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The U.S. Sentencing Commission has promulgated new organizationalsentencingguidelines that increase corporate leaders’ responsibility for crimeprevention and ethical conduct within their companies. The new guidelines require that a corporation’s governing authority be”knowledgeable about the content and operation of … [the company's]compliance and ethics program” and “exercise reasonable oversight withrespect to the implementation and effectiveness of the … program.” A governing authority is defined as the company’s board of directors or,if no board exists, its highest governing body. If a corporation is convicted of a criminal offense, the scope andeffectiveness of the company’s compliance and ethics program could meanthe difference between facing reduced fines and being placed under courtsupervision, according to the Sentencing Commission. Set forth in Chapter Eight of the 2004 Federal Sentencing GuidelineManual,the new guidelines became effective Nov. 1. The sentencing manualoutlinesthe punishments that may be imposed upon corporations and theiremployeesfor felonies and certain misdemeanors. The new guidelines mean company directors “have got to educatethemselvesabout the compliance and ethics programs [at their organizations,]” BDOSeidman Director Peter Sprung said. BDO Seidman is a national professional services firm that providesassurance, tax, financial advisory and consulting services to public andprivate businesses. The company has affiliates in Wilmington and Newark,according to its Web site. Sprung noted that the newly enhanced compliance and ethics burdenshoulderedby corporate boards parallels the boards’ increased responsibilities fortheir companies’ financial controls under the Sarbanes-Oxley Act of2002. The Nov. 1 amendments mark the first time that Chapter Eight of thesentencing guidelines has been changed since the guidelines were issuedin1991, according to the Sentencing Commission. The organizational sentencing guidelines were first implemented because,like individuals, public and private companies can be held liable forcriminal conduct, according to a Sentencing Commission publication.Criminalliability may attach to a business when an employee commits an illegalactwhile performing duties within the apparent scope of his or heremployment. “I think that the effect of this is going to be to raise the profile ofthecompliance function within the company,” Sprung said. According toSprung,compliance departments have typically received short shrift atorganizationsbecause they are not revenue generators. “I think at least now, given the heightened emphasis on the compliancefunction and heightened responsibility on boards to ensure that it’sworkingproperly, … compliance people are going to be walking around … withtheir chests puffed out,” Sprung said with a chuckle. Under the 1991 guidelines, a company’s high-level personnel were simplyrequired to “oversee compliance” with the laws that govern corporations,according to the Sentencing Commission. In addition to increasing the compliance and ethics burdens that boardsofdirectors face, the Sentencing Commission has strengthened the criteriathatfederal judges use to evaluate the efficacy of compliance and ethicsprograms, according to the commission. The heightened requirementsrespondto recent legislative and regulatory focus on ethical corporate conduct. In its synopsis of the amendments to Chapter Eight, the commission notesthat the Sarbanes-Oxley Act required the commission to amend itsorganizational guidelines to ensure effective deterrence and punishmentofcorporate misconduct. “In order to have an effective [compliance and ethics] program asdefined bythe guidelines, an organization must demonstrate that it exercised duediligence in fulfilling the requirements [set forth in the guidelines]andalso promoted in other ways an organizational culture that encouragesethical conduct and a commitment to compliance with the law,” acommissionoverview of the guidelines states. The change in focus from a concern only for compliance with corporatelawsto one that encompasses corporate culture is significant, according toSprung. “That’s a pretty dramatic shift in that not only does the latter [i.e.,organizational culture] cover a much broader range of activities andfunction within companies, it’s also a shift in orientation and focus interms of how the companies should approach compliance issues,” Sprungsaid. No longer can organizations merely emphasize having a set of writtencompliance and ethics procedures, Sprung said. Now corporations mustensurethat their written programs are effective and be able to demonstratetheirefficacy. The criteria for a sound program “embody broad principles that, takentogether, describe a corporate ‘good citizenship’ model,” the overviewstates. A company may mitigate its responsibility for an employee’s illegalacts,and in some cases reduce potential fines by up to 95 percent, bydemonstrating that it maintains an effective compliance and ethicsprogram,the overview states. An adequate program is one that incorporates: � Standards and procedures designed to prevent and detect criminalconduct; � Company-wide responsibility for compliance, and adequate resources andauthority to implement the program; � Personnel screening related to program goals; � Compliance and ethics training for all levels of employees; � Auditing, monitoring and evaluation of program effectiveness; � Non-retaliatory internal reporting systems; � Incentives and discipline to promote compliance; and � Reasonable steps to respond to, and prevent, further similar offensesupondetection of a violation. Companies must also periodically assess the risk of criminal conductwithintheir ranks, according to the overview. An organization’s self-reporting of illegal acts, cooperation withauthorities or acceptance of responsibility for wrongdoing may alsomitigateits culpability, the guidelines state. Whether a company waives its attorney-client privilege by revealing theresults of internal corporate investigations to the Department ofJustice orSecurities and Exchange Commission is a topic of much discussion, Sprungsaid. The synopsis of the guidelines states that waiver of the attorney-clientprivilege and work-product doctrines is not a prerequisite for a findingofcooperation, unless timely and thorough disclosure cannot beaccomplishedwithout such waivers. But according to Sprung, the consensus thus far is that disclosinginvestigative results constitutes a complete waiver of theattorney-clientprivilege. “That, in turn, sort of blows back and influences how these[investigation]reports get written, and what kind of information goes into them,”Sprungstated. Sprung said since 1991, the organizational sentencing guidelines havestrongly influenced lawmakers and regulatory authorities outside of thecriminal justice arena. Sprung expects the trend to continue as industryleaders look to the new guidelines to establish best practices incomplianceand ethics, he said.

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