Often, we can be informed about some problem, but it’s only when it begins to touch us in a personal way that we become impassioned and convinced about the rightness or wrongness of a situation. In many political systems, for instance, where all media are controlled, the news is often suppressed. So until oppression affects your own family, you might not even know that things are “that bad.” That’s what societies that aren’t free do: they separate us from each other’s stories. That great American motto comes to mind: United we stand, divided we fall. Of course, now with the amazing technology we have, we can know things even if we aren’t affected personally. It’s a real challenge for all of us, not just young people: to look beyond our own self-interest. A person who died in a concentration camp, once said that the task of being a human being was “not only to be one’s self, but to become each one.” That’s what compassion and freedom are all about.

Senate Judiciary Committee Hears Testimony on Corporate Fraud Prosecutions and Attorney-Client Privilege

Posted on September 20, 2007

On September 18, 2007, the Senate Judiciary Committee held a hearing titled “Examining Approaches to Corporate Fraud Prosecutions and the Attorney-Client Privilege Under the McNulty Memorandum.” Several distinguished witnesses testified in favor of S. 186 — a bill that would curb an apparent trend of abuses involving requests for waiver of the attorney-client privilege and work product as a measure of an organization’s cooperation in criminal investigations. The witness list included Karin Immergut, U.S. Attorney from Oregon and Chair of the White Collar Subcommittee for the Attorney General’s Advisory Committee (for the U.S. Department of Justice), former Attorney General Dick Thornburgh, Columbia Law School Professor Daniel Richman, University of Florida College of Law Professor Michael Seigel, and former DOJ Enron Task Force Director Andrew Weissmann. Written statements of these and other witnesses are posted on the website of the American Bar Association.

The Senate Judiciary Committee also received numerous written statements in advance of the hearings, including submissions from the ABA and a comprehensive letter from former Delaware Chief Justice Norman Veasey in support of the bill. A copy of the letter can be found here. See Chief Justice Veasey Letter to Senate Judiciary Committee dated Sept 13, 2007.

The bill, S. 186, and its analog in the House, H.R. 3013, are a long way from passage but both appear to have traction and remain hot on the agenda of national, state and local bar associations.

Filed under: Attorney-client privilege, Congressional testimony, Criminal Investigations, Rule 502, White Collar Crime

The “28-Day Rule” On Utilities Is Scrapped

Energy customers face being forced into year-long contracts similar to those in the broadband and mobile phone markets, after a key rule which allowed them to move to a new provider within 28 days was scrapped by the utility watchdog.

The new regulations were introduced by Ofgem, the energy regulator, in August 2007 following lobbying by utilities providers. In the past year or so, rocketing energy prices have meant more and more consumers are using price comparison sites to find cheaper deals.

But providers claimed that unless customers are prepared to stick with a contract for more than 28 days, there is less motivation for the company concerned to install energy-efficient equipment, such as new boilers and loft insulation.

But many experts believe that customers may simply find themselves forced into long-term contracts, while the supposed benefits will not materialise that easily.

Commenting on Ofgem's decision to axe the 28-day rule, Scott Byrom, utilities expert at moneysupermarket.com, the price comparison website, said:

''This is a disaster for the consumer. Ofgem has stripped any leverage the consumer had and given all of the power to the big six energy providers. According to Ofgem, protecting consumers is its first priority - this is clearly not the case here. Ofgem goes on to say it promotes competition but this is, without doubt, an anti-competitive move.''

''If an energy provider annoys you after a couple of months or a rival drops its prices, you want the power to be able to move, not to be stuck with your provider for a year.''

Although the abolishment of the 28-day rule could give incentives to suppliers to make homes more energy-efficient, and to offer a greater choice of tariffs, these will no doubt have a host of conditions attached, such as exit fees for customers wanting to switch before their contract has expired.

Like the broadband and mobile phone markets, the best deals will invariably go to new customers, leaving those loyal to the company paying far more.

Customers looking to compare gas and electricity prices in the near future need to make sure they know just what kind of contract they're committing to before signing up.

With the scrapping of the 28-day rule comes uncertainty. For example, which of the big energy companies will take the risk of setting up a contract first, and if an energy supplier wants to keep hold of the customer for another year, then energy-saving incentives will no doubt have to be put in place, as well as keeping gas and electricity prices at a minimum.

Such energy-saving incentives might be offered by the energy provider, by supplying the customer with literature on saving energy, and offering services free and/or discounts to affordable insulation products, thus theoretically consumers pay less on their bills. It is with these incentives in mind that gas and electric suppliers need to think about the role they play in relation to climate change and the environment.

With an increasing amount of awareness about climate change, consumers are looking to help protect the environment. Yet this won't come without a price, because even if energy companies do provide energy-saving products, the consumer could end up having to pay certain product and installation costs, as well as a surveyor to check that whatever work has been carried out, meets the safety requirements of the law.

It is only a matter of time before the big energy companies use the 28-day rule and quash any hopes of competition for the smaller companies. Maybe then Ofgem may find out that it has made a grave mistake, and will need to review its recent decision.

For the time being, it is highly unlikely that people will stop switching their gas and electricity suppliers, if anything, the amount of people switching could increase so as to get a better deal, certainly in the short-term, as they rush to avoid longer contracts.

I am an experienced writer based in the UK with knowledge of energy, energy providers, and always on the look out for better deals and savings for the consumer.

If consumers are looking to change their gas and electric supplier before the full force of the 28 day ruling, I recommend shopping around to get the best deal they can.

Sentencing of Corporate Fraud and White Collar Crime

Testimony March 26, 2003

Good morning Judge Murphy and Members of the Commission. Thank you for the opportunity to testify on the proposed amendment regarding corporate fraud and, more generally, about the nature of white-collar crime sentencing.

For the record, I am a Senior Legal Research Fellow in the Center for Legal and Judicial Studies at The Heritage Foundation, an independent research and educational organization. I am also an Adjunct Professor of Law at George Mason University where I teach Criminal Procedure and an advanced seminar on White Collar and Corporate Crime. I am a graduate of the University of Chicago Law School and a former law clerk to Judge R. Lanier Anderson, III, of the U.S. Court of Appeals for the Eleventh Circuit. For much of the first 15 years of my career I served as a prosecutor in the Department of Justice and elsewhere, prosecuting white-collar offenses. During the two years immediately prior to joining The Heritage Foundation, I was in private practice representing principally white‑collar criminal defendants. I have been a Senior Fellow at The Heritage Foundation since April 2002.

The Commission considers today, among other issues, the proposed permanent amendment to the Sentencing Guidelines implementing the directives of the Sarbanes‑Oxlely Act of 2002, Pub. L. 107-204.To a large degree the base text of this proposed permanent amendment mirrors the temporary, emergency amendment made by the Commission last December, which took effect in January 2003.The Commission also seeks comment on various possible “Options” that might be considered as alternatives to the base proposal.

Though it is far too early to have any empirical data for assessing the effect of the temporary amendment, it has already generated substantial commentary. In particular, some commentators, most notably the Department of Justice, think that the temporary amendment did not go far enough in implementing Sarbanes-Oxley and suggest that the provisions of the Guidelines regarding corporate fraud be further strengthened – they therefore advocate both further enhancements of the loss table and, in some instances, a higher base offense level for fraud offenses.

Allow me to take this opportunity today to discuss with you two issues regarding the pending proposal: 1) The conception of “white-collar” crime and how that effects proposals to further modify the fraud loss table and/or the fraud base offense level; and 2) A modification of the director and officer provisions of the Guidelines to take account of the burgeoning legal concept of “managerial liability.”

White Collar Crime, Business Fraud, and Regulatory Fraud

The proposal before the Commission would (as did the emergency amendment) add two new levels to the loss table in section 2B1.1 at the top end, providing for even greater penalties for frauds involving more than $200 and $400 million respectively. It would also make permanent various new provisions enhancing penalties when the fraud in question affects a large number of victims, involves a director or officers of a publicly traded company, or substantially endangers the safety and soundness of a financial institution, a public company, or a large private company.

The Department of Justice has suggested that the Commission’s amendments do not go far enough. Rather, the Department believes the entire fraud loss table requires adjustment and that, to implement the dictates of Sarbanes-Oxley, the Commission should enhance penalties for all frauds, not just those at the top end of the scale. In the Department’s view, these revisions are necessary to insure that “all but relatively minor fraud crimes will result in prison time for the wrongdoer.” The Commission has asked for comment on this proposal, on specific suggested new loss tables, and on a related proposal to increase the base offense level for certain frauds with enhances statutory maximum penalties.

With all due respect to the Department, I believe that the alternative it urges, embodied in the options proposed for consideration by the Commission, misread Congressional intent in enacting Sarbanes-Oxley.

One can always find snippets of legislative history to support most any interpretation of a Congressional action. Thus, I would not suggest to you that my reading of Congressional intent is without any doubt. Nonetheless, I believe that a full review of the legislative record and, in particular, an understanding of the context within which the Sarbanes-Oxley Act arose, provides substantial guidance as to the type of criminality Congress intended to address. In my judgment it is fair to say that in passing Sarbanes-Oxley Congress did not have intent to enhance penalties for all garden-variety common law frauds – what one might characterize as “street frauds” for want of a better word. Rather, I believe that Congress intended to enhance penalties for a unique subset of frauds – those we identify colloquially as “white collar,” “business,” or “regulatory” frauds. In assessing the Commission’s proposal I therefore believe that the appropriate place to begin is by attempting to define what a white-collar or regulatory crime is.

It is possible to identify certain hallmarks of white-collar, regulatory offenses. The type of offense I have in mind – the one to which I think Sarbanes-Oxley was particularly directed -- is, classically, fraud by any other name. At their core, business frauds are no different in motivation from any common law fraud occurring on the street. Some of the Enron and Tyco allegations, if they are proven true, will fit comfortably into this classical conception of crime.

This sort of white-collar crime has been around for a long while. Many would argue that, viewed through the prism of today, some of the “robber barons” of the turn of the century were white-collar criminals. As A.B. Stickney said to 16 other railroad presidents in the home of J.P. Morgan in 1890, “I have the utmost respect for you gentlemen individually, but as railroad presidents, I wouldn’t trust you with my watch out of my sight.”

Thus, commentators are right to recognize a fundamental similarity between business frauds and common law frauds insofar as they share similar aspects of intent or scienter. But the analogy is not, in my view, complete. It misses important distinctions (distinctions implicit in the passage of Sarbanes-Oxley) between common law frauds and white collar or regulatory frauds. For though both arise from essentially the same means rea– they typically are conducted with the same level of willful intent -- they are accomplished by a far different means or actus reus-- that is, they have a different methodology. Business frauds differ in the details of how they are executed, in the sophistication of those who execute them, and in the difficulty that prosecutors have in unraveling them.

Thus, the reason these types of frauds are distinguished as white-collar offenses is because of the means the actors have chosen for committing their criminal offenses. [Another distinguishing aspect of the definition might be the socio-economic status of the perpetrator. I hope that all agree that the socio-economic distinction is (or should be) of no consequence in setting the appropriate sentencing level.]Recognizing the distinction in the method or modus operandi of the crime is are vital in capturing Congress’ apparent intent -- white collar penalty enhancement should focus on those offenses that are frauds by new and different means – means that we can characterize, loosely, as “regulatory” means.

What then are “regulatory means?” That is, concededly a hard question, not capable of a ready and easy answers. I can, however, sketch some of the parameters of the answer:

First, the subject matter of the offense often involves frauds that arise not because of their inherently deceptive nature, but because the frauds conceal a violation of some underlying substantive statutory scheme that is, itself, a creature of the modern American regulatory state. No statute is required to identify the criminal fraud inherent in the Ponzi schemes that were rampant in the Depression era. By contrast, the “off the books” partnerships at the core of the Enron investigation become criminal not because of something inherently wrongful in that type of corporate organization – rather, they are wrongful solely because they contravene an existing statutory and regulatory structure. Without the regulatory structure the crime might well not exist.

Second, the means of carrying out the fraud is through the instruments of that same regulatory structure. The structure itself – its reporting requirements and its substantive provisions – is enlisted by the criminal in aid of his act. The structure provides the means of both disseminating his fraud and of concealing it.

I realize that these considerations are by no means easy to apply in all cases. I equally recognize that not all will agree with my conception of a white-collar offense. Nonetheless, the foregoing considerations lead me to conclude that the proposed base amendment under consideration more closely addresses the core concerns, which animated Congressional passage of Sarbanes-Oxley. A broad based, one-size-fits-all increase in the fraud loss tables generally would enhance punishment for both common-law frauds and those business frauds that arise from the violations of regulatory norms. Such a result would be, I believe, a misreading of what Congress has required.

Rather, the Commission should focus on sentencing provisions that distinguish between business frauds and street frauds. The provisions relating to the number of victims and threats to financial institutions go a long way towards making that distinction – common law frauds are less likely to have a large number of victims and are especially unlikely to threaten the stability of large banks and corporations. Admittedly, the “fit” is not perfect – there will be some common law crimes captured by these offense adjustments and some white-collar frauds that are not addressed. But these two factors would appear to be a suitable proxy for the general question – is this a “white collar crime?”

The only alternative I can think of to offer the Commission would be the far more fact intensive alternative of providing a sentencing enhancement if the crime “involved use of regulatory or business expertise” or some such formulation. While such an effort would be more directly, it is an open question whether there is substantial gain in coverage of the sentencing provisions that are worth the significant burden that would be placed on the probation office and the sentencing court if they were required, in each case, to examine the methodology by which the crime was committed and assess whether it arose from an abuse of the regulatory process. Thus, I think the Commission is wise to focus the inquiry on factors (such as the number of victims and the failure of a bank) that are readily ascertainable and provide for ease of implementation.

The Appropriate Quantum of Punishment

Let me next address directly the nuts and bolts question that lurks behind some of the criticism – the question of where to set the penalty levels for fraud. As my comments reflect, unlike the Department of Justice, in general, I think the Commission has identified the right factors to consider in responding to Sarbanes-Oxley. The current level of punishment for fraud is quite significant. In substantially raising the penalties to be imposed for the largest frauds, the Commission has, in my view, responded respectfully to Congressional direction.

That is not, however, the same thing as saying that the quantum of punishment now imposed is appropriate. That depends, very much, on one’s antecedent view of the severity and societal significance of corporate fraud in America. When I testified last year before the United States Senate, I presented some analysis that bears on the question, a portion of which I’d like to share with you, now:

I considered the federal criminal sentences imposed in Fiscal Year 2000, the most recent year for I had a complete data set. Significantly, FY 2000 involved data for sentences imposed prior to the November 2001 fraud guideline revisions, which substantially enhanced the penalties for fraud even before the Sarbanes-Oxley Act was passed.

According to Commission’s statistics, in FY 2000 federal courts entered convictions for 58,636 individuals. I examined data regarding the length of imprisonment imposed by category of offense:

Crime Type	Mean Sentence (in months)	Median Sentence (in months)
Robbery	110.6	77.0
Drugs -- Trafficking	75.3	57.0
Drugs – Possession	18.5	6.0
Manslaughter	26.1	18.0
Larceny	15.6	12.0
Fraud	18.0	12.0
Embezzlement	9.9	5.0
Bribery	16.2	12.0
Tax Offenses	16.6	12.0
Money Laundering	46.3	33.0
Environmental/Wildlife	14.5	9.5
Antitrust	12.7	6.5
Food & Drug	23.1	12.0

The mandatory nature of certain drug offenses is reflected in the data. The disparity in some of these sentences might be read to suggest that white-collar offenses are penalized less stringently, than “street crime” offenses – a reading that would support enhanced penalties for fraud if one believed that the two types of crime ought to be equated.

But there are other aspects of this data that are significant. Insofar as the data are susceptible to analysis, other than serious violent, personal offenses (such as robbery) and offenses relating to drug trafficking (including money laundering) it is noteworthy, I think, that in FY 2000 most offenses were treated relatively similarly, with typical sentences falling in a fairly narrow range of from 1-2 years. Even manslaughter sentences do not vary appreciably from this seeming norm. One might almost suspect that we had reached a general consensus on the subject as a society and identified 1‑2 years as the appropriate just punishment for most criminal offenses. In short, it appears that the sentencing guidelines, prior to the November 2001 revisions, reflected a societal agreement as to the equivalence between white-collar fraud, tax evasion, and simple drug possession.

Sarbanes-Oxley plainly calls for some revision to this calculus. As to the appropriate quantum of punishment for true white-collar fraud, I have no crystal ball, nor any independent moral authority to advise you – that is Congress’ job as the representative of the American public.

Clearly, though, we can assess the current state of sentencing: The November 2001 fraud revisions to the Guidelines (as to whose effect no data is yet available) have already substantially modified the rough equivalence I identified in FY 2000 data. With the further revisions adopted as temporary measures last year, I think that in some instances the current sentencing structure might fairly be termed “draconian.” One can readily imagine, for example, scenarios where a corporate chief executive has a cumulative offense level in excess of the current level-43 maximum and receives a life sentence – a sentence previously reserved for those convicted of first-degree murder or treason.

Whether this is appropriate is not an easy question to answer, particularly for an academic happily ensconced in the ivory tower of a think tank. I certainly yield to no one in my conviction that corporate offenders ought to be punished no differently then blue collar offenders when they deserve it. But it is fair to wonder whether equating corporate fraud with murder or treason truly captures the “just desert” component of criminal law.

In addition, while the measure of deterrence is for Congress to decide, not this body, one may fairly wonder if the new sentences to be imposed are not somewhat more than is necessary to achieve the other objective of criminal law -- deterrence. I know of no evidence or study suggesting that substantial additional deterrence will be achieved by ever more extended incarceration. Indeed, my own experience is that it is the fact of incarceration, not the length of incarceration is the primary deterrent. Put another way, in the white-collar arena, what deters is the prospect of being caught not the length of sentence to be imposed.

Thus, I would urge caution on the Commission before it rushes to raise sentence levels further without any empirical data establishing its necessity. Especially in the white‑collar area, where rational economic actors understand some of the risks attending criminal activity, such increases may not be required to achieve deterrence ends nor may they be “just.”

Some Heretical Thoughts on “Managerial Liability”

Finally, allow me to turn to the proposed amendment to section 2B1.1(b)(13) imposing penalties on directors and officers. In my view, the Commission needs to modify this provision to account for the legal concept of managerial liability.

The Commission should begin by recognizing a variant form of white-collar fraud offense – a type that is quite different than the one we have been discussing thus far. These frauds involve prosecutions not for common frauds but for violations of rules and regulations that are part of a larger statutory structure.

In modern America, as the regulatory state has grown, the number of such criminal offenses has grown apace. They are predicated on violations of the regulations of the Health Care Finance Administration, the Occupational Health and Safety Administration, the Consumer Products Safety Commission and a host of other Federal “alphabet agencies.” The growth in this form of white-collar criminal offenses is what Professor John Coffee has called the “technicalization” of crime. For this category of white-collar offenses, the criminal law is increasingly being used interchangeably with civil remedies.

Three doctrinal developments define this second type of white-collar offense and differentiate it from the classic frauds that are the focus of the Sarbanes-Oxley legislation. First, this type of white-collar offenses involves the criminalization of conduct that, in most instances, is not inherently wrongful in the same way that fraud and bribery are. Rather, we have seen a growth in the category of “public welfare offenses” – a category first created with modest penalties and now increasingly felonized. Second, and of special significance in weighing moral culpability, the statutes involve offenses where the mens rea requirement is substantially diminished, if not eliminated.For example, we now punish as strict liability offenses the taking of migratory birds – even if done utterly by accident.

Third, and as relevant to the proposal I advance here, this type of white-collar offense increasingly involves criminal prosecutions of managerial officers for, in effect, vicarious liability.This doctrine known as “managerial liability” or the “responsible corporate officer doctrine” involves the imposition of criminal liability on corporate officers who bear a responsible relationship to some underlying criminal conduct.Unlike traditional criminal law, those “responsible corporate officers can be convicted and imprisoned even though they had no active role in the conduct at issue.Rather, they may be convicted if they merely had, as one Court has said, the “authority to exercise control over the corporation’s activities.There is no requirement that the officer in fact exercise[d] such authority.”The use of this doctrine is especially prevalent in many of the regulatory areas such as securities law that are the precise focus of the Sarbanes-Oxley revisions being contemplated by the Commission.

Whatever one may think of the concept of managerial liability as a basis for criminal sanction, none should dispute that there are fundamental differences in criminal culpability between corporate managers who are active participants in criminal activity and those who stand convicted because of their role as officers or managers within a company and whose liability is based solely on their authority to act and their alleged failure to exercise that authority.Yet, the “Role In The Offense” provisions of the Sentencing Guidelines, § 3B1.1, do not attempt to distinguish between these two aspects of a corporate manager’s potential relationship to crimes committed by individuals in an organization.They are drafted solely with the paradigm of an active managerial participant in mind.Section 2B1.1(b)(13) of the emergency amendment adopted by the Commission in response to the Sarbanes-Oxley bill, only serves to enhance this focus – the unstated premise of the amendment is that the corporate officers being punished are those who, in fact, did exercise their authority to direct the criminal conduct in question.Yet, the provision, as drafted, has no such limitation.It is quite likely that the penalty enhancements of subsection (b)(13) will be imposed on directors and officers without regard to their actual participation and/or culpability in the underlying criminal offense.

When these sentencing provisions are applied to responsible corporate officers whose criminal liability is premised solely upon their status as corporate officers and their theoretical ability to have avoided the harm in question, the punishment imposed does not fit the crime.The current Guideline provisions enhancing a corporate officer’s punishment based upon his status as an officer thus drain the criminal law of a portion of its moral force.

This is not, of course, the place for an extended discussion of the concept of “managerial liability” or the growth of the regulatory state.Suffice it to say that legal obligations have come increasingly to be imposed by statute rather than through the common law.The Supreme Court first endorsed the trend in 1943, in United States v. Dotterweich, 320 U.S. 277 (1943).There the Court addressed a provision of the Food and Drug Act making it a crime to introduce into commerce an adulterated or misbranded drug (that is, one not suitable for consumption or mislabeled). Dotterweich was the President of a pharmaceutical company that had transported certain adulterated drugs in interstate commerce. But it was equally clear that there was “no evidence . . . of any personal guilt” on the part of Dotterweich – there was no proof that “he ever knew of the introduction into commerce of the adulterated drugs in question, much less that he actively participated in their introduction.”

As currently employed, the managerial liability doctrine allows the conviction of an officer for because he bore a “responsible relation to the situation even though he may not have participated in it personally.” This “responsible relation” doctrine, is difficult to cabin or limit. At its inception the Court said (United States v. Park, 421 U.S. 658 (1975)) it could not define or “even indicate by way of illustration” the class of employees who stood in responsible relation to a crime. Rather, it left such definition to “the good sense of prosecutors, the wise guidance of trial judges, and the ultimate judgment of juries.”

Thus, according to the Court, corporate managers have

not only a positive duty to seek out and remedy violations when they occur but also, and primarily, a duty to implement measures that will insure that violations will not occur. The requirements of foresight and vigilance imposed on responsible corporate agents are beyond question demanding, and perhaps onerous, but they are no more stringent than the public has a right to expect of those who voluntarily assume positions of authority in business enterprises whose services and products affect the health and well-being of the public that supports them.

In sum those who voluntarily chose to engage in productive economic conduct place themselves at risk of criminal sanction for their “felony failure to supervise.” As at least one court has noted, this policy decision to criminalize conduct without reference to whether or not managers have personally acted in a culpable manner may have the effect of dissuading those who work to produce goods and services for society from continuing to do so:” If we are fortunate, sewer plant workers . . . will continue to perform their vitally important work despite our decision. If they knew they risk three years in prison, some might decide that their pay . . . is not enough to risk prison for doing their jobs.”

An understanding of this history allows one to critique the current structure of the Sentencing Guidelines as inadequately sensitive to this doctrine. Even if one grants the utilitarian argument in favor of criminal sanctions – that enhanced penalties will modify conduct – it is appropriate to recognize that the utilitarian argument is a different argument from the normal ground of criminal law. It flows not from a conception of “just deserts” but from an effort to calibrate the deterrence value of a criminal sanction. And whatever one may think of how that calibration calculus should be rendered it is, it seems clear, indisputable that: a) deterrence is only one aspect of criminal punishment to be considered; and b) with respect to corporate officers, there is no reason to believe that deterrence will operate with different effect on the two classes of actors – those who are active participants in a crime and those whose conduct is criminalized because of their failure to act. No matter what the value of deterrence, punishment should be greater for those whose acts are deliberate and willful acts in furtherance of a crime than it is for those whose criminality is premised on a failure to act. Traditional concepts of justice require nothing less.

Accordingly, a modification of the Guidelines is in order, perhaps in the form of an Application Note to section 2B1.1(13) along the following lines [as an aside, I would also urge, at the appropriate time, consideration of similar guidance with respect to section 3B1.1]:

To qualify for an adjustment under this section based upon a defendant’s role as an organizer, leader, manager, supervisor, director or officer, the defendant’s conduct must have involved actual participation in the crime in question. The defendant must have been a direct participant in the crime or had direct knowledge of the crime. An adjustment under this section is not appropriate if the defendant’s conviction resulted solely from conduct involving a failure to act when under a legal duty to do so or where the defendant’s conviction otherwise resulted solely from his status as a responsible corporate officer.

In my judgment criminal law in a free society must be carefully crafted to target wrongful conduct, and not be used simply to ameliorate adverse consequences attributable to a failure to act. Criminal sentencing should therefore reflect the distinction between those who act and those who are vicariously responsible for the acts of others, and reserve the more severe condemnation and loss of liberty for those who are direct participants in criminal conduct. The current director/officer provisions of the proposed amendment lack that distinction and ought, therefore, to be revised.

Judge Murphy, thank you for the opportunity to testify before the Commission. I look forward to answering any questions you might have.

Campaign Finance and Corporate Fraud: New Guidelines

By Jeralyn, Section Legislation
Posted on Fri Jan 10, 2003 at 10:49:43 AM EST
Tags: (all tags)

This is in technical terms, and will probably make all non-lawyer readers snore, so we apologize in advance, but we think it's important news for the criminal defense community and journalists who cover this beat, and this is the fastest way we know to get it out.

The following is taken verbatim from our Sentencing Guidelines Guru, Carmen Hernandez, Attorney-Advisor for the Defender Services Division Training Branch of the Federal Defenders Organization:

On January 8, the United States Sentencing Commission approved two emergency amendments and also voted to publish for comment a number of new proposals. The emergency amendments respond to the directives in the (1) Sarbanes-Oxley Act of 2002 (corporate fraud amendment) and (2) the Bipartisan Campaign Reform Act of 2002 (campaign reform amendment).

The Corporate Fraud amendment will have an effective date of January 25, 2003. The Campaign Reform amendment does not have to be submitted to Congress until February 3, but the Commission may submit both amendments to Congress at the same time. In that case, the Campaign Reform amendment will also come into effect on January 25, 2003.

Both amendments are emergency amendments promulgated pursuant to a grant of emergency authority in the Sarbanes-Oxley and Campaign Reform legislation. The emergency amendments will remain in effect until November 1, 2003. They will be replaced by permanent amendments that the Commission will consider during its regular amendment cycle. Under the regular cycle, the Commission submits amendments to Congress on May 1, 2003, which become effective on November 1, 2003, unless Congress acts to disapprove them.

Low-level White Collar Offenses. For now, the corporate fraud emergency amendment did not change the loss table or the base offense level for low-level economic crimes. But the issue is not dead. DOJ was adamant that the Commission was "sending the wrong message" to white collar criminals and was undermining Congressional intent by not increasing penalties for low-level white collar offenses. When these amendments are repromulgated as permanent amendments in May, they may well provide increased loss table enhancements for offenses involving loss amounts as low as $100,000 or less

I. HIGHLIGHTS OF THE EMERGENCY AMENDMENTS

A. Corporate Fraud: The amendment is a six-part amendment. Four new provisions are added to U.S.S.G. § 2B1.1; the obstruction of justice guideline is amended; and new offenses created by the Act are addressed by making various changes to Appendix A and expanding the cross-reference in §2E5.3 (false statements re ERISA) to include fraud, obstrucion of justice and the various new offenses.

1) new loss table provisions:
§2B1.1(b)(1)(O): adds 28 levels if the loss is more than $200 million;
§2D1.1(b)(1)(P) adds 30 levels if the loss is more than $400 million;

2) multiple victims:
§ 2B1.1(b)(2)© provides a 6-level enhancement (2 more than currently) if the offense "involved 250 or more victims"

3) endangering solvency or financial security
§2B1.1(b)(12)(B)ii & iii: adds two new specific offense characteristics to §2B1.1(b)(12), which triggers a 4-level upward adjustment with a minimum offense level of 24 where the offense:
(i) substantially jeopardized the safety and soundness of a financial institution; [this is an existing provision]
(ii) substantially endangered the solvency or financial security of an organization that, at any time during the offense, (I) was a publicly traded company; (II) had 1,000 or more employees; or
(iii) substantially jeopardized the solvency or financial security of 100 or more victims

§2B1.1, comment. (n. 10), new commentary sets out a "non-exhaustive" list of factors for courts to consider in determining whether the offense endangered the solvency or financial security of a publicly traded company and other things

4) securities fraud enhancement
§2B1.1(b)(13): adds a 4-level enhancement if the offense "involved a violation of securities law and, at the time of the offense, the defendant was an officer or a director of a publicly traded company." new commentary provides that if this enhancement applies, the adjustment in 3B1.3 for abuse of position of trust or use of a special skill is not to be applied.

5) obstruction of justice
§2J1.2: increases the base offense level from 12 to 14; adds a new 2-level enhancement that applies where the offense involved the destruction of a substantial number of records, especially probative or essential evidence, or was otherwise extensive

B. Campaign Reform:

A new guideline, §2C1.8 was created for offenses that involve campaign finance violations. It has a base offense level 8.

There are specific offense characteristics at §2C1.8(b):
(1) an offense level increase from the loss table in §2B1.1 for transactions that exceed $5 thousand;
(2) a 2-level enhancement if the illegal transactions involved a foreign national or a 4-level enhancement if it involved a foreign government;
(3) a 2-level enhancement if the offense involved government funds or was committed for the purpose of obtaining a non-monetary Federal benefit
(4) a 2-level enhancement if the defendant engaged in more than 30 illegal transactions; and
(5) a 4-level enhancement if the offense involved a transaction made or obtained through intimidation, threats or coercion.

The guideline also includes a cross-reference to the bribery and gratuity guideline. The new guideline, which is to be grouped under §3D1.2(d), the section for offenses that aggregate harm, will trigger the "same course of conduct" and "common scheme or plan" provisions in the relevant conduct guideline.

II. APPROVED FOR PUBLICATION. Various proposals were approved to be published. Public comment will be due 60 days after publication in the Federal Register. They will be voted on in April and if submitted to Congress, will take effect on November 1 unless disapproved by Congress. Here are some of them:

A. Oxycodone, §2D1.1: Provides for using Oxycodone (actual) in determining the base offense level in a manner similar to the guidelines treatment of "actual" PCP, Amphetamine, and Meth. But also increases the marijuana equivalency for oxycodone approximately 10 fold.

B. Body Armor Enhancement, §3A1.5: New upward adjustment [2, 4 or 6 levels] for the use of body armor in offenses involving drug trafficking or crimes of violence.

C. The Commission also published "Issues for Comments" regarding offenses involving: 1. Assaults and Threats against federal judges & other federal officials; and 2. Cybercrime

By the way, if you are a Criminal Justice Act attorney, you can call the "hotline " (800.788.9908) for information about, and research assistance on, all aspects of federal criminal law and procedure. It is free to federal defenders and CJA attorneys and sponsored by the Defender Services Training Branch of the Federal Defenders Organization, which was established by the Judicial Conference Committee on Defender Services to provide training and resource support to attorneys appointed under the Criminal Justice Act.

Corporate Fraud Task Force: How They Doin’?

Posted by Peter Lattman

The Justice Department used today’s charges against three former Comverse Technology executives to do a bit of self-congratulating over its success in prosecuting corporate crime. Along with its D.C. press conference this afternoon, the DOJ issued a press release trumpeting the numbers put up by the Corporate Fraud Task Force, formed in July 2002 in the wake of the Enron and WorldCom disasters. “With today’s indictment,” reads the release, “the Justice Department furthers its commitment to the American worker, investor, and honest taxpayers.”

The CFTF says it’s secured more than 1,000 corporate fraud convictions, convicted more than 100 corporate CEOs and presidents with corporate fraud, and charged more than 1,300 defendants. High-profile wins include Enron’s Skilling and Lay; WorldCom’s Ebbers; Adelphia’s Rigas family; executives at Computer Associates (now CA); and ImClone’s Sam Waksal.