Federal Sentencing Guidelines

In what was to have a profound effect on corporate America, unique legal standards were enacted in the United States in November 1991. The standards, referred to as the U.S. Federal Sentencing Guidelines for Organizations (“Guidelines”), used a carrot and stick approach to create incentives for thousands of corporations to report wrongdoing, to cooperate with authorities while accepting responsibility for misconduct, and to establish or enhance their compliance or ethics programs. As opposed to discussing the Federal Sentencing Guidelines for individuals convicted of federal crimes, this entry focuses on the Federal [Page 867]Sentencing Guidelines for Organizations, their impact, their use by the courts, and their effectiveness with respect to improving legal and ethical behavior.

The Guidelines were developed by the United States Sentencing Commission, a governmental body that came into existence in 1984. The Commission was charged with the responsibility of creating uniformity in the sentencing of offenders of federal laws. Following the promulgation of the Guidelines in 1987 for sentencing individuals convicted of federal offenses (including crimes such as murder, assault, robbery, and drug trafficking as well as business crimes such as fraud, embezzlement, forgery, bribery, tax evasion, money laundering, racketeering, or extortion), the Commission proceeded to create the Guidelines specifically for organizations that went into effect in 1991. The Guidelines consist essentially of a manual for judges to apply when determining the appropriate sentence for organizations convicted of a federal crime. Judges were being required for the first time to consider whether the convicted firm had established an effective compliance and ethics program before the violation taking place—in other words, whether the firm had taken appropriate steps to prevent and detect violations of the law.

According to Win Swensen, the former Deputy General Counsel of the Sentencing Commission, one of the primary reasons for the enactment of the Guidelines was that the U.S. government lacked a clear corporate crime sentencing and enforcement policy. As a result, judges were having great difficulty in finding meaningful ways in which to sentence corporations. Empirical research conducted by the U.S. Sentencing Commission on corporate sentencing practices demonstrated that “… corporate sentencing was in disarray… nearly identical cases were treated differently.” In addition, average fines were found by the Commission to be “… less than the cost corporations had to pay to obey the law.”

To address these concerns, the Commission eventually came to accept the carrot and stick approach to corporate sentencing. This approach was based on three principal and related objectives: (1) to define a model for good corporate citizenship; (2) to use the model to make corporate sentencing fair by providing objective, defined criteria; and (3) to use the model to create incentives for companies to take crime-controlling actions. The final objective was designed to shift from the previous “speed trap” enforcement policy of the past (i.e., merely lie and wait for corporate offenders and then fine them) to a more interactive approach. By providing financial incentives, the government was inviting companies to undertake effective, crimecontrolling actions that in turn would put less pressure on already limited government enforcement resources.

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