The proposed changes to the U.S. Sentencing Guidelines (USSG) that went into effect on November 1, 2010 further explain how business organizations can protect against illegal conduct by its employees and mitigate the effect of such conduct. While the USSG have not been mandatory since the Supreme Court’s 2005 decision in U.S. v. Booker, the same factors a court considers in sentencing a company are considered by federal prosecutors when deciding whether to charge a company.
The changes to Chapter 8 of the USSG (dealing with Business Organizations) offer another incentive for companies to revisit and revise their compliance programs. The major changes affecting compliance programs are discussed below:
Effective Compliance and Ethics Program. After a company detects criminal conduct, it “shall take reasonable steps to respond appropriately to the criminal conduct and to prevent similar criminal conduct, including making any necessary modifications to the organization’s compliance and ethics program.” Reasonable steps to respond to the conduct can include “providing restitution to the identifiable victims, as well as other forms of remediation” and “self-reporting and cooperation with authorities.” A company may also decide to retain “an outside professional advisor to ensure adequate assessment and implementation of any modifications” to the compliance program.
Direct Reporting Obligations. To take advantage of a 3 point reduction in culpability score, there must be a “high-level” person who has responsibility for the compliance program with direct reporting obligations to the company’s governing authority (e.g. an audit committee).
Early Detection of the Offense. Also to take advantage of a 3 point reduction in culpability score, the compliance program must detect “the offense before discovery outside the organization or before such discovery was reasonably likely.” Simply having a compliance program is not sufficient. Companies should train employees on the compliance program, maintain an internal hotline to report violations, and periodically assess the effectiveness of the program.
Prompt Reporting. Also to take advantage of a 3 point reduction in culpability score, the organization must promptly report the offense to appropriate government authorities. Unfortunately a “prompt” report is not defined, but the revisions to the Application Notes provide that a company “will be allowed a reasonable period of time to conduct an internal investigation” and that reporting is not necessary if the company “reasonably concluded, based on the information then available, that no offense had been conducted.”
No Involvement in the Compliance Program by Individuals Who Condoned or Were Willfully Ignorant of the Offense. Also to take advantage of a 3 point reduction in culpability score, individuals who are responsible for the compliance program must not have “participated in, condoned, or [been] willfully ignorant of the offense.” The Application Notes to the General Application Principals, which were unchanged by the recent amendments, define an individual as “willfully ignorant” if he or she “did not investigate the possible occurrence of unlawful conduct despite knowledge of circumstances that would lead a reasonable person to investigate whether unlawful conduct had occurred.”