Academic journal article ABA Banking Journal

Sentencing Guidelines Spotlight Good Compliance

Academic journal article ABA Banking Journal

Sentencing Guidelines Spotlight Good Compliance

Article excerpt

For years, compliance officers have tried to demonstrate their worth to senior management. Now they have an ally-none other than the federal government. Last Nov.1, the first-ever set of general guidelines for federal courts to follow in sentencing corporations and other organizations convicted of criminal charges became effective. Experts expect the guidelines will lead to higher fines.

The complicated guidelines put a premium on corporate efforts to prevent and detect criminal activity. A bank with a serious-and active-compliance program can reduce the criminal penalties assessed under the guidelines.

"You're always going to have bad apples," says Edward R. Leahy, a partner in the Washington law office of Thacher Proffitt & Wood. Preventative measures can contain the damage they do to the bank in court.

Basics of guidelines. The new corporate sentencing guidelines, approved by Congress last year, come from the United States Sentencing Commission. The commission, an independent agency in the federal government's judicial branch, was created in 1984 to devise uniform sentencing standards for federal judges and prosecutors. The commission was created in the belief that federal judges had too much individual leeway.

Broadly, the guidelines cover penalties assessed when an organization is convicted of felonies and certain misdemeanors committed after the effective date (Nov. 1).

However, the matter isn't that cut and dried. An offense that began before Nov. 1, 1991, that continued after that date would be covered, for instance. Further, "most sentencing judges will consider these guidelines at least as advisories" in pending cases, says Samuel J. Buffone, a partner in the Washington office of the Ropes & Gray law firm.

Note that the guidelines only concern organizations. Separate guidelines pertaining to sentencing of individuals, even when they are part of the same prosecution, were implemented several years ago.

Calculating the fines. The guidelines are designed to take account of two main factors. The following is only an overview of a complex process.

The first factor is the seriousness of the crime. The guidelines require judges to order companies to make restitution for losses or otherwise remedy the harm done, where practical. Beyond that, judges are required to come up with a "base fine." The base fine is determined by selecting the highest of three factors: the net gain obtained through the crime; the net loss caused; or a base amount taken from tables of fines included in the guidelines themselves. The tables include fines ranging from $5,000 to $72.5 million.

The second factor taken into account is the degree of blame that can be placed at the company's doorstep-in legal parlance, the company's "culpability."

The judge is required to look at numerous factors in determining culpability. There are both negative elements of the organization's behavior that will raise the total score and positive elements that win lower it.

Impact of other laws. The guidelines cross-reference various other statutes and become quite detailed. As bankers know the Financial Institutions Reform Recover and Enforcement Act, parts of which are cross-referenced by the guidelines, includes criminal sanctions.

The sentencing guidelines interface with such laws in different ways; some, such as those pertaining to money laundering and insider trading, have their own guidelines, according to a staff attorney at the Sentencing Commission.

Attorney Sam Buffone says the statutes themselves can be considered as setting the maximum fine that could be imposed. However, "maximum fine levels can be illusory," Buffone says. For example, he points out, each violation of a criminal statute can be considered a separate count. The maximum fine ceiling can then be applied to each count. Convictions on multiple counts can result in fines beyond the supposed maximum. …

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