Proposed Amendments to Sentencing Guidelines Emphasize, Redefine "Effective" Compliance
On December 20, 2003, the U.S. Sentencing Commission issued proposed amendments to the United States Sentencing Commission Guidelines Manual (“Guidelines”) (68 Fed. Reg. 75339). The proposed amendments would implement recommendations that the Ad Hoc Advisory Group made to the Commission in October 2003, including a proposal that there be a separate guideline with criteria for evaluating an effective compliance program. The Commission also proposed amendments to the factors for determining culpability of organizations. Written comments are due to the Commission by March 1, 2004.
Consistent with the Ad Hoc Advisory Group’s recommendations, the Commission has proposed to strengthen the seven minimum steps for an effective compliance program and to move them from the Guidelines’ commentary into a new guideline. This change is intended to emphasize the importance of compliance programs and provide more detailed guidance on what makes a program “effective.” That guidance also derives from the Ad Hoc Advisory Group’s year-long evaluation of the impact of the Guidelines, particularly its evaluation of the effect the commentary has had on compliance programs.
The Ad Hoc Advisory Group found that the Guidelines had inspired companies to implement compliance programs, but needed to go further to ensure effective compliance. Thus, the proposed amendments flesh out the seven minimum elements, add some new components, and incorporate as the norm compliance enhancements that have developed over the last decade. In doing so, the proposed amendments provide an updated diagnostic tool for companies designing, evaluating, and updating their compliance programs in 2004.
Among the more significant implications of the proposed amendments are the following:
- Increased emphasis on companies Actively promoting an “organizational culture that encourages a commitment to compliance with the law”
- An expectation that companies will conduct ongoing risk assessments to inform the compliance program identifying, evaluating, and prioritizing risks, taking into account characteristics of the industry and company and the company’s prior history
- An expanded mandate for compliance programs defining “reasonable compliance standards and procedures” as those necessary to prevent and detect “violations of laws,” including civil laws and regulations, rather than just “criminal conduct” as stated in the current Guidelines
- Broadening and defining different roles and responsibilities for the Board of Directors (or other governing authority), senior management, and compliance personnel in creating and maintaining an effective compliance program, including explicit expectations that the Board receive compliance training, and that compliance personnel (defined to include those with day-to-day compliance responsibility, not just the chief compliance officer) be given adequate resources and authority, and a direct reporting line to the Board
- Strengthening due diligence regarding “substantial authority personnel” to determine whether they have a “history” of engaging in “violations of law, or other conduct inconsistent with an effective program,” rather than a “propensity” to engage in “illegal activities”
- A more explicit requirement that a company train all employees, including senior personnel and the Board, and, in some circumstances, agents
- A requirement that companies employ monitoring and audit systems to detect violations of law and assure program effectiveness a requirement that will lead to closer ties between a company’s compliance and internal audit functions
- Consistent with the notion of engendering a “compliance culture,” a new emphasis on providing incentives for activities consistent with a compliance culture, as well as discipline for noncompliance
The proposed amendments also suggest revisions to the factors that affect an organization’s culpability score under the Guidelines. Instead of precluding companies from receiving compliance program credit when high-level personnel are involved in an offense, the amendment would create a rebuttable presumption that in such cases an organization’s compliance program was not effective. In response to concerns about waiving the attorney-client privilege and work product doctrine in receiving credit for cooperation with the government, the proposed amendments would revise the Guidelines to state that waiver of the privilege and work-product doctrine would not be a prerequisite for a reduction in a culpability score, however, waiver “may be required” to satisfy the requirements of cooperation.
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