In January 2010, the U.S. Sentencing Commission requested public comment on a subject that could change how corporate compliance programs are credited under the U.S. Sentencing Guidelines. If there is a policy change, corporations could be eligible to receive a reduced sentence for criminal law violations, including antitrust offenses, if they have an "effective" compliance program, even where "high level" company personnel were responsible for the violation. This would mark a dramatic change from current practice, which deems a compliance program ineffective if the unlawful conduct was carried out by senior executives.
Under the existing Sentencing Guidelines, a company that maintains an "effective compliance and ethics plan" to detect and prevent criminal violations may be eligible for a reduced sentence. In theory, this provision could mean significantly lower penalties for companies facing criminal antitrust charges. In practice, few companies have ever benefited from the reduction because the Sentencing Guidelines also provide that relief generally is not available if a high level person within the company "participated in, condoned, or was willfully ignorant of" the violation. In most cartels, company personnel who engaged in unlawful conduct were senior managers or executives who set pricing policy for or controlled the relevant business unit. Consequently, most companies were not eligible for a Sentencing Guidelines reduction, even when they had a comprehensive compliance plan in place at the time of the violation.
The Sentencing Commission now seeks public comment on the following question: Should the Sentencing Guidelines be amended to allow an organization to receive a reduced sentence when high-level personnel are involved in the offense if:
- the compliance official has direct reporting authority to the board level (such as the audit committee of the board);
- the compliance program was successful in detecting the offense prior to discovery (or reasonable likelihood of discovery) outside of the organization; and
- the organization promptly reported the violation to the appropriate authorities?
This three-part test would allow an organization whose high-level personnel committed unlawful acts to receive sentencing credit for maintaining a compliance program where (1) the compliance officer has a direct line to the board, meaning the culpable executive(s) could no longer ignore, unduly influence, or circumvent how the company approached its compliance obligations; (2) the compliance program worked, detecting the offense before discovery by a third-party; and (3) the company reported the violation to the U.S. Department of Justice ("DOJ").
If this becomes the new standard, it could clear the way for more companies to realize sentencing credit for compliance programs. Satisfying the test, however, would not be easy. For example, the current version of the Sentencing Guidelines provides that compliance officials should be given direct access to the "governing authority or an appropriate subgroup" and that the governing authority should be knowledgeable about the organization's compliance program. The new standard requires a more direct line of communication between the compliance official and the board, which may necessitate the creation of new reporting relationships. In addition, the existing Sentencing Guidelines only require the organization to take "reasonable steps to respond appropriately" after criminal conduct has been detected. At present, there is no obligation for the company to contact the DOJ in every instance. Requiring self-reporting in all cases without respect to the severity, frequency, and duration of the conduct in question is likely to raise concerns for many companies.
For antitrust defendants, the practical implications of a change to the Sentencing Guidelines are uncertain. A company that is in a position to pass the three-part test may be eligible for amnesty from criminal prosecution under the Antitrust Division’s leniency program. If accepted into the program, that company would have no need for compliance credit because the firm, in exchange for cooperating with the government’s investigation, would escape all criminal penalties. And if there is a leniency candidate (the current norm in a significant percentage of DOJ investigations), it not clear that any of the remaining antitrust defendants could pass the test.
Suppose three firms detect a violation. Suppose further that each firm believes that the offense has not been discovered outside the company and self-reports the violation to the Antitrust Division before the agency has issued any grand jury subpoenas. Assuming no other bars to amnesty, the first to reach the DOJ would escape criminal prosecution and thus have no need for compliance credit. It is not clear whether the second company – which actually would need the sentencing credit – would be eligible because its compliance program failed to detect the violation before it was reported outside the organization (by the amnesty candidate to DOJ). This would be something of an anomalous result if the proposed change to the Sentencing Guidelines is intended to encourage greater levels of corporate self-reporting and cooperation.
Compliance programs already are a critical part of corporate efforts to prevent and detect antitrust violations. The question presented by the U.S. Sentencing Commission represents a first step toward a potential amendment to the guidelines. If there is a change in how compliance programs are credited, companies could have one more reason – the prospect of reduced penalties at sentencing – to ensure that they maintain a qualifying program.
The question for public comment is found on page 39 at U.S. Sentencing website.
The comment period runs through mid-March, and a public hearing is scheduled in Washington, D.C., on March 18, 2010.