United States: Supreme Court Strikes Down Sentencing Guidelines; "Effective" Compliance Programs Remain Imperative

In a fractured opinion released on January 12, 2005, in United States v. Booker and United States v. Fanfan, the United States Supreme Court struck down the 17 year old federal sentencing guidelines, and reduced them to advisory rather than mandatory status.

By a 5-4 vote (Justice Stevens, joined by Justices Scalia, Thomas, Souter and Ginsburg) the Court applied the Sixth Amendment analysis advanced in Blakely v. Washington to the federal sentencing guidelines. In Blakely, the Court held that Washington state's sentencing guidelines violated the defendant.s Sixth Amendment right to a jury trial because the judge increased his sentence due to evidence which was not presented to the jury, and based on a "preponderance" rather than "beyond a reasonable doubt" evidentiary standard. (See Law Watch 04-35, December 23, 2004, for more details.)

As most analysts had predicted, the Court's ruling held that because the federal sentencing guidelines were mandatory, and included enhancement procedures indistinguishable from those declared unconstitutional in Blakely, they were equally unconstitutional.

The surprise of the decision lay in the Court's determination of the remedy.

Justice Breyer authored the decision on this issue (joined by Chief Justice Rehnquist, and Justices O'Connor, Kennedy, and Ginsburg), and stated that the correct remedy was to declare unconstitutional only those provisions that made the guidelines mandatory, leaving the rest of the system intact. As a consequence, the federal sentencing guidelines are now "advisory."

Time will tell us what "advisory" means in practice, once the lower federal courts resume sentencing. According to Justice Breyer's opinion, however, a sentencing court is still required to consider the "advisory" sentence yielded by the guidelines, even if the judge ultimately chooses not to apply that sentence. Presumably it would be error, then, for a lower court to refuse to calculate the sentence otherwise called for under the guidelines. Justice Breyer also emphasized that on appeal, the reviewing court must review the "reasonableness" of the sentence by reference to various statutory criteria, including the criteria established by the United States Sentencing Commission under the sentencing guidelines for the offense in question.

As a practical matter the sentencing guidelines will still serve as the starting point for determining a criminal sentence, and although judges are no longer required to follow the guidelines, they are still required to calculate a sentence under the guidelines, and offer some reasoned basis for refusing to apply that sentence.

Justice Scalia in dissent predicted that Justice Breyer's solution will "wreak havoc" on the judicial system, but Justice Breyer responded that his is unlikely to be the last word, as Congress will now undoubtedly be called upon to pass new sentencing guidelines that satisfy the Court's constitutional concerns.

There is one additional aspect of this ruling which is of immediate interest to businesses and those who counsel them on compliance issues. The federal sentencing guidelines require businesses to maintain "effective" compliance programs that prevent and detect violations of law. The United States Sentencing Commission recently overhauled the relevant standards and procedures, which became effective November 1, 2004. After the Court's ruling, compliance officers will no doubt wonder whether the Court's decision rendering the guidelines "advisory" means they no longer need to have a compliance program, or if they have one, to ensure that it meets the new standards that became effective on November 1.

Justice Breyer emphasized that even though the guidelines are now "advisory," a sentencing judge will still be required to at least calculate the sentence called for under the guidelines, and to ". . . consider the need for the sentence imposed to protect the public from further crimes of the defendant." Thus, any judge sentencing a business entity will be required to examine the adequacy of the entity's compliance program according to the November 1 guidelines. Moreover, if the judge finds that the program is deficient under those standards, as part of the sentence the judge can order the company to implement a compliance program that meets the standard "to protect the public from further crimes of the defendant."

Thus, the now "advisory" nature of the guidelines does not change the fact that a business' compliance program will still be reviewed according to the standards defined in the guidelines, and if not, it could have a program imposed on it that meets the standards as part of the sentencing.

Stated another way, it is highly unlikely that federal district courts will discard the guidelines' definition of an "effective" compliance program in favor of a standard created by the lower courts on an ad hoc basis. No district court judge has ever publicly expressed dissatisfaction with the guidelines' definition of an "effective" compliance program, although there have been occasions when a judge has noted his or her dissatisfaction with the guidelines for other criminal acts.

Most businesses will never be sentenced by a federal judge, whether under the advisory guidelines or at a judge's discretion. Paradoxically, that fact emphasizes why there are still many other good reasons compliance officers should continue to view the guidelines' definition of an "effective" compliance program as controlling.

Anyone involved in compliance during the last decade would agree that the definition of an effective compliance program in the federal sentencing guidelines has become the gold standard for many purposes other than sentencing. First, under the Department of Justice's Principles of Federal Prosecution of Business Organizations, federal prosecutors examine whether the entity has a compliance program effectively designed to prevent wrongdoing when deciding whether to bring criminal charges. Second, the need to maintain an effective compliance program is not restricted to the criminal realm. Case law defining the fiduciary duties of directors and officers, most preeminently In re Caremark Interna- tional, Inc. Derivative Litigation and McCall v. Scott hold that officers and directors must ensure that a corporation has an effective compliance program. Third, Sarbanes-Oxley requires periodic assessments and certification of the effectiveness of a company's internal control structure and procedures for financial reporting, which, as a practical matter, is merely a subset of most, if not all, compliance programs that follow best practices.

In sum, what the Court announced is less dramatic than what might appear at first glance, and businesses should continue assessing their compliance programs to make sure that they are "effective" for purposes of the sentencing guidelines.

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