At Prison Professors and Compliance Mitigation, we offer strategies and insight for people who want to avoid investigations or get the best outcomes if authorities have targeted them. Michael Santos served 26 years in federal prison and he hosts the show. Learn how to prepare. Contact us at Team@PrisonProfessors.com. For more information, call or text: 949-205-6056.
163. Strengthening Compliance Programs
Companies primarily adopt compliance programs because they recognize the need to mitigate risk. Leaders want to get the end result of a safer workplace with less legal exposure. Merely adopting a compliance program, however, without comprehensive implementation, may not yield the return on investment that a leader wants.
On any given day, we can turn to the Department of Justice website to read press releases of criminal indictments for white collar crime. Many of the defendants in those cases began without any intention to break laws. Yet a lack of a clearly defined business model, or well-engineered compliance system, put those people into the cross hairs of a government investigation. High legal costs and criminal proceedings followed.
All businesses stand vulnerable to the dangers of a government investigation. For these reasons, leaders should take steps to minimize their exposure. That means they should put plans in place to show a commitment to transparency, compliance, and good corporate citizenship.
Our team at Compliance Mitigation has identified 10 reasons that compliance programs may fail in businesses:
A Failure to Appreciate Risk Leader should begin with an honest assessment of the risks the company may face. To get the right answers, they may ask Socratic questions. Rather than starting from the perspective of the company leader, questions should come from the mindset of an investigator. Those people will be cynical. If company leaders do not anticipate such questions, they may fail to appreciate their exposure to risk.
Company leaders frequently strive to:
Provide products or services to satisfy customer needs, Create jobs and paychecks for employees, Contribute to the building of stronger, more vibrant communities, and Earn an acceptable return on investment for shareholders. A company may not have the luxury of hiring an entire team or department to contemplate risk exposure. Yet if they do not understand the risk, they may not see value in a compliance program. If leaders do not see how a compliance program can strengthen the overall health of the organization, they may undermine its effectiveness. Without a good compliance program, the company and its team leaders may face harsher scrutiny from regulators and investigators. For these reasons, proper training should highlight failures and the accompanying costs of a bad compliance program.
Lack of Leadership Buy-In When it comes to compliance, leaders should recognize that the company’s commitment to ethics starts at the top. If leaders do not embrace the principles of good conduct, team members will not take compliance seriously.
Compliance programs that send mixed or inconsistent messaging leave the company vulnerable to liability. That liability can include exposure to internal fraud, lawsuits from customers, investigations by government regulators or law enforcement.
Good training should profile examples of the fallout that has come from such failures in compliance.
A Paucity of Resources Devoted to Compliance: Failing to devote financial resources to support compliance training exposes a company to more risk. If an investigation begins, and the company cannot show a deliberate, consistent investment in the pursuit of excellence, authorities will be less likely to see the business or its leaders as good actors. On the contrary, investigators may accuse the business and the responsible parties of operating from a state of “willful blindness,” a term we heard a lot about while our team members were in prison.
Compliance training does not have to be a drain on the company’s resources. In fact, when leaders design compliance programs to demonstrate a commitment to transparency, they may be simultaneously investing in corporate messaging. That better messaging can lead to better efficiencies, helping every team member
162: What if Government Investigators Come Calling?
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As described in earlier modules, government investigators do not act without having a specific intention. If they ask questions or subpoena documents, they likely already have invested thousands of hours and they believe they can build a case. When they start talking with people in a company, they want to gather more evidence. Their investigations will be in an advanced stage, but the witnesses may not know anything about the nature of the inquiry. Some investigators will try to intimidate or trap witnesses.
When initially approached, people that work for companies may get nervous. They may:
Believe they didn’t do anything wrong and act belligerently, Deny that they didn’t do anything wrong and make statements that can hurt them, Accuse others within the organization in an effort to minimize culpability, Cooperate fully without knowing or understanding whether they are exposing themselves to legal complications. If the company does not help team members understand the nature of an inquiry, those team members may get themselves and the company into deeper troubles. Remember that the investigators want to prevail. Victory for them means some type of sanction, injunction, disgorgement, finding, or conviction. Investigators do not earn promotions by letting companies or individuals off the hook. On the contrary, their careers advance when their investigations lead to penalties. They may try to appear friendly, saying they only want the truth.
Yet people should always remember the wisdom of President Reagan, who warned of nine words that an American never wants to hear:
I’m with the government and I’m here to help.
How Investigators Start:
The investigative team starts gathering evidence in a number of different ways. The investigators may identify an employee, a group of employees, or other potential witnesses. If the investigators believe the prospective witnesses will help them build a case against the target, they will conduct an interview—either with or without someone to transcribe the exchange. Since the investigators would have to give any transcriptions of the interview to the opposing parties during the “discovery” phase, they may elect not to take notes or recordings of any kind. Business leaders may or may not know that the government has begun an investigation.
Other times, the government agents may want to show force. In those situations, the agents make a surprise visit, often loud, with an overwhelming display of firepower. Scores of people wearing dark windbreakers with large yellow letters (FBI, SEC, FTC, IRS, FDA, etc.) may show up to conduct a search.
Regardless of whether the government agents use subtle or strong-arm tactics, they always give a sign that more invasive activity will take place, putting a company and its employees in significant legal jeopardy.
The investigative tactics that the government agents use may dictate the appropriate response for people within the company. Our team at Compliance Mitigation offers insight that leaders may consider if they learn of:
Informal employee interviews, Execution of a search warrant, or Grand jury subpoenas, or depositions. Regardless of what approach the government investigators take toward a company or its employees, people should try to determine whether the agents consider the people or the company as:
A witness to the investigation, A possible subject of the investigation, or A target of the investigation. If a person can determine the government’s posture toward the company from the beginning, that person can better assess the potential liability.
Our team at Compliance Mitigation encourages leaders of businesses to get competent legal advice—we are not lawyers and we do not offer legal advice. All of the information we provide comes from our experience of having gone through
161: Fraud-Response Plan
Previous modules offered insights we believe leaders should consider when designing an effective compliance program and risk-management strategy for their organizations. The more leaders customize their compliance and best-practice programs, the better they safeguard against intrusive investigations that could threaten the business and its team members.
Regardless of what efforts team members make to protect a company, possibilities always exist for a breakdown, or for a rogue team member that could expose the organization to liability. For that reason, all companies should create a plan that would coordinate a team response in the event of an inquiry from regulators or law enforcement.
Lack of Planning Brings Vulnerabilities:
In the absence of a structured response plan, team members may not know what to do if they learn that authority figures have taken an interest in the company or in a team member. Sometimes, leaders act rashly. People have gone to prison for their response to a government investigation, rather than for the underlying reasons behind the inquiry.
Consider the case of the famous celebrity, Martha Stewart. Many people are familiar with her brand, which sells household products. In 2001, however, a personal scandal over a stock sale completely disrupted her life. Her response to a government inquiry led to criminal charges.
According to the U.S. Securities and Exchange Commission, in late December 2001, her stockbroker at Merrill Lynch, Peter Baconovic, called her. Peter revealed that Sam Waksal, the CEO of ImClone Systems had placed an order to sell all of his shares in his company as a result of an adverse decision by the Food and Drug Administration. In response, Martha sold approximately 4,000 shares that she owned, avoiding losses of more than $45,000.
When government investigators began making inquiries, Martha did not have a good plan. The responses she gave to the government investigators resulted in criminal charges. The fees and costs associated with the disruption likely exceeded several million dollars. Besides losing money for legal costs, Martha’s response to the investigation led to a prison term, a shareholder derivative suit against Martha Stewart and other directors at her company, and five months in prison. With a felony conviction, Martha endured lifelong complications, including bans on travel to some countries.
Clearly, Martha Stewart did not have a principled plan that would guide her response to a government inquiry. Sadly, many people find themselves in the same predicament. Those who operate businesses without designing a response plan for government inquiries may leave themselves vulnerable to knee-jerk reactions that can exacerbate troubles.
A lack of a plan can lead to confusion during the first few hours, days and weeks of an inquiry. The unfolding drama can distract team members, as everyone may worry about personal liability. If people don’t know what to do, they may make futile attempts at self-preservation, such as destroying incriminating evidence, or lying to government investigators. Either response would expose the individual, and potentially others, to criminal charges.
A good response plan will ensure that all team members have guidelines to follow. Whether government regulators inquire about business operations or potential fraud, everyone should know what steps to take. To protect both the business and the team members, corporate leaders should articulate the appropriate protocol any time an investigator makes an inquiry.
Does everyone in your organization know how to respond in the event that an investigator asks a question? Leaders can easily get an answer to that question by creating a plan. Then, they should create a training exercise for all team members. The more transparency leaders bring to an
160. Mimizing Vulnerabilities to Government Investigations
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For reasons expressed throughout these modules, every business leader should consider possible steps to lessen potential exposure to a government investigation. Three suggestions follow:
Show a commitment “to doing good” in all communications. Document processes that show a commitment to operating the business with principled, transparent policies that are easily defensible. Train all team members to understand the corporate culture, and also the reasons behind every policy in place. These three components would go a long way toward protecting businesses and individuals.
In 1991, the U.S. Sentencing Commission (USSC) amended its guidelines. The amendments incentivized business owners to act in compliance with regulations and the law. Those changes opened opportunities for prosecutors to grant leniency, non-prosecution agreements, or deferred-prosecution agreements to businesses that put “effective compliance programs” in place.
Theoretically, if business leaders designed effective compliance programs, their efforts would show a good-faith effort toward corporate responsibility. By building a record demonstrating that they want all team members to act appropriately, leaders reduce risk levels. Although no one can eliminate the possibility of a government investigation, good records will serve as an excellent defense mechanism.
As we’ve stated throughout, although business leaders can control personal decisions, they cannot observe decisions that other people on their team make. For those reasons, leaders should add training on the personal costs that can accompany an investigation or a prosecution for white-collar crime.
Agencies within the Department of Justice now incentivize businesses to make bigger investments in compliance. Guidance from 2019 advises federal prosecutors to consider the following questions when evaluating corporate compliance programs:
Is the program well designed? Is the program being implemented effectively? Does the compliance program work in practice?
In 2020, the DOJ emphasized another two key points with its publication of: Evaluation of Corporate Compliance Programs (2020 Guidance):
Corporate compliance programs, to be deemed genuine and effective by the DOJ, must be examined, tested, and updated on a continual basis, including (and perhaps especially) during a government investigation.
Compliance efforts should integrate current data analytics, capabilities wherever possible. If deficiencies are found, then changes should be made, and the 2020 Guidance makes clear that DOJ expects regular review of compliance efforts.
The quality of a company’s compliance program continues to be a major factor in deciding on the appropriate resolution of a government investigation. The 2020 Guidance makes clear a program’s effectiveness will be considered at the close of an investigation as well as when the underlying company conduct occurred.
Consequently, under DOJ policy, the strength of a company’s past and present compliance efforts will ordinarily have an effect on the terms of a resolution, including the often quite important matter of whether a monitor is required (and the scope of a monitorship).
The DOJ’s guidance can help business leaders make decisions to lessen exposure to investigations.
Effective compliance programs will not only show people what they should do, it will help those people understand what they should not do. In addition, they may also profile the consequences that follow for bad behavior.
If a company invests the time to show a person how to make the right decisions, and it requires the people to acknowledge that they understand corporate policy, the business protects itself. Goo
159: Minimizing Vulnerabilities to Internal Fraud
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Although we can control our own behavior, we don’t always have an ability to know how others will behave. When business leaders delegate responsibilities, they simultaneously raise their level of risk. Business leaders may not know what a team member is saying to a customer or how that team member may be acting in fulfilling job responsibilities. When that happens, the team member may expose the entire company to interference from regulators, or losses from internal fraud.
For example, consider Justin, a co-founder of one of our companies.
Justin graduated from USC and went on to become a stockbroker. While employed as a stockbroker at UBS, he executed market trades on behalf of people that managed private hedge funds. In that role, Justin had insight into account balances for the clients he served; he could also review balances in each of the client accounts at the hedge-fund. UBS trusted Justin took to look after the interests of his clients, and also after the interests of the firm.
When Justin walked into a meeting with one of his clients, he also met with people who had invested in the hedge fund. Those investors showed Justin an account statement that they had received from the hedge-fund manager. When Justin saw the statement, he knew at once that the document had been fraudulently inflated. His client had manipulated the statement to show balances that the client wanted to see, rather than what the account held.
Justin had been earning enormous commissions from the account. Despite seeing first-hand evidence of the fraud, he chose to remain quiet so as not to disturb the income stream from commissions. Rather than reporting the fraud, Justin allowed his client to continue deceiving investors. As a result, Justin immersed himself into an internal fraud that cost his employer millions of dollars. When authorities discovered the fraud, Justin lost his job.
Justin had deceived himself into believing that since he wasn’t the person manipulating the financial statements, he wasn’t responsible. Yet by continuing to claim commissions for trades that he knew had been predicated on fraud, he became complicitous. Fraud charges may stem from direct participation, or even from the observation of others that participate in fraud. As a result of his complicity, prosecutors brought criminal charges against him. While in prison, he said that while he was in the midst of the crime, he didn’t realize the extent of his wrongdoing.
Business leaders and team members can learn from such examples. Many people do not set out to participate in fraudulent schemes. They fall into situations on the job or go through complications in life. Those situations can lead to a dilemma; doing the right thing can have bad consequences:
A person can lose an income stream, A person can be ostracized on the job, and A person may have to serve as a witness against someone he or she cares about. We’d like to believe that people of good character always act appropriately. Yet with the growing number of guilty pleas for white-collar crimes like fraud, bribery, or other types of self-dealing acts, people’s characters are constantly tested.
Our team at Compliance Mitigation believes that business leaders would, therefore, be wise to invest more time and resources in training. Despite good intentions, opportunities or bad actors can tempt people. And people can delude themselves with all types of lies to excuse their behavior. When they do, they put their liberty on the line, and they expose the company to enormous costs.
Business leaders that invest time to train may lower a company’s risk profile and a company’s vulnerability to internal fraud. In earlier modules, we’ve noted three components that may increase possibilities for fraud:
Financial Pressure - such as significant personal debt, c
158: Compliance Training Systems
Establishing a compliance and training system begins with a commitment to transparency. The first step would be to document the company’s story and the value proposition it offers to consumers. The next step would be to write a process map and training schedule. The more detail leaders can bring to the process map, the more they will minimize exposure or vulnerability to a government investigation.
Ideally, the process map would include details of every function, including:
How the business goes about recruiting staff, How the business organizes its hierarchy of positions, How the business compensates staff members, The roles and responsibilities of each staff position, How the company trains staff members, How the company attracts customers, How the company selects vendors, How the company processes customer orders, and How the company retains records. Documenting the company story should show the company’s good-faith effort to operate in compliance with all regulations and laws.
Further, the training should help all stakeholders understand consequences that can follow for those who fail to comply with the company’s policies and procedures. Resources from the Department of Justice and various regulatory agencies show that transparency goes a long way toward protecting the business and the people that build careers in the business.
Training will lessen a business’s exposure to charges of fraud, but it can also lessen a company’s risk of becoming a victim of fraud. Our team members at Compliance Mitigation have worked with more than 1,000 people that have been charged with white-collar crimes.
Those people claim to have begun careers with the best of intentions. Somehow, circumstances changed for them. As a result, some of them became less vigilant about ethics or morality. Other times, they broke laws without knowing how they were putting themselves and their companies at risk. Good training will lower the company’s risk profile. If that training includes lessons on the consequences of white-collar crime, more people may refrain from making the kinds of decisions that lead to criminal prosecution.
If done well, compliance training will help everyone in the company get a clear understanding of corporate messaging. With better messaging, everyone on the team should work together to build a more efficient and profitable enterprise. The compliance training should help employees grasp internal rules and regulations critical to their job responsibilities and tasks. A good compliance training program helps a company avoid penalties and even potential lawsuits. Simultaneously, it should improve employee efficiency, productivity, and satisfaction on the job.
For a compliance training system to work effectively, the leadership team must commit. If the leaders embrace the organization’s goals and culture, the entire team will be more effective. Leaders should understand the relevant laws and know how to manage risk. Further, they should understand how lowering risk levels can lead to a company’s positive reputation, lessening the potential for penalties or lawsuits.
Without good leadership, the company may be vulnerable. The regulatory landscape may change, which could bring further problems. Leaders should give clear guidance with regard to all compliance matters.
Besides commitment, the leadership team must implement the training effectively. Our team recommends creating logs to measure the following key objectives of compliance training:
Do all staff members understand their compliance responsibilities? Does everyone understand how the compliance program reduces risk? In what ways does the compliance program minimize potential legal liability? How does the compliance program protect the company’s reputation? In what ways does the compli
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Aaron Kinzel Prison Professors Podcast
This podcast really brings a sense of awareness to those who have not been in the system. People like Aaron deal with many issues in life before their incarceration. A lot of factors go into why someone like Aaron would be placed in the system. The environment you are born into and how you grow up are factors in how you’ll act in society. Aaron is a perfect example of a child growing up in a bad environment, which resulted in his bad behavior. Child abuse and drugs were a starting basis for this type of behavior to begin. This type of negative exposure increases the chance of a crime to be committed. Aaron felt threatened with his surroundings growing up. His behavior became more aggressive and eventually was arrested for the violent crimes he committed. Once in the system, he quickly had to adjust to this new environment. During his early years in the system, Aaron struggled like many others who do entering the system. It took several years in prison, before Aaron’s mentality changed to better himself. He started to better educate himself through classes offered and became more involved in the prison overall. Aaron was slowly shaping into a new person from these experiences. He was granted mandatory parole after serving half the time of his initial sentence. Aaron’s story is an inspiration to individuals who are or have been incarcerated.
PodCast Discussion Board CRJ 363-001
Talk about how the individual became involved in a life of crime and or discuss their time incarcerated.
I decided to listen to Michael Whitehead’s story. The title “facing the death penalty” caught my attention, and the second I began listening to it I was interested. As stated in the title Michael faced the death penalty and he served a six year prison sentence. Michael was involved in a life of crime. He was first arrested for murdering his wife. He was also charged for theft.
The courts gave Michael a plea deal that was ten years. Michael chose to serve twelve years, which he only served six of the twelve. Michael spoke about the hardships that he faced in prison. He revealed that he no longer had custody of his child during the trial period. Michael stayed away from making trouble in prison. He explained that the specific programs he joined while serving his time helped him stay out of trouble. He said that he learned a lot from these programs. In addition, he explained that the cognitive development program had educated him.
2. Discuss any aspects of reentry back into society and any struggles that the individual faced due to having criminal convictions. What could be a possible public policy change that could have made their transition into the community smoother?
Michael spoke about the hardships that he faced when he re-entered into society. He explained the difficulty of being unemployed. Not only was Michael unemployed, but he had no personal possessions and no place to go which made his it much more difficult for him to re-adjust into society. Because Michael had criminal convictions, he explained that society makes it impossible for returning citizens to find a job. However, after struggling for some time he managed to get a job as a contractor.
Although it may be difficult, Michael explained that he aspires to be a lawyer. He is currently in college to get his bachelor's degree. It was inspiring to hear Michael say that he won't let his criminal record get in the way of his success. If anything his past further motivates him to become successful. Michael explains that the struggle he went through in prison is enough to keep him out for good. He emphasized the importance of appreciating the things you have.
A policy change that could make the transition into society smoother is giving inmates the opportunity to get an education while in prison and to get a job upon release. The question “Have you been convicted of a felon?” which appears on every job and college application hinders thousands of individuals from becoming successful, law-abiding citizens. I would develop and implement rehabilitation programs that will allow returning citizens to pursue an education, obtain vocational training, and eventually start on a career path. This type of education and skill-building helps promote the autonomy that each individual needs to become successful which is what Michael emphasizes in the podcast. If Michael had been given the opportunity to join a program such as vocational training he may have had a job lined up for him directly upon release.
3. Give an overall summary of the podcast and discuss a key policy change to improve juvenile and or adult criminal justice that you did not mention in questions 1 or 2. Make sure you post a copy of this response to the question on iTunes reviews as well
Michael’s story was very inspiring. It made me realize not to take my education for granted. Returning citizens struggle to get into a college who is willing to accept them. It made me realize the importance of striving for success. Michael served a six year sentence in prison. While he was in prison he participated in programs such as the cognitive development program that he spoke about that helped him. He explained that these programs allowed him to get clean and it prevented him from getting involved into trouble while serving time. Although Michael was shunned by society after being released, he is motivated to become successful. He aspires to be a lawyer. He described that going to prison allowed him to transform his life.
A key policy that should be implemented to improve the adult criminal justice system is instead of arresting individuals who are addicted to drugs, we must direct substance abuse and mental illness patients to community based treatment programs that would focus on empowering the individual. The programs should aid individuals in carrying out changes that promote life fulfillment. The issue is that while inmates are serving their time, very little is being done to rehabilitate them. Our criminal justice system must include rehabilitation programs that prepare individuals to re-enter society, without the feeling of being shunned, labeled, excluded, or abandoned.
Mario Bueno Podcast- Ali Bazzi
Overall, Mario’s podcast was very inspiring and detailed a very nice reform story. It showed the lengths an individual would go to better themselves and turn their life around. Regardless of the crime Mario committed and the sentence he had to serve, he still had an urge to not give up and not waste the life he still had. Mario was lucky that he had the opportunity to self-assess his life and not fall victim to his situation. He educated himself to better himself and others and proved that regardless of being sentenced he can still make something of his life. Mario took the second chance he was given and used it to redeem himself.
An key policy that may help improve the juvenile and adult criminal system would be to reform the laws regarding the sentencing of juveniles in the adult system. Mario fell victim to this back in 1995 and this is still happening today. No matter the crime a person who is 16 should not be locked up with a person that is 35. Juveniles should be considered such until they pass the age of 18, maybe even 21 in some cases. Age is in important factor to consider regarding criminal justice, a 16 years-old still has a large chunk of their life to live before they mature and understand the real world. Throwing them into an adult facility is the same as throwing their life away. Not all kids are like Mario, some will give up with their life if they are sentenced, let alone for 19 years. Changing this key policy will assist and preventing most kids form throwing their lives away and losing hope.