By Dan Portnov
You know that it’s been a busy month in law enforcement news when a speech and memo announcement by DOJ Criminal Division Assistant Attorney General (AAG) Brian Benczkowski concerning corporate criminal penalties arrives with little fanfare. It must be something about an impeachment inquiry, I guess.
On October 8th, AAG Benczkowski rolled out a memo detailing DOJ’s policy for corporations settling criminal charges that are unable to pay the attendant criminal fines.[1] Corporate poverty claims are not new, but the Benczkowski memo and its accompanying questionnaire[2] offer additional clarity and perhaps further incentive for cooperation.
Critics of corporate penalties have argued that penalties do little to deter corporate wrongdoing, instead disproportionately punishing shareholders and employees. Indeed, steep penalties that could jeopardize a company’s existence would only encourage the cover up of any misconduct.
The Benczkowski memo aims to address these critiques. Noting that white-collar crime has been a focus of his tenure as head of the Criminal Division, the AAG stressed that greater transparency and cooperation between law enforcement and defense counsel is the goal. The instant memo serves as the latest in the Criminal Division’s guidance to corporations, following April’s Evaluation of Corporate Compliance Programs and last October’s memo on corporate monitorships.
The Benczkowski memo supplements the guidance prosecutors already use in coming up with corporate penalties at sentencing – e.g., 18 U.S.C. § 3572(a) and (b)), the Federal Sentencing Guidelines §§ 8C2.2 and 8C3.3), and the Justice Manual. For instance, the memo lays out the relevant factors in assessing the corporation’s ability to pay: (1) background on current financial condition, (2) alternative sources of capital, (3) collateral consequences and (4) victim restitution considerations.
Collateral consequences are further broken down into “relevant” and “not relevant” in assessing the corporation’s ability to pay. Relevant considerations include corporate pension obligations, statutory or regulatory capital requirements, and prevention of layoffs. It is laudatory – and consistent with this administration’s stated concerns – that DOJ is prioritizing the protection of pensions and jobs. In contrast, “not relevant” concerns are impacts on growth, future product development, executive compensation, and future dividends and hiring.
Both AAG Benczkowski and his memo make clear that the corporation bears the burden of proof of its inability to pay. The 11-item questionnaire is exacting and thorough, seemingly requiring the assistance of accountants and investment bankers to complete.[3] And the corporate poverty claim can only follow the settlement of charges and calculation of the full criminal fine under the law. That’s to say that only once the full criminal penalty is determined can the corporation seek reduction of that penalty pursuant to its inability to pay.
The Benczkowski memo adds another layer of discretion for prosecutors to reduce criminal fines. It also, in his words, forces defense counsel to work harder “to be well-prepared and base their advocacy on the very criteria that [DOJ] prosecutors find relevant to their decisions.” Defense counsel, for their part, have seemed receptive to this new guidance, hopeful that increased transparency will lay out a blue print for future reduction claims.[4]
However, the AAG’s remarks that this new memo will encourage self-disclosure and cooperation by corporations may be a touch too optimistic. A corporation’s ability to reduce its criminal penalty to stay viable notably does not take into account the timeliness or level of its cooperation with law enforcement. That’s a separate calculus – one set forth by former Deputy Attorney General Rod Rosenstein.[5]
Still, it is heartening to see DOJ remain focused on bringing white-collar criminals, including corporations, to justice while taking care to limit collateral damage, i.e. protecting employees and retirees.
[1] AAG Benczkowski’s speech at the Global Investigations Review in New York, New York available at: https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-global-investigations
[2] Memo and questionnaire available at: https://www.justice.gov/opa/speech/file/1207576/download
[3] Sample documentation required, per item 11:
A complete set of (a) audited financial statements for the past five years and (b) year-to-date financial statements for the current fiscal year, including balance sheets, income statements, statement of cash flows, and all accompanying footnotes, accounting explanations, disclosures, and supporting schedules[.]
[4] https://www.natlawreview.com/article/department-justice-guidance-companies-claim-inability-to-pay-criminal-fines
[5] Rosenstein Remarks to New York City Bar White Collar Crime Institute, available at: https://www.justice.gov/opa/speech/deputy-attorney-general-rod-rosenstein-delivers-remarks-new-york-city-bar-white-collar