On Tuesday, October 8, 2019, Assistant Attorney General Brian A. Benczkowski announced, at the Global Investigations Review Live in New York, the release of a new policy in evaluating business organizations’ inability-to-pay claims.1 The speech was followed by the publication of a memorandum on the Department of Justice (DOJ) website detailing the policy.2 The speech and memorandum give a framework for how prosecutors should assess claims by an entity that cannot pay the appropriate criminal fine or monetary penalty associated with the relevant charges, which formerly lacked clear guidance.
In seeking to resolve a criminal case, a company may claim that it is unable to pay the criminal fine or monetary penalty sought by the DOJ, despite agreeing that the amount is otherwise appropriate based on the law and facts of the case. The sentencing provisions of Title 18, the federal statute covering crimes and criminal procedure, give some factors for courts to consider in deciding whether to impose a criminal fine, how much to impose and the payment method.3 Additionally, the Federal Sentencing Guidelines allow for such fines to be reduced but not “by more than necessary to avoid substantially jeopardizing the continued viability of the organization.”4 However, both Title 18 and the Guidelines lack specific guidance on how prosecutors should go about evaluating these claims.
The DOJ’s issuance of clearer guidance in this area was previewed last month in a speech by Deputy Assistant Attorney General Matthew S. Miner, which discussed the DOJ’s continued efforts to promote transparency in order to encourage companies to establish effective compliance programs.5
The memorandum first instructs prosecutors to consider the statutory sentencing factors in Title 18, the Federal Sentencing Guidelines and the Justice Manual’s principles regarding the consideration of collateral consequences in resolving a corporate criminal case. It also clarifies that before prosecutors consider an inability-to-pay argument, the defendant and prosecutor must first agree to the form of the corporate resolution and the monetary penalty that is appropriate based on the law and facts of the given situation.
Once there is an agreement as to the appropriate monetary penalty, companies making an inability-to-pay claim will be required to complete the Inability-to-Pay Questionnaire, which is included in the memo, in order for the prosecutor to “determine the company’s current assets and liabilities, as well as compare current and anticipated cash flows against working capital needs.”
The Questionnaire will ask companies to provide:
- Recent Cash Flow Projections
- Operating Budgets and Projections of Future Profitability
- Capital Budgets and Projections of Annual Capital Expenditures
- Proposed Changes in Financing or Capital Structure
- Acquisition or Divestiture Plans
- Restructuring Plans
- Claims to Insurers
- Related or Affiliated Party Transactions
- Encumbered Assets
- Liens on the Company’s Assets
- Additional Materials, including a complete set of audited financial statements for the past five years and year-to-date financial statements for the current fiscal year
Prosecutors may also consider a number of other factors, which are detailed in the memo, including what gave rise to the company’s current financial condition, the organization’s ability to raise capital, any significant adverse collateral consequences that are likely to result, and whether the proposed fine or monetary penalty will impair the organization’s ability to make restitution to any victims.
Where a legitimate question exists regarding a company’s inability-to-pay, the Criminal Division should recommend an adjustment to the original amount. The amount should be adjusted only to the extent necessary to avoid threatening the organization’s viability or impairing its ability to make restitution payments to victims.
The memo additionally outlines factors that prosecutors will generally not find to be relevant in determining whether a reduction in payment is appropriate, including “adverse impacts on growth, future opportunities, planned or future product lines, future dividends, unvested or future executive compensation or bonuses, and planned or future hiring or retention.”6
However, a footnote adds that prosecutors may still “make an adjustment” to a fine “based on the existence of a significant adverse collateral consequence that, while severe, may not necessarily threaten the continued viability of the organization.”7
In his speech on Tuesday, Benczkowski emphasized that this new policy is part of the Department’s continued emphasis on transparency, stating, “We want you to know what we consider a legitimate inability-to-pay argument, but also the facts and arguments that won’t be given credence.”8
Benczkowski also emphasized the Criminal Division’s continued focus on white-collar enforcement, citing the department’s significant number of white-collar prosecutions in the past few years and stating that this year’s enforcement actions are on pace to continue that trend. Amid the backdrop of aggressive white-collar enforcement, this new DOJ policy may give businesses an opportunity to establish compliance programs and formulate arguments for reductions in fines that are in line with DOJ policies and expectations.
For more information and guidance on this topic, please contact John J. Carney or another member of BakerHostetler’s White Collar, Investigations and Securities Enforcement and Litigation team.
1 Brian A. Benczkowski, Assistant Attorney General for the U.S. Dep’t of Justice, Prepared Remarks for the Global Investigations Review Live (Oct. 8, 2019), available at https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-global-investigations.
2 Brian A. Benczkowski, Assistant Attorney General for the U.S. Dep’t of Justice, Memorandum on Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty (Oct. 8, 2019), available at https://www.justice.gov/opa/speech/file/1207576/download.
5 Matthew S. Miner, Deputy Assistant Attorney General for the U.S. Dep’t of Justice, Remarks at the 6th Annual Government Enforcement Institute (Sept. 9, 2019), available at https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-matthew-s-miner-delivers-remarks-6th-annual-government (discussing inability to pay claims and stating, “. . . we are considering whether there are ways we can provide our prosecutors with better guidance and tools to assess such inability to pay such claims.”)
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