The Chamber of Commerce, the FCPA Professor and others have argued for a corporate compliance defense to an FCPA charge. Their argument is that a defense will increase corporate incentives to implement effective compliance programs.
One alternative which is not discussed very often is to increase the benefit for an effective corporate compliance program under the US Sentencing Guidelines. Right now, companies can get a deduction of three base offense points under the guidelines if they are found to have an effective compliance program. The 3-point reduction can have a significant effect on the guideline range for fines.
If the guidelines are modified to include a larger reduction in the base offense level for corporate culpability, companies may have a greater incentive to increase compliance. Such a solution may strike a better balance between no liability under a compliance defense and a significant reduction in a fine.
The compliance industry has undergone significant changes in the last ten years. These changes have directly led to changes in corporate compliance efforts. In a recent survey, almost half of all companies responding indicated that they had instituted changes to their anti-corruption programs. Compliance is fast becoming an integral part of every business’ operations and management structure.
It is time for this trend to be acknowledged and incorporated into the US Sentencing Guidelines. As currently drafted, the Organizational Guidelines are in need of further revision. This is not meant to be a criticism but a reflection of changes in company governance practices.
The US Sentencing Commission has been subject to reams of criticism since the Booker Supreme Court decision relegated the guidelines to “advisory” rather than “mandatory.” Such criticisms have not been fair, especially when considering the Commission’s work in the area of corporate criminal sentencing. The Commission has been a leader in improving corporate criminal liability. It is time for the Commission to step up to the plate once again and recognize current compliance trends.
Section 8B2.1 of the Sentencing Guidelines sets forth the specific requirements for an effective compliance program. The guideline outlines many of the well-known elements of a compliance program. With a few significant exceptions, the guideline requires a compliance program structure but does not focus on the effectiveness of the program. The guideline needs to be updated to reflect a more operational rather than structural focus. At a minimum, the guideline merely requires companies to create a paper program and not an effective compliance program.
Here are some of the missing elements in the minimum requirements for an “Effective Compliance and Ethics Program:”
Board level responsibility – The guideline refers to “high-level” personnel or a governing authority. A minimum requirement should be a Board committee – either an audit committee or a compliance committee.
Chief Compliance Officer – The guideline should include a designated CCO. To maintain flexibility, the designated CCO can have another position (e.g. General Counsel, Chief Financial Officer).
CCO direct reporting obligation to Board – The CCO should have a defined reporting line directly to the Board or the Board committee – either the audit committee or a compliance committee.
Compliance Program Operations
While the structure of a compliance program is important, the operation and performance of the program is more critical. By creating minimum standards, the guideline has only ensured the creation of paper compliance programs. A measurement system, however, it is structured should be added. Some may argue that the existing guideline requires operational performance but such a requirement is not explicitly described in the guideline. Such a concept can be added in a flexible fashion so as to give companies the ability to measure compliance through a reliable standard articulated at the inception of the compliance program.