What are the U.S. Sentencing Guidelines?

Congress originally adopted the U.S. Sentencing Guidelines in 1984 as a means to be fair to all offenders so those individuals convicted of similar crimes would receive similar sentences. A key addition to the Sentencing Guidelines came in 1991 when Congress added Chapter 8--Sentencing of Organizations. The Sentencing of Organizations section works much like the Sentencing Guidelines for individuals except the defendant is a company. However, unlike the sentencing of individuals, Chapter 8 provides guidelines for companies to use in developing compliance programs that can help them reduce their culpability score and subsequent fine.

When originally adopting the Sentencing Reform Act, Congress also created a new federal agency, the United States Sentencing Commission, which is in charge of monitoring and amending the guidelines.

The Sentencing of Organizations section not only recognizes the fact that organizations can only act through their directors and employees, but also recognizes the fact that companies have a responsibility to make sure their directors, employees and anyone else who represents them does not break any laws or hurt the public or the environment in any way.

With this in mind, the Sentencing of Organizations section seeks to make sure that a company remedies any harm it caused to the public and/or the environment; eliminate any companies that were formed solely for a criminal purpose; set fines high enough to erase any monetary gain a company may have made or monetary loss it may have caused; and force companies to take steps to ensure that future criminal conduct does not occur.

In short, Chapter 8 was designed so that the "sanctions imposed upon organizations and their agents, taken together, will provide just punishment, adequate deterrence, and incentives for organizations to maintain internal mechanisms for preventing, detecting, and reporting criminal conduct."

According to the United States Sentencing Commission's An Overview of the Federal Sentencing Guidelines, the Guidelines work on a point system and are to take into account both the seriousness of the offense and the offender's criminal history. The Guidelines provide 43 levels of offense seriousness. Each type of crime is assigned a base offense level, which is the starting point for determining the seriousness of a particular offense. More serious crimes have higher base offense levels.

In addition to the base offense levels, each offense carries a number of specific characteristics. These factors vary from offense to offense, but can increase or decrease the base offense level and the sentence an offender receives.

There are also other adjustment factors that may apply, such as the offender's role in the crime, obstruction of justice, acceptance of responsibility, and past criminal history. However, in general, the more good things you have, the better off you are.

What do these Guidelines have to do with background investigations?

At the heart of the Guidelines is the notion that companies must have effective procedures in place to prevent and detect criminal activity. The first step in implementing a proper compliance program is through background investigations.

In conducting the research for this Web site, we ran across several White Papers that stressed how important it is for companies to have an effective compliance program in place. Many papers also noted the responsibility of a company to conduct "due diligence" or "screen their employees for their propensity to violate the law."

In reading the Sentencing Guidelines, in particular step number three, which states, "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," it certainly is implied that background investigations should be conducted when hiring employees, especially in departments where a violation of the law is likely to take place.

In his White Paper entitled Corporate Compliance Programs Under the Organizational Sentencing Guidelines, Gregory Wallance, a member of the White Collar Criminal Practice Group, Kaye, Scholer, Fierman, Hays and Handler, LLP, wrote in responding to a company's responsibility to conduct due diligence, "…this criterion also suggests that the corporation must implement procedures to identify future lawbreakers. One such procedure is to screen applicants for employment at all corporate levels."

Also noting that companies should conduct background investigations are Bruce Yannett, partner and Leigh Schachter, an associate with the New York office of the Debevoise & Plimpton law firm, in their White Paper, Corporate Compliance Programs: No Longer A Luxury. In it they note, "Use diligence to ensure that substantial discretionary authority is not delegated to individuals who have a propensity to engage in illegal conduct. This involves identifying those positions in the company where there is a potential for misuse of authority--e.g. those that involve substantial financial dealings with third parties (such as purchasing agents or sales representatives)--and putting into place procedures to ensure that appropriate background checks are conducted for those individuals."

But merely having in place a policy of background investigations on new hires is not enough to satisfy the standards set under the Sentencing Guidelines.

In BNA/ACCA Compliance Manual Prevention of Corporate Liability, authors Joseph Murphy, a senior attorney with Bell Atlantic Network Services and Michael Moore, assistant managing editor of the Bureau of National Affairs, note that companies need to be aware of all seven points mentioned in the Sentencing Guidelines when developing an effective compliance program.

Continuing, Murphy and Moore wrote, "It is naïve, however, to expect that any compliance program will prevent all violations… If the company has done its best to meet the guidelines' standards and has exercised due diligence to prevent violations, it should be able to make a convincing argument to prosecutors that it should be spared prosecution.

"A company with no compliance program will invite the court to impose one as a condition of probation. That will mean appointing a probation officer to poke around the business, and requiring management to follow that official's ideas on how to manage the company so as to prevent future violations. Managers trying to decide whether to buy into the guidelines or to take their chances under probation should let their imaginations play with the picture of a government official attending board and management meetings, directing compliance audits, and establishing a disciplinary system within the company."

What is an "effective program?"

Good question, and you don't want to have a judge determine this. The Sentencing Guidelines detail the following seven points:

(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 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 communicate effectively 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, e.g., by 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 by others within the organization 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 precise actions necessary for an effective program to prevent and detect violations of law will depend upon a number of factors. Among the relevant factors are:

(i) Size of the organization -- The requisite degree of formality of a program to prevent and detect violations of law will vary with the size of the organization: the larger the organization, the more formal the program typically should be. A larger organization generally should have established written policies defining the standards and procedures to be followed by its employees and other agents.

(ii) Likelihood that certain offenses may occur because of the nature of its business -- If because of the nature of an organization’s business there is a substantial risk that certain types of offenses may occur, management must have taken steps to prevent and detect those types of offenses. For example, if an organization handles toxic substances, it must have established standards and procedures designed to ensure that those substances are properly handled at all times. If an organization employs sales personnel who have flexibility in setting prices, it must have established standards and procedures designed to prevent and detect price-fixing. If an organization employs sales personnel who have flexibility to represent the material characteristics of a product, it must have established standards and procedures designed to prevent fraud.

(iii) Prior history of the organization -- An organization’s prior history may indicate types of offenses that it should have taken actions to prevent. Recurrence of misconduct similar to that which an organization has previously committed casts doubt on whether it took all reasonable steps to prevent such misconduct.

An organization’s failure to incorporate and follow applicable industry practice or the standards called for by any applicable governmental regulation weighs against a finding of an effective program to prevent and detect violations of law.

For example, in the insurance industry one of the biggest crimes is fraud. Under (ii) of the Sentencing Guidelines, companies must take steps to prevent and detect this type of crime in order to argue that their compliance program is effective.

What happens if you don't have a plan?

If your company has been indicted on an offense that falls under the jurisdiction of the Sentencing Guidelines, there are ways to lower your culpability score in an effort to lower your overall fine and other penalties.

One of the ways involves having an effective program to prevent and detect violations of law. Having such a program in place prior to an indictment can reduce a company's culpability score by as much as three points, provided that the person responsible for the administration or enforcement of the program did not participate in, condone or act willfully ignorant of the offense. Also, the company must not "unreasonably delay" reporting the offense to the appropriate governmental authorities.

If your company does not have an effective program to prevent and detect violations of law prior to the indictment, as part of the sentencing, your company can be placed on probation where the court will "ensure that changes are made within the organization to reduce the likelihood of future criminal conduct."

According to the Guidelines, "If probation is ordered… the following conditions may be appropriate:

(1) The organization shall develop and submit to the court a program to prevent and detect violations of law, including a schedule for implementation.

(2) Upon approval by the court of a program to prevent and detect violations of law, the organization shall notify its employees and shareholders of its criminal behavior and its program to prevent and detect violations of law. Such notice shall be in a form prescribed by the court.

(3) The organization shall make periodic reports to the court or probation officer, at intervals and in a form specified by the court, regarding the organization’s progress in implementing the program to prevent and detect violations of law. Among other things, such reports shall disclose any criminal prosecution, civil litigation, or administrative proceeding commenced against the organization, or any investigation or formal inquiry by governmental authorities of which the organization learned since its last report.

(4) In order to monitor whether the organization is following the program to prevent and detect violations of law, the organization shall submit to: (A) a reasonable number of regular or unannounced examinations of its books and records at appropriate business premises by the probation officer or experts engaged by the court; and (B) interrogation of knowledgeable individuals within the organization. Compensation to and costs of any experts engaged by the court shall be paid by the organization."