In my line of work, I collaborate with risk management executives a lot. I have learned much from them since they are indispensable to the process of conceptualizing and mitigating business risks and legal risks.
When working through a challenging legal issue that may cause the &$%* to hit the fan, many risk management leaders are calm, wise, practical and forceful in protecting a company’s interests. In other words, they set “the tone at the top” and demonstrate that an ethics and compliance program is not just words on paper but is alive.
One risk management executive I have worked with had a great approach to mitigating risk. When evaluating a situation fraught with legal risk, inevitably someone on the business team would declare that the decision under review would never result in criminal liability, subpoenas, investigations and testimony. Even before I could explain the legal risks, this risk management leader would bellow: “famous last words.” Making it clear that the risk of criminal investigation was too serious to mess with. As a result, the risky behavior did not occur.
I thought of his phrase and his approach to handling legal risks when I read that Paul Manafort’s accountant and prosecution witness Cynthia Laporta testified in the Manafort trial that she falsified financial records, including tax records, for Manafort’s company to reflect a financial position that was inaccurate.
Accountant-Witness Laporta further testified that she falsified the records to protect her employer from being sued by Manafort had she denied the request and to avoid losing Manafort as a client.
In exchange for this testimony, Accountant-Witness Laporta was granted partial immunity, most likely because her actions may expose her personally to criminal liability. A quick side note on immunity. When a witness is facing the mere possibility of being charged with a crime, not that they committed a crime, but simply that there is some little bit of evidence upon which a prosecutor may charge the witness with a crime, the witness may invoke the Fifth Amendment and not speak to agents or prosecutors; and they may not be forced to testify. It’s the whole point of the Fifth Amendment right to remain silent.
However, prosecutors have a powerful tool to trump the Fifth Amendment – granting someone immunity. If prosecutors give a witness immunity, the witness no longer faces the possibility of being charged with a crime. Once given immunity, the witness has two choices, testify; or refuse to testify and go to jail. There are many nuances and other aspects to immunity but for today’s purpose – I share this to give context to the tough decisions Laporta likely had to make.
I feel for Witness-Accountant Laporta. It is hard to be a good human being – to love and care for family and friends, to manage a career, to do a job which requires following intricate laws and regulations and contribute to the community. It gets a lot harder to manage life when a career or job is in jeopardy. In those moments, in my opinion, we are all susceptible to making bad choices; and we need objective, clear-headed folks, like my risk management colleague to help us through. Witness-Accountant Laporta seems to have been susceptible to some type of pressure which caused her to falsify the records. She testified that she regretted making the decision.
According to Politico, she has been placed on leave pending separation. Her employer said it was “unaware” of the misconduct until it heard her testimony. Her employer also said that its entire leadership team was “shocked” by Witness-Accountant Laporta’s testimony since it demonstrates that “she failed to meet the firm’s high standards for professional and ethical conduct.” Her employer also pointed out that: “In the firm’s entire 35‐year history, no employee or principal has ever been disciplined by a professional body or government agency.”
Her employer is conducting an internal investigation to confirm that her activities were isolated to Manafort. I do hope, they also review to determine why she did what she did and whether she talked to someone at the company about the situation before she made her decision.
I have no idea why Witness-Accountant Laporta concluded that it was less risky to falsify documents then it was to face criminal liability for falsifying documents. I also have no idea whether she talked with anyone at her employer; and if so, what she was told.
But even without fully knowing what transpired with her employer, the facts are a good hypothetical to demonstrate why organizations need to have working ethics and compliance programs. So that when pressures build up on employees, for whatever reason, employees have support to make ethical and compliant decisions.
An effective ethics and compliance program includes not only policies, trainings and mechanisms for employees to raise concerns; but also people who will guide and direct employees; and who can raise issues to leadership for resolution.
This includes a stable of people who not only know their trade but who have the constitution to take stances when a company faces legal and ethical challenges. This would include strong risk management executives, knowledgeable finance leaders, capable HR professionals, and lawyers who can explain the law and legal risks.
Having these people available to employees is what makes an ethics and compliance program effective. DOJ and ethics and compliance pundits explain that organizations cannot have a paper ethics and compliance program and that they need to have a tone at the top. However, these notions are rarely defined but are simply lofty ideas tossed out to organizations without real guidance on how to act.
Witness-Accountant Laporta’s situation informs on what tone at the top means and what having an effective ethics and compliance program means.
According to Witness-Accountant Laporta, when she was confronted with a request to falsify financial records and tax filings, she complied because Manafort was a long-term client and she feared to do otherwise would have exposed her employer to a lawsuit.
Using her situation as a hypothetical, say she did not bring this issue to her employer’s attention and instead, she shouldered the request alone. Hypothetically, one possible reason that an employee like Witness-Accountant Laporta may choose to execute on the request to doctor the financials may be because they do not know who to talk to in the organization.
Or, at times employees like Witness-Accountant Laporta make decisions on their own because they do not feel comfortable raising the issue with anyone at the company.
Hypothesizing, I submit that had Witness-Accountant Laporta discussed her situation with a strong risk management executive she likely would have made a different assessment.
That is, hypothetically if she shared her opinion that it was riskier to have Manafort sue for not filing falsified records or to lose him as a client then it was for her or her employer to be criminally investigated and prosecuted for falsifying records, she would have heard that risk management executive bellow at her “famous last words.” The risk analysis would have been re-adjusted to address the risk of a criminal investigation, criminal liability and jeopardizing a professional license rather than a civil lawsuit or losing a client.
The hypothetical employee-employer situation that Witness-Accountant Laporta confronted is the precise reason an ethics and compliance program exists; and illuminates the definition of “effective” ethics and compliance program and “tone at the top.”
Employees need to know who they can talk to; they have to feel comfortable talking about issues with those people; and the persons they can talk to have to know the business, know the law, know the risks, and the organization needs to stand behind doing the right thing. Without this, an ethics and compliance program is paper and there is no tone at the top.
It’s just like Justice Potter Stewart’s famous approach to defining “hard-core pornography.” He explained that he could not intelligibly define what “hard-core pornography” is but, he knows it when he sees it. Jacobellis v. Ohio, 378 U.S. 184 (1964).
Similarly – although it’s hard to intelligibly define “tone at the top” and an action-oriented ethics and compliance program. But, when you don’t have tone at the top or a working ethics and compliance program you know it.