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The U.S. Sentencing Commission has issued guidelines promising to bring in a “new era of corporate compliance,” according to a statement by the commission. The guidelines, which apply to profit and non-profit entities, serve two purposes. They mandate what were once recommended practices for organizational compliance programs, and they provide detailed steps organizations can follow to conform to the guidelines. Organizations are not required to comply to the corporate compliance provisions, but they look to the guidelines as a benchmark of acceptable behavior. In other words, a corporation that declines to institute the measures will not be in violation of any laws. But if that corporation is found guilty of a crime, its lack of compliance will result in a stiffer penalty. Commission Vice Chairman Ruben Castillo, a federal district court judge in Chicago, said in an interview Monday that the commission hopes to help build a “model company” through its guidelines. “This story is really about keeping companies out of regulatory issues be they criminal or civil,” he said. Critics say they are concerned that provisions that reward companies for cooperating with the government at the cost of rebuking the attorney-client privilege will undermine corporate ethics and the administration of justice by curtailing candid conversations between clients and their lawyers. The sentencing guidelines include charts and points that guide federal judges to calculate a guilty party’s “culpability score.” A guilty party begins with an average score: five out of 10 in the case of companies. The score rises or falls depending on the party’s compliance with the guidelines. If a guilty corporation was found to have obstructed justice, for instance, then the guidelines raise its culpability score. If, on the other hand, it cooperated with prosecutors, it earns a lighter sentence by reducing its culpability score. In 1991, the commission enacted organizational sentencing guidelines but they served as suggestions rather than actual variables judges would consider when punishing organizational criminals. The changes codify these recommendations. Under the new guidelines, four factors will raise a guilty organization’s culpability score: the prior history of the organization; violation of an order; obstruction of justice; and level of involvement in or tolerance of criminal activity. Two factors will reduce the culpability score: cooperation with government investigators or acceptance of responsibility and the existence of an effective compliance and ethics program. ETHICS PROGRAM Most of the substantive changes in the new guidelines relate to implementation of compliance and ethics programs. The guidelines are meant to promote vigorous implementation so companies cannot reduce their culpability scores by administering superficial changes. The commission’s goal is to get companies to move beyond avoidance of criminal violations to a higher ethical plane, said Judge Castillo. “[A] good corporate citizen must first and foremost operate ethically,” he added in a statement. According to the guidelines, a company must “promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.” Top level executives and a governing authority, such as the board of directors, must monitor and “ensure that the organization has an effective compliance and ethics program.” They cannot delegate these duties to powerless junior managers, according to the guidelines. Other provisions call for periodic reviews of compliance programs and measures that allow employees to report legal violations or ask for guidance “without fear of retaliation.” ATTORNEY-CLIENT PRIVILEGE The commission reacted to the biggest criticism expressed during the comment period from attorneys concerned about the erosion of the attorney-client privilege. The Association of Corporate Counsel, which represents 16,000 in-house lawyers, asked the commission to reconsider its 1991 guidelines that punished companies for declining to waive the attorney-client privilege when dealing with government investigators. Since cooperation will mitigate penalties, waiver of the privilege presents a dilemma. “When the Sentencing Guidelines undermine the value of lawyer-client confidentiality by demanding waiver of it by any defendant that wishes to be seen as cooperative,” said the association in a recent letter to the commission, “the result is that clients will be less likely to value the lawyer-client relationship and seek it out. This is contrary to good compliance.” The group pointed to the critical role the privilege plays in the U.S. justice system by protecting the right of defendants to candidly and privately confer with their attorneys. The commission responded by enacting a compromise approach. Waiver of the privilege “is not a prerequisite to a reduction in culpability score,” state the new guidelines, “unless such waiver is necessary in order to provide timely and thorough disclosure of all pertinent information known to the organization.” The compromise, however, failed to reduce the association’s anxiety. The amendments fall short “because they allow the government to demand waiver if the government believes that waiver is necessary to make its case,” said Linda Madrid, general counsel of CarrAmerica Realty and an association board member who testified before the commission. “[I]t’s hard to imagine a circumstance in which the prosecutors would rather … not make their case from an admission that was made by a defendant during a conversation with his lawyer,” she continued. Judge Castillo said judges will determine whether the government can effectively prosecute wrongdoers without a waiver of the privilege. If they find that a prosecution can proceed without a waiver, he said, then judges will not punish an organization for its decision to protect the attorney-client privilege. “The wavier should be required in certain limited instances,” he said.

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