Recent Amendments to the U.S. Sentencing Guidelines for Effective Compliance and Ethics Programs

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This article originally appeared in the August 2010 White Collar Defense & Investigations Committee Newsletter.

On April 7, 2010, the United States Sentencing Commission approved significant changes to Chapter 8 of the Federal Sentencing Guidelines, which applies to organizations convicted of criminal offenses. In particular, these amendments affect the requirements for establishing an "effective compliance program"--a means of mitigating institutional punishment in the wake of criminal conduct. Barring rejection or changes from Congress, the amendments take effect automatically on November 1, 2010.

One important change expands an organization's eligibility for a reduced sentence if it has an effective compliance and ethics program in place at the time an offense occurs. Additional amendments clarify what constitutes an appropriate response to criminal conduct as part of an effective compliance program. And, notably, the Commission rejected controversial proposals regarding independent monitors and document retention policies that some had argued would prevent flexibility in tailoring context-appropriate compliance programs and responses. On balance, the amendments reflect a give-and-take approach designed to encourage better internal and external reporting of suspected criminal conduct as a means of detecting and deterring crime, especially at the executive level.

Understanding the new Guidelines is critical not only for corporations facing criminal prosecution, but also for those seeking to avoid it. The United States Attorney considers the existence and effectiveness of compliance programs in determining whether to file charges, and the new amendments reflect the importance of independent and autonomous compliance officers to federal prosecutors and government agencies. Indeed, as Acting Deputy Attorney General Gary G. Grindler recently emphasized, "[t]hese amendments reinforce the point that having a robust compliance program is critical not only to preventing misconduct in the first place, but also [to] how your organization will be treated in the event criminal conduct does take place." Additionally, effective compliance and ethics programs may reduce exposure to liability if civil litigation occurs. Corporations should therefore reassess their compliance programs in light of the new Guidelines to improve both their ability to comply with the law and, in the event of a violation, respond efficiently and effectively with appropriate, remedial measures.

The Importance of an Effective Compliance and Ethics Program

Implementing an effective compliance and ethics program is essential to an organization's ability to self-monitor and, if appropriate, report discovered violations to government authorities. It also is the starting point for assessing eligibility for a reduced sentence under the Guidelines, and the amendments offer important insights into how to maximize the practical and legal benefits of this organizational risk-management tool.

Enhanced Autonomy for Compliance Personnel

The proposed Guidelines amendments expand the availability of sentencing benefits for organizations that ensure the autonomy of compliance personnel. Under the previous Guidelines, convicted organizations could receive a reduced sentence for having an effective compliance and ethics program in place at the time of the offense, but only if no "high-level personnel" were involved in, or willfully ignorant of, the crime. This per se disqualification rule proved fatal to many corporations, as the term "high-level personnel" was defined broadly by the Guidelines and applied broadly in practice. The amendments eliminate this automatic disqualification based on the offender's organizational rank, focusing instead on the structural independence of compliance personnel, among other factors.

To be eligible for the newly expanded credit for an effective compliance and ethics program, convicted organizations must satisfy four criteria, the first of which is a direct communication channel between compliance personnel and the organization's governing authority (e. …