Yesterday, on November 1, 2010, the proposed changes in
the US Sentencing Guidelines became effective. This post will highlight
the changes and what they may import for the FCPA compliance professional. 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 of the US Sentencing
Commission and were formally submitted to Congress by May 1, became effective
yesterday. These proposed changes followed 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 changed 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 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 amended
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.
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 (DOJ) 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".
All companies subject to the Foreign Corrupt Practices
Act should review their compliance policies and procedures to ascertain if they
are in compliance with these changes. With the upcoming effective date of the
UK Bribery Act on April 1, 2011, companies should have a comprehensive review
of their compliance program to determine if any changes need to be made.
Visit the 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
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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
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responsible for any loss sustained by any person or entity that relies on this
publication. The author can be reached at tfox@tfoxlaw.com.