Federal Sentencing Guidelines for Organizations: Ethics and Compliance Mandates

Federal Sentencing Guidelines for Organizations (FSGO) 1991 Incentives for organizations to implement “structural safeguards designed to prevent and detect criminal conduct” Incentive for lighter sentence Incentive for reduced risk of being placed on probation

Federal Sentencing Guidelines for Organizations Amendments, 2004 Moved beyond compliance to include “ethics” Places responsibility with the “governing authorities” at the “highest-level” Specifies that “certain individual(s) have day- to-day responsibility for the compliance and ethics program” Specifies that they “be given adequate resources, appropriate authority, and direct access to the governing authority or an appropriate subgroup of the governing authority”

FSGO, 2004 – Requirements Ensure that the organization “has an effective compliance and ethics program” “Evaluate periodically the effectiveness of the organization’s compliance and ethics program” “Periodically assess the risk of criminal conduct and” take appropriate steps to design, implement, or modify each requirement “to reduce the risk of criminal conduct identified through this process”

“Hallmarks” of an Effective Compliance and Ethics Program (1) Standards and procedures to prevent and detect criminal conduct; (2) Responsibility at all levels of the program, together with adequate program resources and authority for its managers; (3) Due diligence in hiring and assigning personnel to positions with substantial authority; (4) Communicating standards and procedures, including a specific requirement for training at all levels; (5) Monitoring, auditing, and non-retaliatory internal guidance/reporting systems, including periodic evaluation of program effectiveness; (6) Promotion and enforcement of compliance and ethical conduct; and (7) Taking reasonable steps to respond appropriately and prevent further misconduct upon detecting a violation.

Recommendations to create internal codes of ethics or revise existing ones The Sarbanes-Oxley Act of 2002 Securities and Exchange Commission Regulations Revisions to the Federal Sentencing Guidelines New York Stock Exchange NASDAQ