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So, what were the penalties? As part of the settlement, Goldman Sachs was temporarily banned from underwriting business for Massachusetts. Goldman Sachs also agreed to pay more than $12 million in disgorgement (the forced giving up of profits obtained by illegal or unethical acts) and fines to the federal government, and an additional $4.6 million to settle state law charges with the Massachusetts Attorney General’s Office. This was despite the fact that, according to Goldman Sachs, when the firm detected the VP’s activities it “promptly alerted regulators, terminated his employment and fully cooperated with the investigations.”
In another recent case, a company’s series of gifts to government officials ranging in value from a mere $8 to $72 resulted in a fine exceeding $1.6 million. The fine was part of a settlement reached by National Grid, an electricity and gas company, for gifts to officials of its New York state regulator, the Public Service Commission. Over the course of nine years, National Grid employees allegedly treated PSC officials to meals, golf outings and other gifts, totaling $7,000 in value. Like Goldman Sachs, National Grid stated that it reported the gifts to the government as soon as it became aware of them.
These examples underscore the importance of the very compliance efforts you are trying to stress to your employees. In neither case did the government allege that the “pay” to government officials was part of an overall corporate strategy to curry favor with the officials. Rather, in both cases, the company facing sanctions stated that it reported the improper gifts as soon as it discovered them. While this self-reporting may have resulted in reduced penalties for the two companies, it did not protect them from millions of dollars in fines.
So, compliance efforts are not just important. They are the only way to prevent violations and protect companies from liability for violations of pay-to-play laws. Employees need to be educated about the rules and the associated risks.
While being a good corporate citizen after discovering improper conduct might help, it is not enough to prevent companies from serious penalties. If this doesn’t convince your employees of the importance of compliance, maybe nothing will.
C. Simon Davidson is a partner with the law firm McGuireWoods. Click here to submit questions. Readers should not treat his column as legal advice. Questions do not create an attorney-client relationship.