Plan now or pay later: the role of compliance in criminal cases.

• Author: McConnell, Ryan D.

1. INTRODUCTION II. THE U.S. SENTENCING GUIDELINES A. The Need for Uniform Charging Practices B. United States v. Booker and the Advisory Guideline System III. FEDERAL CHARGING PRINCIPLES AND THE DEVELOPMENT OF COMPLIANCE AS A FACTOR IN CORPORATE CHARGING AND SENTENCING A. General Federal Charging Principles for Both Individual and Corporate Cases B. The Organizational Guidelines and the Rise of Compliance as a Charging Consideration C. Federal Charging Principles Applicable to Organizations IV. CALCULATING A CORPORATE SENTENCE UNDER CHAPTER EIGHT A. Step 1: Determining the Offense Level B. Step 2: Applying the Offense Conduct to the Fine Table C. Step 3: Determining the Culpability Score D. Step 4: Applying the Culpability Score to the Multiplier Table V. 2010 REVISIONS TO THE ORGANIZATIONAL SENTENCING GUIDELINES VI. OECD GUIDANCE VII. KEY CONCEPTS IN CORPORATE COMPLIANCE AND HOW TO USE COMPLIANCE PROGRAMS EFFECTIVELY A. An Overview of Deferred and Non-Prosecution Agreements B. Compliance and Deferred and Non-Prosecution Agreements C. The Emergence of Compliance as the Central Feature in DPAs/NPAs D. Recent DPAs and NPAs Reflect Compliance as a Trend E. The Corporate Monitor As A Compliance Mechanism VIII. CONCLUSION I. INTRODUCTION

   Compliance failures can cause damage to a corporation's reputation, result in millions of dollars in fines, investigative costs and legal fees, and divert valuable management time and resources. In addition to the economic costs stemming from compliance failures, compliance has become a key corporate charging consideration for federal prosecutors and an important sentencing consideration for companies convicted of violating federal law.

   Compliance as a charging and sentencing consideration is a natural outgrowth of the concept of treating corporations as legal persons criminally responsible for the acts of their employees and agents. In 2010, the Supreme Court reinforced the idea of the corporation as a person in Citizens United v. Federal Election Commission. (1) And 2009 marked the hundred year anniversary of the Supreme Court's decision in New York Central & Hudson River Railroad Co. v. United States, which first minted the idea that corporations could be held criminally liable for the acts of an employee. (2) Over the past hundred years, courts have steadily expanded the holding of New York Central. (3) The current framework for corporate criminal prosecutions renders a corporation liable for the criminal acts of its employees if the acts are performed within the scope of employment and with at least a partial intent to benefit the employer. (4)

   Over the past century, it has also become easier for prosecutors to charge and convict corporations. The increased ease in prosecution is largely attributable to the evolution of principles such as respondeat superior, which holds corporations responsible for the misdeeds of employees undertaken to benefit the company in some way, (5) and collective knowledge, which enables prosecutors to aggregate knowledge of a crime to prove corporate criminal liability. (6) These corporate liability principles apply notwithstanding an employee's position in an organization and despite any robust compliance program a company may have in place. (7)

   In response to these trends, corporate compliance programs have become increasingly vital tools in helping companies detect and prevent unlawful conduct by employees. (8) As corporations began to focus on compliance, so did the United States Department of Justice (DOJ). Indeed, the DOJ has long considered a company's compliance program in corporate charging, even before it issued formal corporate charging guidelines in 1999. (9)

   Now the DOJ's official corporate charging policy, as set out in the United States Attorneys' Manual (USAM) section 928.000, directs federal prosecutors to consider compliance with respect to three of the nine factors prosecutors must weigh before filing criminal charges against a company. (10) Compliance is also a key sentencing consideration for calculating corporate fines under the Organizational Guidelines found in Chapter Eight (Organizational Guidelines) of the United States Sentencing Guidelines (USSG). (11) Under the Organizational Guidelines, an adequate compliance program can result in up to a thirty percent reduction of a corporation's advisory guideline fine range, as discussed below. (12) This may translate into a multi-million dollar discount in USSG calculated fines. (13)

   The DOJ is not the only regulator to focus on compliance. Regulators such as the Office of Foreign Assets Control (OFAC) and the Securities and Exchange Commission (SEC) also use compliance as a key metric in fine calculations. (14) Even regulators abroad have begun to emphasize compliance programs. (15) Most recently, the UK Bribery Act, which took effect July 1, 2011, punishes companies that conduct business in the UK for failing to prevent bribery of persons associated with the organization. (16) Compliance is the only defense recognized under the UK Bribery Act, (17) underscoring the importance regulators have placed on corporate compliance.

   The DOJ's focus on compliance has forced both U.S. and foreign companies that access U.S. capital markets to reevaluate their approaches toward compliance. (18) Companies have begun to reassess, formalize, and improve what have historically been only informal or general codes of conduct. (19) Faced with the reality that compliance is both a key federal charging consideration and a determinative factor in sentencing, companies today must ensure that their compliance programs contain carefully crafted policies and procedures tailored to minimize the risk of civil and criminal liability.

2. THE U.S. SENTENCING GUIDELINES

   1. The Need for Uniform Charging Practices

      The genesis of compliance as a charging consideration can be traced back to the Sentencing Reform Act of 1984, which promulgated the USSG and established the United States Sentencing Commission (USSC). (20) Before the USSG, Congress was responsible for setting maximum sentences (21) and judges had broad discretion to impose sentences below the statutory maximums. (22) The result was an unpredictable sentencing scheme further complicated by a parole commission empowered to dictate how much of the sentence an offender would actually serve in prison. (23)

      This sentencing system produced widely disparate sentences that varied arbitrarily by judge. For example, if a defendant was charged with conspiracy under 18 U.S.C. [section] 371, (24) which calls for a maximum term of imprisonment of five years, a federal judge could impose a sentence ranging from mere probation to five years imprisonment. (25) Similarly, before the USSG, a defendant sentenced for a federal drug crime in Florida might receive a significantly greater sentence than a defendant in Illinois, even if the two defendants committed the same crime and had identical criminal history records. (26)

      To remedy the unfairness in the pre-USSG system, Congress sought to promote uniformity and honesty in sentencing. (27) To this end, the USSG intended to promote certainty by eliminating sentencing disparities for defendants with similar criminal records or comparable criminal conduct. (28) The USSG took effect on November 1, 1987, (29) but did not focus on corporate defendants or corporate compliance programs until the Organizational Guidelines were implemented in 1991. (30) The USSG became advisory in 2005, after the Supreme Court's decision in United States v. Booker. (31)

      The mandatory nature of the pre-Booker USSG system limited judicial discretion and provided both consistency and predictability in sentencing. Each guideline was intended to encompass a set of typical cases exemplifying the type of conduct that each guideline describes. (32) When a sentencing judge confronted an atypical case, the USSG allowed the judge to consider whether a guideline departure was warranted and, if so, apply a different, and more appropriate, guideline level. (33) If the sentencing judge failed to follow the USSG, this was reversible error. (34)

      Applying the USSG to individuals before and after Booker is straightforward. The USSG calculate an individual defendant's sentence by taking into account three primary factors: (1) a defendant's conduct, (2) a defendant's criminal history, and (3) the statutory purposes of sentencing. (35)

      1. Individual Defendant's Conduct/Offense Level

         The USSG calculate a defendant's offense level by first determining the specific guideline section applicable to the particular crime constituting the offense of conviction. (36) For example, the offense level for bank robbery is calculated under USSG [section] 2B1.1, the guideline for robbery, extortion, and blackmail. (37) Once this base offense level is determined, any adjustments for specific offense characteristics are applied. (38) For instance, in a bank robbery case the USSG add offense levels for the use of a firearm or injury of victims--the worse the particular facts of the crime, the higher the offense level. (39)

         After calculating the offense level for the specific crime, the USSG then add victim and role related adjustments, depending on the facts of the particular case, that increase or reduce the final offense level for the crime of conviction. (40) This final offense level will correspond to one of forty-three different USSG levels for offense conduct, with each level prescribing ranges in months of imprisonment that overlap with the ranges in the preceding and succeeding levels. (41)

      2. Individual Defendant's Criminal History Points/Category

         Having determined the severity of the crime, the USSG then look to the specific defendant and his or her criminal history. (42) The USSG contain different categories for a defendant's criminal history ranging from no criminal history (Category I) to extensive criminal history (Category VI). (43) The USSG assign points based on...