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Compliance Conundrum: Pay a Bounty and They Thrive

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August 25, 2020

You always get what you pay for in the corporate world, but that doesn’t guarantee the outcome you hoped for. Richard Cassin calls that axiom a good way to think about why compliance is so difficult. It even has a name. It’s called the cobra effect, after a misadventure of governance during colonial rule in India. British officials hatched a plan to reduce the number of cobras in Delhi. They offered a bounty for every dead snake. Soon people were breeding cobras for cash. When the British caught on and canceled the bounty, the snake breeders released their worthless cobras. Net result, more snakes. In the FCPA Resource Guide, the feds designate “the success fee structure” in consultant contracts as a compliance red flag, and Cassin notes the ease in which the aims of a compliance program become subservient to commercial goals. “Paying the salesforce a modest base with a big performance component can produce a felonious cobra effect, as can success fees for all sorts of intermediaries. But can a company that pays people to focus on compliance instead of profits even survive? Compliance might be a reason why a company stays alive and prospers. But compliance alone doesn’t pay the bills.”

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