Organizational sentencing.

• Jurisdiction: United States
• Author: Brown, Zhonette M.
• Date: 01 January 1997

1. INTRODUCTION: SCOPE AND PURPOSE OF THE ORGANIZATIONAL GUIDELINES II. GUIDELINES PROVISIONS: OFFENSES COVERED AND SANCTIONS PERMITTED

   1. Remedial Measures

   2. Probation

   3. Imposition of Fines

   1. Base Offense Level

   2. Base Fine

   3. Culpability

      1. Calculation

      2. Cooperation

      3. Corporate Compliance Programs

   4. Multipliers

   5. Disgorgement

   6. Implementation

   7. Departures III. PROPOSED AMENDMENTS

1. INTRODUCTION: SCOPE AND PURPOSE OF THE ORGANIZATIONAL GUIDELINES

   Corporate self-policing, which began in the United States with securities regulation in the 1930's, reached new heights on November 1, 1991.(1) On that date the Federal Sentencing Guidelines for Organizations (Chapter Eight of the "Guidelines") went into effect.(2) In the United States,(3) organizations are held vicariously liable for criminal offenses committed by their agents.(4) After discussing the scope and purpose of the organizational guidelines this article outlines the Guidelines' provisions. These provisions include mechanisms to remedy harm caused by an organization, probation, and the imposition of fines, and describe applicable calculations and adjustments. This article also discusses compliance programs and their implications; that is, how organizations may be able to reduce potential liability by self-policing.

   Under our system of federal law, "a company is indictable for any crime committed for its benefit by any employee acting" in the scope of their employment.(5) The number of corporate indictees has risen significantly "[a]s the civil doctrine of respondeat superior becomes the standard for corporate criminal liability."(6) The cost to the defendant of corporate criminal misconduct increased substantially with the promulgation of the Guidelines for organizational defendants.(7) These Guidelines require courts to sentence convicted organizational defendants in much the same systematic way they sentence individual defendants.(8)

   While the Guidelines have been enforced against a number of different types of corporations, including government contractors, financial institutions, and health care entities, most defendants have been small, closely-held organizations.(9) The Guidelines define an "organization" as "a person other than an individual."(10) Thus the term encompasses corporations, partnerships, associations, joint-stock companies, unions, trusts, pension funds, governments and their political subdivisions, as well as unincorporated and non-profit organizations.(11)

   The Sentencing Commission designed the Organizational Guidelines to create powerful incentives for companies to implement effective means of preventing, detecting, and reporting violations of the law.(12) These incentives were cast in a classic carrot-and-stick form: heavy fines and other sanctions that can be mitigated by effective compliance programs.(13)

   There have been very few reported judicial decisions thus far directly addressing the Organizational Guidelines.(14) One commentator presumes that this iS due to all such cases having been resolved by plea agreements or guilty pleas.(15)

2. GUIDELINES PROVISIONS: OFFENSES COVERED AND SANCTIONS PERMITTED

   The Organizational Guidelines apply to a number of federal felonies and Class A misdemeanors, including fraud, theft, tax violations, and antitrust offenses.(16) Some offenses, however, remain largely uncovered by the Guidelines, including environmental, food and drug, and export control.(17)

   The Guidelines delineate three types of sanctions for convicted organizations. First, whenever practicable, the court must order the organization to remedy any harm caused by the offense, either through restitution or by other means.(18) Second, probation may be 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."(19) Finally, the Guidelines authorize the more conventional sanction of monetary fines. If the organization operated primarily for a criminal purpose or primarily by criminal means, the court must set the fine high enough to divest the organization of all of its assets.(20) For all other organizations the fine range is to be based on the seriousness of the offense(21) and the culpability of the organization.(22) In most situations, the application of the Guidelines will result in fines higher than those imposed under the pre-Guidelines regime.(23)

   1. Remedial Measures

      The Guidelines provide three ways to remedy harm caused by a corporate criminal offense: restitution, remedial measures, and community service.(24) A court must impose a restitution order in accordance with 18 U.S.C. [subsections] 3663-3664.(25) A court will also impose a restitution order when it determines there is a need to make the victim or victims whole, through monetary relief or other means.(26)

      A remedial order may be imposed by a court to provide for corrective action and to prevent future injury from the instant offense.(27) An administrative agency such as the Environmental Protection Agency may also have authority to order remedial measures. In such a case, a remedial order by the court may not be necessary.(28) Therefore, if a remedial order is imposed it should be coordinated with any administrative or civil actions taken by the appropriate agency.(29)

      A court may also order community service where such a remedy is reasonably designed to repair the harm caused by the criminal offense.(30) When a "convicted organization possesses knowledge, facilities, or skills that uniquely qualify it to repair damage caused by the offense, community service" may provide an efficient remedy.(31) However, community service is an indirect monetary sanction because an organization must use its own resources and employees to conduct the community service.(32) Because a sentence of community service gives the convicted organization some control over the amount of resources it will expend, the Guidelines consider it a less desirable sanction than a direct monetary sanction.(33)

   2. Probation

      Federal courts may sentence convicted organizations to a term of probation.(34) In order to deter future misconduct and ensure compliance with a sentence, judges have wide discretion in setting the conditions of probation. At a minimum, a court must impose conditions pursuant to 18 U.S.C. [sections] 3563, including a requirement that the organization not commit another federal, state, or local crime during the term of probation.(35)

      A court may also impose other conditions that are "reasonably related to the nature and circumstances of the offense or the history and characteristics of the organization," provided they "involve only such deprivations of liberty or property as are necessary to effect the purposes of sentencing."(36)

      The Guidelines list several conditions of probation for organizations, including publication of the offense, the fact of conviction, and the nature of the punishment.(37) A court may also order surprise audits and require an organization to submit periodic reports concerning the organization's financial condition (in order to ensure its ability to pay any deferred portion of restitution, fine, or other monetary sanction).(38)

   3. Imposition of Fines

      As noted above, if an organization is operated primarily for a criminal purpose or by criminal means, then a court must set the fine at a level sufficient to divest that organization of all of its net assets.(39) The court is to make this "criminal purpose" determination based on the nature and circumstances of the offense, as well as the history and characteristics of the organization.(40)

      For organizations operating without a criminal purpose, the Guidelines provide a scheme for setting fines.(41) This scheme applies only to those counts with offense guidelines listed in [sections] 8C2.1(a) and (b).(42) Once the court determines that a count is covered by [sections] 8C2.1, the court must proceed through the fine guidelines to determine the base offense level, the base fine, culpability, the fine range, and, ultimately, the actual fine.(43)

      1. Base Offense Level

         The first step in calculating a fine is to set the base offense level. This base offense level is determined by the applicable offense guideline for the count upon which the conviction was obtained, along with appropriate adjustments.(44) When a defendant is convicted on multiple counts, Chapter Three, Part D of the Guidelines is used to determine a single offense level upon which the final sentence is based.(45)

      2. Base Fine

         The next step in the calculation of a fine is the determination of the base fine. The base fine may be determined by (1) the amount from the table in [sections] 8C2.4(d); (2) the pecuniary gain to the organization from the offense; or (3) the pecuniary loss caused by the organization, to the extent that such loss was caused intentionally, knowingly, or recklessly.(46) In certain cases, such as where gain and loss are difficult to calculate, special instructions apply for determining either the amount of loss or the offense level.(47)

         Pecuniary gain is used to determine the base fine when it is the greatest of the three measurements, so that organizations will be deterred from engaging in criminal conduct and will seek to prevent losses caused by their agents.(48)

         In general, the base fine measures the seriousness of the offense. When increased by the multipliers derived from the culpability score,(49) the base fine is meant to "deter organizational criminal conduct and to provide incentives for organizations to maintain internal mechanisms for preventing, detecting, and reporting criminal conduct."(50)

      3. Culpability

         After determining the base fine level, the court must determine the organization's culpability. Section 8C2.5(a) requires the court to start with five culpability points, and to add or subtract points depending on the culpability factors discussed below.(51)

         1. Calculation

            The Guidelines...