At its April 7,
2010 meeting the United States Sentencing Commission approved amendments to its
Sentencing Guidelines. The next
day on April 8, 2010, the UK Bribery
Bill received Royal Assent. These two events follow the December 9, 2009
release by the Organization for Economic Co-Operation and Development's (OECD) Recommendation
for Further Combating Bribery of Foreign Public Officials, when the OECD
marked the tenth anniversary of the entry into force of the OECD
Anti-Bribery Convention.
These three
releases, which comprise of two changes in the legal schemes by two of the
world's largest economic players and the proposal of one of the largest
Non-Governmental Organizations dedicated to ending corruption across the
globe portend significant changes in how companies will be structured and
transact business going forward in the new decade. This will be the first of
three postings in which will discuss the changes that companies, with any US or
UK presence, will be required to implement. The initial post will be on the
changes to the US Sentencing Guidelines; in our second post, we will then
consider the changes required by the UK Bribery Bill; and in our third and
final post, we will end with the recommendation as found in the OECD's
Recommendation for Further Combating Bribery of Foreign Public Officials
regarding the ending of facilitation payments.
The US
Sentencing Guidelines are used in the sentencing of organizations and serve as
the de facto blueprint for corporate ethics and compliance programs. The
changes, which were approved at an April meeting, must be formally submitted to
Congress by May 1, and will take effect November 1, 2010, unless Congress
passes legislation to reject or modify them. These proposed changes follow
public hearings and public comment period which ended in March. The most
significant changes in the Sentencing Guidelines are as follows.
1. Direct
Report. The amendment would change the reporting structure in
corporations where the Chief Compliance Officer (CCO) reports to the General
Counsel (GC) rather than a committee on the Board of Directors. The
proposed change reads "the individual...with operational responsibility for the
compliance and ethics program...have direct reporting obligations to the
governing authority or any appropriate subgroup... (e.g. an audit committee or
the board of directors)". If a company has the CCO reporting to the GC, who
then reports to the Board, such structure may not qualify as an effective
compliance and ethics program under the Sentencing Guidelines. The better
practice would now appear to be that the CCO should be a direct report to the
Board or appropriate subcommittee of the Board such as compliance or audit.
2. Discovery of
Problem Inside the Organization Rather Than Outside. This amendment
encourages a company to have a hotline and other mechanisms to detect any
compliance and ethics violations internally. While most companies have a Code
of Conduct, with attendant implementation policies and procedures in place, training
thereon and a hotline; many companies have yet to implement any type of
self-audit program to measure Foreign Corrupt Practices Act (FCPA) compliance
program performance. This encourages companies to not only monitor its internal
self reporting to actively test the information available to it through a
system such as continuous controls monitoring. For post on CCM, see
here.
3. Promptly
Report. This amendment inserts specific language regarding the
"prompt" reporting of any violation of a compliance and ethics program. While
no definition of the word "prompt" is provided, the revisions to the Commentary
note that an organization will be "allowed a reasonable time to conduct and
internal investigation" and that no reporting is required if "... the
organization reasonably concluded...that no offense has been committed".
Nevertheless this language reiterates what many former Department of
Justice employees tell industry representative at conferences and events
regarding the FCPA. It is always preferable to report a violation to the US
government rather than the US government finding out and coming to you.
4. No Person
With Operational Responsibility Condoned or Was Willfully Ignorant. This
proposed amendment is aimed at those personnel within a company's compliance
and ethics organization. While operational responsibility could be defined to
mean only those who might report to the Board, this commentator would suggest
the better approach is to include all company personnel with direct reporting
responsibility in the compliance and ethics group. The definition of "willfully
ignorant" has not changed from the current version of the Sentencing
Guidelines, which is provided in Application Note 3 of Commentary to §8A1.2
(Application Instructions-Organizations). The definition reads in full "An
individual was "willfully ignorant of the offense" if the individual did not
investigate the possible occurrence of unlawful conduct despite knowledge of
circumstances that would lead a reasonable person to investigate whether
unlawful conduct had occurred".
© Thomas R.
Fox, 2010
Visit
FCPA Compliance and Ethics Blog, hosted by Thomas Fox, for more commentary
on FCPA compliance, indemnities and other forms of risk management for a
worldwide energy practice, tax issues faced by multi-national US companies,
insurance coverage issues and protection of trade secrets.
This publication contains general information only and is
based on the experiences and research of the author. The author is not, by
means of this publication, rendering business, legal advice, or other
professional advice or services. This publication is not a substitute for such
legal advice or services, nor should it be used as a basis for any decision or
action that may affect your business. Before making any decision or taking any
action that may affect your business, you should consult a qualified legal advisor.
The author, his affiliates, and related entities shall not be responsible for
any loss sustained by any person or entity that relies on this publication. The
author can be reached at tfox@tfoxlaw.com.