USDOJ Expects Companies to Proactively Employ Data Analytics to Detect Fraud

By John Patzakis and Craig Carpenter

In corporate fraud enforcement actions, The US Department of Justice considers the effectiveness of a company’s compliance program as a key factor when deciding whether to bring charges and the severity of any resulting penalties. Recently, prosecutors increased their emphasis on this policy with new evaluation guidelines about what prosecutors expect from companies under investigation.DOJ

The USDOJ manual features a dedicated section on assessing the effectiveness of corporate compliance programs in corporate fraud prosecutions, including FCPA matters. This section is a must read for any corporate compliance professional, as it provides detailed guidance on what the USDOJ looks for in assessing whether a corporation is committed to good-faith self-policing or is merely making hollow pronouncements and going through the motions.

The USDOJ manual advises prosecutors to determine if the corporate compliance program “is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees and whether corporate management is enforcing the program or is tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives,” and that “[p]rosecutors should therefore attempt to determine whether a corporation’s compliance program is merely a ‘paper program’ or whether it was designed, implemented, reviewed, and revised, as appropriate, in an effective manner.”

Recently, Deputy Assistant Attorney General Matthew Miner provided important additional guidance through official public comments establishing that the USDOJ will be assessing whether compliance officers proactively employ data analytics technology in their reviews of companies that are under investigation.

Miner noted that the Justice Department has had success in spotting corporate fraud by relying on data analytics, and said that prosecutors expect compliance officers to do the same: “This use of data analytics has allowed for greater efficiency in identifying investigation targets, which expedites case development, saves resources, makes the overall program of enforcement more targeted and effective.” Miner further noted that he “believes the same data can tell companies where to look for potential misconduct.” Ultimately, the federal government wants “companies to invest in robust and effective compliance programs in advance of misconduct, as well as in a prompt remedial response to any misconduct that is discovered.”

Finally, “if misconduct does occur, our prosecutors are going to inquire about what the company has done to analyze or track its own data resources—both at the time of the misconduct, as well as at the time we are considering a potential resolution,” Miner said. In other words, companies must demonstrate a sincere commitment to identifying and investigating internal fraud with proper resources employing cutting edge technologies, instead of going through the motions with empty “check the box” processes.

With these mandates from government regulators for actual and effective monitoring and enforcement through internal investigations, organizations need effective and operational mechanisms for doing so. In particular, any anti-fraud and internal compliance program must have the ability to search and analyze unstructured electronic data, which is where much of the evidence of fraud and other policy violations can be best detected.

But to utilize data analytics platforms in a proactive instead of a much more limited reactive manner, the process needs to be moved “upstream” where unstructured data resides. This capability is best enabled by a process that extracts text from unstructured, distributed data in place, and systematically sends that data at a massive scale to an analytics platform, with the associated metadata and global unique identifiers for each item.  One of the many challenges with traditional workflows is the massive data transfer associated with ongoing data migration of electronic files and emails, the latter of which must be sent in whole containers such as PST files. This process alone can take weeks, choke network bandwidth and is highly disruptive to operations. However, the load associated with text/metadata only is less than 1 percent of the full native item. So the possibilities here are very compelling. This architecture enables very scalable and proactive solutions to compliance, information security, and information governance use cases. The upload to AI engines would take hours instead of weeks, enabling continual machine learning to improve processes and accuracy over time and enable immediate action to be taken on identified threats or otherwise relevant information.

The only solution that we are aware of that fulfills this vision is X1 Enterprise Distributed GRC. X1’s unique distributed architecture upends the traditional collection process by indexing at the distributed endpoints, enabling a direct pipeline of extracted text to the analytics platform. This innovative technology and workflow results in far faster and more precise collections and a more informed strategy in any matter.

Deployed at each end point or centrally in virtualized environments, X1 Enterprise allows practitioners to query many thousands of devices simultaneously, utilize analytics before collecting and process while collecting directly into myriad different review and analytics applications like RelativityOne and Brainspace. X1 Enterprise empowers corporate eDiscovery, compliance, investigative, cybersecurity and privacy staff with the ability to find, analyze, collect and/or delete virtually any piece of unstructured user data wherever it resides instantly and iteratively, all in a legally defensible fashion.

X1 displayed these powerful capabilities with Compliance DS in a recent webinar with a brief but substantive demo of our X1 Distributed GRC solution, emphasizing our innovative support of analytics engines through our game-changing ability to extract text in place with a direct feed into AI solutions.

Here is a link to the recording with a direct link to the 5 minute demo portion.

In addition to saving time and money, these capabilities are important to demonstrate a sincere organizational commitment to compliance versus maintaining a mere “paper program” – which the USDOJ has just said can provide critical mitigation in the event of an investigation or prosecution.

Leave a comment

Filed under Best Practices, compliance, Corporations, Data Audit, eDiscovery & Compliance, Information Governance

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s