How can the Sentencing Commission data help you make the case for the importance of a compliance and ethics program? & Three Questions with Amy Lilly

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The United States Sentencing Commission is charged with collecting a vast amount of data regarding the sentencing of criminal defendants in federal courts. Among this data is a surprising amount of information regarding the organizations that take convictions in federal court for compliance and ethics failures. Many times, compliance and ethics professionals rely solely on current news to garner what information on compliance and ethics failures. The news, however, only covers a small fraction of the organizations that are charged with federal crimes. The data from the Sentencing Commission tells us the full story—a story that has more surprising outcomes than you might expect. In this episode, Eric explores the 2015 data on organizational sentences. You may be surprised to learn that 90% of organizations that take federal convictions have less than 1000 employees.

  • What size organizations are most at risk?
  • What types of crimes are organizations being charged with?  

You’ll learn that many of the hot topics in compliance and ethics, like FCPA violations, make up a very small percentage of the crimes that organizations take convictions for. It’s not just organizations that get charged, but often individuals with a relationship to the organizations will be charged as well. Eric discusses the data regarding these individuals and how you can use this data to help you make the case internally about the importance of strong compliance program.

The Upshot

The U.S. Sentencing Commission’s data can tell us some very interesting and helpful things about the size of organizations that get in trouble, the types of offenses or actually the multiplicity of offenses that organizations find themselves charged with probably most importantly can talk very specifically about the collateral damage if you will that comes with a federal prosecution in the form of individuals that get prosecuted. These are all helpful pieces of information and you’re making the case internally for the necessity of compliance.

Three Questions with Amy Lilly, the Director of Corporate Ethics and Compliance at CenterPoint Energy in Houston Texas

At CenterPoint Energy, Amy integrates value-based ethics into a compliance-based company. Amy is a leader in Houston’s compliance and ethics professional community and has an interesting perspective on the future of compliance and ethics.

If you a question you want answered on the podcast be sure to submit it on ComplianceBeat.com or reach out below. 

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Read Full Transcript

What do the Sentencing Commission data tell us about ethics and compliance programs?
The Sentencing Commission, besides providing the seven guidelines for an effective ethics and compliance program, has a couple of other functions that are worth exploring. One is the vast amounts of data it collects annually and makes available to compliance officers.
For many people in compliance their number one source of information about problems with compliance is through news reports. While using the news of the current corporate scandals that are making the headlines can be useful, particularly in preparing scenarios for training purposes, the actual data that can be derived from the media coverage about these sorts of compliance failures is not always that helpful. While they can report on the millions of dollars in fines the company must pay, and on the executive or employee or employees that have been let go, disciplined or even sentenced in federal court, this information is really just ad hoc.
In preparing training materials or internal information regarding the ramifications of compliance failure I believe that looking closing at sentencing data that the Sentencing Commission collects can be the very helpful.  When I first went to the Sentencing Commission in 2007 I was unaware of the extent of the Commission’s role in gathering, reporting and sharing compliance data with the federal government and the American public.  Congress gets regular reports from the Commission on the impact of sentencing of individuals and organizations and the Commission’s annual sourcebook lists facts and figures on sentencing is available to the public on its website www.USSC.gov.
The data shows that there are 70,000 to 75,000 individuals that go before federal judges each year for sentencing.  The report also gives figures for cases involving organizations, only, on average between 150 to 220 cases a year. Not nearly as prevalent as the number of individual cases that happen every year.
A surprising number of small companies are the ones that face felony convictions in federal courts. Small and medium sized organizations have the impression that it is the big companies, the Wells Fargos and VWs of the world, because they are the ones making the headlines but it is really the smaller companies that are taking the hit.
For the fiscal year 2015 almost 70 percent of companies that ended up with a felony conviction in federal court had less than 50 employees; if you include those with up to 500 employees the figure is 87 percent. Only about 10 percent of the organizations that get sentenced on an annual basis in federal court have more than 1000.
Small and medium sized-companies that find themselves in federal court are usually going to face a probationary period, have a monitor appointed to oversee their compliance and ethics program, or perhaps face other sanctions and mitigation penalties. These are not the compliance failures that are seen in the news media so it is forgivable if individuals are unaware of the prevalence of these cases.  Again, news reports rarely focus on smaller companies.
In an earlier podcast I discuss how too much focus is placed on the current hot button issues. When you look at the Commission’s data it shows that companies should be monitoring the actual and more common risks they might face, not just talking about anti-corruption, FCPA, or bribery, for example.
In FY 2015 the majority of offenses related to environmental, fraud, FDA, money laundering, antitrust, import/export, and immigration offenses. (Five percent of the those 200 or so organizations in 2015 that faced federal charges dealt with immigration laws.)   
When we talk about fraud it is not surprising that a large portion of it is in health care fraud and the largest percentage, 27 percent, is for mail and wire fraud. I think that the recent Wells Fargo case is helping us to refocus on the issue of fraud. In this case, it is a very straightforward, garden-variety type of fraud, that of creating false accounts. A large portion of fraud cases in the US are for making false statements or filing false claims (about 5 percent.)
My point here is to focus on what most organizations may actually get charged with and to use it to serve as a wake up call. You have to focus on the risks that you actually face based on your own internal risk assessment. What this data tells me is that you can’t necessarily predict where the case might come from or what law, policy, procedure within your organization will be the area from which the issue arises. You do have some ability to assess that risk based on past experience and on the risks that other organizations are facing. It’s not a completely black box. But, there are going to be some blind spots that you’re just not going to see. The cure for this is to have the sort of company culture where individuals who are unsure about a situation, or who need to ask a question or report something, are comfortable coming forward.
One last area of the Sentencing Commission’s data (which is not found in the sourcebook or on their website, but made in its regular public reports) is the relationship of individual human cases to organizational cases. Looking at 2014 and 2015 data in about 58 percent of the cases there was at least one person charged for the same conduct as the organization. In almost 60 percent of the cases a person or persons are facing liability alongside their company!
I think that it is important--in this post-Yates Memorandum world—that the focus on individual liability has been a topic of conversation. Even before the Yates memo came out, the similar percentage of individuals were finding themselves standing next to the corporate defendant in a federal courtroom. It will be interesting to see in the Sentencing Commission data from 2016 and beyond to see if there’s an upward trend, maybe closer to 70 percent. It will valuable to compare this data as we go forward to get a broad sense of the impact of the Yates Memorandum.
Another interesting aspect, when you look at the individuals that are charged along with the organization, 50 percent of them are not high level officials; they are employees working in more operational roles. Almost 20 percent are the owners of the company, about 21 percent are board members, and about 10 percent are managers or supervisors.
For small to medium-size organizations the most pertinent data to show your stakeholders is that majority of federal convictions are reserved for small and medium-sized organizations, much more so than for the larger organization
The other takeaway is that the risks that lead to these charges are not necessarily the risks that we spend a lot of time talking about in the compliance field or what the executives and board members are hearing about. While corruption and FCPA are still very important risks, we aren’t seeing this in the data for organizations that take the most severe penalties.
Lastly, in well over half of the cases an individual also ends up facing a penalty. At least 50 percent of the time the person is a high-level official. This data should help open some eyes and get people to listen to the importance of having an effective compliance program so to avoid these problems.

The Upshot
The Sentencing Commission's data can tell us some helpful things about the size of the organizations that get in trouble, the types of offenses, the multiplicity of offenses, and the collateral damage that can comes with federal cases in the form of individuals that may also get prosecuted. There are helpful points when making the case internally for the necessity of compliance.

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