Compliance Programs - History

During the 1980’s, an increase in procurement scandals paralleled an increase in defense spending

1980's

1986 – Operation Ill Wind

• 3 year DoJ investigation of bribery and fraud
• Approximately 70 contractors were convicted and paid significant fines
• Primary focus was on private military consultants improperly obtaining and selling classified information to defense contractors
• Led to the passing of the Procurement Integrity Act

Packard Commission

• Performed a review of the defense acquisition process
• Required contractors to develop codes of ethics
• Required contractors to develop internal controls to monitor compliance with the new ethics requirements
• 32 major contractors responded by forming the Defense Industry Initiative on Business Ethics and Conduct (DII)
• Focused more on self-governance

DoD amended the DFARS to include the Packard Commission recommendations

• Provided general requirements for an effective ethics program, including a written code of ethics and various monitoring, communication, and training requirements.

1990's

1991 – U.S. Sentencing Guidelines

• Established 7 minimum criteria for an effective compliance program
• Strengthened in 2004
  • Corporate leadership requirements
  • Exclusion of “risky” employees from leadership positions
  • Compliance programs to effectively mitigate new and emerging risks
• Contractors are not required to follow sentencing guidelines, but adherence can lead to lesser penalties if convicted
• Incentivizes contractors to develop a strong ethics program

2000

Sarbanes-Oxley Act of 2002 (SOX)

• Required companies registered with the SEC to adopt a written code of ethics
• Many government contractors have subsequently revised their codes of ethics to be in compliance with SOX requirements

FAR Ethics and Compliance Program Requirement (Nov. 2007)

The FAR Councils amended the FAR to require government contractors to develop ethics and compliance programs

• Applied to contracts exceeding $5 million and periods of performance greater than 120 days
• Contracts performed outside the U.S. were initially exempt
• Proposed a rule requiring disclosure of contractor fraud to the Government

Contractor Fraud Loophole Act (June 2008)

• Required amendment of the FAR within 180 days to include disclosure requirements of all covered contracts, including those performed outside the U.S.