Estate Planning News

Sentencing Commission Toughens Requirements For Corporate Compliance And Ethics Programs

Agency Also Announces Increased Prison Sentences for Sex Offenses and Offenses Involving Hazardous Materials and Spamming

WASHINGTON, D.C. (April 13, 2004) — At its public meeting April 8, 2004, the United States Sentencing Commission voted unanimously to amend the existing organizational guidelines to make more stringent the guidelines’ criteria for effective compliance and ethics programs.

A fundamental component of the organizational sentencing guidelines, promulgated by the Commission in 1991, is the effective compliance and ethics program. Last week, the Commission made the standards for the compliance and ethics program more rigorous and put greater responsibility on boards of directors and executives for the oversight and management of compliance programs. In particular, directors and executives now must take an active leadership role for the content and operation of compliance and ethics programs. Companies that seek reduced criminal fines now must demonstrate that they have identified areas of risk where criminal violations may occur, trained high-level officials as well as employees in relevant legal standards and obligations, and given their compliance officers sufficient authority and resources to carry out their responsibilities. Under the revised guidelines, if companies hope to mitigate criminal fines and penalties, they must also promote an organizational culture that encourages a commitment to compliance with the law and ethical conduct by exercising due diligence in meeting the criteria.

Commission Vice Chair Ruben Castillo, a district judge in Chicago, stated that, “A good corporate citizen must in the first instance operate ethically.” The Commission’s focus on ethical corporate behavior is a unique development in the 13-year history of the organizational sentencing guidelines. The Commission also determined that there may be limited situations where an organization may need to waive its attorney-client privilege to qualify for a full, potential fine reduction. These amendments represent the first time the organizational sentencing guidelines have been modified in their history. Some of these modifications are the result of recommendations of the Ad Hoc Advisory Group on the Organizational Sentencing Guidelines or the result of the recent enactment of the Sarbanes-Oxley Act.

Under the existing sentencing guidelines, an organization is precluded from mitigation of its sentence if it fails to self-report criminal misconduct to the authorities in a timely fashion, or if executive or management level officials tolerated or were involved in illegal activities. Failure to follow applicable government regulations and industry standards and recurrence of similar misconduct undermine an organization’s eligibility for compliance credit under the federal sentencing scheme. The guidelines mandate high fines for organizations that have no meaningful programs to prevent and detect criminal conduct or in which management was involved in the crime.

Responding to passage of the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act) of 2003, the Commission has approved guideline changes to implement this newly-created felony offense. The new offense imposes criminal penalties on those who spam (i.e., send out multiple commercial e-mail messages) by using another’s computer without permission or by engaging in deceit concerning the source of the messages. The Commission created a sentence enhancement of approximately 25 percent if a defendant improperly obtains e-mail addresses for the purpose of spamming and an automatic application of an additional 25 percent sentence increase for mass marketing. Additional sentencing increases based on the amount of loss and number of victims also will apply.

The Commission also amended the guideline covering the mishandling of hazardous and toxic substances and unlawful transportation of hazardous materials to provide a 25 percent sentence increase for offenders convicted of hazardous materials violations. The sentencing enhancement was added in recognition of the inherent risks such offenses pose. The Commission also added a provision encouraging courts to sentence above the guideline range for hazardous materials transportation offenses committed with a terrorist intent.

The Commission significantly increased sentences for individuals convicted of sexual offenses. The amendment substantially increases sentences for individuals who possess, receive, traffick in or produce images of child pornography. Furthermore, the amendment increases penalties for defendants who travel to engage in sexual activity with minors, and increases penalties for individuals who sexually abuse both minors and adults. This amendment addressed several provisions in the PROTECT Act.

The Commission also significantly increased penalties for gamma hydroxybutyric acid (GHB) trafficking offenses. The increased penalties address concerns regarding the increasing use of this “club” drug, its use to facilitate sexual assault, and its distribution over the Internet. The guideline amendment adds increases in the penalties for any drug trafficking crimes involving a drug facilitated sexual assault or use of the Internet to distribute drugs. The amendment also increases penalties for offenses involving the chemicals used to manufacture GHB, many of which are often used as substitutes for and have the same effect as GHB. Finally, the guideline amendment substantially increases penalties for drug offenses involving the theft of anhydrous ammonia or transportation of stolen anhydrous ammonia, which is used in the manufacture of methamphetamine, in recognition of the dangerous, volatile nature of this substance. The Commission also modified and reduced the sentence reduction available to certain defendants who perform a mitigating role in a drug conspiracy.

Finally, the Commission voted to promulgate amendments to address offenses in which the defendant fraudulently acquires documents relating to naturalization, citizenship, or legal resident status; the Commission increased penalties by approximately 50 percent for defendants who fraudulently obtain or use a United States passport in part because of security concerns voiced by Secretary of State Colin Powell.

The new amendments to the sentencing guidelines will be submitted to Congress by May 1, 2004, and will take effect November 1, 2004, unless Congress disapproves them during a six-month review period.

The U.S. Sentencing Commission, an independent agency in the judicial branch of the federal government, was organized in 1985 to develop a national sentencing policy for the federal courts. The resulting sentencing guidelines structure the courts’ sentencing discretion to ensure that similar offenders who commit similar offenses receive similar sentences. Since nationwide implementation in January 1989, federal judges have sentenced approximately 650,000 defendants under the guidelines.

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