On April 7, 2010, the U.S. Sentencing Commission approved changes to the Federal Sentencing Guidelines. The changes will take effect November 1, 2010, unless Congress passes legislation in the interim to reject or modify the Guidelines.

Reporting to the Board

The first changes will allow organizations to receive cooperation credit for having an effective compliance program even if a senior executive is involved in the wrongdoing, assuming the compliance program meets certain criteria intended to amplify the strength of the top compliance officer. Currently, a company is not eligible for any credit if a senior executive is involved in the misconduct, regardless of the effectiveness of its compliance program.

In order to get credit, the compliance program must provide the following:

  • The person or persons with operational responsibility for the compliance and ethics program must have “direct reporting obligations to the governing authority or an appropriate sub-group,” such as an audit committee. This change will expand on the level of direct reporting required between the person with day-to-day operational responsibility for compliance and members of the board (or of a committee of the board).
  • The compliance program must have detected the offense before any outsiders did or “before such discovery was reasonably likely.”
  • The company must have promptly reported the offense to appropriate governmental authorities.
  • Nobody in charge of the ethics and compliance program either participated in the misconduct, condoned it, or deliberately ignored it.  

The amendments define “direct reporting obligations” as giving the person in charge of daily compliance operations “express authority to communicate personally to the governing authority, or appropriate subgroup thereof, (a) promptly on any matter involving criminal conduct or potential criminal conduct; and (b) no less than annually on the implementation and effectiveness of the compliance and ethics program.”

Responding to Criminal Conduct

The Commission also provided clarification of the Sentencing Guidelines’ seventh general requirement of an effective compliance and ethics program, which requires a company to take “reasonable steps to respond appropriately to the criminal conduct and to prevent further similar criminal conduct, including making any necessary modifications to the organization’s compliance and ethics program.”

That new commentary provides that a company in such circumstances must:

  • Take “reasonable steps, as warranted under the circumstances, to remedy the harm resulting from the criminal conduct [which] may include, where appropriate,” providing restitution to identifiable victims, self reporting or cooperating with the authorities.
  • “[A]ct appropriately to prevent further similar criminal conduct, including assessing the compliance and ethics program and making modifications necessary to ensure the program is effective. The steps taken should be consistent with subsections (b)(5) and (c) [the first requiring periodic evaluations of the program; the second, periodic risk assessment] and may include the use of an outside professional advisor to ensure adequate assessment and implementation of any modifications.”

http://www.ussc.gov/2010guid/finalamend10.pdf