Amendments to U.S. Sentencing Guidelines

New amendments to the U.S. Sentencing Guidelines for organizations have recently gone into effect.  As you know, compliance by organizations with the guidelines are taken into account by the Department of Justice in determining whether to indict a company and can serve as mitigating factors with regard to the level of penalties that may be imposed in the event of conviction. For example, a company that had an effective corporate compliance and ethics program at the time of the offense may be eligible to receive a reduced sentence. The guidelines outline the components of an effective corporate compliance and ethics program.

The new changes attempt to clarify some of the requirements of the guidelines, with the result that they are potentially even more rigorous in two respects:

First, under an effective compliance and ethics program, after criminal conduct has been detected, an organization must take reasonable steps (1) to respond appropriately to the criminal conduct and (2) to prevent further similar criminal conduct. The amendments clarify the remediation efforts required to satisfy the "appropriate response" component of the requirement by identifying "reasonable steps" that may be taken "as warranted under the circumstances, to remedy the harm resulting from the criminal conduct. These steps may include, where appropriate, providing restitution to identifiable victims, self-reporting and cooperation with authorities." With respect to the second component. prevention, the organization should assess its compliance and ethics program and make modifications necessary to ensure that it is effective. The steps may include the use of an outside professional advisor to ensure adequate assessment and implementation of any modifications.

Second, under the guidelines, there is a general automatic prohibition against giving an organization the benefit that might otherwise accrue under the guidelines from having a compliance program if the organization's "high-level personnel" were involved in the offense. The amendments create a limited exception to this automatic bar if (i) the organization's compliance officer (the individual or individuals with operational responsibility for the compliance and ethics program) has direct reporting obligations to the governing authority (i.e., the board of directors) or an appropriate subgroup (e.g., an audit committee of the board of directors), (ii) the compliance and ethics program detected the offense before discovery outside the organization or before such discovery was reasonably likely, (iii) the organization promptly reported the offense to the appropriate governmental authorities, and (iv) no individual with operational responsibility for the compliance and ethics program participated in, condoned or was willfully ignorant of the offense. An individual has "direct reporting obligations" to the board or committee if the individual has express authority to communicate personally to the governing authority or subgroup (A) promptly on any matter involving criminal conduct or potential criminal conduct, and (B) no less than annually on the implementation and effectiveness of the compliance and ethics program.

For a more nuanced view on these amendments or more information about the guidelines, contact the White Collar and Regulatory Defense practice group.

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