On January 12, 2005, the United States Supreme Court ruled on a challenge to the constitutionality of the Federal Sentencing Guidelines filed by two individual criminal defendants. (United States v. Booker and United States v. Fanfan)

The Court made two important decisions that will impact how the Guidelines are applied:

1. The Guidelines are now advisory rather than mandatory.
2. When sentences are being appealed, courts will no longer determine whether the Guidelines were followed exactly. This action provides judges with much greater discretion to set sentences, and requires appellate courts to consider the reasonableness of lower court actions when cases are appealed rather than measuring sentences based solely on their adherence or failure to adhere to the Guidelines.

Even without the language making the Guidelines mandatory, however, the Court recognized that judges are still required "to take account of the Guidelines together with other sentencing goals." Therefore, the Guidelines will continue to exist and to provide guidance to the courts about criminal sentencing both for individuals and for corporations.

Opinions are divided on the potential impact of this decision on the imposition of criminal sentences. While some commentators predict great confusion in the courts as judges attempt to apply the discretion now provided to them, others point out that there is a great deal of uniformity in sentencing even in states that already have guidelines that are advisory rather than mandatory.

Does this decision have any impact on the need for an effective corporate compliance program?

The Court did not address the aspect of the guidelines recommending an effective compliance program as an element of the defense to criminal liability or penalties. However, nothing in this opinion calls into question the value of an effective compliance program as an element of an organization's potential defense to criminal charges and penalties.

Most likely, courts will continue to look to the Guidelines as a standard of fairness in sentencing and will still be influenced by the factors (including effective communication of standards of conduct and the other aspects of an effective compliance program) addressed in the Guidelines as a means to minimize liability.

In addition, whether or not the Federal Sentencing Guidelines are applied, the existence of an effective compliance program is (and will likely continue to be) an important factor used by many federal agencies, including the Department of Justice and the Securities and Exchange Commission, in determining whether or not to charge organizations with misconduct committed by their employees. The value of compliance programs is also still reflected in the code of conduct and communication requirements of the Sarbanes-Oxley Act of 2002, and of Nasdaq and the New York Stock Exchange.