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Washington�In issuing new sentencing guidelines for nonprofit and for-profit organizations, the U.S. Sentencing Commission walked a careful line between the needs of prosecutors and the concerns of the private bar, say lawyers and others involved in the process. The commission recently sent to Congress its changes to the 1991 organizational guidelines. Those changes now mandate, instead of recommend, certain key aspects of corporate compliance programs, which, if implemented by an organization, can lead to reduced punishment when the organization violates the law. The new guidelines, effective on Nov. 1 unless Congress rejects them before then, respond to a directive in the Sarbanes-Oxley Act of 2002 that the guidelines be reviewed and amended to ensure deterrence and punishment of misconduct. “There are no bombshells. It’s more a question of emphasis than it is Herculean change from the past,” said Kirby D. Behre, who specializes in corporate compliance and white-collar defense at Paul, Hastings, Janofsky & Walker of Los Angeles. “Events have somewhat overtaken these changes. I suspect the largest companies have already implemented programs very much along these lines.” But that is not to minimize what the commission and its ad hoc advisory group, which spent two years working on recommendations, have done, added Behre and others. “They had an uphill battle trying to find consensus between the Department of Justice and the private bar,” said David E. Matyas of New York-based Epstein Becker & Green, who represents health care organizations and financial institutions investing in health care. “The Sentencing Commission came up with amendments both can agree to. What they’ve done is taken the guidelines of 1991 and brought them up to speed, adding some additional twists and turns.” Though the commission’s latest effort generally received a positive response from a number of general counsel and corporate defense lawyers, some expressed skepticism about how compromise language on the waiver of the attorney-client privilege in investigations would work in practice, and some think the commission has gone too far by dictating a model compliance program. “Overall, I think the commission is trying to undertake micro-management of corporations and compliance programs,” said Paul Kamenar, senior executive counsel of the pro-business Washington Legal Foundation (WLF). The organizational guidelines apply to corporations, partnerships, associations, joint-stock companies, unions, trusts, pension funds, unincorporated organizations, governments and nonprofits. An organization can be held criminally liable when an employee commits a criminal act in the scope of employment. In 1991, when the commission first issued organizational guidelines, it alleviated the impact by allowing for mitigation of punishment. Under the guidelines, punishment is based on several factors, including whether the organization has an effective program to prevent and detect wrongdoing. The commission in 1991 set out seven requirements for an effective compliance program; those requirements have since gone from commentary to a separate guideline. The commission also expanded compliance programs to include ethics, said Richard Gruner of Whittier Law School, a member of the ad hoc advisory group. “One of goals is to promote an organizational culture that encourages ethical conduct in addition to law compliance.” The guidelines also contain much more detail about the role of leadership in a compliance and ethics program, he noted. The governing authority must not only be knowledgeable about the programs, but a high-level person must be responsible for their effectiveness. Monitoring and auditing practices to detect criminal conduct are now mandatory, where before they were deemed valuable techniques. And companies must now assess their programs periodically. “One other major change is the emphasis now on risk assessment as a feature of both designing and updating compliance programs,” said Gruner. “The notion of risk assessment-looking at the most probable offenses as a starting point for designing and updating programs-is now the overarching theme. It’s broken out as separate requirement.” The overall message of the guidelines is that a compliance program should be an evolving system, Gruner explained. When an organization must waive attorney-client privilege and work product protections was a major issue, he and others said. The problem was determining how often that happens. Prosecutors and the private bar “have very different conclusions about that,” said Gruner. The commission ultimately said a waiver isn’t a prerequisite for reduced culpability unless necessary for disclosure of pertinent information. And it said that waivers “will be required on a limited basis.” The waiver language is “not ideal” but an improvement, said James W. Conrad, assistant general counsel to the American Chemical Council. “The commission has sent a strong signal to the Justice Department that they don’t expect waivers to be required except in instances where there is no other way for the Justice Department to get the information.” Said Epstein Becker’s Matyas: “Without that guidance, the government wanted to argue, ‘You’re not cooperating; you’re hiding behind these documents.’” However, he said, counsel need to ensure that privileges are protected “and make educated decisions with our clients on when to waive them. Once you waive that privilege, you can’t get it back.” Paul Hastings’ Behre is more skeptical. “The attorney-client privilege has been severely challenged, even eroded, not just by the Sentencing Commission but by the Department of Justice and the Ashcroft memo equating waiver with cooperation. At the [Securities and Exchange Commission], the pressure on companies to waive the privilege and provide the keys to their internal investigations is far greater than a few years ago. In practice, it is being used in some cases as a mandatory requirement before the government will find a company has cooperated.” Conrad called a “positive development” the elimination of a requirement that companies screen potential high-ranking officials for their “propensity” to violate the law. “That’s been changed now to screen out somebody who has engaged in illegal activities or conduct inconsistent with the compliance and ethics program.” WLF’s Kamenar questioned the addition of ethics to compliance programs: “I don’t know why they think they have authority to dictate ethics programs” when the “focus should be on preventing criminal conduct.” If any attempt is made to get Congress to act before the Nov. 1 effective date, the likely fight, said some lawyers, would be over the waiver of privilege language.

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