New Steps for an Effective Company Compliance Program

On Nov. 1, 2004, significant revisions to the Federal Sentencing Guidelines, including the Organization Sentencing Guidelines, took effect. The revised Guidelines include a new and expanded definition of “effective compliance and ethics program” for organizations in Section 8B2.1 and provide useful guidance on what a compliance program should include. The Guidelines' revisions significantly increase the requirements for an effective compliance program and mark the first major change to the Organizational Guidelines since they took effect in 1991. The revised Guidelines also respond to Sarbanes-Oxley (SOX), which directed the Sentencing Commission to amend the Guidelines and related policy statements to ensure that they “are sufficient to deter and punish organizational criminal misconduct.”

The actual impact of having an “effective compliance and ethics program” is a three-point reduction in the company's “culpability score.” This can reduce the fine calculated under the Guidelines by as much as 25%. Though under the Supreme Court's Jan. 12, 2005 decision in United States v. Booker, the fine yielded by the Guidelines is no longer mandatory, the sentencing court must still make the calculation and give it considerable weight. A company only gets this “benefit,” of course, if it is already in the miserable position of having been convicted of a federal crime. The real benefit of a compliance program is to stop the problem from occurring in the first place. A well-deserved criticism of the Guidelines has been that they provide no guidance for what a judge should consider an “effective” compliance program. The November 2004 revisions go a long way toward fixing that.