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Overview of the Federal Sentencing Guidelines for Organizations and Corporate Compliance Programs
04/12/2005
Lawrence Finder, A. Warnecke
SYNOPSIS
The United States Sentencing Guidelines for Organizations (“the Guidelines”) were promulgated in 1991 to ensure that organizations cannot profit from wrongdoing and to encourage organizations to implement appropriate compliance programs to prevent wrongdoing from occurring in the first place.
While there are some major exceptions, the basic mechanical structure of the Guidelines determines an appropriate monetary fine through means of a mathematical formula: assigning a dollar figure to the seriousness of the offense and multiplying that number by a figure representing the culpability level of the organization. The Guidelines’ drafters intend to influence corporate behavior – both before and after wrongdoing occurs – by providing various adjustments to the determination of the seriousness of the offense and of the organization’s culpability.
On November 1, 2004, prompted by the Sarbanes-Oxley Act, certain clarifying revisions to the Guidelines became effective, including an overhaul of the adjustment for organizations with qualifying compliance programs. Generally, the recent changes to the Guidelines for organizations provide more detail regarding the requirements a compliance program must meet before qualifying the organization for a potential fine reduction. Overall, the changes require more high-level oversight of the compliance program together with more training, monitoring, and emphasis on creating an ethical working environment.
Creating a compliance program that meets the Guidelines’ requirements is not only difficult, but arguably has only limited effect on the ultimate amount of monetary penalty an organization may face. Nevertheless, undergoing a serious, good faith effort to implement a compliance program may provide many benefits to an organization above and beyond the direct effect on the mathematical fine calculation. Mostly notably, a well-designed and wellimplemented program should reduce instances of misconduct from occurring. Even when it fails to prevent misconduct, having such a program can play a role in influencing prosecutors to decline indictment. Finally, recognizing the potential benefits of compliance programs, some courts have suggested that careful evaluation of their utility may be part of management’s duty of care to the corporation.
As widely expected, in January 2005, the United States Supreme Court declared the Guidelines unconstitutional in United States v. Booker, 123 S. Ct. 785 (2005). The Court’s remedy was, however, surprising. In essence, the Court determined that the Guidelines could be saved by severing the provision of the federal sentencing statute that made the guidelines mandatory and by declaring the Guidelines to be advisory. The Court otherwise left the Guidelines intact and held that a sentencing court is still required to consider the Guidelines’ range when determining a sentence, but the sentencing court is now permitted to tailor the sentence in light of other concerns as well. Accordingly, sentencing courts will still consult all of the Guidelines’ factors and considerations in reaching a sentence. This article will present the overall framework and structure a court must use to arrive at a sentence under the Guidelines.
To read the complete article, click on the PDF below.