Organizational sentencing.

• Author: Cutter, Stephanie A.
• Position: Tenth Survey of White Collar Crime

1. BACKGROUND

   On November 1, 1991, the Federal Sentencing Guidelines ("Guidelines") for Organizations went into effect, conscripting organizations for the first time into the fight against criminal activity. Under federal criminal law, organizations are vicariously liable for offenses committed by their agents.' For organizations, the cost of corporate criminal misconduct increased significantly with the promulgation of the Guidelines for organizational defendants, which require courts to sentence convicted organizational defendants in much the same systematic way they sentence individual defendants. Since 1991, the Guidelines have been successfully and regularly enforced against all types of corporations, including government contractors, financial institutions, and health care entities.

   The Guidelines were designed to create powerful incentives for companies to implement effective means to prevent, detect, and report violations of law, as well as to punish existing violations through heavy fines and other sanctions.(2) This article will describe the application of the Guidelines to corporate criminal defendants. It will also outline the steps laid out in the Guidelines by which a corporation may limit its potential criminal liability.

   2. GUIDELINES PROVISIONS

   The Guidelines proscribe three types of sanctions for convicted organizations. First, whenever practicable, the court must order the organization to remedy any harm caused by the ofense through restitution or other means.(3) Second, is used to "ensure that another sanction will be fully implemented, or to ensure that steps will be taken within the organization to reduce the likelihood of future criminal conduct."(4) The third type of sanction imposed by the Guidelines is the use of fines. If the convicted organization operated primarily for a criminal purpose or primarily by criminal means, the court should set the fine sufficiently high to divest the organization of all its assets.(5) For all other organizations, the fine range should be based on the seriousness of the offense and the culpability of the organization.(6) In most situations, the Guidelines require higher fines for organizational defendants than had previously been the case.(7)

   1. Remedial Measures

      The Guidelines provide three ways to remedy any harm caused by a corporate criminal offense. First, a court must impose a restitution order in accordance with 18 U.S.C. [sub.sections] 3663-3664,(8) or as a condition of probation.(9) A court will impose a restitution order when there is a need to make a victim or victims whole, through monetary relief or other means.(10)

      Second, a remedial order may be imposed as a sentence or as a condition of probation to provide for corrective action and to prevent future injury from the instant offense.(11) Often an administrative agency such as the Environmental Protection Agency may have authority to order remedial measures. In such cases, a remedial order by the court may not be necessary. Therefore, if a remedial order is imposed, it should be coordinated with any administrative or civil actions taken by the appropriate agency.(12)

      Third, a court may order community service as a condition of probation where community service is reasonably designed to repair the harm caused by the criminal offense.(13) For instance, where a convicted organization possesses knowledge, facilities, or skills that uniquely qualify it to repair the damage, community service may provide an efficient remedy.(14) Community service is an indirect monetary sanction since an organization must employ its own resources and employees to conduct the community service.(15) In that respect, it is a less desirable sanction than a direct monetary sanction because the organization has some control over the amount of resources, and therefore monetary expenditures, it will expend and forgo. A court can better control an organization's punishment through a direct monetary sanction, which allows the court to deliberately set the fine to reflect an organization's culpability.(16)

   2. Probation

      An organization may additionally be sentenced to a term of probation.(17) In order to deter future misconduct and to ensure compliance with the sentence, a court has great discretion in molding the conditions of probation. At a minimum, a court must impose conditions of probation pursuant to 18 U.S.C. [sub.section] 3563, including that the organization shall not commit another federal, state, or local crime during the term of probation.(18) However, a court may impose other conditions that are reasonably related to the nature and circumstances of the offense or the history and characteristics of the organization and that involve only such deprivations of liberty or property as are necessary to effect the purposes of sentencing.(19) The Guidelines recommend several conditions of probation for organizations, including publication of the offense, conviction and punishment of the organization, and periodic submissions to the court that report on the organization's financial condition for the purposes of safeguarding the organization's ability to pay any deferred portion of restitution, fine, or assessment.(20)

   3. Imposition of Fines

      If an organization is operated primarily for a criminal purpose or is operated primarily by criminal means, then a court must set the fine to divest an organization of all of its net assets.(21) The court is to make this criminal purpose determination based on the nature and circumstances of the offense as well as on the history and characteristics of the organization.(22)

      For non-criminal purpose organizations, the Guidelines set out a scheme of fine guidelines.(23) These fine guidelines apply only to those counts with offense guidelines listed in [sub.section] 8C2.1(a) and b).(24) Once the court determines that a count is covered by [sub.section] 8C2.1, the court must then proceed through the fine guidelines to determine the base offense level, the base fine, culpability, the fine range, and ultimately, the fine.

1. Base Offense Level

   The first step in calculating a fine is to set the base offense level, which is determined by the applicable offense guideline for the count upon which a conviction was obtained, along with appropriate adjustments.(25) Where a defendant is convicted on multiple counts, Chapter Three, Part D of the Guidelines must be used to determine a single offense level.(26)

2. Base Fine

   The next step toward calculating a fine is determining the base fine. The base fine is determined in one of three ways: (1) by the amount, based on the offense level, from the table in [sub.section] 8C2.4(d); (2) by the pecuniary gain to the organization from the offense; or (3) by the pecuniary loss caused by the organization, to the extent that such loss was caused intentionally, knowingly, or recklessly.(27) In certain cases, special instructions apply for determining the amount of loss or the offense level.(28) In general, the base fine measures the seriousness of the offense, and, in conjunction with the multipliers derived from the culpability score,(29) aims to "deter organizational criminal conduct and provide incentives for organizations to maintain...