April 2004 - 2004 FEDERAL SENTENCING GUIDELINES AND CORPORATE COMPLIANCE



I. Introduction

The 2004 Federal Sentencing Guidelines have been issued. This is significant to health care organizations because the Federal Sentencing Guidelines have been used as the basis for determining the structural elements of corporate compliance programs.

According to the Guidelines’ policy statements, the intent of the Guidelines is to provide just punishment, adequate deterrence and incentives for organizations to maintain internal mechanisms for preventing, detecting and reporting criminal conduct. The Guidelines emphasize the importance of organizational safeguards which include a regime of internal crime prevention and self-policing.

II. Background

The 2004 Guidelines outline the sanctions for corporate misconduct and apply only when the defendant in a federal case is an organization. Convicted individual agents of organizations are sentenced in accordance with separate guidelines.

Under federal criminal law, organizations can act only through their agents. Known as vicarious liability, organizations are generally liable for the acts of their employees. However, individual employees of an organization are still responsible for their own criminal conduct.

III. Highlights

A. The Four Principles for Administering the Guidelines
The Guidelines provide that a court must abide by the following four principles when imposing a sentence on an organization.

  1. The court must, whenever practical, order the organization to remedy any
  2. harm caused by the offense;
  3. If the organization operated primarily for a criminal purpose or primarily by criminal means, the fine should be set sufficiently high to divest the organization of all its assets;
  4. The fine range should be based on the seriousness of the offense and the culpability of the organization; and
  5. The court may sentence an organization to probation when needed to ensure that another sanction will be fully implemented or to ensure that steps will be taken within the organization to reduce the likelihood of future criminal conduct.
B. Requirements for an Effective Compliance Program
When determining the culpability of an organization and whether probation is appropriate, the federal court must look to the effectiveness of the compliance program. According to the Guidelines, to maintain an effective compliance program, an organization must exercise due diligence to prevent and detect criminal conduct and promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.

Also of significance, after criminal conduct has been detected, the Guidelines mandate that an organization take reasonable steps to respond appropriately to the criminal conduct and to prevent further similar criminal conduct. This may include making any necessary modifications to the organization’s compliance and ethics program.

The Guidelines state that the organization’s senior management and governing authority have overall responsibility for and must exercise reasonable oversight with respect to the effectiveness of a compliance program. This is a significant clarification from the proposed 2003 Federal Sentencing Guidelines where the compliance officer was chiefly responsible for the compliance program.

IV. Recommendations

A comprehensive and timely corporate compliance program is the best organization tool to create and maintain a legal and ethical corporate culture. It may also be the best defense in the event of a government investigation. While the existence of a compliance program does not guarantee immunity from prosecution, it may influence whether an investigation is civil or criminal, whether an investigation will result in a settlement or prosecution and it may reduce a criminal fine or mitigate the severity of a criminal sentence.

We recommend that you carefully review your existing corporate compliance program to determine if it is consistent with the principles underlying the 2004 Federal Sentencing Guidelines. We are available to assist you with this process as well as other aspects of your compliance program.

Our attorneys have created corporate compliance programs to meet the specific needs of health care providers. We are available to conduct presentations to your organization on the steps required to implement a corporate compliance program, provide guidance on the formulation and implementation of a program and conduct on-site trainings.


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