On January 21, 2010, the United States Sentencing Commission (the “Commission”) issued a notice of proposed amendments to the Sentencing Guidelines, which included amendments to those guidelines regarding the sentencing of organizations. Generally, when organizations are charged and convicted of a federal offense, the sentencing court uses Chapter 8 of the Sentencing Guidelines as a barometer in imposing penalties. Since they became effective in November 1991, those organizational Sentencing Guidelines have formed an important underpinning of corporate compliance programs by setting normative standards for good corporate citizenship. If enacted, the proposed amendments are expected to have a further significant effect on corporate structure and decision-making.
The first proposed amendment is to Section 8B2.1 titled Effective Compliance and Ethics Program (the “Compliance Guidelines”), which guides effective corporate compliance programs. The focus of the proposed amendment is document-retention policies, and it provides that executive management and members of the Board of Directors must be aware of the organization’s document-retention policies and conform such policies to the objective of an effective compliance plan. In addition, as part of a periodic assessment of its compliance plan, the organization will be required to verify that all employees are aware of the document-retention policies, and that such policies advance effective compliance. This amendment appears to be a response to recent prosecutions, such as the Arthur Andersen case, founded on allegations that multiple persons within organizations destroyed investigation-sensitive documents and that the organizations lacked document-retention policies which would have prevented the destruction.
The second proposed amendment also addresses the Compliance Guidelines and sets forth the steps the organization should take after detecting criminal conduct. The steps include self-reporting, cooperating with authorities, and providing restitution and remediation to identifiable victims. In addition, the amendment recommends that an organization periodically modify its corporate compliance as necessary, including employing an independent monitor to oversee the necessary modifications.
Moreover, the Commission has proposed an amendment to Section 8D1.4, governing conditions of probation for organizations. The amendment provides, as a condition of probation, that an organization would be required to retain an independent corporate monitor, agreed upon by the parties or appointed by the court. Further, the scope of the independent monitor’s role is to be approved by the court and the organization is to pay for the monitor’s compensation and costs. Similar provisions have become a staple of dispositions in recent years, but on an ad hoc basis. Furthermore, certain controversial monitorship appointments made by the former U.S. Attorney in the District of New Jersey, which organizations were obliged to accept as a condition of avoiding prosecution, have cast a critical light on the discretion formerly afforded individual U.S. Attorneys to appoint supporters or friends to lucrative monitorships. DOJ policies have changed as a result, significantly constraining that level of individual discretion, and the proposed amendment would codify and regulate the monitorship practice in the related sentencing context.
The Commission also proposed an amendment to Section 8C2.5(f)(3), which at present provides a reduction in sentencing for an effective compliance program. The proposed amendment would entitle an organization to receive such a reduction even where executive management or members of the Board are involved in the wrongdoing if: (a) the person with operational responsibility for corporate compliance reports directly to the Board level; (b) the compliance program is the first to uncover the offense; and (c) the organization reports the criminal conduct to the appropriate authorities. Clearly, this amendment aims at creating a wedge issue for organizations, incentivizing strong special committees of the Board and high-ranking compliance officers to act in the entity's overall interests, regardless of the particular interests of other individual officers or Board members.
Comments to the Commission regarding the proposed amendments are due March 22, 2010. The Commission will then hold a public hearing on these comments.