About the Federal Sentencing Guidelines

The Sentencing Guidelines for Organizations were first issued in November 1991 to address the issue of corporate crime. The Guidelines set standards for corporate compliance programs, adherence to which may allow an organization and its executives to avoid or minimize criminal penalties if found guilty of corporate misconduct.

The following seven steps outlined in 1991 by the U.S. Sentencing Commission are:

1. The organization must have established compliance standards and procedures to be followed by its employees and other agents that are reasonably capable of reducing the prospect of criminal conduct.
2. Specific individual(s) within high-level personnel of the organization must have been assigned the overall responsibility to oversee compliance with such standards and procedures.
3. The organization must have used due care not to delegate substantial discretionary authority to individuals whom the organization knew, or should have known through the exercise of due diligence, had a propensity to engage in illegal activities.
4. The organization must have taken steps to effectively communicate its standards and procedures to all employees and other agents, e.g. by requiring participation in training programs or by disseminating publications that explain in a practical manner what is required.
5. The organization must have taken reasonable steps to achieve compliance with its standards. This includes utilizing, monitoring, and auditing systems reasonably designed to detect criminal conduct by its employees and other agents and by having in place and publicizing a reporting system whereby employees and other agents could report criminal conduct without fear of retribution.
6. The standards must have been consistently enforced through appropriate disciplinary mechanisms, including, as appropriate, discipline of individuals responsible for the failure to detect an offense. Adequate discipline of individuals responsible for an offense is a necessary component of enforcement; however, the form of discipline that will be appropriate will be case-specific.
7. After an offense has been detected, the organization must have taken all reasonable steps to respond appropriately to the offense and to prevent further similar offenses – including any necessary modifications to its program to prevent and detect violations of law.

The Guidelines have recently been reviewed in light of twelve years’ experience, and especially in light of recent corporate accounting scandals and responsive legislation. The Advisory Group charged with reviewing the Guidelines looked at several studies that suggested that fear of retaliation continues to be a major factor preventing employees coming forward to report misconduct occurring in the workplace. The Group noted that the Sarbanes-Oxley Act included a requirement for an anonymous complaint process for employees with concerns about accounting and audit irregularities. The Group concluded that the definition of an effective corporate compliance program be revised to require a system whereby the organization's employees and agents may report or seek guidance regarding potential or actual violations of law without fear of retaliation, including mechanisms for anonymous reporting.

The proposed new Federal Sentencing Guideline requirement means that an employee hotline should not be restricted to accounting issues, but should receive reports of any type of illegal misconduct. The proposed changes have not yet been finalized, but are expected to be finalized and to become effective in May 2004.