Risk Management

Crime and Punishment

Coming clean often comes with a price.
Tim ReasonMay 1, 2002

Arthur Andersen LLP’s punishment will hardly matter if it is found guilty in its obstruction of justice trial, scheduled to begin this month. A guilty verdict would deny Andersen, already hemorrhaging clients, the right to audit public companies, easily the final nail in its coffin.

But experts say other companies ought to take time now to reread the decade-old federal sentencing guidelines, because actions that corporations take today can soften the future blow if they fight the law and the law wins.

Viewed as an assault on white-collar crime when they took effect in November 1991, the guidelines automatically increase sentences if, for example, high-level personnel participate in, condone, or are “willfully blind” to an offense.

Yet, explains attorney Neil V. Getnick of New York’s Getnick & Getnick, judges must also include mitigating factors in the formula by which they calculate the severity of a sentence. For example, a company’s “culpability score” is reduced if, prior to the offense, it had policies and programs in place to prevent and detect violations.

Getnick, who helps clients set up internal crime prevention and monitoring programs, is quick to note that such leniency is just one potential benefit of corporatewide integrity programs. “Companies that have the best success are those that focus on instilling integrity, not guarding against criminal sentencing,” he says. When something does go wrong, the worst mistake executives can make is to think they can change what has happened, adds attorney Phil Feigin of Denver-based Rothgerber, Johnson & Lyons and a former securities regulator. “You have to coldly, cruelly, and clinically assess what damage has occurred,” he says. Feigin’s first rule of finance: it will never be better tomorrow. Indeed, promptly reporting an offense, cooperating, and accepting responsibility for criminal conduct are also mitigating factors under the guidelines.

Of course, established policies and self-reporting are not get-out-of-jail-free cards. Andersen’s interpretation and implementation of its preexisting document retention and destruction policy may ultimately prove to be the core of the case. “Andersen is instructive,” says Getnick. “Beyond the legal technicalities, the single most important thing is to embrace the spirit of the sentencing guidelines and the integrity aspects they embody.”

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