January 17, 2005
Booker and the Corporate Sentencing Guidelines
An article in the Wall Street Journal (Jan. 17), "Ruling on Sentencing Guidelines May Also Affect Corporate Crime," indicates that the Supreme Court's decision in Booker could result in Congressional changes to the Corporate Sentencing Guidelines. This portion of the Sentencing Guidelines contains a detailed description of how corporate cooperation and measures to prevent misconduct by employees should be assessed in determining a criminal fine--including multipliers to increase or decrease a fine based on an assessment of the corporation. Most importantly, the Corporate Sentencing Guidelines focus on the presence of an effective compliance program and early notification of possible criminal violations.
Whether Booker will have any effect on this area of the Federal Sentencing Guidelines has not been widely addressed. According to the article:
Corporate attorneys are reviewing the decision to understand what it means for companies facing federal criminal charges. An immediate concern is that Congress might pass legislation to add more requirements to corporate-ethics plans -- programs that companies can cite in their defense if employees are charged in a criminal case tied to their work there, such as accounting fraud. The ruling also gives judges the discretion to determine whether a company has an "effective" compliance program.
While one would hope corporate counsel will read and digest Booker, they shouldn't stay up too late (billing the time, no doubt) because the decision's effect on corporate prosecutions will be minimal, if non-existent, for at least three reasons. First, the Guidelines are reflective of a trend in state corporate law to require corporations to create and maintain adequate systems for detecting and reporting misconduct that can be attributed to corporations. Recall that the standard for holding a corporation criminally liable is quite low--respondeat superior--so directors have a fiduciary duty to prevent misconduct and, if it occurs, to report it promptly to take advantage of any possible leniency. Second, the Sarbanes-Oxley Act requires corporate attorneys (both in-house and outside counsel) to report any possible corporate misconduct (both civil and criminal) to the company's chief legal officer and to the audit committee, so that provides another impetus to implement an effective compliance program.
Third, the key issue for the corporation is not the fine table in the Sentencing Guidelines, it is avoiding a criminal prosecution. Any number of recent cases, including the recent settlement by Edward D. Jones & Co. (see post here), involve deferred criminal prosecution agreements in which the company assents to certain remedial measures--hiring an outside consultant to review its procedures is a current favorite--that will result in dismissal of the charges if the company complies. The Department of Justice's Principles of Federal Prosecution of Business Organizations, which sets forth guidelines for federal prosecutors in deciding whether to charge a corporation, is much more important in this area than the Sentencing Guidelines. And it is in those Principles that the push for waiving the attorney-client privilege and work product protection has arisen, not the Sentencing Guidelines. It is unlikely that the DOJ sees much need for Congressional assistance in the area because it treasures the prosecutorial discretion is has. While the Corporate Sentencing Guidelines are a nice stick for the government to use in assessing a potential fine, for many companies, the specter of criminal prosecution is enough to push for a settlement, and the Arthur Andersen prosecution shows the effect of a conviction. Andersen was fined $500,000 for its violation, a sentence that came well after its collapse. Even a Supreme Court reversal of the conviction will not bring the firm back, and the Guidelines had little to do with its demise.
In preparing a book on white collar crime, I searched for a decision applying the Corporate Sentencing Guidelines and found none. There is little judicial involvement in corporate sentencing, at least when a publicly-traded corporation or large organization is involved, and Booker is unlikely to change that in any way. When the government charges a smaller, closely-held corporation, it is usually in conjunction with charges against the controlling (or sole) shareholder, and the corporation may be prosecuted more for evidentiary reasons.
Corporations, and their directors, have a fiduciary obligation to the shareholders to prevent misconduct and, when it is discovered, to minimize it. The Corporate Sentencing Guidelines provide one means to analyze the corporation's conduct, but the structure now in place would not be affected by any change in the Guidelines from being mandatory to advisory--they always were in effect advisory. (ph)
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