Federal Sentencing Guidelines
Introduction
It is a little-known fact that organizations such as corporations and closely held businesses can be found guilty of crimes. Both the organization itself and key employees responsible for crimes can be punished for such violations. Corporations can be heavily fined and barred from carrying on certain types of business, while responsible individuals within the company may be jailed or fined. Most corporate crimes involve violations of regulatory regimes that relate to business activities. No matter how small your business, there are many criminal laws that apply to it, and which must be carefully followed.
The last two decades have witnessed an increase in these types of violations by corporations. These corporate missteps include violations of import and export procedures, accounting and securities rules, and hazardous material disposal, among others. The perceived upswing in violations and the inconsistency in penalties for organizational crimes caused the federal government to harmonize the consequences for businesses and their key employees. In 1991, the U.S. Sentencing Commission, an independent panel of the federal court system, promulgated the Organizational Sentencing Guidelines (also referred to as the Federal Sentencing Guidelines), which help government agencies and courts determine the appropriate penalties for violations of federal criminal laws affecting businesses.
The guidelines increase the consequences of criminal activity by a corporation or by employees in the course of employment. In order to protect your company from severe consequences, and in order to get the most from your insurance coverage, you need to understand the impact of the sentencing guidelines, and how the U.S. Sentencing Commission recognizes corporate efforts to avoid problems in the first place.
The Guidelines' "Carrot and Stick" Approach
The sentencing guidelines present a very real "stick" threatening non-compliant businesses. The commission established a uniform sentencing structure for organizations in violation of federal criminal statutes, with penalties sometimes greatly exceeding those generally imposed prior to 1991. There is, however, also a "carrot" incorporated into the guidelines. If a business demonstrates due diligence in attempting to avoid violations, then that organization's liability is reduced. This special dispensation for corporations that try their best to comply led to the development of compliance training programs. Such programs can help demonstrate a corporation's due diligence, even if a violation does occur.
The U.S. Sentencing Commission identified seven hallmarks of an effective compliance program to prevent criminal activity.
- Established Compliance Program
Corporations must set procedures and rules that are reasonably capable of reducing the likelihood of criminal activity.
- High-Level Accountability
Upper management must be responsible for oversight of the compliance program.
- Due Care
Employees responsible for compliance programs must not delegate discretionary decisions to other employees with a propensity to commit crimes.
- Communication
The corporation's expectations must be communicated to all employees, and participation in training programs must be required.
- Monitoring and Auditing
The corporation must develop ways to discover criminal activity by employees, including "whistleblower" procedures that help other employees report problems without fear of retribution.
- Enforcement
The corporation must show that it disciplines employees who violate laws, as well as employees responsible for compliance who failed to detect those violations.
- Prevention and Modification
If a violation happens, the corporation must act to adapt its program to prevent similar offenses.
Several state and federal courts upheld the sentencing commission's list. In those cases, corporations with effective compliance programs that met the seven hallmarks were able to use those programs as proof that they made a good-faith effort to avoid violations. The courts have held that such programs are an affirmative defense to criminal charges against the corporation. In other words, corporations have avoided criminal liability for actions that they tried to avoid through a well-documented compliance program.
One example involved Caremark, a corporation accused of mail fraud and other state and federal crimes. The members of the board of directors were individually implicated in the case, but avoided possible criminal sentences and personal fines because the company had a compliance program designed to avoid criminal violations by training employees.
Because of the importance of an effective compliance program under the guidelines, it is essential to develop such a program, and to document the program in detail. No program will be useful to your company if it is simply buried in the employee manual and not actively pursued. A good compliance program can only help ameliorate the consequences of the sentencing guidelines if it meets the commission's requirements and if participation, communication, and implementation are carefully recorded.
A corporate attorney with experience applying the guidelines or in dealing with organizational crimes can best help your company build a program to work with the guidelines' compliance incentives. The U.S. Sentencing Commission is continuously evaluating the guidelines and its rules for effective compliance programs, so it is necessary to remain apprised of developments and to receive solid legal advice about how to incorporate changes.
Conclusion
If your company is facing a government investigation, or if you want to head off such problems in the future, it is important to understand the sentencing guidelines and their impact on your business. When seeking an attorney to advise you how best to proceed, be sure to investigate his or her background in corporate compliance. Ask questions about his or her training, experience, and track record so that you can make an informed decision about whether this is the right person to help you design a program that dovetails with the requirements of the guidelines - or to help you deal with an ongoing problem that might lead to federal sentencing issues for your company. An experienced attorney with corporate compliance knowledge and an in-depth understanding of the sentencing guidelines is the clear choice for proactive businesses.
Copyright © 1994-2006 FindLaw, a Thomson business
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
