We all know the importance of the sentencing guidelines and the impact the revisions, especially the 2010 amendments, have had on corporate governance and compliance. The history behind the sentencing guidelines tracks the rise of the compliance profession.
The time is now for the Sentencing Commission to launch a further review of the guidelines to reflect the rapid changes in the compliance profession. The Sentencing Commission has been a leader in this area, and it is time for the Sentencing Commission to demonstrate, once again, its important role in promoting corporate governance.
Under Section 8B2.1(a)(1) and (2), an organization must: (1) exercise due diligence to prevent and deter criminal conduct; and (2) otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.”
Importantly, the guidelines note that “[t]he failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct.”
Section 8B2.1(b) sets forth seven general minimum requirements for an effective ethics and compliance programs, which I will not recite here. The guidelines establish very general standards for designing ethics and compliance programs.
As noted above, the compliance profession continues to mature and develop best practices and strategies. Some of these ideas are well established and can be applied across all organizations.
The purpose of a Sentencing Commission review of the ethics and compliance guideline would be:
- to define with greater specificity some ethics and compliance program requirements by incorporating well-established best practices;
- to incorporate meaningful guidance on promoting ethical cultures in order to increase greater attention to promoting a culture of ethics; and
- to provide incentives for companies to allocate increased resources and attention to improve their existing ethics and compliance programs.
Through industry forums and publications, compliance professionals are promoting education and innovation. With the rise of the compliance profession, the sophistication and design of effective tools and strategies have advanced far beyond the state of compliance in 2010. The Sentencing Commission needs to embrace these efforts by conducting a thorough and meaningful proceeding to develop new standards and ideas.
Some of the topic areas should include:
- The design of an effective ethics and compliance program, focusing on the specific role of the chief compliance officer, reporting obligations, and relationship with the board and senior management.
- Basic ethics and compliance program requirements relating to risk assessments, monitoring and tailoring programs and policies to specific risks.
- Policy management and procedures relating to code of conduct and ethics, specific policy controls and review.
- Elevating coordination between compliance function and financial controls to address risks in a more effective manner.
- More specific attention to promoting a culture of ethics and compliance, and further requirements in measuring, promoting, monitoring and improving corporate culture.
- Standards for assessing training programs as an important means to communicate and mitigate employee risks, as well as third party and supply chain risks.
- More specific standards governing third-party intermediaries, vendors and suppliers and other persons acting on behalf of a corporation or interacting with the corporate organization.
The Sentencing Commission has to balance the need for improved guidance against the danger of imposing burdensome requirements on small and mid-sized companies. The guidelines take proper account of these consideration in the accompanying guideline notes.
Compliance programs are vital in regulated industries, and this should be taken into account in a more meaningful fashion. If the financial industry is ever going to embrace a culture of ethics–while at the same time maximizing profits–the government needs to incentivize, and communicate as often as possible, the importance of a culture of ethics and compliance.
The complexity of legal and regulatory requirements has grown for all industries, even outside regulated companies. Manufacturing companies have to contend with a variety of regulatory requirements, including environmental, health and safety, labor, and other legal risks.
With the growth in compliance and regulation, the Sentencing Commission has to re-examine this fast-moving area and implement appropriate reforms. Generalized guidance can sometimes prove ineffective or even meaningless in the context of rapidly changing enforcement and compliance forces.
The Sentencing Commission should act now and undertake a broad review of ethics and compliance requirements.