Leniency deals prove their value

August 5, 2015

When it comes to investigating and convicting an organisation of illegal conduct, it has traditionally been very difficult to cut into non-transparent companies. Investigations into alleged behaviour can be very protracted, costly and damaging to a company’s business operations on a number of fronts. Creating an incentive to draw out voluntary disclosures of illegal practices has led to an increase in successful identification and swift rectification of unethical behaviour.

Leniency deals are proving to be an effective instrument as that incentive. Such arrangements are founded upon the basis of an organisation recognising that illegal conduct has occurred, and having them coming forward with the intention of disclosing insider information about certain practices.

The principle behind this approach is that organisations that come forward and offer testimonies or disclose secret information receive leniency in the form of lessened or exonerated charges. Using leniency deals to uncover conspiracies that would previously have gone undetected is a major step forward for law enforcement, and another motivating factor for organisations to be upfront and transparent.

Law enforcement

From a law-enforcement standpoint, leniency deals are beneficial in many respects. Offending parties who turn themselves in provide extremely important information during the investigative process which can ultimately lead to a conviction. A flow-on effect of this is significantly reduced time and cost in performing an investigation or seeking a conviction.

Authorities seek information that will create a higher chance of indictment against certain institutions. This information could range from confessions by company members, information that authorities were previously unaware of, involvement of other guilty parties, and continued cooperation with authorities during the investigation.

These leniency arrangements have traditionally been associated with antitrust or competition-law cases, and are considered to have been very successful in bringing illegal activity to light. In the 2001 investigation into the global vitamins cartel, an amnesty applicant’s cooperation directly led to guilty pleas and fines of US$500 million and US$225 million against two other firms.

Offering leniency agreements for antitrust cases created a ‘who-shoots-first’ dynamic among colluding enterprises, where each enterprise would be worried that the other would take a leniency deal in order to avoid the harsh punishments that come with being exposed. Law enforcement would therefore see a significant benefit from continuing its leniency programmes beyond antitrust cases.

Companies

From a company standpoint, when an institution sees the highly-damaging punishments for corrupt practices, leniency bargains create a greater incentive to come forward with information to alleviate the potential of massive fines and other punitive measures. The OECD Observer considers there to be substantive merit in an effective leniency programme and strong potential penalties that provide powerful ‘carrot-and-stick’ inducements to expose corrupt enterprises.

Another important component (and possibly the most critical) for a company dealing with allegations of corrupt practices would be the potential reputational damage. Companies involved in these allegations could become blacklisted or have partner ties severely reduced or removed entirely. Reducing reputational damage during these times is crucial.

Sending a positive message to the public about your company’s insistence to uncover corrupt practices and deliver untainted products and services can be a powerful tool in returning a company back onto the track of business development and prosperity sooner.

An example can be seen with the recent FIFA scandal, where 14 members of the organisation have been involved in a ten-count indictment. The allegations have ranged from fraud to bribery, and have led to several sponsors dropping support for the football organisation and a severe blow to FIFA’s reputation.

There is the perception that the longer that FIFA denies any wrongdoing and is cagey about past conduct, the more its reputation is being tarnished. There is the old saying, ‘There is no point trying to diffuse a bomb once it has gone off.’ Addressing illegal behaviour head-on and taking affirmative action to rectify it is the initial and most important step in salvaging a company’s image. Preserving a company’s reputation is paramount in situations such as these, and leniency pleas may provide an immediate road back to normality.

 

Leniency deals are proving more and more that they are an effective tool for uncovering corrupt practices within organisations across the globe. They expand on the traditional legal concept of ‘if you plead guilty, the punishment will be less severe’. Law-enforcement bodies internationally have seen significant progress in taking down corrupt organisations, and businesses have been provided with an avenue to minimise the consequences.

Leniency deals provide companies with the reassurance that coming forward and exposing illegal conduct is the right thing to do, and reduces the fallout associated with a major investigation and conviction.

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