U.S. Sentencing Commission
One Columbus Circle NE
Washington, DC 20002-8002
For Immediate Release
Contact: Michael Courlander
Public Affairs Officer
COMMISSION TIGHTENS REQUIREMENTS
FOR CORPORATE COMPLIANCE AND ETHICS PROGRAMS
WASHINGTON, D.C. (May 3, 2004) — The United States Sentencing Commission on Friday, April 30, 2004, sent to Congress significant changes to the federal sentencing guidelines for organizations, which should lead to a new era of corporate compliance. The amendment to the guidelines strengthens the criteria an organization must follow in order to create an effective compliance and ethics program. Establishing an effective compliance and ethics program is essential for an organization seeking to mitigate its punishment (including fines and terms of probation) for a criminal offense. The organizational sentencing guidelines have a broad reach, for they define "organizations" to include corporations, partnerships, associations, joint-stock companies, unions, trusts, pension funds, unincorporated organizations, governments, and non-profit organizations. The amendment will take effect November 1, 2004, unless Congress disapproves it during a 180-day period of review.
An effective compliance program has been a fundamental component of the organizational sentencing guidelines since the Commission first promulgated them in 1991. Under the guidelines, an organization’s punishment is adjusted according to several factors, one of which is whether the organization has in place an effective program to prevent and detect violations of law. For such a program to be considered effective, the Commission articulated seven minimum requirements. In 1991, these seven requirements represented the federal government’s first attempt to articulate such broad-based standards, and they quickly became the benchmark against which most organizations measured their compliance programs.
Friday, the Commission enhanced the rigor and detail of these requirements. As a fundamental proposition, organizations must promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. In particular, the amendment requires boards of directors and executives to assume responsibility for the oversight and management of compliance and ethics programs. Effective oversight and management presumes active leadership in defining the content and operation of the program. At a minimum, the amendment explicitly requires organizations to identify areas of risk where criminal violations may occur, train high-level officials as well as employees in relevant legal standards and obligations, and give their compliance and ethics officers sufficient authority and resources to carry out their responsibilities.
The Commission’s focus on ethical corporate behavior in this amendment reflects a shift in the legal landscape since the promulgation of the original organizational guidelines in 1991. Good corporate citizens have been incorporating ethical standards into their compliance programs for a number of years, and recent legislation, such as the Sarbanes-Oxley Act of 2002, has adopted ethics as a guiding principle.
Commission Vice Chair Ruben Castillo, a district judge in Chicago, stated that, "A good corporate citizen must first and foremost operate ethically."
The organizational sentencing guidelines first went into effect November 1, 1991. The guidelines take into account the potential range of organizational criminal culpability, from a record keeping violation to an organization created solely for criminal purposes. The guidelines provide incentives for organizations to create meaningful compliance and ethics programs, report violations, cooperate in criminal investigations, discipline responsible employees, and take the steps needed to prevent and detect criminal conduct by their agents.
"After studying the issues for two years and reviewing the ‘best practices’ of corporate America, the Commission believes this proposal will result in better and more through corporate compliance efforts," said Sentencing Commissioner Michael E. Horowitz.
Under the organizational sentencing guidelines, an organization may be precluded from mitigation of its sentence if it fails to self-report criminal misconduct to the authorities in a timely fashion, or if executive or management level officials tolerated or were involved in illegal activities. Failure to follow applicable government regulations and industry standards and recurrence of similar misconduct also undermine an organization’s eligibility for compliance credit under the federal sentencing scheme.
The Commission also added commentary to the organizational sentencing guidelines stressing that waiver of privileges is not a pre-requisite for an organization to receive credit for cooperation, but also recognized that there may be limited situations where waiver is necessary.
The Commission’s deliberations and final amendments were based in part on the analysis and recommendations of the Ad Hoc Advisory Group on the Organizational Sentencing Guidelines which the Commission initiated in the fall of 2001 as part of its review of the effectiveness of these guidelines ten years after their implementation.
The U.S. Sentencing Commission, an independent agency in the judicial branch of the federal government, was organized in 1985 to develop a national sentencing policy for the federal courts. The resulting sentencing guidelines structure the courts’ sentencing discretion to ensure that similar offenders who commit similar offenses receive similar sentences.