Supreme Court ruling will influence industry ethics programs.
Any compliance and ethics program would benefit both from these guidelines and from the Federal Acquisition Regulations Responsibility provisions (FAR, Part 9).
The guidelines provide important guide-posts. In fact, the "effective program" requirements of the guidelines mirror the "present responsibility requirements of FAR Part 9 and the NDIA "Statement of Defense Industry Ethics," unveiled in November.
For several reasons, a pre-existing, effective program embodying guideline requirements may mitigate a company's legal risks. Under a worst-case scenario, a company's program may be examined by probation officers, sentencing judges, or suspension and debarment authorities when determining criminal sentences, particularly fines and conditions of probation.
Sentencing courts determine the degree of a company's culpability for misconduct. They also impose fines within a guideline-prescribed range as well as conditions of probation, so an effective program plays a major role in the sentencing. Also, for companies involved in an enforcement action or criminal investigation, a federal prosecutor, under Justice Department official guidance, will consider whether an effective program exists, refer to the guidelines, and consult relevant federal agencies, such as the Defense Department, when determining whether to prosecute a company.
In short, a pre-existing, demonstrably effective program is key to establishing present responsibility, reducing the risk of criminal investigation and prosecution, and, in a worst-case, minimizing criminal fines or probation terms.
Regardless of these legal risks, the recently amended guidelines establish the essential elements of a sound program and expressly encourage sentence mitigation for all organizations, large and small, which implement "effective compliance and ethics programs." The NDIA statement and recent guideline amendments underscore the intense focus on compliance and ethics program "best practices," both by the government and private sector.
Under the guidelines, an effective program requires due diligence in preventing and detecting misconduct, and promotes an organizational culture that compels employees to conduct the organization's business ethically.
An effective program applies rules uniformly company-wide and centralizes oversight and reporting with top-level personnel. An effective program delegates implementation to competent leaders who report to the leaders of the company who have instant decision-making authority. To ensure effectiveness, any program must be constantly monitored, audited and adjusted.
The structural components of any effective, uniform and centralized Program should include:
* A statement of the program (executive summary).
* A business code of conduct, which unequivocally commits to prompt and voluntary disclosure, acceptance of responsibility, and full cooperation with governmental authorities.
* User-friendly operational and administrative policies and procedures.
* A statement from the governing authority underscoring corporate commitment to the program.
Effective program policies and procedures should include:
* Required job-function steps each employee must perform, using compliance checklists as appropriate, including senior management, administrative, supervisory, audit, disciplinary and hourly functions.
* Scheduled training regimes for each function, covering laws and ethical standards uniquely relevant to the company's business, separate ethics courses, an ethical component to job-function class, and high-risk area schooling.
* Scheduled periodic risk assessments.
* Effective procedures for improving and strengthening program components.
* Reporting of program violations by all employees.
* Accuracy of books and records.
In January, the Supreme Court issued an important decision on the constitutionality of the guidelines--U.S. v. Booker, No. 04.104--decided January 12, 2005. The full impact of Booker remains to be seen, but the decision held that the Sixth Amendment right to trial by jury applies to any fact that the law (including the guidelines) makes essential to punishment. The decision also held that the guidelines were advisory in nature, and courts were simply required to consider the guidelines to tailor the sentence in light of existing statutory concerns.
This decision is relevant because the effectiveness of a program clearly constitutes a fact relevant to sentencing. Before Booker, a court was constitutionally barred from increasing a company's sentence based on an ineffective program absent a pre- or post-trial jury findings, or a company admission that its program was ineffective.
Under Booker, the court may--but is not required--enhance the sentence due to an ineffective program. Because Booker renders the guidelines "advisory" in nature, courts have wide discretion to impose a fine within or outside the guidelines' range, and/or to impose probation, which mandates development, and implementation of an effective program, periodic reports to the court and external auditing.
The Supreme Court's decision in Booker may well actually increase the importance of having an effective program in place before a problem occurs.
Michael L. Fayad is an attorney at Greenberg Traurig, based in Washington, D.C., and Tysons Corner, Va.
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|Title Annotation:||Ethics Corner|
|Author:||Fayad, Michael L.|
|Date:||Mar 1, 2005|
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