On October 8, 2019, Assistant Attorney General Brian A. Benczkowski issued a memorandum to the Criminal Division of the U.S. Department of Justice (“DOJ” or “the Department”) that established a framework for evaluating corporate claims. that it is unable to pay a criminal fine or a pecuniary penalty.[i] In his speech announcing the policy, Benczkowski stressed the need for transparency about what companies can expect from the prospect of potentially devastating criminal fines. He said the department wanted “you to know what we consider a legitimate inability to pay argument, but also what facts and arguments will not be credited.”[ii]
Generally, fines imposed in criminal cases against commercial organizations are determined by various statutory provisions and United States Sentencing Guidelines (“Sentencing Guidelines”). For example, 18 USC § 3572 requires courts to consider a number of factors when deciding whether to impose a fine. These include: the income and financial resources of the defendant; the burden the fine will have on the defendant; whether the fine will impact the payment of any restitution; and, more particularly for companies, the measures taken to sanction the employees responsible for the violation and to prevent the violation from happening again.[iii] The law is silent on the situations in which a reduction of the fine may be justified, other than specifying that the amount of the fine or sentence must not impede the ability to pay compensation to victims.[iv]
The Sentencing Advisory Guidelines also inform decisions about the amount of criminal penalties that can be imposed on commercial organizations. For example, they provide a detailed methodology for calculating the amount of any fine. This methodology is based on a variety of factors, including the nature of the offense and the circumstances of the defending organization.[v] Notably, the Sentencing Guidelines state that a fine may be reduced where “the organization is unable and, even with the use of a reasonable payment schedule, is not likely to become able to pay the minimum fine required”. They provide little more information to guide prosecutors in assessing this important issue, other than to state that “the reduction[nedoitpasêtreplusquenécessairepouréviterdecompromettresubstantiellementlaviabilitécontinuedel’organisation[vi]
The latest guidelines fill in the gaps left by the Sentencing Guidelines. He notes that the decision to reduce a fine begins with an assessment of a company’s assets, liabilities and cash flows against working capital requirements.[vii] It also provides that criminal division attorneys must consider several additional factors in situations where a general assessment of a company’s financial condition is insufficient to answer the often complicated question of whether it can pay the fine. considered. These factors are:
- An assessment of the current financial situation of the organization. The memo suggests that a fine reduction may not be warranted if the conditions giving rise to the inability to pay are due to the ownership or management withdrawing capital, investing in capital improvements or s engages in transactions with related parties.[viii]
- Whether the business has access to other sources of capital. The memo encourages Criminal Division attorneys to “review the availability of insurance or indemnification agreements, the existence of recorded reserves, any proposed acquisition or disposal of assets, and details of any forecasts.” of the company”.[ix]
- Examination of the collateral consequences of the imposition of the fine. The memo warns prosecutors to be aware of all the significant negative consequences a fine could have, ranging from a negative impact on the funding of pension obligations or employee retention, to the possibility of significantly disrupting competition on a market.[x] The memo clarifies that negative impacts on growth, future opportunities, hiring or retention, and executive compensation are not material collateral consequences.[xi]
- Compensation for victims considerations. Using language from 18 USC § 3572, the memo requires Criminal Division prosecutors to consider whether the requested fine will impair the organization’s ability to pay compensation to victims of the offense.
In order to assess claims of inability to pay, the criminal chamber will now await a response to an 11-point questionnaire regarding financial status. The new questionnaire seeks detailed information on company income and expenses, recent transactions and future plans, among others.[xii] The information sought is generally consistent with the types of information companies have had to provide in the past in order to establish their financial challenges to fines; the guidelines formalize these criteria. Prosecutors in the Criminal Division are responsible for recommending an adjustment to the amount of the fine when the information contained in the questionnaire, together with the consideration of the factors mentioned above, shows that a company is unable to pay the fine.[xiii]
Consistency, predictability and transparency are admirable goals for the Department of Justice and are certainly important for corporate leadership. The memo clearly attempts to achieve these goals by encouraging Federal Criminal Division prosecutors to follow these guidelines in assessing this issue. But, as is often the case with advice, this leaves many questions unanswered.
First, the memo does not address the burden a company must bear to demonstrate that a reduction is warranted. This should be addressed in subsequent guidance.
Second, the failure to address the burden is compounded by the fact that the memo provides no guidance on how prosecutors should determine how much of a sentence can be reduced once that burden has been discharged. Failure to address this point may be particularly problematic because, on a preliminary basis, the memo at first glance appears to prohibit criminal division attorneys from considering inability to pay arguments. before the parties agree to both the form of a criminal resolution (eg, non-prosecution agreement, deferred prosecution agreement, or corporate guilty plea) and the amount of the appropriate monetary penalty.[xiv] Thus, as written, a corporate defendant must agree to a penal resolution and a fine threatening its survival before knowing (a) whether the government will agree to not pay that fine, (b) what the amount of the ultimate fine will be, and, therefore, (c) how this reduced, but likely still substantial, fine will affect its operations. This part of the guidelines ignores the reality of how corporate officers view resolutions in the context of exercising their fiduciary responsibility to the company, shareholders, employees and other stakeholders. .
Additionally, the memo provides some guidance regarding a process for assessing inability to pay claims, but is not clear enough to materially improve how a company assesses the risk of making an inability to pay claim. . As mentioned earlier, the assessment requires a company to submit a questionnaire containing detailed information about its financial situation. Undoubtedly, prosecutors will be thorough and thorough in their analysis of responses; indeed, they can call upon chartered accountants to examine these answers and the overall financial situation of the company.[xv] Companies should be prepared for the costs and burdens that may arise from complying with this requirement, which could potentially include requests for additional disclosures and information beyond what is requested by the questionnaire. Businesses should also understand that by engaging in this process they are subjecting themselves to additional government scrutiny – not only on the sufficiency of the information they provide with respect to the inability to pay analysis, but also on the question of whether this information is true, accurate and complete.
Finally, the impact of the memorandum could be limited at the Ministry level. On the face of it, it applies only to staff in the Criminal Division and apparently does not apply to other divisions of the Department or to the U.S. Attorney’s Offices, which handle many large criminal cases against corporate defendants, often without the involvement of the criminal division. . Similarly, the memorandum does not apply to quasi-criminal law enforcement cases that often result in the imposition of substantial fines and monetary penalties that can threaten the viability of corporate defendants. Nevertheless, the memorandum demonstrates the Department’s willingness to address this issue. Companies facing lawsuits or enforcement action by other bureaus should consider this memo in developing arguments relating to their failure to pay fines or monetary penalties.
[i] Memorandum to All Criminal Division Staff: “Assessing a Commercial Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty,” from Assistant Attorney General Brian A. Benczkowski, October 8 2019, available at https://www.justice.gov/opa/speech/file/1207576/download (“Inability to Pay Note” or “the Note”).
[ii] Assistant Attorney General Brian A. Benczkowski delivers remarks at the Global Investigations Review Live New York, October 8, 2019, available at https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-global-investigations (“Benczkowski Remarks”).
[iii] 18 USC § 3572(a).
[iv] 18 USC § 3572(b).
[v] SeeUSSG § 8C2.1 and following.
[vi] USSG § 8C3.3.
[vii] Impossibility of Paying Memo at 3.
[xii] ID. in appendix A.
[xiii] ID. at 4 o’clock.
[xiv] ID. at 1. The memo only states that the recommended fine or monetary penalty adjustment should be “only to the extent necessary to avoid (1) threatening the continued viability of the organization and/or (2) harm the organization’s ability to restitute to victims.” ID. at 4 o’clock
[xv] Benczkowski’s remarks.