Why comply? Organizational guidelines offer a safer harbor in the storm.

• Author: Fiorelli, Paul

1. INTRODUCTION II. THE SUPREME COURT AND THE SENTENCING GUIDELINES III. IMPACT OF BOOKER ON COMPLIANCE AND ETHICS PROGRAMS A. The Holder and Thompson Memos IV. REVISED GUIDELINES A. A New Home for Compliance and Ethics Programs B. Incorporating "Ethics" into the Guidelines C. Compliance and "Ethics" Programs D. Promoting an Ethical Culture E. Incentives for "Doing the Right Thing" F. Training is No Longer Optional V. CONCLUSION I. INTRODUCTION

   The Federal Sentencing Guidelines for Organizations have had a significant impact on the way organizations conduct business. These guidelines have been codified in Chapter 8 of the United States Sentencing Commission Guidelines Manual (also referred to as the Federal Sentencing Guidelines for Organizations, hereinafter "FSGO" or "Chapter 8") and are considered the "gold standard" for evaluating internal corporate compliance programs. (1) The Chapter 8 guidelines offer a carrot and stick approach regarding compliance and ethics programs. Organizations that have effective compliance and ethics programs, cooperate with government investigations, and accept responsibility can reduce their potential federal criminal fines by up to 95%. Organizations that tolerate, encourage or condone illegal behavior, do not cooperate and do not accept responsibility may have these same fines multiplied by a factor of four. This makes the potential, bottom line impact of compliance and ethics programs an 80:1 swing in what a company may have to pay in federal fines, depending on whether it had good ethics and compliance programs, or bad ethics and compliance programs. (2) "In the words of a leading securities law commentator, a general counsel who fails to implement an effective compliance program is guilty of 'professional malpractice.'" (3)

   One indicator of the guidelines' impact can be found in the growth of the number of ethics officers since the Chapter 8 guidelines were passed in 1991. (4) In 1992, the Ethics Officer Association (EOA) had 12 members, but this organization's membership has increased exponentially to approximately 1,250 members in 2006. (5) The EOA acknowledged the importance of the Chapter 8 guidelines in a 2000 survey of its members, "indicating that the organizational sentencing guidelines influenced many corporations to adopt compliance programs." (6)

   In 2001, the former chair of the United States Sentencing Commission, Judge Diana E. Murphy, also recognized the importance of the organizational guidelines:

   Some believe that the Federal Sentencing Guidelines for Organizations represent a milestone both in federal criminal law and in organizational behavior. Their impact has been wide ranging. They are a real success story for the United States Sentencing Commission in its work to deter crime and encourage compliance with laws. Like any body of law, however, the organizational guidelines may need to be modified as circumstances change. In this tenth anniversary year for these guidelines, practitioners and industry representatives are encouraged to share their thinking about the organizational guidelines and their effect. (7) Chapter 8 defines "compliance and ethics programs" as programs "designed to prevent and detect criminal conduct." (8) The Guidelines articulate seven essential areas such a program must embrace in order to be considered for federal fine reductions. These are: (1) establishing standards and procedures to prevent and detect criminal conduct; (2) having high level personnel, with the appropriate resources, access and authority, overseeing the compliance and ethics program; (3) using reasonable efforts to limit individuals with substantial authority from engaging in illegal activity; (4) taking reasonable steps to communicate aspects of the compliance and ethics program, through effective training, to the employees and the organization's governing authority; (5) ensuring the organization's compliance and ethics program is followed by auditing and monitoring the program on a periodic basis; (6) promoting the compliance and ethics program through incentives for appropriate behavior and sanctions for inappropriate behavior; and (7) taking reasonable steps to respond to criminal behavior and prevent similar misconduct from occurring in the future. (9)

   The Chapter 8 Guidelines came under review in 2002 when the United States Sentencing Commission empanelled a fifteen-person Ad Hoc Advisory Group to analyze the 1991 description of what constituted an effective program to prevent and detect violations. (10) On October 7, 2003, the Ad Hoc Advisory Group presented its recommendations to the United States Sentencing Commission. (11) The Sentencing Commission held public hearings and made some modifications to the recommendations, then sent these amendments of the Chapter 8 Guidelines to Congress on April 30, 2004. (12) These changes became effective on November 1, 2004. (13) Except for mentioning the possibility of waiving the attorney-client and work product privileges, (14) they were well received by the bar and the government.

   These revised guidelines increase the import of compliance and ethics programs at sentencing: "a 'check the box' compliance program is theoretically no longer sufficient to secure a sentence downgrade." (15) The revisions also helped to clarify the existing description of what constitutes an effective program "to prevent and detect" violations of law.

   The new Organizational Sentencing Guidelines will bring about a sea change in how compliance programs are designed, implemented and enforced. While the new guidelines structurally maintain the same seven elements of an effective compliance program first articulated in the 1991 guidelines, the new guidelines add more clarity to the program elements, and the standards are tougher. (16) The promise of a sea change was soon put into question. On January 12, 2005, the Supreme Court in United States v. Booker declared aspects of the sentencing guidelines unconstitutional. (17) Did this "new day" for compliance and ethics programs last less than three months? Should this decision cause budget conscious organizations to stop funding their compliance and ethics initiatives? (18) In a word--no!

   This Article will: (1) provide a brief overview of the Supreme Court cases that presented constitutional challenges to the sentencing guidelines; (2) discuss why organizations should still promote compliance and ethics programs; and (3) analyze changes to the Federal Sentencing Guidelines for Organizations that became effective on November 1, 2004.

2. THE SUPREME COURT AND THE SENTENCING GUIDELINES

   In United States v. Booker (19) and Blakely v. Washington, (20) several key sentencing issues, which had been simmering for almost two decades, combined and boiled over. During the 1980s, '90s, and into the 21st century, both federal and state courts had foundered as they responded to legislative enthusiasm for curbing crime and judicial discretion. Elected bodies used a number of approaches to achieve these controls. "Solutions" included variations of mandatory sentences, (21) sentencing "enhancements," and sentencing guidelines that legislatures and Congress instructed courts to follow. A constant barrage of refinements to sentencing left judges spinning and courts divided. It seemed each time one hole was plugged, a leak sprung elsewhere. These all came to a head as mandatory state (22) and federal sentencing guidelines (23) were challenged at the United States Supreme Court. Especially with the Court's opinion in Booker, the impact of the Court's struggle with the critical issues of judicial discretion and a defendant's right to a jury trial, as implicated in the sentencing process, is apparent.

   In both the Blakely (24) and the Booker (25) cases, the Court addressed whether a defendant has the right to a jury trial with respect to information that could impact sentencing under sentencing guidelines schemes? These cases have a direct impact on those states that had adopted a formal guidelines system. (26) The federal courts had operated with guidelines since the sentencing guidelines for individuals were enacted in 1987. Consequently, the cases challenged the very essence of sentencing processes by which trial judges approached sentencing under guidelines systems. This involved gathering information from both defense and prosecution, holding any necessary hearings and determining facts, such as with respect to criminal history, and factors such as harm to the victim and the amount of financial losses or quantity of drugs. The judge then applied the guidelines to the factual conclusions reached.

   Ralph Howard Blakely challenged just such a process; the trial court had increased his sentence for kidnapping based on a judicial finding by a preponderance of evidence that Blakely had committed the offense with deliberate cruelty. (27) Under the Washington State guidelines, such findings could increase the penalty beyond the standard range for the offense, as was the case here. (28) The sentence imposed on Mr. Blakely was 37 months longer than the standard maximum for the underlying offense. (29)

   The Supreme Court used the opportunity in Blakely to expand on its ruling in Apprendi v. New Jersey. (30) While Apprendi seemed to define the right to a jury in scenarios where a sentence could exceed the maximum penalty range for an offense, as the Court explained in Blakely, "[t]he 'statutory maximum' for Apprendi purposes is the maximum sentence a judge may impose solely on the basis of the facts reflected in the jury verdict or admitted by the defendant." (31) Increasing a sentence beyond the standard range for an offense, based on information or evidence not presented and determined by a jury beyond a reasonable doubt, violated a defendant's Sixth Amendment right to a jury trial. The Justice Department had filed an amicus brief in Blakely, (32) and even before the decision, the department was circling its...