Memo to corporate compliance executives and board members: Prepare to recheck your compliance program in light of changes to the Federal Sentencing Guidelines expected to take effect later this year.

The U.S. Sentencing Commission voted to adopt changes to the guidelines that apply for the sentencing of organizations contained in Chapter 8 of the Guidelines Manual, which serve as the de facto blueprint for corporate ethics and compliance programs.

The changes, which were approved at an April meeting, must be formally submitted to Congress by May 1, and will take effect Nov. 1, unless Congress passes legislation to reject or modify them. They follow a public hearing and public comment period that ended in March.

The guidelines detail the elements of what the Commission considers an "effective" compliance program. They're also frequently applied by the Justice Department to help determine what remedial measures and/or penalties a company under investigation should receive. For instance, the DoJ often bases the penalty it imposes in settlements on the range of possible fines the guidelines recommend for cases that go to trial. As such, they're widely followed as a roadmap for corporate compliance programs.

Most importantly, the Commission adopted the proposed "Issue for Comment," to amend the guidelines to allow companies that meet certain criteria to receive mitigation credit at sentencing for having an effective compliance program, even if a senior executive is involved in the wrongdoing.

Currently, the involvement of any high-level personnel is an automatic disqualifier, which observers say may explain why few companies have never received the credit.

In order for an organization to get the credit, the individual or individuals with operational responsibility for the compliance and ethics program must have "direct reporting obligations to the governing authority or an appropriate sub-group" (such as an audit committee); the program must have detected the offense before discovery outside of the organization or before such discovery was reasonably likely; the organization must have "promptly reported the offense to appropriate governmental authorities," and no individual with operational responsibility for compliance and ethics program participated in, condoned, or was willfully ignorant of the offense.

Sentencing Commission officials could not immediately be reached for comment.

David Debold, chair of the Sentencing Commission's Practitioners Advisory Group and of counsel at the law firm Gibson, Dunn & Crutcher says the changes are positive since they broaden the availability of the credit for having effective compliance programs.

However, companies where the person who runs the compliance program doesn't currently have the direct reporting authority described will have to determine whether they want to make changes to their compliance program structure to meet the requirement.

Moreover, Debold notes that the obligation to "promptly report" raises questions about the meaning of the word "promptly," since there's already separate language elsewhere in the guidelines related to credit companies can get for self-reporting.

Meanwhile, the Commission dropped proposed references to document retention policies and to corporate monitors, both of which were criticized by commenters.

The text of the Chapter 8 amendments is available here. Compliance Week will provide complete details and commentary on the changes in an upcoming edition.

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