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Federal Agency Proposes Reduced Criminal Penalties for Corporations

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  • Federal Agency Proposes Reduced Criminal Penalties for Corporations

    What kind of penalties should companies face when their employees commit crimes? The question has been the subject of much debate in recent years, as the Justice Department has weighed how tough it should be on the corporate parents of white-collar criminals.

    After Arthur Andersen LLP was convicted in 2002 of allegedly destroying evidence and went out of business, costing thousands of jobs, prosecutors tried other methods of punishment for big companies. Namely, they turned to agreements — both court-authorized and out-of-court settlements — in which companies avoided prosecution by admitting to misconduct, paying fines and agreeing to personnel changes or increased corporate governance oversight.

    Some agreements also created controversy, including the use of “corporate monitors” to make sure companies don’t repeat their mistakes.

    And when DOJ used its ability to charge corporations to demand all sorts of cooperation from them, it came under fire by defense lawyers and judges, leading the agency to soften its approach.

    Enter the U.S. Sentencing Commission, which last week included a proposal in this 78-page document to reduce exposure by “organizations” whose employees engage in criminal behavior.

    For any of you who don’t work in the criminal justice system, the commission’s main task is to issue guidelines that help judges during sentencing.

    Given that judges don’t often oversee prosecutions of major companies, we’re not exactly sure how many big cases the change would effect in the future. Still, many smaller companies face prosecution all the time.

    Under the proposal, highlighted in today’s WSJ story, corporations could receive credit during sentencing if they have compliance programs designed to combat white-collar crime. To qualify, a company’s compliance officer must have direct access to the board of directors and be responsible for detecting criminal activity. The company must quickly report the misconduct to authorities.

    The proposal, which the commission has released for public comment, would reduce fines and penalties even if high-level company officers were involved in the criminal activity.

    The next stage will be a public hearing March 18, and the commission will vote in April.

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