Individual Penalties and Third-Party Rights: The US Perspective

31.1 Prosecutorial discretion

31.1.1Generally

In the United States, prosecutors usually have discretion in deciding whether to investigate and charge an individual with an offence.^[2] As a threshold matter, a prosecutor may bring charges if there is probable cause to believe that the accused has committed a crime.^[3] Prosecutors also have discretion as to how to charge a specific offence,^[4] when to bring charges^[5] and whether to negotiate a plea agreement.^[6] Courts will typically not interfere with charging decisions absent a showing of selective prosecution^[7] or vindictive prosecution.^[8]

31.1.2Principles of Federal Prosecution

The Department of Justice (DOJ) issues guidance to federal prosecutors to assist them in exercising their discretion appropriately when making investigation and charging decisions.

The DOJ’s Principles of Federal Prosecution – issued as part of the Justice Manual (JM) – provide federal prosecutors with a framework for applying their prosecutorial discretion to ‘promote the reasoned exercise of prosecutorial authority and contribute to the fair, evenhanded administration of the Federal criminal laws’.^[9] The Principles provide that if a prosecutor concludes that there is probable cause to believe that a person has committed a federal offence within the prosecutor’s jurisdiction, the prosecutor should consider whether to (1) request or conduct further investigation, (2) commence or recommend prosecution, (3) decline prosecution and refer the matter for prosecutorial consideration in another jurisdiction, (4) decline prosecution and commence or recommend pretrial diversion or other non-criminal disposition, or (5) decline prosecution without taking other action.^[10] A prosecutor should commence or recommend federal prosecution if he or she believes that the person’s conduct constitutes a federal offence, and that the admissible evidence will probably be sufficient to obtain and sustain a conviction, unless (1) the prosecution would serve no substantial federal interest, (2) the person is subject to effective prosecution in another jurisdiction or (3) there exists an adequate non-criminal alternative to prosecution.^[11]

In determining whether a prosecution ‘would serve a substantial federal interest’, the Principles of Federal Prosecution advise prosecutors to weigh all relevant considerations, including (1) federal law enforcement priorities, including any federal law enforcement initiatives or operations aimed at accomplishing those priorities, (2) the nature and seriousness of the offence, (3) the deterrent effect of prosecution, (4) the person’s culpability in connection with the offence, (5) the person’s history with respect to criminal activity, (6) the person’s willingness to co-operate in the investigation or prosecution of others, (7) the person’s circumstances, (8) the interests of any victims, and (9) the probable sentence or other consequences if the person is convicted.^[12]

31.1.3DOJ enforcement priorities and policies

Every year, the Attorney General communicates the DOJ’s national enforcement priorities, which have ranged from a focus on drug prosecutions during the influx of crack cocaine in the 1980s, to national security and counterterrorism following the attacks of 11 September 2001, and to prosecuting mortgage and financial fraud as the result of the Wall Street credit crisis of 2008. In the wake of the covid-19 pandemic, the DOJ’s leadership has emphasised swift investigations of price gouging for needed drugs or personal protection equipment and created national task forces to address that.^[13]

In addition, the DOJ encouraged immediate prosecutions and arrests of individuals alleged to have defrauded the Small Business Administration’s Payroll Protection Program (PPP), which provided direct and immediate loans to qualified businesses to enable them to keep employees on the payroll.^[14] The DOJ has already brought cases against persons for fraudulent PPP loan applications. The DOJ filed charges against a Seattle doctor for submitting loan applications with inaccurate and misleading information.^[15] A Texas business owner was charged with wire fraud, false statements to a financial institution and money laundering related to filing fraudulent applications seeking over US$3 million in PPP loans.^[16] The president and CEO of Sosuda Tech was charged with violation of wire fraud and bank fraud for exaggerating information in PPP loan applications where he received over US$2 million in PPP funds.^[17] In the coming years, enforcement for fraud and other illegal activity related to covid-19 is likely to be a priority for the Justice Department. In June 2020, the DOJ’s outgoing Criminal Division Chief, Brian A Benczkowski, commented at the American Bar Association’s virtual White Collar Conference that additional prosecutions in connection with the PPP would be forthcoming.^[18]

In addition, the DOJ periodically issues policy guidance that has an impact on prosecutorial discretion, frequently corresponding to changes in DOJ leadership. For example, on 10 May 2017, then-Attorney General Jeff Sessions issued a memorandum to all federal prosecutors entitled ‘Department Charging and Sentencing Policy’, which directed that ‘prosecutors should charge and pursue the most serious, readily provable offence’.^[19] In addition, the memorandum directed prosecutors to disclose to the court ‘all facts that impact the sentencing guidelines or mandatory minimum sentences’.^[20] By this memorandum, the Attorney General modified charging policies then in effect, limiting prosecutors’ discretion in making charging decisions and sentencing recommendations and requiring any exceptions to be approved by the respective US Attorney.^[21] In March 2020, the Justice Department and the Federal Trade Commission announced expedited antitrust procedures and guidance for coronavirus public health efforts, providing direction for collaborations of businesses working to protect the health and safety of Americans during the covid-19 pandemic. The agencies stressed they would not hesitate to hold accountable those who try to use the pandemic to engage in antitrust violations, and would criminally prosecute conduct such as price-fixing, bid rigging or market allocation.^[22] The use of these memoranda by the DOJ leadership is another mechanism by which policy changes are put into effect.

31.1.4Individual accountability for wrongdoing

Under US law, criminal prosecution and civil actions may be brought against business organisations including corporations, partnerships, sole proprietorships, government entities and other unincorporated associations, notwithstanding their artificial nature as a legal entity.^[23] The prosecution of corporate crime has long been a high priority for the DOJ, with a focus on (1) protecting the integrity of the economic and capital markets by enforcing the rule of law, (2) protecting consumers, investors and business entities against competitors who gain unfair advantage by violating the law, (3) preventing violations of environmental laws and (4) discouraging business practices that would permit or promote unlawful conduct at the expense of the public interest.^[24] Under this concept of corporate liability, corporations and other business organisations can be indicted, plead guilty, be convicted of offences, be fined and be required to institute remedial measures to prevent future wrongdoing.^[25] Historically, the DOJ’s focus on corporate wrongdoing often led to significant settlements with companies, but without any individuals being held accountable for the crimes charged. Following increasing public and judicial criticism about the lack of individual accountability, in September 2015, the DOJ issued a memorandum titled ‘Individual Accountability for Corporate Wrongdoing’, authored by then-Deputy Attorney General Sally Quillian Yates (commonly referred to as the Yates Memorandum).^[26] The Yates Memorandum set forth new policy guidance focusing on prosecuting individuals with responsibility for the crimes for which corporations could be held responsible, and its core principles were incorporated into the US Attorneys’ Manual (now the Justice Manual) several months later. In acknowledging the historical challenge of identifying and prosecuting individuals who were aware of or complicit in corporate misconduct, the Yates Memorandum listed six key steps to strengthen the DOJ’s pursuit of individual wrongdoers.

• Provision of evidence against individual wrongdoers: For a company to receive any consideration for co-operation with the government under the Principles of Federal Prosecution of Business Organizations, the company must completely disclose to the DOJ all relevant facts about any individual misconduct. This includes identifying all individuals responsible for the misconduct at issue, regardless of their position, status or seniority at the company.
• Investigative focus on individual wrongdoers: Both civil attorneys and criminal prosecutors at the DOJ will now focus on individual wrongdoing from the beginning of any investigation of corporate misconduct.
• Coordination between civil attorneys and criminal prosecutors: Civil attorneys and criminal prosecutors at the DOJ will more regularly consult throughout all phases of an investigation of corporate misconduct and will consider bringing parallel civil and criminal proceedings to take advantage of the full range of the government’s potential remedies, including fines, imprisonment, forfeitures, restitution, and suspension and debarment.
• No shielding of individuals from liability: Absent extraordinary circumstances, no resolution of a case of corporate misconduct will provide protection from criminal or civil liability for individuals. Any release of criminal or civil liability due to extraordinary circumstances must be personally approved in writing by the relevant Assistant Attorney General or United States Attorney.
• No corporate resolution without individual resolution: If the investigation of individual misconduct has not concluded by the time authorisation is sought to resolve the case against the corporation, a plan must be implemented by the DOJ prosecutor on how to resolve the matter prior to the end of any statute of limitations period.
• Increased focus on civil settlements: Civil attorneys at the DOJ will focus on recovering as much money as possible for the public, regardless of an individual’s ability to pay. Instead, the decision as to whether to file a civil action against an individual should focus on the seriousness of the person’s misconduct, whether it is actionable, whether the admissible evidence will be sufficient to obtain a judgment and whether pursuing the action reflects an important federal interest.

To some practitioners, the Yates Memorandum merely memorialised the DOJ’s existing practice of prosecuting culpable individuals in white-collar cases. However, the requirement that the government prove that defendants intentionally and knowingly violated the law remains a significant hurdle, especially in the context of corporate wrongdoing. Indeed, the Yates Memorandum notes that in cases of misconduct in a large corporate setting ‘where responsibility can be diffuse . . . it can be difficult to determine if someone possessed the knowledge and criminal intent necessary to establish their guilt beyond a reasonable doubt.’^[27]

In November 2018, then-Deputy Attorney General Rod Rosenstein announced revisions to the Yates Memorandum to restore some of the prosecutorial discretion that had traditionally been afforded to cases involving corporate wrong­doing.^[28] Rosenstein’s speech, while emphasising that the aggressive targeting of white-collar crime in general and individuals in particular remained a ‘top priority’, also effectively conceded that the Yates Memorandum’s ‘all or nothing’ approach was somewhat unrealistic. In deviating from a position whereby corporations must identify every individual wrongdoer to obtain co-operation credit, Rosenstein stated that the new policy permits prosecutors to recognise credit when a corporation identifies the individuals who play ‘significant roles’ in corporate misconduct. The revised policy allowed prosecutors more discretion to agree to credit based on the extent of a corporation’s co-operation, while maintaining the position that corporations that failed to co-operate in good faith would remain ineligible for credit.^[29] The effective components of the Yates Memorandum, as revised by the Rosenstein comments, were incorporated into the Justice Manual.^[30] In March 2019, the DOJ’s Corporate Enforcement Policy was revised to incorporate Rosenstein’s November 2018 comments to the Yates Memorandum; companies are only required to share information about individuals that are ‘substantially involved in or responsible for the misconduct at issue’, rather than identifying all individuals responsible for misconduct.^[31]

31.2 Sentencing

31.2.1Generally

Individuals who are convicted of violating a federal criminal law, including white-collar laws, face a range of possible punishments including fines, probation and imprisonment. In determining the nature and range of a potential sentence following a conviction, there are currently two sources of guidance for judges, prosecutors and defence counsel to refer to: criminal statutes in the United States Code^[32] and the United States Sentencing Guidelines (the Guidelines).^[33]

In 1984, Congress passed the Sentencing Reform Act (SRA), which led to the creation of the Guidelines.^[34] The Guidelines require a score-based analysis focused on a myriad of factors relating to the circumstances of the offence. This analysis leads to one of 43 different offence levels^[35] and six criminal history categories.^[36] As originally designed, the Guidelines were mandatory. However, in 2006, the US Supreme Court in United States v. Booker determined that mandatory application of the Guidelines was unconstitutional and that they are advisory recommendations only.^[37] As a result of Booker, the Guidelines now act as a starting point for a federal judge to determine what sentence should be imposed, consistent with minimum and maximum sentences set forth in the offence of conviction, as well as the factors set forth in the federal sentencing statute.^[38]

31.2.2Imprisonment

The federal prison system is operated by the Bureau of Prisons, and currently contains over 158,000 inmates in over 140 facilities located throughout the United States.^[39]

When calculating a potential sentence of imprisonment under the Guidelines, the judge first looks to the ‘base offence level’ applicable to the defendant’s conviction,^[40] and adjusts that upward or downward for specific applicable offence characteristics, special instructions and other factors to calculate the ‘total offence level’.^[41] Next, the judge determines the defendant’s criminal history category (categories I to VI), which is increased by prior criminal convictions.^[42] Once the total offence level and criminal history category are determined, the judge arrives at the recommended sentence by identifying the applicable range in the Guidelines’ sentencing table.^[43] Judges have discretion to depart upward or downward from the recommended range upon finding that the case includes one or more aggravating or mitigating circumstance ‘of a kind not adequately taken into consideration’ by the Guidelines.^[44] Judges may also depart from the Guidelines if the government moves for a downward departure based on the defendant’s substantial assistance in another case.^[45] In any case, the judge must state in writing the specific reasons for imposing a sentence outside the applicable Guidelines sentencing range.^[46]

31.2.3Fines

An individual convicted of a federal crime may also be sentenced to pay a monetary fine.^[47] Many criminal statutes set forth the range of fines that may be assessed upon conviction; for those felonies whose statute does not so specify, the fine is set at not more than US$250,000.^[48] As with terms of imprisonment, the Guidelines contain a fine table that provides the court with an advisory minimum and maximum fine range for defendants, based on the offence level at which the defendant is sentenced.^[49]

Judges may depart upwards or downwards from the Guidelines’ fine range based on factors such as a defendant’s ability to pay, any restitution the defendant must make, the potential for collateral consequences the defendant may face (such as civil litigation) and other equitable considerations.^[50]

31.2.4Probation

The US Probation and Pretrial Services System supervises individuals sentenced to a term of probation to ensure compliance with conditions imposed by the sentencing judge. Probation is a sentence in and of itself, and may be used as an alternative to imprisonment.^[51] When imposing probation, the sentencing judge must consider the Guidelines^[52] as well as the factors set forth in the SRA.^[53]

The Guidelines contain a list of standard conditions that are recommended in all cases of probation,^[54] along with a list of special conditions to be considered under certain circumstances.^[55] A judge may impose additional conditions on a defendant’s probation term that are reasonably related to the nature and circumstances of the offence, the history and characteristics of the defendant, and the goals of sentencing.^[56] In all cases, the court must provide the defendant with written notice of the conditions.^[57] The court may revoke a defendant’s probation at any time before the end of its term for any violation of a probation condition that occurs during that time.^[58]

31.2.5Confiscation of assets

31.2.5.1 Pretrial asset freeze orders

Under US law, the government can seek a temporary order freezing an individual’s assets, in both the civil and criminal contexts, before a case is proven at trial. In civil enforcement matters, regulators can seek asset freezes from an administrative law judge once an action is initiated, often in ex parte proceedings at which the respondent is not present. In criminal matters, prosecutors can seek asset freeze orders from a district court based on a showing of probable cause that the assets are subject to permanent forfeiture.

The Supreme Court in Luis v. United States held that the pretrial restraint of a criminal defendant’s assets – which assets were not ‘tainted’ by the alleged criminal conduct – violates the Sixth Amendment right to counsel.^[59] As a result, while the government can freeze and seize assets pretrial that are believed to derive from criminal activity, its ability do so for ‘untainted’ assets are trumped by the defendant’s Sixth Amendment right to counsel of choice.

31.2.5.2 Civil and criminal asset forfeitures

Permanent government confiscation of property is called a ‘forfeiture’. There are generally three types of forfeiture proceedings available to US law enforcement and prosecutors: administrative, civil and criminal.^[60]

Administrative forfeiture permits a federal agency to seize personal (non-real) property without initiating a judicial proceeding. The authority derives from the Tariff Act of 1930, which states that the following types of property are eligible for administrative forfeiture: (1) property whose value does not exceed US$500,000; (2) merchandise whose importation is prohibited; (3) a conveyance used to import, transport or store a controlled substance; or (4) a monetary instrument.^[61]

Civil forfeiture is an in rem proceeding that is brought directly against a piece of real or personal property that is involved, derived from or traceable to one or more enumerated federal crimes.^[62] The property itself is the defendant and no charge against an individual is necessary. In a civil forfeiture proceeding, the government must prove, by a preponderance of the evidence, that the property is subject to forfeiture.^[63] If a claimant raises an innocent owner defence, he or she has the burden of proving that the claimant is an innocent owner of the property by a preponderance of evidence.^[64]

Criminal forfeiture is an action brought as part of a criminal case against a defendant, not against a specific asset. It is an in personam action and requires the government to include a forfeiture charge against the defendant in the indictment, and prove that the property was used or derived from one or more enumerated federal crimes.^[65] The indictment or criminal information must contain notice to the defendant that the government is seeking forfeiture of property as part of any sentence.^[66] If a defendant disposes of the original asset subject to forfeiture, the government may obtain substitute assets^[67] or may obtain a money judgment in an amount equal to the criminal proceeds.

A defendant can challenge the dollar amount of a criminal or civil forfeiture as a violation of the Eighth Amendment to the US Constitution, which restricts the government’s ability to impose ‘excessive fines’ as punishment.^[68]

31.2.6Compensation orders

Under the Mandatory Victims Restitution Act of 1996,^[69] defendants convicted of certain federal crimes, as well as defendants sentenced to probation, must in most circumstances make restitution to each of their victims in the full amount of the victim’s financial losses that resulted from the defendant’s crimes.^[70] Restitution by the defendant must be ordered regardless of the defendant’s economic circumstances, or any third-party compensation received by the victim.^[71]

31.2.7 Collateral consequences of conviction

In addition to imprisonment, fines, probation, forfeitures and other direct sanctions that may be imposed by a criminal court, there are a number of other federal, state and local legal and regulatory restrictions that may result as ‘collateral consequences’ of a criminal conviction.^[72] They are imposed automatically upon conviction, even if not expressly included in the criminal court’s judgment, or by action of a civil court or administrative agency.

Footnotes