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Overview

We described in our June 2004 Advisory Bulletin, U.S. Sentencing Commission Announces Stiffened Organization Sentencing Guidelines in Response to the Sarbanes-Oxley Act, amendments to the federal Sentencing Guidelines that would permit a reduction in sentence for corporations and other organizations having an effective compliance and ethics program. The amendments became effective November 1, 2004.

The United States Supreme Court ruled on January 12, 2005 in United States v. Booker that the Guidelines violate the Sixth Amendment right to a jury trial, and it severed and invalidated a provision of the Sentencing Reform Act of 1984 which had required the federal courts to follow the Guidelines.

Even though the Guidelines are now advisory, the United States Department of Justice has made it clear that it will continue to follow them in making sentencing recommendations, and sentences imposed by the federal district courts since Booker reflect continuing heavy reliance on the Guidelines. The Supreme Court decision had no effect on how the Department of Justice makes decisions about whether to prosecute organizations, and a compliance and ethics program remains an important factor in that determination. Implementation of a compliance and ethics program having the features described in the June 2004 Advisory Bulletin should therefore continue to be a priority for corporations and other organizations.

The Booker Decision and How It Has Been Followed by the Lower Courts

The Supreme Court held in Booker that the Guidelines violated a defendant’s right to a trial by jury because they permitted a court to take into account in sentencing facts not decided by the jury and then required the court to impose the sentence prescribed in the Guidelines. Although Booker was a case involving possession and distribution of narcotics, the Court’s ruling applies to sentencing for all defendants, including organizations.

Booker was convicted of possessing 92 grams of crack cocaine with intent to distribute. At sentencing, the trial judge considered evidence not heard by the jury and found that he had possessed an additional 566 grams and engaged in conduct constituting obstruction of justice. Taking into account these additional facts, the court sentenced Booker to 30 years in prison, instead of the maximum of 21 years and 10 months that he could have been sentenced based on evidence found by the jury. The Supreme Court invalidated that provision of the Sentencing Reform Act of 1984 that required the court to impose a sentence within the range prescribed in the Guidelines based on these additional facts.

The lower federal courts have interpreted Booker to mean that the Guidelines are now advisory only, but there has been no significant departure by the federal trial courts in their adherence to the Guidelines. Using sentencing data from January 12 through April 5, 2005, the U.S. Sentencing Commission has determined that 61.4% of the sentences imposed during the period are within the applicable Guideline range. This represents only a slight decline from the 65% within the Guideline range for the immediately preceding fiscal year.

Response of the Department of Justice to Booker

The Department of Justice has indicated that it will continue to follow the Guidelines in making sentencing recommendations. In a statement on February 10, 2005 before the Subcommittee on Crime, Terrorism and Homeland Security of the House Committee on the Judiciary, Assistant Attorney General Christopher A. Wray stated that the Department supported legislation in response to Booker and that the "resulting [legislative] system must retain the strengths of the mandatory guide-line system without suffering from its constitutional weakness". (February 10, 2005 Statement at 9). Assistant Attorney General Wray identified what he described as "vulnerabilities" of an advisory guideline system, including a sentencing judge’s consideration of factors not currently identified in the Guidelines as permissible. He cited the example of a judge who had recently sentenced a bank officer in a bank fraud case to a sentence well below that provided by the Guidelines by taking into account the facts that the defendant was motivated by a desire to help keep the bank’s customer’s business afloat and that the conviction had resulted in financial distress for the defendant – neither of which would be a permissible factor under the Guidelines. (Id. at 14).

The Deputy Assistant Attorney General for Criminal Enforcement in the Antitrust Division of the Department of Justice, Scott D. Hammond, stressed in remarks before the Antitrust Section of the American Bar Association on March 30, 2005 that the Division will continue to oppose departures from the Guidelines and will appeal sentences that are below the Guidelines: "[W]e will continue to utilize the Guidelines in negotiating plea agreements and to argue for the application of the Guidelines at sentencing." (March 30, 2005 Address at 4).

At the same time that there is uncertainty about future use of the Guidelines by the courts, the United States Sentencing Commission has amended the guidelines for antitrust violations to take into account the recent amendment of the Sherman Act to increase the maximum corporate fine from $10 million to $100 million, the maximum fine for individuals from $350,000 to $1,000,000 and the maximum prison term from three years to 10 years. These provisions of the Antitrust Criminal Penalty Enhancement and Reform Act of 2004, effective June 22, 2004, prompted the Antitrust Division of the Department of Justice to propose amendment of the sentencing guidelines for antitrust violations.

In testimony before the Sentencing Commission on April 12, 2005, Deputy Assistant Attorney General Scott D. Hammond urged the Commission to adopt the proposed amendment. According to Hammond, Booker is no impediment to amending the Guidelines to take into account the increased penalties under Section 1 of the Sherman Act. While he acknowledged that Booker has raised issues relating to the sentencing process and the Guidelines, he observed that "questioning the fundamental soundness of the Guidelines themselves or the Commission’s practices regarding promulgating and amending the Guidelines are not among them." (April 12, 2005 Statement at 2). The Commission agreed and adopted the amendment on April 13. The amendment was submitted to Congress on May 1, 2005 and will take effect November 1, 2005 unless Congress disapproves it.

Congressional Response to Booker

The Subcommittee on Crime, Terrorism and Homeland Security of the Committee on the Judiciary in the House of Representatives held hearings on a legislative response to Booker, beginning on February 10. The chairman of the House Judiciary Committee, F. James Sensenbrenner, Jr., introduced a bill on April 6, H.R. 1528, to amend the Sentencing Reform Act which, among other things, would prohibit a court from taking into account certain factors, including loss of a professional or business license or public office or the effect of defendant’s incarceration on others, in making sentencing decisions.

In an April 19 letter to the chairman of the Subcommittee on Crime, Terrorism and Homeland Security, Howard Coble, and its ranking minority member, Robert C. Scott, the members of the Sentencing Commission expressed a willingness to work with Congress in formulating a legislative response to Booker but cautioned that H.R. 1528 appears to address sentencing issues in a "hasty, piecemeal fashion." The Commission members stated that they are concerned that the specific provisions in H.R. 1528 "will hamper the ability of Congress and others to devise a systematic approach to the constitutional concerns raised in Booker and the overall purposes of sentencing."

It is too early to predict whether Congress will be able to formulate or enact legislation which can effectively limit trial judges’ discretion in sentencing and at the same time comport with the constitutional parameters of Booker.

The Continuing Importance of an Effective Compliance and Ethics Program for Corporations and Other Organizations

There has been no departure by the Department of Justice from Deputy Attorney General Larry D. Thompson's January 20, 2003 memorandum to U.S. Attorneys on factors to be followed in making decisions about prosecution of business organizations. As we described in our April 2003 Advisory Bulletin, Revised DOJ Principles for Prosecution of Business Organizations, among the factors identified in the Thompson memorandum is whether an organization has an effective compliance program. In addition to potentially preventing prosecution altogether, a compliance and ethics program which satisfies the November 1, 2004 amendments to the Guidelines described in our June 2004 Advisory Bulletin can lead to a reduced sentence. If such a program was in place at the time of the offense, a firm may subtract three points from its "culpability score," one of the factors used in arriving at a sentencing range for a given offense. This will yield, in the normal case, a measurably reduced fine or other punishment.

Given that the federal courts are continuing to take the Guidelines into account, and given that the Department of Justice will continue to rely on them in making prosecution determinations and sentencing recommendations, an effective compliance and ethics program remains essential. It is essential not only in the event an organization becomes the subject of a criminal investigation but also because, if properly structured and implemented, it will reduce the risk of criminal or questionable conduct by directors, officers and employees, better enable the organization to monitor compliance by directors, officers and employees with applicable law and commensurately reduce the risk of criminal liability for the organization.

For More Information

Please contact Norman A. Bloch, Barry M. Block, Stephen J. Butler, Thomas J. Collin, Charles L. Freed, or Douglas E. Grover or any member of our Antitrust, Competition & Distribution practice group for more information.

Disclosure

This advisory may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgement of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions. Some of the design images and photographs in this document may be of actors depicting fictional scenes.