At the request of subscribers, Compliance Week offers a Remediation Center, in which readers can submit questions—anonymously—to securities and accounting experts. Compliance Week's editors will review all questions and then submit them—confidentially, of course—to specialists who can address the issues. The questions and responses will then be reprinted in a future edition of Compliance Week. Below is one of the Q&As; ask your own questions by clicking here.

DETAILS

Brotman

Ellen Brotman is a partner in the litigation department of Montgomery, McCracken, Walker & Rhoads. She concentrates her practice on government investigations and white-collar criminal defense. Brotman has defended a wide variety of criminal cases, including political and public corruption, corporate securities fraud, tax fraud, money laundering, currency structuring, and other white-collar crimes involving complex trial, sentencing, and appellate issues. Prior to joining Montgomery McCracken, she was a partner at Carroll & Brotman, where she concentrated her practice on criminal defense in federal courts.?

Brotman is recognized in The Best Lawyers in America® 2007, 2008, 2009, and 2010 editions in the category of Criminal Defense. She also co-authors a monthly article on the subject of professional conduct, which appears in The Legal Intelligencer.

E-mail Ellen Brotman at ebrotman@mmwr.com or reach her by phone at 215-772-7683.

Remediation Center

Click Here to Return to the Remediation Center

Submit a Question to the Remediation Center

Warning, Disclosure

Compliance Week's Remediation Center is an information service only. Answers to questions should not be construed to be legal guidance. Consult with your auditors, internal counsel, external counsel, and/or other securities experts on all critical compliance and governance matters.

Specialists are solicited by the editor to answer Remediation Center questions based on their knowledge of the subject matter and their ability to provide commentary in their particular area of expertise. In some cases, the experts who answer questions in the Remediation Center may also be Compliance Week subscribers, or may work at firms that advertise in Compliance Week.

Related Coverage

Revisions to Federal Sentencing Guidelines Approved (April 20, 2010)

Proposals for Sentencing Guidelines Win Mostly Praise (March 23, 2010)

Proposals for Sentencing Guidelines Back Stronger CCO (Feb. 9, 2010)

Report: Good Compliance Effort Counts for Little (Aug. 4, 2009)

A Bird's Eye View of Compliance Departments (Oct. 6, 2009)

Lowdown on Corporate Charging Decisions (June 16, 2009)

Related Column

How Revised Sentencing Guidelines Impact CCOs (May 4, 2010)

QUESTION

The newly amended U.S. Sentencing Guidelines say a company's top compliance officer should report directly to the board. OK, I get that—but my corporation has multiple subsidiaries, each with its own board and its own compliance officer (who functionally reports to me, the corporate chief compliance officer). Under that scenario, should those local compliance officers then report to the subsidiary board, or can we comply with the guidelines with only me reporting at the enterprise level to the enterprise board?

ANSWER

The amended Sentencing Guidelines are unclear on this specific issue. But to be on the safe side (which is where corporate compliance officers always want to be), my advice is that the local compliance officers report to the local boards or their audit committees, while maintaining direct reporting to the global compliance officer. This “belt and suspenders” approach meets all the goals of your compliance plan: to create a culture of transparency and integrity, deter wrongful conduct, root out this misconduct, and have clear, accessible channels for reporting the misconduct.

Of course, the U.S. Sentencing Guidelines apply only after a corporation has been found guilty of criminal conduct, either through a guilty plea or trial in federal court. Chapter 8 of the guidelines (also known as the “Organizational Guidelines”) are used to determine what punishment a corporation should receive as its sentence. That sanction is based on the corporation's “culpability score” as calculated under the guidelines.

The culpability score analyzes a variety of factors—some are mitigating (counting in your favor), others aggravating (counting against you). An “effective compliance and ethics plan” is a mitigating factor that can decrease your culpability score by three points. Before the latest guideline amendments were approved this spring, however, those three points were added back to a company's score if someone in upper management either participated in or condoned the misconduct. Now you can still receive the three-point decrease, even when a senior executive is involved, if your company meets four criteria:

the individual with operational responsibility for the compliance and ethics program directly reports to the organization's governing authority;

the program detected the offense before discovery outside the organization;

the organization promptly reported the offense to the appropriate authorities; and

no individual with operational responsibility for the compliance and ethics program participated in or condoned the offense.

Let's face it: You don't want to be arguing at sentencing that your plan was effective, simply because you don't ever want to get to sentencing! You want to be able to convince any government investigator who comes along that your company and its subsidiaries did everything they could do to guard against the rogue employee who commits a crime. The amendment indicates that the U.S. Sentencing Commission, and probably the Justice Department, believe that having a compliance officer report directly to a governing board (or its appropriate sub-committee) is a best practice and part of the fabled “effective compliance and ethics plan.”

Thus, if there is trouble in a subsidiary and that trouble is not reported to the subsidiary's board, but rather up the chain internally to management, that may not be consistent with this “best practice.” So stay on the safe side, and restructure the chain of command for your local compliance officers.

Topics