Hazards of the Sentencing Guidelines
O Toole, Franklin, The CPA Journal
Keeping your client or company out of the poorhouse!
The Guidelines have become a cookbook in determining fines for criminal offenses. But the recipe can be made less bitter if preventative controls are in place. CPAs in public practice and industry are key to providing management and boards with the facts they need to make informed decisions about the guidelines; decisions that will protect the company and conserve its assets.
Many companies are insufficiently aware of the risks posed from the adoption of the Federal sentencing guidelines, (the Guidelines). Effective for individuals since 1987, the Guidelines became operative for all forms of business organizations in 1991. The passage of the Guidelines, the criminalization of noncompliance with rules promulgated by regulatory bodies, and a newfound zeal of prosecutors in pursuing white-collar crime, have combined to put businesses at greater risk for criminal prosecution and fines. Businesses, their executives, and in some instances subcontractors, can be subject to stiff fines and even jail sentences for violations that formerly carried limited penalties or penalties that in practice were applied only to the perpetrator of the criminal conduct. Onerous as the huge fines are under the Guidelines, there is even more at stake here. Once management of a publicly held company becomes the defendant in a criminal action, it is possible that the executives will become the targets of multiple plaintiffs' suits. There have been situations in which managements had no knowledge of the illegal acts committed by employees, yet after entering a guilty plea to avoid an extensive trial and the possibility of jail time, they were subject to follow-on civil suits which caused them to lose everything they owned.
Consider the following:
1. Just one misguided employee can bring down the organization and the supervisory executive who becomes a fall guy. The organization can be held criminally liable with respect to the guilty employee's actions if--
* the actions are within the scope of his or her employment, even if carried out against management's instructions;
* the actions are intended to benefit the company, even tangentially; and
* where scienter (guilty knowledge, or the realization that the law is being violated) is required, the company has knowledge of the illegal act. "Company" is used collectively so that if two members of management each know half the story, courts have held that the company knew the whole story.
2. Some statutes no longer require scienter; there is strict liability. Environmental and public health crimes are prime examples.
3. Corporate prosecutions are occurring at an increasing rate.
4. Businesspeople do not realize how easily criminal liability attaches, and the extent to which criminality has become a matter of judgment. For instance, should the government want to play hardball, a civil dispute can become a criminal case, even if only to gain leverage.
5. Many believe the government is no longer only interested in scalps--they are interested in money. We are told that there is a competition among jurisdictions to see how much money can be raised through fines and confiscated assets.
6. The Guidelines tilt the balance between defense and prosecution in the direction of the prosecutor. The Guidelines give the company and its counsel every incentive to cooperate completely, causing defense counsel to be circumspect and defensive where formerly they could be aggressive.
7. Organizational probation is mandated in many situations. What this entails, will be explored subsequently.
8. Fines under the Guidelines' "cookbook" methodology range as high as $290 million, and, in certain circumstances, this upper dollar limit may be increased substantially. The behavior and circumstances that drive fines up and then bring them down again, mitigating the computed fine and arriving at the net fine, are complex. …