The Federal Sentencing Guidelines for Organizations

Article excerpt

Self-policing is central to minimizing liability risk.

The Federal Sentencing Guidelines for Organizations were established to motivate organizations to police themselves to ensure compliance with Federal laws. They have increased the business risks faced by corporate America. Companies whose employees and agents break the law through fraud or other criminal acts are finding that the new legal penalties, coupled with battering from customers, the media, and stockholders, present an expensive challenge and, in some cases, a potential threat to their business continuity.

Practicing CPAs can take advantage of the Federal Sentencing Guidelines for Organizations to provide new consulting and assurance services to clients. Such services can reduce a client's business risks as well as help assess the CPA's audit risk from fraud. CPAs in business and industry can help their employers evaluate and manage this business risk.

History of the Federal Sentencing Guidelines

The United States Sentencing Commission (see www.ussc.com) was established in 1984 by the Comprehensive Crime Control Act. Comprised of seven commissioners appointed by the President and confirmed by the Senate and two nonvoting, ex officio members, the commission was charged with developing sentencing guidelines for offenders convicted of Federal crimes. A major objective of the legislation was to bring uniformity and fairness to the Federal sentencing process. The commissioner, therefore, developed sentencing guidelines for offenders with similar characteristics convicted of similar criminal offenses, known as the Federal Sentencing Guidelines. The guidelines became effective November 1, 1987. At that time, they consisted of seven chapters and applied only to individuals convicted of Federal offenses.

In 1991, the U.S. Sentencing Commission added chapter eight to the guidelines. Chapter eight is often referred to as the Federal Sentencing Guidelines for Organizations (FSGO). Whereas chapters one through seven apply to individuals, chapter eight applies to organizations and holds them liable for the criminal acts of their employees and agents. In effect, FSGO greatly increased the responsibility of organizations to police themselves with regard to preventing and detecting the Federal criminal activity of their employees and agents.

FSGO contains a very broad definition of organization. The term includes corporations, partnerships, associations, joint-stock companies, unions, trusts, pension funds, unincorporated organizations, governments and political subdivisions thereof, and nonprofit organizations.

Examples of Federal Crimes Covered It is easy for organizations to run afoul of Federal criminal laws and potentially become subject to FSGO. The following are some examples of business crimes covered by FSGO: fraud and deceit; bribery in procurement of a bank loan and other commercial bribery; offering, giving, soliciting, or receiving a bribe or gratuity; bid-rigging, price-fixing, or market allocation agreements among competitors; money laundering; tax evasion; evading import duties or restrictions; embezzlement, larceny, and other forms of theft; criminal infringement of a copyright or trademark; and insider trading. Environmental crimes are addressed in a separate set of guidelines. Penalties under FSGO include monetary fines and organizational probation.

How Are Fines Determined?

If an organization is sentenced under FSGO, calculating its fine can best be described as a three-step process.

Step One. The first step involves determination of the base fine. The base fine normally will be the greatest ofthe monetary gain to the organization from the offense;

the monetary loss from the offense caused by the organization, to the extent the loss was caused knowingly, intentionally, or recklessly; or

the amount from a table in FSGO to which a judge refers.

Step Two. …