Individual Penalties and Third-Party Rights: The US Perspective

31.1 Prosecutorial discretion

31.1.1 Generally

In the United States, prosecutors generally 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]

31.1.2 Principles of Federal Prosecution

Within the discretion provided to federal prosecutors, there is guidance issued by the Department of Justice (DOJ) to help with investigation and charging decisions.

The DOJ’s Principles of Federal Prosecution – issued as part of the US Attorneys’ Manual (USAM) (recently renamed the Justice Manual) – 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] They provide that if a prosecutor concludes 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 prosecution should be declined because ‘no substantial federal interest would be served’, 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 interests of any victims and (8) the probable sentence or other consequences if the person is convicted.^[12]

The Principles of Federal Prosecution also establish important boundaries as to what a prosecutor should not consider when determining whether to bring charges against an individual. Among other things, prosecutors should not be influenced by: (1) the person’s race, religion, gender, ethnicity, national origin, sexual orientation, or political association, activities or beliefs, (2) the prosecutor’s own personal feelings concerning the person, the person’s associates or the victim or (3) the possible effect of the decision on the prosecutor’s own professional or personal circumstances.^[13]

31.1.3 DOJ enforcement priorities and policies

The first factor within the Principles of Federal Prosecution for prosecutors to consider – federal law enforcement priorities – are developed annually by the DOJ. 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 in the wake of the Wall Street credit crisis of 2008.^[14]

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, 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.’^[15] In addition, the memorandum directed prosecutors to disclose to the court ‘all facts that impact the sentencing guidelines or mandatory minimum sentences.’^[16] By this memorandum, the Attorney General modified charging policies in the USAM, limiting prosecutors’ discretion in making charging decisions and sentencing recommendations and requiring any exceptions to be approved by the respective US Attorney.^[17] The use of these memoranda by the DOJ leadership is another mechanism by which policy changes are put into effect.

31.1.4 Individual accountability for wrongdoing

Under US law, criminal prosecution and civil actions may be brought against corporations, partnerships, sole proprietorships and other business organisations, notwithstanding their artificial nature as a legal entity.^[18] The prosecution of corporate misconduct has long been a stated priority for the DOJ, with a focus on protecting the integrity of the economic and capital markets by enforcing the rule of law, protecting consumers, investors and business entities against competitors who gain unfair advantage by violating the law, preventing violations of environmental laws and discouraging business practices that would permit or promote unlawful conduct at the expense of the public interest.^[19] 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.^[20] Just as prosecutors have discretion in deciding when, how, and whether to prosecute individuals, they have similar latitude in prosecuting and negotiating settlements with corporate defendants.^[21]

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 former Deputy Attorney General Sally Quillian Yates (commonly referred to as the Yates Memorandum).^[22] The Yates Memorandum set forth new policy guidance focusing on prosecuting individuals with responsibility for the crimes for which corporations could be held responsible. 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.’^[23]

In fact, since the issuance of the Yates Memorandum, the DOJ has lost several cases brought against individuals in cases in which the company settled.^[24] This may be in part because corporations arguably apply different criteria from an individual when faced with allegations of wrongdoing. Corporations weigh the financial and reputational cost of litigation versus paying a corporate fine and settling a matter. Even where the prosecution’s evidence may be weak, corporations may decide that there is value in a speedy resolution. The DOJ may be obtaining settlements from corporations on weak evidence, while individuals are willing to litigate on the same evidence in the face of potential jail time.

The full impact of the Yates Memorandum on the willingness of companies to co-operate with the DOJ in the face of an increased focus on individual criminal and civil liability has yet to be seen. Equally unclear is how the Yates Memorandum will impact the relationship between company attorneys and employees, and whether employees will co-operate with internal investigations knowing that the company is likely to turn over evidence of individual wrongdoing to prosecutors to be perceived as co-operative by the DOJ. Despite initial questions about whether the Trump administration would change course from what was laid out in the Yates Memorandum, Attorney General Sessions has indicated that the DOJ will continue emphasising the importance of holding individuals accountable for corporate misconduct because ‘[i]t is not merely companies, but specific individuals, who break the law.’^[25]

31.2 Sentencing

31.2.1 Generally

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^[26] and the United States Sentencing Guidelines (Guidelines).^[27]

Prior to 1984, federal judges had broad discretion in sentencing criminal defendants up to and including imprisonment, subject only to mandatory minimum or maximum sentences set forth in individual criminal statutes. Certain criminal statutes contain mandatory minimum sentences – for example, aggravated identity theft is punishable by a mandatory minimum sentence of imprisonment for two years, or by a mandatory term of imprisonment for five years if it relates to a terrorism offence.^[28] Drug trafficking offences typically involve mandatory minimum sentences depending on the nature and quantity of the controlled substance involved and the defendant’s criminal history.^[29] Other statutes establish maximum terms of imprisonment, or a combination of a fine and imprisonment, such as bank fraud, which is punishable by a fine or a term of imprisonment of not more than 30 years.^[30] Not surprisingly, these broad sentencing parameters often resulted in wide sentencing disparities across jurisdictions for similar conduct.^[31]

In response, Congress passed the Sentencing Reform Act of 1984 (SRA), which led to the creation of the Guidelines.^[32] 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^[33] and six criminal history categories.^[34] As originally designed, the Guidelines were mandatory. A sentencing judge was required to apply a sentence from within the Guideline range dictated by the score-based analysis. 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.^[35] 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.^[36]

31.2.2 Imprisonment

The federal prison system is operated by the Bureau of Prisons, and currently contains over 180,000 inmates in over 150 facilities located throughout the United States.^[37]

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,^[38] and adjusts that upward or downward for specific applicable offence characteristics, special instructions and other factors to calculate the ‘total offence level’.^[39] Next, the judge determines the defendant’s criminal history category (categories I to VI), which is increased by prior criminal convictions.^[40] 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.^[41] 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.^[42] They also allow judges to depart from the Guidelines if the government moves for a downward departure based on the defendant’s substantial assistance in another case.^[43] In any case, the judge must state in writing the specific reasons for imposing a sentence outside the applicable Guidelines sentencing range.^[44]

31.2.3 Fines

An individual convicted of a federal crime may also be sentenced to pay a monetary fine.^[45] The process a judge uses to calculate an applicable fine is similar to that of determining a sentence of imprisonment. 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.^[46] 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.^[47]

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.^[48] Judges looking to assess a fine should also consider the factors in the federal sentencing statute in calculating the amount, including the seriousness of the offence, promotion of respect for the law, provision of just punishment for the defendant and its deterrent factor.^[49]

31.2.4 Probation

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.^[50] When imposing probation, the sentencing judge must consider the Guidelines^[51] as well as the factors set forth in the SRA.^[52]

The Guidelines contain a list of standard conditions that are recommended in all cases of probation,^[53] along with a list of special conditions to be considered under certain circumstances.^[54] In addition, 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.^[55] In all cases, the court must provide the defendant with written notice of the conditions.^[56] 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.^[57]

31.2.5 Confiscation 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.

In the past, courts were unconvinced by the constitutional argument that pretrial asset freeze orders were a violation of a defendant’s Sixth Amendment right to counsel, even if those assets would otherwise be used to pay lawyers’ fees.^[58] However, more recently, 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, prosecutors must now distinguish between tainted and untainted assets and seek to freeze only assets that derive from alleged criminal activity.

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]

The deadlines and notice requirements for the various types of administrative forfeiture proceedings are set forth in the Civil Asset Forfeiture Reform Act of 2000.^[62] Once property is administratively seized, the federal agency involved must give written notice of the seizure to each party who appears to have an interest in the seized article.^[63] The notice must contain a description of the property seized; the time, cause and place of the seizure; how a person seeking to claim the property should proceed; and, if known, the name and residence of the owner of the seized property.^[64] If no one contests the administrative forfeiture within the deadline specified, claimants lose their ability to contest the forfeiture. If a timely claim of the property is received, the matter is referred to the United States Attorney’s Office for a judicial proceeding.

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.^[65] 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.^[66] 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.^[67]

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.^[68] The indictment or criminal information must contain notice to the defendant that the government is seeking forfeiture of property as part of any sentence.^[69] If a defendant disposes of the original asset subject to forfeiture, the government may obtain substitute assets^[70] or may obtain a money judgment in an amount equal to the criminal proceeds.

When a criminal defendant is found guilty on charges that include the potential criminal forfeiture of property, the jury then determines whether the government has established ‘the requisite nexus between the property and the offense committed by the defendant’.^[71] If so, a preliminary order of forfeiture is entered against the defendants. If there are any third parties with an interest in the property, they may seek an ancillary proceeding to prevent the seizure by the government.^[72] Once the trial judge has disposed of any third-party claims, a final order of forfeiture is entered and the defendant’s interest in the property is divested.^[73]

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.^[74] Among other factors, courts conducting such a review will look to whether the forfeiture is disproportionate to the defendant’s conduct and, therefore, excessive.^[75]

31.2.6 Compensation orders

Under the Mandatory Victims Restitution Act of 1996,^[76] 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.^[77] Restitution by the defendant must be ordered regardless of the defendant’s economic circumstances, or any third-party compensation received by the victim.^[78] Judges must, however, consider a defendant’s economic circumstances when deciding on a payment schedule and form of restitution.^[79]

Judges must reduce a restitution amount to be paid to a victim if the victim recovers compensatory damages from the defendant for the same loss in a civil proceeding.^[80] In addition, if a victim has received insurance proceeds as compensation for a loss suffered due to the defendant’s crimes, the defendant’s restitution must be paid to the insurance company.^[81]

31.2.7 Disqualification and other consequential orders

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.^[82] These are opportunities and benefits that are no longer fully available to a person, or legal restrictions a person may operate under, because of their criminal conviction. 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. Examples of collateral consequences of a criminal conviction may include (1) disqualification from jury service and loss of voting rights, (2) ineligibility for federal employment or military service, (3) inability to obtain a passport or possess a firearm and (4) for individuals with professional licences, such as attorneys, certified public accountants and securities brokers, suspension or loss of licence.

Footnotes