2. ORGANIZATIONAL SENTENCING GUIDELINES THE HONORABLE RUBEN J. CASTILLO VICE-CHAIR, U.S. SENTENCING COMMISSION

3. FINE CALCULATIONS DETERRENCE INCENTIVE STRUCTURE COMPLIANCE PRINCIPLES CHAPTER EIGHT: OVERVIEW UNITED STATES SENTENCING COMMISSION GUIDELINES MANUAL

4. What Is An Organization? - §8A1.1 n.1 “A person other than an individual” 18 U.S.C. §18 State and local governments Non profit organizations Trade associations and unions Pension funds & trusts Corporations and Partnerships

5. POLICY OF DETERRENCE Encourage partnership in crime control Reward self-policing, self-reporting, and voluntary disclosure “Carrot and Stick” Operation of the Criminal Penalty Structure

6. BASE FINE CALCULATION FOR ORGANIZATIONS GREATEST OF LOSS GAIN FINE TABLE RANGE §8C2.4 OR HUGE INCREASE JANUARY 25, 2003 SARBANES OXLEY EFFECT

7. SARBANES OXLEY ACT AMENDMENTS AFFECT CHAPTER EIGHT FINE TABLE Effective Date: January 25, 2003 Substantial penalty increase for fraud-related offense conduct in Chapter Two (individual defendants) Direct effect on calculation of base fine for organizations under Chapter Eight See Commission Report to Congress http://www.ussc.gov

8. PENALTY INCREASE ILLUSTRATION Publicly-traded company convicted of securities fraud –> 250 victims –$1.2 million loss caused $ 3.7 M $17.5 M Twelve fold increase in base fine

9. Fine Range - §8C2.7; §8A1.1 n.2 Fine Range x = Seriousness of the Offense Culpability BASE FINE MULTIPLIERS Minimum Maximum Exceptions

10. Determining Culpability Score - §8C2.5 Base Culpability Score AGGRAVATING FACTORS Level of Authority (Size) Prior History Violation of an Order Obstruction of Justice MITIGATING FACTORS Effective Program to Prevent & Detect Violations Self Reporting, Cooperation & Acceptance of Responsibility 5 POINTS +5,+4,+3 +2 or +1 +2 OR +1 +3 -3 -5,-2 or -1

11. IMPACT OF COMPLIANCE PROGRAMS: §8C2.5(f) Seven Minimum Steps - §8A1.1 n.3(k) 1-7 Compliance standards High-level oversight Careful delegation of authority Effective communication Monitoring and audits Consistent discipline Process modifications - 3

12. INCENTIVE STRUCTURE: WHAT’S IT WORTH? $40,000,000 $500,000 $10,000,000 10 5 0

13. PROBATION REQUIRED: §8D1.1 Ensure compliance with restitution Safeguard organization’s ability to pay penalties No compliance program, and over 50 employees Prior violations for similar offenses within 5 years High level participation in wrongdoing Prevent future criminal conduct If a fine not imposed Accomplish the statutory purposes of sentencing

14. USSC - - AHEAD OF THE CURVE

15. AD HOC ADVISORY GROUP Appointed January 2002 : 10 th Anniversary of Organizational Guidelines 18-month term 16 members with diverse expertise Mandate: –Assess criteria for “effective compliance programs”

16. EXTENSIVE SOLICITATION OF PUBLIC VIEWS Request for Comment: March 19, 2002 & August 21, 2002 Public Hearing: November 14, 2002 Preliminary Report: March 2003 Final Report: October 2003 See http: www.ussc.gov /Organizational Guideline Section for all comment, witness testimony and transcripts

17. Leadership Accountability and Corporate Governance Administration of Compliance Programs Confidentiality, Internal Reporting Whistleblowing Cooperation and Waiver of Privileges Methods for increasing incentives for compliance KEY ISSUES UNDER CONSIDERATION

18. EXAMPLE OF ISSUES RAISED AT HEARING Emphasize “tone at the top.” Require assessment, auditing & monitoring of ethics/compliance programs. Clarify training methods & frequency. Square Guideline self-reporting policy with confidentiality & specter of third-party litigation. Re-visit application to “small” businesses.

19. LEGISLATIVE HARBINGER OF CHANGE ? “... [T]he Chapter 8 Guidelines relating to Sentencing Organizations for criminal conduct are outdated and do not sufficiently deter organizational or corporate misconduct.” “... Requires complete review of the Chapter 8 corporate misconduct guidelines, which are outdated and need to be toughened to deter corporate crime.” --- S. 2010, Judiciary Committee Report regarding proposed Sarbanes Oxley legislation, May 6, 2002 General Directive in Sarbanes Oxley Act for Commission to “assess and amend Chapter Eight as appropriate”