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The Sentencing Guidelines: Field Notes On A 20-Year Experiment

Next Tuesday marks the twentieth anniversary of the Federal Sentencing Guidelines for Organizations, and their highly influential compliance and ethics program standards.

Because these standards are now well-established, it is easy to forget just how path breaking the Guidelines approach ― which entails providing both guidance and incentives for compliance programs ― was at the time. Indeed, the then Chair of the Sentencing Commission referred to this aspect of the Guidelines as both “exploratory” and “developmental.” (Hon. William M. Wilkins, Jr., Preface to Kaplan and Murphy, Compliance Programs and the Corporate Sentencing Guidelines.)

Commemorating the Guidelines anniversary should therefore include taking stock of how this experiment has fared to date. However, this exercise involves multiple avenues of inquiry, because different governmental bodies have addressed the Guidelines approach in different ways.

The anti-corruption aspect of the experiment should, I believe, be seen as a clear success story, as companies of all kinds have in the past few years developed strong ― and sometimes even innovative – anti-corruption compliance programs. This success is reflected in part in the results of the recently published anti-corruption compliance program benchmarking study (discussed here), and in many other ways, too.

Much of the impetus for this activity has, of course, been the “stick” of strict anti-corruption enforcement. But importantly, this has also been the generic (i.e., not industry-specific) risk area where the US Department of Justice has done the most to utilize the “carrot” of providing real enforcement-related incentives and guidance for effective “pre-existing” (meaning prior to the offense in question) compliance efforts. (For more information on this see my prior FCPA Blog posts here and here.)

The SEC’s approach to the Guidelines experiment, by contrast, has been more of a mixed bag. Based on anecdotal evidence (including my own experience) there is no question that the SEC gives credit in enforcement decisions to “pre-existing” programs. However, that agency almost never publicizes actual examples of this. The SEC’s relative silence in this respect is perhaps due to its ill-considered practice of assessing pre-existing programs as a part a company’s “cooperation,” which suggests that compliance matters most to the government as a post-violation remedy, rather than a good-faith effort to prevent wrongdoing in the first instance. 

One hopes that in the years to come the SEC will adjust this aspect of its enforcement policy, so that companies can have a truer picture of the importance of compliance programs to this agency. Doing so would further incent the development and maintenance of strong programs, particularly in publicly traded companies.

And then there is the Antitrust Division of the Justice Department, which has decided that compliance programs won’t count at all in antitrust enforcement matters! (For more information about this peculiar approach, see this posting by Joe Murphy on the SCCE social networking.) While unfortunate, the Antitrust Division’s approach can also be seen presenting a “control group” for Guidelines experiment, i.e., as providing a sense of what happens to compliance programs without the types of incentives pioneered by the Guidelines.  

Based on my twenty years in the field, antitrust compliance efforts ― at least relative to those for other risk areas ― seem to have receded in importance during the time of the Guidelines experiment. This decline is remarkable given that the same period has seen a dramatic growth in antitrust enforcement and also because there was a time where antitrust risk mitigation efforts led the compliance field in innovation and energy.

By its apparent failure, the antitrust exception may help to prove the success of the larger Guidelines rule. And it also should help set the enforcement agenda for the next twenty years to one in which promoting compliance programs becomes a top priority for enforcement of all kinds.

Jeffrey M. Kaplan, a partner in the Princeton, New Jersey office of Kaplan & Walker LLP, has practiced in the compliance law field since the early 1990’s. He serves as Adjunct Professor of Business Ethics at NYU’s Stern School of Business. He can be contacted here.

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