U.S. Sentencing Commission Report: Corporate Prosecutions Decline and Ethics and Compliance Programs Increase

The proper balance in corporate prosecutions remains a tricky issue.  On the one hand, many argue that large fines and penalties against corporations are needed to deter criminal conduct, while others contend that shareholders bear the brunt of such penalties while corporate actors escape punishment.  In the most cynical sense, some argue that corporate fines are simply the cost of doing business.

The pendulum swings back and forth — DOJ has stated in the last decade that individual criminal enforcement is the most effective deterrent.  Hence, DOJ issued the Yates Memorandum in 2015 to remind prosecutors what they already know — it is critical to focus on culpable individuals when conducting a criminal investigation of corporate wrongdoing.

The U.S. Sentencing Commission stands in a unique position in our criminal justice system.  It has exclusive responsibility for collecting, analyzing and presenting data from sentencing of all criminal defendants in the federal system.  This gives the Sentencing Commission a unique perspective and allows it to analyze and revise the Sentencing Guidelines that serve an important advisory function in guiding criminal sentencing of defendants.

Since 1991, the Sentencing Commission has played a lead role in the sentencing framework for organizations — resulting in the adoption of Chapter 8 of the Sentencing Guidelines.

Recently, the Sentencing Commission released a 30-year retrospective on the Organization Guidelines, which contains important sentencing trend information with respect to corporate investigations.  The report, while interesting, however, does not measure the use of deferred prosecution or non-prosecution agreements since the organizations at issue do not fall under any final criminal sentence.  Nonetheless, the report sets out some interesting data.

Just as important, however, if not more important, the Sentencing Commission’s report provides a history of the ethics and compliance program requirements and guideline provisions that have fostered the growth of ethics and compliance programs, and the rise of the compliance officer profession.  After all, the foundation of ethics and compliance begins with the specific requirements established by the Sentencing Commission.  It is the elements of this guideline that has fostered the growth of compliance programs in the U.S. and internationally.  As a historical document, this development is enshrined in the Sentencing Guidelines and its unique historical significance.

Returning to the data, the Sentencing Commission data shows that over the past twenty years corporate prosecutions are dwindling from a high of 304 prosecutions in 2000 to a low this past year, 2021, of just 90.  Again, bear in mind, that most of these prosecutions involve private enterprises with fewer than 50 employees. Large global companies have not been convicted because most resolve their cases with DPAs or NPAs.  On average, DOJ enters into 20 to 30 DPAs each year.

Interestingly, nearly 90 percent of the sentenced companies did not have an ethics and compliance program. However, since 2018, the number of companies sentenced with ethics and compliance programs increased to 58 percent in 2021.

Fraud and environmental crimes were the most common criminal offenses against companies.  Companies in healthcare, finance and construction industries were the most common target of such prosecutions.

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