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Compliance Preparedness During the COVID-19 Outbreak—Lessons From A Prior Crisis

In times of economic uncertainty companies face numerous enterprise-wide risks. The COVID-19 pandemic exponentially magnifies these risks, but critical lessons learned from the 2008 financial crisis can help blunt the impact. While concerns over business continuity, cash flow and fulfilling contractual obligations are front-line issues for management teams, companies and their compliance departments must remain vigilant to prevent misconduct – intentional or otherwise – in order to avoid potential enforcement actions associated with fraud, waste or abuse that may follow the immediate crisis. 

One consequence of the global financial crisis in 2008 was that companies in a wide variety of industries were subjected to regulatory and shareholder scrutiny that placed a spotlight on how those companies behaved during the downturn.  The 2008 crisis spawned a number of federal and state investigations into accounting fraud, mortgage fraud and other corporate reporting and control issues, and in some cases resulted in exorbitant penalties.  Such scrutiny led to the exposure of Bernie Madoff as having orchestrated the largest Ponzi scheme in history, causing billions of dollars in losses.  Less extreme examples include mortgage underwriters’ systematic failure to ensure compliance with industry guidelines.

The current economic climate, while evolving day-by-day, is similar.  Actions companies take today will impact their recovery in the future, and companies must take steps to ensure that employees maintain discipline and continue to adhere to company codes of conduct. 

While executive leadership is rightly focused on the immediate business risk posed by COVID-19, companies cannot lose sight of consulting with their compliance departments and counsel to develop a risk-based plan to ensure compliance during and after the pandemic.  While many companies have previously conducted enterprise-wide compliance risk assessments, management should prioritize issues based on the current crisis and strategize accordingly to focus on top-line concerns posing the most risk to the company. 

Management action items include:

  • Messaging from executive leadership that legal and compliance guidelines must be followed in times of uncertainty. For example, compliance officers should consider reissuing written codes of conduct with an emphasis on anti-collusion, anti-corruption or anti-kickback provisions.

  • Instituting and updating procurement guidelines for any emergency situations so that employees have a clear understanding of the “rules of the road” when it comes to purchasing issues.

  • Stressing the importance of strict accounting controls with corporate controllers and other responsible parties to ensure compliance with booking accurate revenue, income and losses.  This includes compliance with any and all trading guidelines.    

  • Maintaining open and frank lines of communications with banks, lenders or financing parties.

  • Communicating with third-party vendors to ensure their continued compliance with the company’s code of conduct.

These measures will help ensure that management remains focused on all risks companies face amid the COVID-19 pandemic, including those implicating compliance concerns.  By taking steps now to prevent misconduct, companies can focus on getting back to business when the crisis passes without the worry of a regulatory or internal investigation.     

© 2022 Bracewell LLPNational Law Review, Volume X, Number 78

About this Author

Thomas Kokalas, White Collar Defense, Attorney, Bracewell, law firm

Thomas Kokalas is a partner in Bracewell's New York office, where he is a member of the firm's White Collar Defense, Internal Investigations and Regulatory Enforcement practice group. He represents corporations and individual clients in federal and state white collar criminal and regulatory cases, internal investigations and compliance reviews.

Mr. Kokalas has represented individuals and corporations in investigations and prosecutions by the Department of Justice, the SEC, the Manhattan District Attorney's Office and the New York State Attorney...

Rachel goldman, complex commercial litigation, attorney, Bracewell law

Rachel Goldman is an experienced litigator in both federal and state courts, at the trial and appellate levels. Her practice focuses on complex commercial matters, including claims for breach of contract, post-acquisition disputes, class actions, False Claims Act cases, insurance coverage disputes, contested bankruptcy matters, challenges under the Commerce Clause and the Supremacy Clause, government regulation, securities litigation, construction law, First Amendment and libel actions. Additionally, Rachel's tenure as in-house counsel provides a valuable perspective of...

David Ball, Intellectual Property Attorney, Bracewell Giuliani, law firm

David J. Ball is a partner in Bracewell's litigation practice. David has experience in the areas of intellectual property litigation (patent, copyright, trademark, trade dress, and IP theft), bankruptcy litigation, and state and federal appeals.  He also regularly represents financial services firms (international banks, regional banks, hedge funds, etc.) in complex commercial disputes.  David routinely draws on his litigation experience to counsel clients in all manner of business transactions, including risk analysis, contract formation, mergers and acquisitions, and...

David Shargel, commercial litigation, white collar criminal defense attorney, Bracewell Law firm

David Shargel is a senior counsel in the trial section of Bracewell's New York office. His litigation practice focuses general commercial litigation, internal investigations and white collar criminal defense. Mr. Shargel's practice also involves issues surrounding electronic discovery and data management.

Mr. Shargel has litigated complex commercial disputes involving contract, business torts, insurance coverage, technology and fraud, and has litigated disputes concerning federal and state constitutional law, including the Commerce and Due...