Federal Sentencing Guidelines for Organizations

Organizations, like individuals, can be found guilty of criminal misconduct. The U.S. Federal Sentencing Guidelines for Organizations were enacted by Congress in November 1991 to govern the sentencing of organizations convicted of federal crimes. But, the FSGO does so much more than that. Under the FSGO, an organization is "expected to design, implement, and enforce a program that exercises due diligence to prevent and detect criminal conduct and promote ethical conduct and compliance." Such training to be "effective" and "periodic" with the intent to help "prevent and detect organizational wrongdoing."

Under the FSGO, organizations with compliance/ethics programs that meet the defined standards earn credit toward reduced penalties if employees are engaged in wrongdoing. Essentially, the potential fine range for a criminal conviction can be significantly reduced, in some cases up to 95%, if an organization can demonstrate that it put into place an effective compliance and ethics program. Further, that the criminal violation in the organization represented an aberration within an otherwise law-abiding community. Logically, organizations with substandard programs receive tougher penalties.

The Sarbanes-Oxley Act of 2002 directed the United States Sentencing Commission to ensure that the Federal Sentencing Guidelines were sufficient to deter and punish organizational criminal misconduct. While the Sarbanes-Oxley Act covers only publicly traded companies, the Federal Sentencing Guidelines apply to all organizations both publicly and privately held.

Distributing a Code of Ethics or Code of Conduct for employees is not enough. The FSGO provides guidelines which layout a minimum framework for an effective compliance program. Under the FSGO, the training program must meet seven minimum due diligence requirements.

1. Standards and procedures for prevention and detection.

2. High level of oversight. Responsibility for compliance at all levels, adequate resources and authority for program.

3. Due care in delegation of authority. Avoid having anyone with substantial authority engaged in, or previously engaged in, illegal activities or other conduct inconsistent with having an effective compliance and ethics program.

4. Periodic communication of standards, procedures and all aspects of program.

5. Monitoring, auditing and reporting systems. Ability to ensure that program is followed and its effectiveness is periodically evaluated.

6. Enforcement, discipline and reward compliance.

7. Appropriate, consistent response. Reasonable steps to respond to, and prevent, similar offenses upon detection of a violation.

Compliance and ethics programs must not simply be on paper, they must be communicated to and used by employees. One of the key influences of ethical behavior is supervisor influence and/or senior management influence. Senior staff and management must promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.