Beware of rotten apples

For at least 20 years, the white- collar criminal defense bar has advised

companies to adopt "corporate compliance plans" as a way to insulate themselves

from potential liability for the criminal acts of their employees.

The plans typically establish detailed compliance standards and procedures

to be followed by company employees, delegate oversight responsibilities

to senior officials, require a level of employee screening, establish training

programs, adopt monitoring and reporting systems, mandate disciplinary mechanisms,

and require an appropriate corporate response to any impropriety that might

be uncovered.

In 1991, the newly adopted U.S. Sentencing Guidelines boosted the importance

of having such a corporate compliance program by identifying a company's

adoption of a compliance plan as a mitigating factor that can reduce a company's

penalty for criminal malfeasance.

However, the case law in this area shows that a company's adoption of

such promises to behave as good corporate citizens may not protect them

from responsibility for their employees' actions, even when the misbehaving

employees are acting contrary to the company's policies. For example, in

United States v. Basic Construction Co., a company was found guilty of

bid-rigging based in part on jury instructions that "a corporation may be

responsible for the action of its agents done or made within the scope of

their authority, even though the conduct of the agents may be contrary to

the corporation's actual instructions or contrary to the corporation's stated

position."

Similarly, in United States v. Beusch, a company was convicted of bank

law violations even though the malfeasant employee was acting contrary to

company policies.

More recently, the Justice Department adopted new policies for bringing

criminal charges against corporations, which de-emphasize the importance

of corporate compliance programs. According to Justice, "the existence of

a compliance program is not sufficient, in and of itself, to justify not

charging a corporation for criminal conduct undertaken by its officers,

directors, employees or agents. Indeed, the commission of such crimes in

the face of a compliance program may suggest...corporate management is not

adequately enforcing its program."

Furthermore, the sentencing commission may consider adopting more stringent

guidelines for determining the adequacy of compliance programs used to mitigate

companies' responsibility for their employees' actions.

Apparently, the adoption of a compliance program will not be of much

value to a company. To ensure that it will get the benefit of having a program,

the company must take additional steps to ensure that its policies are implemented

effectively.Peckinpaugh is corporate counsel for DynCorp, Reston, Va. This column discusses

legal topics of general interest only and is not intended to provide legal

advice. Should you have a specific question or legal problem, consult an

attorney.

MORE INFO

Cases discussed in this column include the following:

United States v.Basic Construction Co., 711 F.2d 570 (4th Cir. 1983)

United States v.Beusch, 596 F.2d 871 (9th Cir. 1979). See also U.S. Department of Justice,Office of the Deputy Attorney General Memorandum to Heads of DepartmentComponents (June 16, 1999)

Guidelines May Needto Mandate Auditing of Compliance Programs, Commissioner Says, inPrevention of Corporate Liability (BNA, Inc., April 17, 2000).

Read more of Carl Peckinpaugh's columns by typing "Peckinpaugh" in the search box at the left.

BY Carl Peckinpaugh
May 1, 2000

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