Federal Sentencing Commission Defines "Effective Compliance Program"

Compliance Officers Should Have Direct Access to Board of Directors

The Federal Sentencing Commission defined an “effective compliance and ethics program,” in changes to their Federal Sentencing Guidelines (Section 8B2.1), as published in the Federal Register on April 29. The proposed changes take effect Nov. 1, unless Congress moves to block them...

Direct Reporting Strongly Encouraged

The main emphasis concerns direct reporting -- compliance officers should be given direct access to the board of directors.According to quotes in the AIS Report on Medicare Compliance, May 10, the former assistant chief for health care fraud at the Department of Justice’s criminal division, John Kelly says, "the Federal Sentencing Commission does not want to see corporations with compliance officers who report sideways or lack the ear of the board or the audit committee. And the DOJ and OIG are on the same page.”

Find the documents containing the Amendments in our Documents Section, here.

The FSG is designed to help judges determine prison sentences, fines, asset forfeitures and other penalties, by proving a uniform sentencing policy for corporations and individuals convicted of felonies and serious misdemeanors. A complex point system, based on the nature of the criminal conduct and the history of the offender, helps judges calculate ranges of months and/or years, also taking into account aggravating and mitigating factors.

Compliance Program Considered A Mitigating Factor

One important mitigating factor for corporate criminals is the existence of an effective compliance program, and the FSG’s compliance-program criteria are considered to be a blueprint for all industries. In cases involving health care organizations, government prosecutors often look at how closely the FSG compliance tenets are being followed when deciding whether to charge it criminally or pursue a civil case. The FSG used to be mandatory, but now are only "advisory."

According to Kelly and the AIS Report, companies convicted of a crime “are eligible for a reduced culpability score” if they have meaningful compliance programs at the time of the wrongdoing. However, if senior management was involved in the misconduct, condoned it or put its head in the sand, they get no such reduction in their score. This will change, however, under the proposed amendments to the FSG.

New Rules Go Further

Under the proposed changes, even if senior management played some role in the bad acts, the company could still get its three-point sentencing reduction if all four of the following conditions exist:

1. “The individual or individuals with operational responsibility for the compliance and ethics program have direct reporting obligations” to the board;
2. The compliance and ethics program identified the offense before it was discovered by an outsider;
3. The organization promptly reported the offense to the government; and
4. “No individual with operational responsibility for the compliance and ethics program participated in, condoned, or was willfully ignorant of the offense.”

The Federal Sentencing Commission is presenting a strong incentive for corporate compliance officers to have stronger authority and the ability to directly convey information to the board and/or board auditors without having their message filtered through senior executives.

Remediation Now More of a Factor

Furthermore, the FSG also now clarifies the meaning of remediation, also a requirement of effective compliance programs. Previously, the FSG required organizations to “take reasonable steps to respond appropriately” and prevent further criminal acts, once it detects any form of criminal conduct.

Under the proposed changes, however, the FSG declares that organizations should not only stop and prevent such acts, but they should also then remedy the harm, possibly to include victim restitution, self-reporting and cooperation with the government. The FSG also expect organizations to evaluate their compliance and ethics programs and modify them as needed to ensure effectiveness.

According to Kelly, "[the FSG] are strongly encouraging companies to deal with problems head on. You might be better off giving the information to the government yourself, when you have a chance to have some control over the disclosure and to provide context instead of letting a whistleblower do it.”

Source: AIS Report on Medicare Compliance, May 10, 2010. (report requires a subscription from AIS)