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By: Ted Banks

Corporate compliance programs are essential for any business which hopes to achieve long term success. Failing to meet the compliance program standards articulated by the Federal Sentencing Guidelines increases that odds that your business will have a compliance problem that may lead to financial penalties and perhaps even jail time.

Why do the Federal Sentencing Guidelines Exist?

The Sentencing Guidelines came about as Congress became increasingly concerned about the disparities in sentencing drug offenders.  But it was recognized that standards for sentencing of corporate (“organizational”) defendants were also needed. So, in 1991 the Organizational Guidelines were created to provide a basis for sentencing of organizations, and give some recognition to companies that actually tried to “do the right thing” by establishing a compliance program.

Chapter 8 of the Federal Sentencing Guidelines Manual is devoted to organizational sentencing. Four principle goals are articulated:

  1. To hold organizations accountable for their actions and provide remedies for any harm to others;
  2. To impose fines on companies that exist solely for criminal purposes in an attempt to disband the organization;
  3. To impose fines and penalties in accordance with the severity of the crime or failure to follow regulations (via the culpability score mechanism);
  4. To offer probation as a means to prevent additional future criminal activity.


Reductions of Penalties Due to Compliance Programs

Prior to 1991, courts rarely gave any credit to companies that had established compliance programs.  Some courts were justifiably skeptical of compliance programs that appeared to be nothing more than a piece of paper.  But there were certainly companies that attempted to implement effective programs, and some sort of recognition was due when there was no corporate intent to violate the law.  The Guidelines recognize that a compliance program may not stop every employee from committing a crime, but if a company follows the steps outlined for an “effective” compliance program, it may be entitled to credit when fines are imposed – or may escape prosecution altogether.

What Determines an Effective Compliance Program?

The criteria for what is considered an “effective” compliance program have now become the standard baseline for compliance programs, and have become the basis for recommended compliance programs around the world.  You can show that you have an “effective” compliance program if you use due diligence and promote a culture of compliance if your organization has:

  1. Established standards and procedures based on risk
  2. Knowledgeable management and board oversight of the compliance program
  3. Senior officers who direct the program, with sufficient resources to do it right
  4. Procedures in place not to hire “bad guys” in management
  5. Effective, practical training of board members, management, other employees, and agents, based on their roles and responsibilities
  1. An anonymous, confidential method to report wrongdoing
  2. A system for auditing and periodic evaluation of the compliance program
  3. Incentives and discipline connected to compliance
  4. Appropriate responses to violations
  5. Periodic risk assessments with adjustments to the program accordingly

The Criticality of Compliance Programs

Having an effective compliance program won’t guarantee success, but it can help reduce the chances that your business will suffer for non-business reasons.  No matter what the size of your company, you are at risk if you do not pay attention to your compliance needs.  With a little professional help, a compliance program can be designed that will fit the size and style of your company, and will make your employees proud to work for an ethical organization.