A Treatise On The Organizational Sentencing Guidelines Addresses The Need For Effective Compliance Programs

Friday, April 1, 2005 - 00:00

Editor: Mr. Ramos, would you tell our readers something about your professional experience?

Ramos: I graduated from Harvard Law School in 1987. I began my legal career in New York. After five years of private practice, I joined the U.S. Attorney's Office in the Eastern District of New York in 1992 and spent 10 years prosecuting a wide array of federal criminal cases, including white collar fraud, defense contractor fraud and international money laundering. I left the office in 2002 and joined the Government Investigations Practice Group at Day, Berry & Howard LLP, where I am a partner in the New York office.

Editor: What attracted you to Day, Berry & Howard?

Ramos: Day, Berry has long been one of the preeminent firms in New England. The firm had a well respected white collar practice and it was looking to expand its presence in New York. So it offered an attractive mix of an established practice with entrepreneurial features. I also really liked the people I met.

Editor: Please describe your practice.

Ramos: Our clients are corporations and individuals who are the subject of investigations by a variety of state and federal regulatory agencies and prosecutors. We are engaged in every aspect of those governmental inquiries. We also conduct internal investigations and regularly consult on a wide array of compliance matters.

Editor: Together with a number of your Day Berry colleagues, you recently authored a treatise entitled Organizational Sentencing Guidelines: The New Paradigm For Effective Compliance And Ethics Programs. Will you tell us about this project? What is its origin and how did it come to be written?

Ramos: Over the past few years there have been a number of very important developments in corporate law generally, and corporate criminal law specifically, that emphasize the development and implementation of effective compliance programs and the interplay between such programs and the discretion afforded to prosecutors and regulators to bring enforcement actions. My colleagues and I thought that it was important to put between two covers a brief history of the reasons why large companies - and not only the publicly traded ones - need to have effective compliance programs in place. The treatise is meant to show how such programs can enhance the success of the enterprise, not just as a prophylactic to potential criminal sanctions.

Editor: Please tell us something about the history of the United States Sentencing Commission. What was its original mandate, and how was it carried out?

Ramos: The Commission was organized in 1984 as a result of an effort on the part of Congress to ensure that there was something approaching uniformity in sentencing across the federal court system. The primary impetus for this had to do not so much with corporations but rather with the treatment of individual criminal defendants. Prior to the implementation of the Guidelines, federal judges were free to sentence individuals at any point within the statutory sentencing range, typically between probation and five or ten or twenty years imprisonment. Over time, there was a perception that the length of a prison sentence imposed on any one individual was largely a function of where that defendant was prosecuted and the individual judge imposing sentence. Congress wanted to eliminate the perceived unfairness of this scheme, and the Sentencing Commission was set up and charged with establishing uniform guidelines for all federal judges to follow.

Editor: And the 1991 Organizational Sentencing Guidelines? How effective were they in deterring corporate crime?

Ramos: In 1991, the Sentencing Commission instituted guidelines specifically designed for organizations. In sentencing both individuals and organizations many of the concerns are the same: retribution, deterrence and restitution for the victims. With respect to organizations, however, you have additional concerns. When sentencing a corporation, there are almost always innocent employees or shareholders who will be affected by the sentence. The Sentencing Commission sought to institute a scheme that allowed sentencing judges to consider an array of mitigating factors in imposing sentence to lessen the impact of a criminal conviction on innocents.

In the wake of the recent corporate scandals, a real question arose as to whether the Organizational Sentencing Guidelines provided sufficient deterrence to prevent corporate wrongdoing. As part of the wide-ranging Sarbanes-Oxley legislation, Congress directed the Sentencing Commission to review the Guidelines to determine whether they were sufficiently geared to prevent criminal activity.

Editor: Can you give us an overview of the factors that the Thompson Memorandum discusses in connection with consideration of whether criminal charges should be brought against a corporation?

Ramos: The Thompson Memorandum is a directive from the U.S. Department of Justice to each federal prosecutor's office around the country that provides a non-exhaustive list of factors that each office must take into account in determining whether criminal prosecution is appropriate against a corporation in any given case. Guidance is necessary, at least in part, because of the adverse collateral effect that often accompanies the prosecution of a corporation. While the Memorandum states the general proposition that, in making charging decisions, no distinction should be made between individuals and corporations who commit crimes, the Memorandum acknowledges that there may be times when it is appropriate not to prosecute a corporation even where criminal conduct can be proven.

Editor: Please tell us about the U.S. Supreme Court's decisions in U.S. v. Booker and U.S. v. Fanfan and their impact on the Organizational Sentencing Guidelines.

Ramos: In Booker and Fanfan ( U.S. v. Booker and U.S. v. Fanfan, consolidated), the U.S. Supreme Court held unconstitutional that part of the Sentencing Guidelines which gave judges the ability to determine a sentence, in part, on factors that were not decided by a jury beyond a reasonable doubt or admitted by the defendant. For example, in the typical fraud case, the most critical factor in determining the length of the sentence is the amount of financial loss caused by the criminal conduct. Previously, the amount of the loss, and by extension, the length of the sentence, was determined by the court after a guilty plea or verdict by a jury. After Booker and Fanfan , any factor that has an effect on the length of a sentence must be determined by a jury or admitted by the defendant. The Organizational Sentencing Guidelines, and, in particular, those provisions dealing with the implementation of effective compliance programs were not directly addressed by the Court. Therefore, as a matter of 'best practice' and to secure potential sentence mitigation, it continues to be essential for large organizations to have in place "effective compliance programs," that is, those programs that are reasonably designed to detect and deter criminal activity.

Editor: The revised Organizational Sentencing Guidelines took effect on November 1, 2004. Would you give us an overview of the changes reflected in the revisions?

Ramos: Under the revisions, companies are required to promote an organizational culture that encourages ethical conduct. Senior management must ensure that there is an effective compliance and ethics program that permeates the organization. Someone with a high level of authority must take ownership of the compliance program. The board of directors is also required to exercise reasonable oversight over the implementation of the program and must ensure that the organization allocates adequate resources to the program. Companies are required to assess the risk of compliance violations and to update the compliance program as needed. Companies are also required to provide training to their employees and must promote programs through appropriate incentive and disciplinary measures.

It is no longer sufficient to adopt a static compliance program and file it away. Compliance programs have to be tailored to each organization, promoted by the highest levels of management, reviewed regularly and amended as needed.

Editor: Who should be in charge of the program? Is there a role for a "chief compliance officer?" Should such a person be the general counsel? The corporate secretary?

Ramos: The Guidelines do not prescribe a particular position. Rather, they speak to the authority of the person charged with this responsibility and to the resources that person can bring to bear on compliance. An ability to access the governing board, if necessary, must be assured. There is a role for a chief compliance officer, and many corporations have adopted that particular model. What is important is for that person to have sufficient authority to be heard and sufficient resources to ensure that the program is effective.

The general counsel might be in a position to fulfill the role of chief compliance officer, but care must be taken to avoid conflicting obligations. I can imagine a case where some impropriety is detected, and the general counsel/chief compliance officer must switch hats depending on the action that needs to be taken.

One of the things we discuss in the treatise is that very often these initiatives are divorced from the operational life of the corporation. We recommend that the person charged with the compliance responsibility be someone who has some operational responsibility or reports to someone with operational responsibility. Such a person is more in touch with the organization's mission and, very possibly, in a better position to assess where the organization is most vulnerable to compliance risks.

Editor: To a certain extent the revised Organizational Sentencing Guidelines represent an attempt to legislate ethical conduct. Is it really possible to regulate behavior by statutory means?

Ramos: Implicit in the Organizational Guidelines is the acknowledgement that not all criminal activity can be eliminated, particularly in large, complex organizations. Hence, there is no requirement that a compliance program be a perfect crime fighting tool, but rather that it be "reasonably" designed to detect and deter criminal activity. However, one of the guiding principles behind the revised Guidelines is that ethical behavior can be influenced, and it is influenced most effectively when the top management of an organization takes the lead and sets the tone. Organizations must take responsibility for their own actions and, at a minimum, have an obligation to let their employees know what the appropriate ethical standard is and what is expected by way of compliance with that standard. If senior management makes it clear that any deviation from an ethical norm will not be tolerated, you stand a better chance of creating the type of organization that will never have to deal with the prospect of criminal liability.

Please email the interviewee at eramos@daypitney.com with questions about this interview.