A fatally flawed proxy: the role of "intended loss" in the U.S. sentencing guidelines for fraud.

Author:Guarnera, Daniel S.

TABLE OF CONTENTS TABLE OF CONTENTS 715 I. INTRODUCTION 716 II. SENTENCING GUIDELINES THROUGH THE LENS OF RULES AND STANDARDS 720 A. The Origins of the Guidelines 720 B. The Rules/Standards Framework 722 C. The Rule-Oriented Structure of the Guidelines 724 D. United States v. Booker and a Hybrid System of Rules and Standards 726 III. THE FRAUD GUIDELINES AND THE LOSS ENHANCEMENT 730 A. The Fraud Guidelines and Their Discontents 731 B. The Purposes and Structure of the Fraud Guidelines 732 1. Historical and Pragmatic Justifications for the Loss Rule 734 2. Loss as a Proxy for Culpability and Harm 736 C. Actual and Intended Loss 737 1. The Absence of Mitigation in the Fraud Guidelines 741 2. Non-Loss Enhancements and Double Counting 743 IV. THE CHALLENGE OF MEASURING CULPABILITY WITH A RULE: THE 2015 "PURPOSEFUL LOSS" AMENDMENT 745 A. Clarifying the Meaning of "Intended" Loss 745 B. Critiquing the Fit Between Purposeful Loss and Culpability 751 C. Expected Loss as an Alternative Measure of Culpability 754 V. RETHINKING RULE-BASED PROXIES FOR CULPABILITY 758 A. Loss and Proportional Sentencing 758 B. Alternative Approaches to Measuring Culpability 760 1. A Rule-Based Culpability Score 761 2. A Standard-Based Alternative 762 VI. CONCLUSION 767 I. INTRODUCTION

On November 1, 2015, the U.S. Sentencing Commission promulgated a slate of amendments that capped off a "comprehensive, multi-year study" of the economic crime provisions in the U.S. Sentencing Guidelines. (1) Section 2B1.1 of the Guidelines provides judges with advisory sentencing recommendations for defendants convicted of offenses like fraud and theft, (2) which are among the most commonly prosecuted in the federal system. (3) Yet judges depart from the economic crime Guidelines at higher rates than almost any other major Guidelines provision, (4) leading one Commissioner to lament that Section 2B1.1 has "lost the backing of a large part of the judiciary." (5) The Commission's study and the resulting amendments sought to reassess the economic crime Guidelines in light of these concerns. (6)

The most important driver of sentences for economic crimes under the Guidelines is the amount of pecuniary harm that the defendant either actually caused or intended to cause. (7) The "loss enhancement" received special focus in the recent review of Section 2B1.1, (8) but the Commission ultimately rebuffed calls from advocacy groups for a fundamental reimagining of loss's role. (9) The November 2015 amendments did, however, resolve a lingering circuit split by clarifying the definition of "intended loss." (10) Whereas Section 2B1.1 had previously left the word "intended" undefined, the new amendment explained that intended loss means "the pecuniary harm that the defendant purposely sought to inflict." (11)

This Article provides the first extended analysis of the new intended loss provision, and it does so primarily through the framework of rules and standards. (12) Generally speaking, a rule is "framed in terms of concepts that can be applied without explicit reference to the principles or policies that might have motivated the rule, usually by specifying operative facts that trigger the rule." (13) In contrast, the use of standards "involve[s] recourse to justificatory principles or policies, mediated by some form of balancing that does not specify in advance the result thereof." (14) For example, a law prohibiting driving over sixty-five miles per hour is a prototypical rule; negligence is a prototypical standard. (15) In the context of sentencing, rules and standards are primarily distinguished by when a sentencing directive is given its specific content (before the sentencing hearing or during it) and who decides its content (Congress, the Commission, or the judge). (16) The pros and cons of rules and standards have been analyzed in depth in many areas of law, (17) but they have only recently been applied systematically to sentencing. (18)

The U.S. Sentencing Guidelines adopt a predominantly rule-oriented approach to sentencing. Under the Guidelines, judges determine whether predetermined factual triggers exist, and each trigger has a designated effect on the recommended sentence. (19) This framework promotes uniformity and predictability--two characteristics traditionally associated with rules--but those virtues are never absolute when imposing punishment. Congress has mandated that sentences give weight to other normative values as well, most notably proportionality. (20) The Guidelines seek to achieve proportionality within their rule-based framework by adjusting sentences based on the presence of specified facts about the offender and offense. In the economic crime Guidelines, the most important such facts are actual and intended loss. The Commission has explained that actual and intended loss are designed to function as rule-based proxies for the seriousness of the offense and the culpability of the offender, respectively--two of the traditional metrics used to evaluate the proportionality of punishment. (21)

This Article argues that one of the principal reasons that the economic crime Guidelines systematically generate sentencing recommendations that many judges consider disproportionately harsh--resulting in high rates of below-Guidelines sentences--is that intended loss is a fatally flawed proxy for culpability. By its nature, culpability is too complex and heterogeneous an inquiry to be accurately represented by the pecuniary harm that the defendant intended to inflict, and therefore the sentencing enhancements it triggers are not well calibrated to the holistic culpability of the offender. While the Commission adopted the new "purposeful loss" amendment ostensibly to improve the correlation between culpability and intended loss, in fact, it is likely to make the "fit" between them even more problematic by excluding a significant range of highly culpable conduct--criminal acts that the defendant subjectively expected would result in losses, but that were not undertaken with the purpose of imposing them.

While there are several ways in which the intended loss rule could be reformulated to improve its correlation with culpability, these reforms will never be fully satisfactory as a theoretical or practical matter. Ultimately, a more promising approach would involve shifting the culpability inquiry away from the rule-like intended loss measure and toward a standard that allows judges to evaluate culpability directly. This would be a departure from current Guidelines practice in some respects, though there are partial precedents, most notably the Guidelines' method of determining fines for convicted corporations. In many ways, however, it would also be more consistent with the now-advisory status of the Guidelines. Current doctrine requires judges to evaluate every sentence independently in light of a range of statutorily defined penological objectives, and a standard-like culpability inquiry could help judges in this task. A well-crafted standard that is cabined within the Guidelines' superstructure and requires judges to follow a structured decision-making procedure holds the promise of striking an attractive balance between the uniformity and predictability of rules and the proportionality of standards in the context of economic crime sentencing--and possibly other areas of the Guidelines as well.

Part II of this Article evaluates sentencing policy through the lens of the rules-and-standards framework. The fraud Guidelines and the often-determinative role of the loss enhancement in sentencing are described in Part III, with a focus on the role of intended loss in the overall Guidelines structure. Part IV describes the circuit split over whether an objective or subjective inquiry was required to calculate intended loss. It then analyzes the Commission's response to the split--the 2015 amendment redefining intended loss as "purposeful" loss. In the criminal law, "purpose" almost always means one's aspiration or conscious objective. By requiring an intended pecuniary loss to be purposeful, the Commission has set such a high threshold that, if "purpose" is interpreted conventionally, a significant subset of culpable offenders may be found to have no intended loss whatsoever. This Part closes by suggesting an alternative standard--subjectively expected loss--that would be more workable and better reflect the full spectrum of culpable conduct. Finally, Part V examines why, regardless of how it is defined, intended loss is likely to be a fatally flawed proxy for culpability. This Part looks at two possible avenues for reform: a more complex rule that would allow for multiple inputs relevant to the defendant's blameworthiness, and a standard-based approach that would permit judges to evaluate culpability directly. It concludes by arguing that a properly tailored standard--one that structures the decision-making process of judges and incorporates the Commission's sentencing expertise--would be the best way for the economic crimes Guidelines to assist judges in executing their statutory sentencing duties. A brief conclusion follows.


    Federal sentencing law over the last century can be categorized into three distinct phases, each marked by an abrupt and decisive transition: a sentencing regime in which judges had almost unchecked discretion gave way to mandatory sentencing Guidelines, which, in turn, were supplanted by a hybrid system requiring judges to impose punishments that advanced a range of statutory objectives, while using the Guidelines as a benchmark. The strengths and weaknesses of each sentencing regime can be usefully understood using the familiar framework of rules and standards.

    1. The Origins of the Guidelines

      In the decades prior to the Sentencing Reform Act of 1984, federal judges had expansive discretion to assign criminal punishments. (22) The nearly universal...

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