U.S. Sentencing Commission Dangles a Compliance Carrot in Front of Corporate Defendants

January 29, 2010

Corporations were given a significant incentive to revisit their compliance programs this week, as the U.S. Sentencing Commission (the Commission) made public a proposed policy change that would offer substantial benefits to corporate defendants who could demonstrate that they have an adequately designed and deployed program for combating white collar crime. The Commission is in the midst of its current session, during which it has chosen to address how corporations are handled in criminal cases. This week’s announcement was a notable sign that the Commission intends to take concrete steps to create incentives for enhancement of corporate compliance programs — an area on which the Commission and U.S. Department of Justice (DOJ) have placed increasing emphasis over the years.

Under the proposed standards, corporations facing criminal prosecution would be able to receive penalty reductions at sentencing even if high-level officers were involved in the misconduct if they could show that they had “an effective compliance program” designed to combat white collar crime that included threshold elements such as a compliance officer with responsibility for detecting criminal activity who had direct access to the board of directors (e.g., to its audit committee), the “program was successful in detecting the offense prior to discovery or reasonable likelihood of discovery outside of the organization,” and this misconduct was promptly reported to appropriate authorities.

The proposal is currently in a public comment phase, and key stakeholders such as the DOJ have yet to make public statements regarding it. The proposal will go to a public hearing on March 18, and a vote in April.

William Sessions III, current chairman of the Commission, said that the internal compliance systems being encouraged through this proposal are meant primarily to create direct lines of reporting to the board that would allow compliance officials to circumvent upper managers who may be responsible for the illegal act at issue.

McGuireWoods’ Government, Regulatory and Criminal Investigations Department has attorneys with extensive experience in handling white collar criminal matters, including defense of government investigations, conduct of internal investigations and counsel on corporate compliance programs. This includes having designed, revised and/or helped to implement various compliance programs and program elements such as internal audits, reporting structures and training. As the Commission’s new proposal makes clear, the most valuable weapons a corporation and its officers and directors have against potential white collar issues are preparedness, responsiveness and the deployment of a robust compliance program designed to identify, address and prevent issues before they become government investigations.

For more information about the capabilities of our Government, Regulatory and Criminal Investigations Department in this or any other area, please contact the authors.