in protecting the public. As a result, it can be expected to focus its enforcement efforts on prosecuting compliance officers who facilitate violations that create significant public harm.
With this in mind, corporate compliance officers should take steps to ensure that they have a clear understanding of their obligations, and they should be sure to fulfill their obligations in their entirety. They should also document their efforts to help ensure that they will have a strong defense in the event of an arrest, indictment, or subpoena. While the DOJ’s focus on prosecuting corporate compliance officers appears to be new, it is safe to say that enforcement activity in this area is likely to continue for the foreseeable future.
FAQs: Defending Corporate Compliance Officers in Criminal Cases
What Are a Compliance Officer’s Duties?
A compliance officer’s duties vary from one organization to the next. In general, however, compliance officers are responsible for designing, implementing, and/or overseeing their organizations’ internal compliance policies and procedures. As a result, they play a critical role in ensuring that their organizations’ personnel comply with all pertinent federal laws and regulations.
What Are the Penalties for Criminal Prosecution in Corporate Compliance Cases?
The penalties for criminal prosecution in corporate compliance cases vary widely. Depending on the nature of the alleged violation, compliance officers could face fines ranging from thousands of dollars to millions of dollars if they are convicted, and they could face years or decades of incarceration. Depending on the statute(s) at issue, compliance officers can face both fines and prison time in many cases.
What Can Corporate Compliance Officers Do to Protect Themselves?
Corporate compliance officers can protect themselves in two main ways. First, they can ensure that they are doing their jobs effectively. This starts with ensuring that they have a comprehensive understanding of their responsibilities. Second, they can document their efforts to meet their responsibilities. Solid documentation will be critical for building a defense strategy in the event of a federal criminal investigation.
Can Corporate Compliance Officers Face Liability for Their Superiors’ Decisions?
In some circumstances, yes, corporate compliance officers can face liability for their superiors’ decisions. While it is up to a compliance officer’s superiors to do what they want with a compliance officer’s advice, compliance officers must not intentionally facilitate non-compliance. If they do, they can face criminal prosecution.
When Should a Corporate Compliance Officer Hire a Criminal Defense Lawyer?
It is in corporate compliance officers’ best interests to hire a criminal defense lawyer as soon as possible. When the DOJ targets corporate compliance officers, it will have a head start, and compliance officers will need to do everything they can to catch up. At Spodek Law Group, our legal team represents clients in federal criminal cases across the country, and we offer free initial consultations to prospective clients.
