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Updated U.S. Civil Penalties Raise the Cost of Noncompliance

    Client Alerts
  • June 13, 2017

In 2016, we let you know about the redundantly titled “Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015,” which required that heads of government agencies adjust civil penalties yearly to account for inflation. Announcements must take place by July 1 of each year. As a result, most federal agencies have announced their 2017 penalty increases. Because the 2016 increase took into account multiple years of inflation, most penalties doubled in 2016. This year’s increase only accounts for one year of inflation, so penalty increases are much smaller. For example, the Department of Justice (“DOJ”) announced in February that the per-claim penalty for violations of the False Claims Act, which doubled last year, will only increase from the 2016 range of $10,781 to $21,563 per violation to a new 2017 range of $10,957 to $21,916 per violation. Typically, companies who violate the False Claims Act incur multiple penalties for multiple offenses though, so this can add up quickly. The price of noncompliance is high. We have reproduced selected federal penalty increases below. Other civil penalty increases can be found by searching the Federal Register or individual agency websites.

Agency Prior to 2016 range 2016 Penalty Range 2017 Penalty Range
DOJ for violations of the FCA $5,500 to $11,000 per violation $10,781 to $21,563 per violation $10,957 to $21,916 per violation
Defense Directorate of Trace Controls (DDTC) for export violations related to defense articles Up to $500,000 per violation Up to $1,094,010 per violation Up to $1,111,908 per violation
Federal Trade Commission (FTC) for violations of premerger notification requirements in the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) Up to $16,000 per day Up to $40,000 per day Up to $40,654 per day
Office of Foreign Assets Control (OFAC) for sanctions falling under the International Emergency Economic Powers Act (“IEEPA”) Up to $250,000 per violation Up to $284,582 per violation Up to $289,238 per violation
OFAC for sanctions falling under the Foreign Narcotics Kingpin Designation Act (“FNKDA”) Up to $1,075,000 per violation Up to $1,414,020 per violation Up to $1,437,153 per violation
Department of Homeland Security (“DHS”) – Knowingly hiring unauthorized aliens Between $375 and $3,200 per individual for a first offense. Between $539 and $4,313 for a first offense. Between $548 and $4,384 for a first offense.
DHS – Form I-9 Paperwork Errors Between $110 and $1,100 per individual Between $216 and $2,156 per individual $220 and $2,191 per individual
DOJ for violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (covers violations of criminal statutes related to or affecting financial institutions and government agencies such as bank fraud) Up to $1,100,000 per violation and up to $5,500,000 per continuing violation Up to $1,893,610 per violation and up to $9,468,050 per continuing violation Up to $1,924,589 per violation and up to $9,622,947 per continuing violation
Department of Labor (“DOL”) for serious violations of the Occupational Safety and Health Act Up to $1,000 per violation and up to $70,000 for willful or repeated violations Up to $12,471 per violation and up to $124,709 per willful or repeated violation Up to $12,675 per violation and up to $126,749 per willful or repeated violation
DOL for violations of minimum-wage or overtime requirements $1,100 per repeat or willful violation $1,894 per repeat or willful violation $1,925 per repeat or willful violation
Nuclear Regulatory Commission (NRC) for violations of the Atomic Energy Act related to nuclear power reactors $140,000 per day, per violation $280,469 per day, per violation $285,057 per day, per violation
Equal Employment Opportunity Commission – violations of notice posting requirements $210 per violation $525 per violation $534 per violation
EPA – Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) $25,000 $53,907 $54,789

How can a compliance program help?

Establishing a compliance program is essential to avoiding higher monetary penalties, hits to your reputation and other intangible costs of noncompliance. Yes, implementing the program requires an upfront investment of money, time and resources. But it can save you money down the road. It gives employees a roadmap to follow. It also provides the company with easy justification to dismiss a noncompliant employee, removing the known source of noncompliant behavior while simultaneously sending a message to others that ignoring compliance will not be tolerated. Furthermore, it gives companies a better chance of self-discovering violations before a whistleblower or a competitor reports the violations to the government. In certain cases, it can even provide the company with mitigation credit or safe harbor protection from the government in the event of a violation. The sentencing guidelines provide for mitigation credit for companies who have instituted compliance programs, uncovered and addressed criminal conduct quickly, self-reported and cooperated with the government.

What goes into a compliance program?

The specific laws and regulations that apply to your company or industry will largely dictate what goes into your compliance program. There are also areas that affect most companies, such as anti-corruption (bribery, gifts and entertainment), antitrust, export and trade compliance, environmental compliance, immigration (Form I-9/E-Verify), securities trading, HIPAA (personal health information), document retention, and computer usage.

Some of the minimum hallmarks of any effective compliance program are as follows:

  • A commitment from senior management and a clearly articulated policy of compliance
  • Clearly spelled out compliance policies and procedures
  • The assignment of somewhat autonomous oversight of compliance to a senior executive within the organization, along with sufficient resources dedicated to compliance
  • Performance of a risk assessment to tailor compliance to the individual needs of the organization. The government expects companies to focus on those areas that provide actual risk rather than wasting compliance dollars on areas for which the company is not at risk.
  • Provision of training and continuing advice to employees and agents as to how to comply
  • Incentives for compliance and reporting violations as well as appropriate and clear disciplinary procedures for noncompliance, up to and including dismissal
  • Existence of a confidential reporting system and procedures for internal investigations into reported violations
  • Periodic testing, auditing, and review to ensure the compliance procedures in place are actually being used and are working

Simply put, it is worse to have a compliance program that gathers dust on a shelf than not to have one at all. That’s because the government can point to it as evidence a company knew how to comply but chose not to.

With the right focus and investment, avoiding the increasing costs of noncompliance is relatively easy and way better than the alternative – ask anyone who has tried to beat the house and lost their bet by going through the remedial process of noncompliance. If you have additional questions or would like help drafting a compliance program or auditing an existing one, please contact Parker Poe.