Compliance with Dodd-Frank might not be as complicated as feared; however, companies must be vigilant in order to maintain the relevant exemptions.
Penalty Predictability Enhanced
FERC modifies its enforcement guidelines.
base penalty is determined, the guidelines next turn to the degree of the violator organization’s culpability and any violator remediation. Those important factors can raise or lower the guidelines’ ultimate penalty fine ranges significantly.
An initial, 5-point base culpability score, § 1C2.3(a), can be adjusted up or down based on an organization’s past and present conduct and its efforts to remedy the violation—that is, the 5-point score can be increased, offset, or even eliminated. Also, FERC enforcement staff retains its discretion to close self-reports or investigations without sanctions. For relatively minor violations resulting in little or no harm, staff may do so with no sanctions even when a violation has occurred. Zero dollar penalties are possible.
• Culpability Under § 1C2.3(b)-(e) 11: Based on the number of the organization’s employees, from 1-5 points may be added to the base culpability score if high-level personnel or those in substantial authority participated in, condoned, willfully were ignorant of, or tolerated the violation. FERC makes prior history determinations concerning either prior FERC adjudication or settlement of any violation, or adjudication of a similar violation by any other enforcement agency. If the organization re-committed any part of the prior misconduct in less than 10 years, or in less than 5 years, 1 or 2 points may be added, respectively. FERC focuses both on the number of prior violations and the rate at which they were committed, case-by-case. Two points may be added for the violation of a judicial, FERC, or other federal or state enforcement agency remedial or enforcement order or injunction directed at the organization and related to the misconduct at issue in FERC’s enforcement action or investigation. Three points may be added if the organization willfully obstructed or impeded justice, or encouraged obstruction during investigation or resolution of the violation, or knew of such obstruction or impedance but failed to take reasonable steps to prevent it. FERC also can assess a higher penalty for an entity that lacks an effective compliance program, or has a widespread disregard for, or little or no culture of, compliance. Further, the guidelines don’t affect FERC’s ability to consider the appropriateness of an organization’s record retention and electronic recordkeeping.
• Remediation Under § 1C2.3(f)-(g) 12 : Up to 3 points may be subtracted from the base culpability score if an effective compliance program was in place at the time of the violation, including effective yet imperfect compliance programs. Larger organizations should be able to devote more formal operations and greater resources to compliance, and FERC assesses the effective- ness of compliance programs on that basis. FERC removes an earlier provision automatically eliminating such compliance point credits where high-level personnel, or those in substantial authority, or individuals with operational responsibility for compliance participated in, condoned, or were willfully ignorant of the violation. As modified, the guidelines now declare that even where there is senior-level personnel involvement, FERC won’t automatically eliminate all compliance credit. If the senior-level person acted on his or her own, perhaps as a rogue employee, that can support granting credit. If said employee acted at the