Corporations Benefit From Sentencing Guidelines Amendments … In Four Easy Steps
By T. Markus Funk
The U.S. Sentencing Commission has changed how the U.S. Sentencing Guidelines calculate
fines for certain defendant companies, including companies charged with FCPA violations. The
amendments, effective November 1, 2010, make more readily more available a long-standing
three-level total offense level reduction. This change shifts the inquiry away from the
(mis)conduct of the company’s high-level personnel towards the effectiveness of the company’s
compliance and ethics program – a move that is surely to benefit corporate defendants.
Of course, crime prevention, that is, implementing and maintaining an effective compliance
program, is a company’s best chance to avoid ever having to consider the benefits of the threepoint reduction in the first place. Thus, instituting and complying with the new amendments'
requirements serves two corollary functions: it both prevents liability through deterrence and
rapid response, and mitigates the misconduct's impact should it nevertheless occur.
As the benefits of incentivizing companies to adopt proactive compliance, ethics, and selfreporting programs gain wider recognition, other countries eager to beef up their anti-bribery
efforts can be expected to follow suit.
20-Year-Old Categorical Bar on Fine Reduction Now History
As FCPA practitioners know, since the adoption of the Sentencing Guidelines some 20 years
ago, Section 8C2.5(f) has permitted corporate defendants able to demonstrate that they, at the
time of the offense, had an effective compliance program in place to significantly reduce their
fines by way of a three-level reduction in their total offense level.
For a company that finds itself in the unenviable position of having to calculate its guidelines
range, a three-level offense reduction translates into significant real-world results—effectively
reducing the applicable fine by at least 50%. For example, at the lower end of the range, a threelevel decrease drops the fine from $15,000 to $5,000; and toward the higher end of the range, a
three-level reduction moves the fine from $72.5 million (level 38) down to $36 million (level
35).
For the past two decades, however, companies seeking to benefit from a Section 8C2.5(f)
reduction faced a considerable stumbling block—an automatic bar in cases where "high-level
personnel" participated in, condoned, or were willfully ignorant of the offense. As of this
writing, however, the actions of high-level corporate personnel no longer foreclose the
possibility of receiving a significant compliance credit.
Introducing the New Four-Part Eligibility Test
Though the amendments may only provide cold after-the-fact comfort to a charged company’s
shareholders or directors, the reality is that the three-level drop affords substantial benefits.
Under new Section 8C2.5(f)(3)(C), a company with an effective compliance program, as defined
in Section 8B2.1, can benefit from the three-level reduction if it meets four distinct criteria:
1. The individual or individuals with operational responsibility for the compliance and
ethics program have direct reporting obligations to the company’s governing authority or
appropriate subgroup thereof;
2. The compliance and ethics program detected the offense before discovery outside the
company or before such discovery was reasonably likely;
3. The company promptly reported the offense to the appropriate governmental authorities;
and
4. No individual with operational responsibility for the compliance and ethics program
participated in, condoned, or was willfully ignorant of the offense.
The amendments respond to public concerns that (1) the categorical bar to the reduction operated
too broadly, and (2) internal and external reporting of criminal conduct is, in appropriate cases,
better encouraged by providing an exception to the general prohibition.
Effective Compliance Programs and Appropriate Responses to Criminal Conduct
Section 8B2.1(b)(7) requires that, in order to have an "effective compliance program," a
company that has detected criminal conduct must take "reasonable steps to respond appropriately
to the criminal conduct and to prevent further similar criminal conduct, including making any
necessary modifications to the company’s compliance and ethics program."
Application note 6 now helpfully explains what constitutes (1) an appropriate response to
criminal conduct, as well as (2) proactive steps designed to avert similar conduct in the future.
Specifically, the application note provides that such steps "may include the use of an outside
professional advisor to ensure adequate assessment and implementation of any modifications."
(Emphasis added.)
Answering Questions Raised by the New Amendments . . . .
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The amendments should be warmly received by companies making a significant effort to
develop and implement effective internal compliance and ethics programs. Such proactive steps
translate into robust compliance programs reducing corporate exposure to risk.
However, the appearance of the amendments also raises some important questions in need of
answers:

What role, if any, can and should general counsel now play in internal investigations and
in reporting offenses to the government? Are general counsel still able to instruct outside
counsel on how to conduct internal investigations, or must such directions now principally
come from the compliance/ethics officers?
The amendments require that the company’s compliance and ethics officers be expressly
authorized to report their findings as it relates to actual or potential criminal conduct
personally and directly to the company’s executive leadership (the “governing authority”).
This, however, of course, does not require the company’s general counsel to remain
uninvolved in ethics and compliance issues. To the contrary, it is highly advisable that
general counsel maintain a close, cooperative, and supportive relationship with the
compliance and ethics officers. Likewise, the amendments do not preclude general
counsels from instructing outside counsel on matters relating to the internal investigations.
The only caveat is that the general counsel must take care not to function as a
“gatekeeper,” who filters information between the company’s compliance and ethics
officers and its executives.

Are internal investigations still privileged?
There is no reason that the amendments’ new reporting requirements should result in, or
require, waiver or forfeiture of any attorney-client privilege. The amendments simply
require unfiltered, direct reporting between the ethics and compliance officers and the
company’s executives, early and voluntary self-disclosure, and that the compliance and
ethics officers remain free of culpability. These objectives can be achieved without
sacrificing the attorney-client privilege, and nothing in the text of the amendments (or its
application notes) requires companies to waive the attorney-client privilege or workproduct protections in order to qualify for a reduction.

Does a company’s retention of outside counsel for an investigation impact the analysis of
whether the three-level reduction is available?
The use of outside counsel poses no obstacle, provided that they work through the
company’s compliance and ethics officers, and that it is the latter who report their findings
to the company’s executives. To the contrary, companies are well-advised to take
advantage of outside counsel's independent investigation.
UK Anti-Bribery Act's Compliance Incentives Offer a Glimpse of the Future?
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With the passage of Bribery Act of 2010, outlawing bribery of both public and private officials,
the U.K. is also placing an emphasis on unimpeded reporting, early detection, and self-reporting.
Similar to the Section 8C2.5(f)(3)(C), the U.K. Bribery Act of 2010, scheduled to come into
force in April 2011, offers a defense for organizations able to demonstrate that, at the time of the
offense, they had "adequate" compliance procedures in place to prevent the offense being
investigated.
This summer, moreover, the U.K.'s Serious Fraud Office – as part of its efforts to offer DOJstyle guidance “opinion releases” to companies – announced a non-exhaustive collection of
measures likely required for companies to avail themselves of the adequate-procedures-designedto-prevent-prohibited-payments defense, which in turn would allow companies to completely
avoid criminal prosecution and instead face only civil liability or no liability at all. These
measures include having in place (i) an effective compliance plan, (ii) a formalized code of
ethics, (iii) creation of an "anti-corruption culture" within the company, (iv) the presence of
direct internal corporate reporting systems, (v) regular checks and audits, (vi) appropriate and
consistent disciplinary processes, (vii) early detection of potential violations, (viii) voluntary
self-referral, and (ix) remedial actions to remedy past cases of corruption.
However, the availability of such "home run" defenses for effective compliance and ethics
programs appear to be the exception – not the rule – in most countries.
By way of brief comparison , Germany's 1998 Act on Combating Bribery of Foreign Public
Officials in International Business Transactions, and the Turkish Law No. 4782 and the Turkish
Criminal Code, while otherwise praiseworthy efforts to stem foreign bribery, afford companies
no comparable codified "out" against criminal liability, even when companies can demonstrate
good-faith efforts to prevent the bribery in the first place.
That said, as the benefits of incentivizing companies to set up effective compliance and ethics
programs, reporting systems, self-disclosure, and whistleblower protections become more widely
understood, other countries can be expected to follow the U.S. and U.K. lead.
Avoid Liability – and the Financial Consequences Thereof – In Four Easy Steps: Review,
Revise, Hire, and Submit
Companies must take careful stock of their compliance and ethics programs to ensure that they
are appropriately tailored to fit the amended guidelines. The four things companies must do in
light of the recent Guidelines amendments are:
1. Review their compliance and ethics program to ensure the compliance and ethics officers
have direct responsibility, set forth in writing, to the board of directors audit committee,
or similar subgroup to immediately inform them of suspected non-compliance or criminal
conduct;
2. Revise existing compliance policies and procedures to identify and promptly remedy
potential internal control and compliance weaknesses;
3. Hire outside counsel to investigate cases of suspected non-compliance, and to suggest
appropriate amendments to the company's compliance and ethics program to help stave
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off questions concerning whether the company took "reasonable steps" upon learning of
the suspected criminal conduct; and
4. Submit an annual report assessing the implementation and effectiveness of the company's
compliance and ethics program.
These four simple steps offer companies low-cost "insurance" against criminal conduct, as well
as a means to mitigate – if not entirely avoid – the "parade of horribles" that unchecked conduct
can have on a company's long-term future.
______________________________________________
T. Markus Funk is co-chair of the American Bar Association's Global Anti-Corruption Initiatives
Task Force, and a partner in Perkins Coie’s Investigations and White Collar Defense Group.
Markus can be reached at mfunk@perkinscoie.com.
The content of this posting has been prepared for general information purposes only; it neither is
legal advice nor is it intended as legal advice. Persons who wish to have the law applied to their
specific circumstances, should consult with an attorney. Only your individual attorney can
provide assurances that the information contained herein – and your interpretation of it – is
applicable or appropriate to your particular situation. The content on this posting is provided
"as is;" no representations are made that the content is error-free.
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