With the increased focus by the Obama Administration on
financial crimes, health care fraud, and corporate fraud, corporate
compliance and ethics programs have never been more important.
Effective corporate compliance and ethics programs show a
commitment to honest and responsible corporate conduct and improve
the quality of corporate practices and reputations within the
community. In addition, they also are a factor considered by the
United States Department of Justice in determining whether to
charge a corporation and by United States District Courts when
doling out sentences to convicted corporations.
In April 2010, the U.S. Sentencing Commission voted to change the
Federal Sentencing Guidelines pertaining to organizations
("2010 Guidelines"). Barring any congressional action,
these changes will take effect on November 1, 2010.
Since 2004, the Sentencing Guidelines permitted a reduction of the
culpability score, and subsequently the sentence, for convicted
organizations if they had an effective compliance and ethics
program in place at the time of the offense. This automatic
reduction/credit nonetheless became inapplicable if high-level
personnel in the organization (e.g., CEOs, Presidents, etc.)
participated in, condoned, or were willfully ignorant of the
offense(s).
The 2010 Guidelines seek to make corporate boards more responsible
for the effectiveness of their corporation's compliance and
ethics programs. Current guidelines give management personnel
overall responsibility for oversight of the organization's
compliance program. The 2010 Guidelines shift responsibility to the
board of directors or audit committee to educate themselves on the
organization's compliance program, participate in its
implementation, ensure that compliance officials have adequate
resources, and have a direct line of communication between a
compliance officer and the board or audit committee to report on
the program's effectiveness.
In addition, under the 2010 Guidelines, if high-level personnel are
involved in the misconduct, the credit might still be available in
limited circumstances. For example, the credit will still be
offered to organizations if there is a direct reporting line. This
direct reporting line requires an organization to authorize the
compliance officer to have direct reporting authority for the
purposes of informing the board or a relevant committee of any
suspected misconduct.
The 2010 proposal also introduces four new components to the
receipt of compliance and ethics program credit:
- The head of the compliance program must report directly to the governing authority or appropriate subgroup (e.g., the audit committee of the board of directors);
- The compliance program must discover the problem before its discovery outside the organization or before such discovery was reasonably likely;
- The organization must promptly report the problem to the appropriate governmental authorities; and,
- No person with operational responsibility in the compliance program participated in, condoned, or was willfully ignorant of the offense.
The 2010 Guidelines also clarify the definition of an effective
compliance and ethics program for the purposes of a culpability
score reduction. This new addition focuses on the steps an
organization must take after the detection of criminal
conduct.
First, the organization must respond appropriately to the criminal
conduct by remedying any harm resulting from the criminal conduct.
These steps include, providing restitution or otherwise remedy the
harm resulting to identifiable victims, self-reporting, and
cooperation with authorities.
Second, the organization must act to prevent any future similar
conduct by assessing its compliance and ethics program and making
any necessary modifications to ensure the program's
effectiveness. The organization is encouraged to consult with an
independent professional advisor to ensure adequate assessment and
implementation of any modifications.
More generally, the 2010 Guidelines encourage the development of a
corporate culture that promotes legal compliance and ethical
conduct. The key is adding substance and addressing attitudes
towards compliance at all levels, ranging from senior management to
employees. Simply having a compliance program is not sufficient.
The program must have an actual impact.
To comply with the 2010 Guidelines, organizations should have a
standing agenda item that allows for the compliance officer to
report any matters of concern during pertinent executive meetings.
This involves identifying an individual within the organization who
will serve as the compliance officer. If there is an audit
committee, the chairperson is an ideal candidate for this role.
Once the individual is identified and titled, the organization can
set up direct communication authority and specific lines of
communication between that individual and the board or any other
appropriate board committee. This individual should be responsible
for reporting on any criminal conduct at every meeting, as well as
making annual reports on the organization's compliance program
and compliance initiatives.
In conclusion, it is important to highlight the criteria that must
be met in order to ensure the organization is positioned to qualify
for the compliance credit even if high level personnel are
involved:
- The compliance officer has a direct reporting line to the board or any other appropriate board committee (e.g., audit committee).
- The compliance program is structured to successfully detect an offense prior to its discovery or reasonable likelihood of its discovery outside the organization.
- The organization promptly reports violations to the appropriate authorities.
- No compliance officer participated in, condoned, or was willfully ignorant of the offense.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.