The U.S. Supreme Court’s landmark decision eviscerating the mandatory nature of the federal sentencing guidelines should have no immediate affect on corporate compliance programs established under the sentencing standards, experts tell Compliance Week.
On Jan. 12, a deeply divided Supreme Court ruled in United States vs. Booker that the guidelines that have governed all federal criminal sentencing for nearly 20 years must be considered only advisory, not mandatory.
Ordinarily, such a ruling would be of interest primarily to lawyers who represent drug traffickers and violent criminals. But the case was also closely watched by corporate compliance professionals because the lengthy sentencing guidelines also set forth standards for company directors and executives with respect to the content and operation of compliance and ethics programs.
Among other things, the guidelines articulate “the essential attributes of successful compliance programs,” emphasizing monitoring, auditing, accessing and evaluating programs. Under more rigorous amendments that took effect Nov. 1, 2004, greater responsibility for oversight was placed on directors and officers.
De Facto Requirement
Bowers
The sentencing standards do not technically impose “requirements” on corporations because they are only triggered when a company or company officials have been convicted of a crime, noted James Bowers of Day, Berry & Howard in New York. Companies that have compliance programs which satisfy the guidelines get some leniency when it comes to sentencing.
But, Bowers noted, the “incentive” provided by the federal guidelines has resulted in de facto requirements. “The incentive is that we’re going to provide companies with an opportunity to position themselves for mitigation of punishment if an effective compliance program is in place. We’ll leave it up to the companies to decide if they think it’s worth the nickel.” Most companies have concluded that it’s worth the nickel, he said.
Chilton
Brian Chilton, of Foley & Lardner in Washington, said the compliance provisions in the sentencing guidelines remain important—despite the newly advisory nature of the guidelines as a whole—because they constitute the “gold standard” for corporate compliance that is used beyond the criminal context.
“Is a company likely to be sentenced to a crime next year? Not likely,” said Chilton, noting that the more common scenario is that a corporation will find itself facing a securities lawsuit—where adherence to the “best practices” articulated in the guidelines will help defend against civil liability.
Chilton also noted that prosecutors and the Securities and Exchange Commission look to the sentencing guidelines—and whether companies have established effective compliance programs—in deciding if criminal prosecution or SEC enforcement is warranted.
Bowers agreed. “The U.S. Attorneys and SEC seem committed to [guidelines’ standards],” he said. “There’s no reason to think they want to abandon that.”
Programs Still Important?
Under the Supreme Court’s decision, the Sentencing Guidelines still remain the “starting point” for federal sentencing, said Chilton, meaning judges are required to consider them in all cases.
In the corporate context, judges will continue to look to the existence of compliance programs in deciding whether leniency is warranted. “I’ve never heard of a single judge saying, ‘These guidelines are too strict [on companies],’” Chilton said.
Bowers noted that the non-mandatory nature of the guidelines could help some companies that have compliance programs that aren’t perfect because judges will have more discretion to impose a lighter sentence.
“Now a judge, if the company didn’t have a lot of resources but did what it could, would not be bound by the [formal] guidelines structure,” Bowers said.
Chilton, a former federal prosecutor, said the guidelines already contain a lot of “wiggle room for companies” but agreed that there could be circumstances where the additional discretion given to judges could benefit corporate defendants. “If I’m a judge and I had a company that I thought was doing it’s best but didn’t quite meet the letter of the law, I might say, ‘You’re not an Enron. You’re not an Arthur Andersen. I’m going to sentence you to the lower end of the range in recognition that you did your best.’”
Having an effective compliance program could actually be more important than ever, Bowers said, because judges now have discretion to reduce sentencing beyond what the guidelines suggest in appropriate circumstances. “Judges can now give equal weight to their own sentencing philosophy,” he noted.
One of the unanswered questions raised by the Supreme Court’s decision is what, if anything, Congress will do in response and whether that will implicate corporate compliance.
“When Congress gets involved you have no idea where the politics is going to take the issue,” Bowers said. “But my gut tells me that there will be a force that pushes [lawmakers] to be reasonable, to get the new Attorney General’s point of view before rushing in headstrong and making things worse.”
The bottom line for companies, at least for now, is to adhere to the status quo, Chilton said. “Go forward as you were—don’t change a thing.”
Bowers agreed. “Directors are still going to have to be informed about compliance risk practices and they have to ask tough questions. Otherwise, they’re not going to have much to fall back on in defending their actions if faced with a compliance risk failure,” he said.
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