The Revised Federal Sentencing Guidelines

What do they mean for organizations?


By Juliana Morehead, J.D.

Fraud & the Law

It was 1991 - the first year the Federal Sentencing Guidelines, promulgated by the United States Sentencing Commission, were to be applied to individuals and organizations. Since then, and until a U.S. Supreme Court ruling in January 2005, federal judges were required to use the Guidelines to determine whether a defendant organization had an "effective compliance program" in place to prevent the violations for which it was being charged. If an organization had implemented and maintained such a program, the judge overseeing the case would consider the organization's acts of due diligence in trying to prevent the illegality when deciding whether to increase or mitigate sentences.   

Amendments to clarify and strengthen
Prior to the 2005 seminal Supreme Court ruling (more on it later), the Commission in 2004 amended the Guidelines to clarify and strengthen the requirements of an "effective compliance and ethics program." Specifically, the 2004 amendments require organizations to:

  • exercise due diligence to prevent and detect criminal conduct;
  • promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law;
  • establish, at minimum, that:
    - the organization's governing authority (that is, the board of directors, or highest-level governing body) must be knowledge-able about the program's content and operation, and exercise oversight with respect to its implementation and effectiveness;
    - high-level personnel must be assigned overall responsibility for the program; and
    - specific individuals within the organization must be assigned day-to-day operational responsibility for the program and periodically report to high-level personnel on the effectiveness of the program; furthermore, these individuals are to be given adequate resources, appropriate authority, and direct access to the governing authority for proper operation of the program;
  • communicate the program's standards and procedures periodically and practically to the previously mentioned individuals;
  • conduct effective training programs for individuals involved in the implementation, effectiveness, and maintenance of the program (that is, governing authority, high-level personnel, employees, and agents as appropriate);
  • monitor and audit for criminal conduct;
  • periodically evaluate the program's effectiveness;
  • implement and publicize reporting mechanisms within the organization that allow employees or agents to anonymously or confidentially1 report or seek guidance regarding potential or actual criminal conduct without fear of retaliation;
  • provide incentives for performing in accordance with the organization's program; and
  • remedy any harm caused by an offense whenever practicable (for example, by taking appropriate disciplinary action for engaging in criminal conduct, and/or making changes to the current program). 2 

Adequate compliance and ethics programs are essential in light of defunct corporate compliance oversight in the past decade. Fraud examiners, compliance officers, and in-house counsel should be acutely aware of these recent amendments to the Sentencing Guidelines to ensure due diligence in preventing and detecting criminal conduct. The failure of an organization to follow these guidelines can lead to grave consequences of significant monetary and probationary sanctions.

 

 

 


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