Readings

Summary of US Federal Sentencing Guidelines

Corporate Crimes

Corporation cannot “go to jail”, but can pay a fine.
Individual officers, directors, and other employees of corporation can go to jail (or pay fine) - their sentences determined as for other individuals.

Federal Sentencing Guidelines Generally

Enacted to bring consistency to criminal sentencing in federal courts across the country
Minimum sentences
Criteria for determining enhancements or reductions to sentences
Corporate crime Fines and jail terms can be reduced if:
- Effective ethics program in place
- Officers and directors could not have reasonably known about the crime

Caremark Case - how a court applied the ethics behind the Sentencing Guidelines to Civil Liability

Shareholders sued officers when corporation had to pay fine.
Officers’ liability to shareholders can be reduced if effective ethics program in place.
Effective compliance and ethics program

Federal Sentencing Guidelines - 7 Components of an Ethics Policy

New rules became effective Nov 1 2004:“an organization shall . . Exercise due diligence to prevent and detect criminal conduct; and otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.

1-standards & procedures
Establish standards and procedures to prevent and detect criminal conduct.
Periodically assess risk of criminal conduct.
Consider industry standards

2-Leadership
Board oversight
High-level management
Specific individual(s) delegated with day-to-day responsibility; reports periodically to Board.

3-Character
“substantial authority personnel” shall not have “engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program.”

4-Communication
Reasonable steps to
Communicate periodically
Conduct effective training
To all in company:
Board
Management
Employees

5-Implementation
Monitoring and auditing to detect criminal conduct
Periodic evaluation of effectiveness
Reporting process (without fear of retaliation)

6-Promotion & Enforcement
Appropriate incentives to perform in accordance with program
Appropriate disciplinary measures for engaging in criminal conduct or failing to detect