By SUSAN E. PRINCE, J.D.
Legal Editor, Business and Legal Reports
(Editor's note: This is the first article in a series of two on the
federal government's new ethics training requirements.)
Under the amended Federal Sentencing Guidelines, effective November 1, 2004,
employers must provide their employees at every level within the company, as
well as agents of the company, with compliance and ethics training in order
to demonstrate an effective compliance and ethics program. Before November 1,
2004, training was not a required element of an effective compliance and ethics
program. These new amendments have rigorously toughened the requirements for
companies to reduce their fines if even one of their employees is guilty of
Reducing fines 90 percent
The Sarbanes-Oxley Act of 2002 directed the Federal Sentencing Commission to
reassess the portion of the Federal Sentencing Guidelines that applies to organizations,
with the focus of preventing and punishing criminal conduct.
Whenever an employee commits a criminal act within the scope of his or her
employment, the organization as a whole can be held liable for the act of that
individual employee. Companies can face hefty fines, probation for a period
of up to 5 years, can be forced to restore victims to their positions prior
to the offense or the positions they would have been in had the offense never
occurred, apologize to the victims, post public notices of the conviction, and
face forfeiture statutes. According to "An Overview of the Organizational
Guidelines" published by the Federal Sentencing Commission, an organization
that has an effective compliance and ethics program can reduce its fines for
a criminal conviction by as much as 90 percent.
Do these rules apply to all companies?
Yes. The Federal Sentencing Guidelines apply to "all organizations whether
publicly or privately held, and of whatever nature, such as corporations, partnerships,
labor unions, pension funds, trusts, nonprofit entities, and governmental units…."
Seven requirements of an effective ethics program
The Federal Sentencing guidelines outline seven steps an employer must take
to have an effective compliance and ethics program:
- An organization must establish standards and procedures to prevent and detect
- An organization's high-level personnel must be knowledgeable about and
oversee the content, implementation, operation, and effectiveness of the program.
- An organization must take reasonable efforts to avoid giving substantial
authority to an individual that the organization knew, or should have known,
has engaged in criminal activity or other conduct inconsistent with an effective
- An organization must take reasonable measures to periodically conduct
training programs for and disseminate information to the organization's
governing authority, high-level personnel, employees, and agents.
- An organization must monitor and audit for criminal activity, periodically
evaluate the effectiveness of the program, and create and communicate procedures
for employees and agents to report criminal activity without fear of retaliation.
- An organization must provide incentives to comply with the program and
enforce disciplinary measures for engaging in criminal conduct or failing
to prevent or detect criminal conduct.
- An organization must respond appropriately to criminal conduct and modify
the compliance and ethics program, if needed, to prevent further criminal
It is essential now that companies establish compliance and ethics training
programs in order to both prevent criminal activity within their organizations
and reduce fines if the criminal conviction of an employee does occur. Next
week, Part II of this article will address how employers can train their employees,
who can perform the training, how often training must occur, and the training
topics that should be covered in order to comply with the law.