… and if it is, why?
Teaching the rules has always been part of the legal toolbox. But times are changing, and over the past 10-15 years behavior-regulating tools such as “nudging”, “show-don’t-tell” and “employee compliance acknowledgment forms” have appeared. Tools that are used to implement compliance programs.
In a series of articles in three parts, we focus on “training” and how best to train in compliance programs, and whether there is anything else you should rather do. We start with this article focusing on whether training is important. We get the answers in the worlds of law and behavioral psychology.
EU Commission, U.S. Department of Commerce, Bureau of Industry and Security (BIS) and U.S. The Department of the Treasury, the Office of Foreign Asset Control (OFAC) have all come up with guidelines for companies in establishing and maintaining a robust and effective compliance program within export control and sanctions (trade compliance). In the articles, we will refer to the EU Commission’s guidance1 as “EUGE”, BIS’s guidance1 as “USGE” and OFAC’s guidance1 as “USGS”.
Is training a legal requirement?
Training is not a legal requirement, but the EU Commission, BIS and OFAC all consider training to be an important and indispensable part of a trade compliance program. Some of their reasons are that:
- “Training and awareness raising on dual-use trade control is essential for staff to duly perform their tasks and take compliance duties seri- ously.”, (jf. EUGE, Annex, Element 3).
- ”A good training program is critical to having an effective compliance program”, (jf. USGE, Element 5).
- “An effective training program is an integral component of a successful SCP”, (jf. USGS, s. 7, Training).
These authorities recommend as the overall goal of the training that:
- teach employees in general about export controls and sanctions, the consequences of non-compliance and the company’s attitude towards it,
- teach employees about which rules they must ensure are followed, and which processes they must carry out, and
- implicitly ensure that there is a behavioral change towards a compliance culture.
The authorities recommend that the teaching of the rules is repeated regularly and at least once a year to refresh the memory of the employees and to inform about changes in the rules, the compliance program, etc.
It follows from case law and published settlements that in the U.S. training of employees can reduce the consequences of an infringement, e.g. by reducing the amount of the fine ². This will probably also be the case in the EU. So even if training is not a legal requirement, it matters if training is not carried out.
In other words, training is very important from the authorities’ point of view, and the background for it seems to be based on the assumption that if only the employees know the rules and know what they have to do, then they will do it too.
Does psychology agree with this?
Within cognitive psychology, it is generally assumed that the more you practice, train and receive instruction, the more likely you are to remember what you learn. In other words: the more resources a company spends on training its employees
employees, the greater the likelihood that it will be stored in the memory and become real learning for the employees.
Two American-Israeli psychologists, Daniel Kahneman and Amos Tversky, have set up a psychological decision-making theory in which they have divided a person’s decision-making process into two systems: system 1 and system 2 ³.
In short: System 1 is the human autopilot, which acts quickly and intuitively. It is also in this system that errors, so-called “bias”, can occur, since when using this system a person uses his gut instinct and gut feeling to make a decision. The advantage of the system is that a person using this system is quick to reach a decision, and several issues can be dealt with at the same time. This is because the process involves a person’s ability to recognize patterns. System 2, on the other hand, is a person’s more considered and reflexive decision-making process. It is therefore a slower process. Here, more cognitive resources are used to make one decision, but on the other hand, there is a greater probability that it has been corrected for possible bias.
Example: A company is contacted by a person in Iran who wants to buy the company’s products. The seller remembers something about the fact that it is a sanctioned country and there can be serious consequences associated with doing business with Iran. If
the seller makes a decision using system 1 alone, the decision rhetoric will sound something like: “It can be dangerous to do business in Iran. I won’t risk anything. I say no to the sale.” In the example, the seller makes a quick intuitive decision based on his own gut feeling, and the result here is to reject the sale. If the seller had instead made a decision using system 2 alone, the decision rhetoric would instead have sounded something alla: “It can be dangerous to do business in Iran.” I just need to consider the whole situation and seek advice before I do anything. It is a serious and important decision I am making.”
What relevance does this have for training in compliance programmes?
When a person has learned something new and begins to apply it, system 2 is used as a decision-making process. This is, for example, the situation when an employee has attended training in export control and sanctions, and has learned new processes that must be carried out as part of the work. Because it is not something that runs on the spine (system 1), the employee must for a period use more resources (time, energy and focus) to do his job (system 2).
But are system 1 decisions always bad?
No, they are not. The rapid decision-making process is not necessarily flawed. Training, repetition and experience will eventually lead to the employee creating a new pattern recognition that can be used in the decision-making process. It leads to faster and faster system 2 thinking that eventually turns into a system 1 process. That is by training the employee, the company increases the probability that the new knowledge and the new way of doing things through training can be transferred into a system 1 decision-making process. The employee can then make decisions faster and at the same time save cognitive resources. What was difficult before becomes easier.
“Repetition is the mother of all skills”, Tony Robbins.
If a company uses resources to regularly repeat training for employees, knowledge will be stored better and decisions can be made more quickly.
Bias lurks in the shadows
But … then there is bias, i.e. fallacies that are part of the decision-making process. There is the greatest risk of bias in system 1, and bias is not necessarily eliminated by training in rules and processes.
Within classical decision theory, it is assumed that a person will make the perfect decision that can maximize their own utility, if only all knowledge and thus all
possible choices is available. It seems that it is this decision theory that the authorities in the EU and the U.S. have built their recommendations for training around
Within behavioral psychology, however, there are many more factors that come into play in a decision-making process. These factors can lead a person to do something other than achieving the goal that would be rationally the best. So what is it, and why can it influence and short-circuit the decision-making process, no matter how good the training is given?
Psychologist, economist and political scientist Herbert A. Simon explains this with “bounded rationality” 4 , which refers to a person’s limited rationality in the way they make decisions. This is because a person has limited cognitive resources and can fall into various thought traps, also called bias. An example of one type of bias that people easily fall into is “group think bias”. If one employee expresses dissatisfaction with something about a compliance program, there is a risk that this will spread to colleagues. A person has a tendency to create conformity and try to be like the rest of the group. This happens for many different reasons, e.g. for fear of being excluded from the community. In the worst case, this bias can lead to something called the “lemming effect”. That is that the group collectively runs over the edge because no one questions the behavior and the decisions that are made. In other words, bias lives in the shadows, and the way to correct bias is to find them and shine a light on them, e.g. as part of the training.
And the answer is….?
Training is still important and a very central element of a trade compliance program. It is a prerequisite for the employees to be able to acquire knowledge, remember and incorporate the new knowledge into the decision-making process – and faster and faster each time a training is repeated. In other words, training is a prerequisite for a company to be successful in complying with the rules that are relevant to it.
However, training is not in itself a guarantee that the rules will actually be complied with, or that there will be behavioral regulation towards a stronger compliance culture.
A person not only makes decisions based on what they actually know is right, but also based on what they think is right, wrong thinking, – bias. By being aware of and including such bias in the compliance program and training, a company will be able to increase the likelihood that relevant export control rules and sanctions will be complied with.
In the next article, we will take a closer look at how the company can approach this training so that the expectations from the EU and US authorities are met and bias in the employees’ decision-making processes is corrected.
The next article will be on December 17, 2021.
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Article by Isabella K. S. Schmidt, Bachelor in Business Psychology and Annelise Lykke Schmidt, Lawyer (L).
Published December 10, 2021.
