Last year, we highlighted how Rite Aid’s lack of due diligence, with regards to communicating and ensuring policy and procedures are read and understood by employees, cost them a large settlement. This example from 2009, from Morgan Stanley, show the opposite side of the same coin.
After Morgan Stanley found that one of their employees had been bribing a foreign government official to win business for his firm, and unlawfully enriched himself in the process. However, because the SEC found that “a Morgan Stanley compliance officer specifically informed Peterson (the antagonist in this story) in 2004 that employees of Yongye, a Chinese state-owned entity, were government officials for purposes of the FCPA”, and that “Peterson also received at least 35 FCPA compliance reminders from Morgan Stanley, but nonetheless committed the FCPA violations”, the SEC decided not to levy any charges on Morgan Stanley.
This case shows a taking proactive approach regarding internal governance, policy distribution and education, as well as cooperation with authorities, can be the difference between a multi-million dollar settlement, or no penalty at all (with some good press to boot!).
In fact, the DOJ released a statement
“After considering all the available facts and circumstances, including that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials, the Department of Justice declined to bring any enforcement action against Morgan Stanley related to Peterson’s conduct. The company voluntarily disclosed this matter and has cooperated throughout the department’s investigation.”
The proactive approach taken by Morgan Stanley confirms the adage “an ounce of prevention is worth a pound of cure”.