Chair Murphy called the meeting to order at 10:08 a.m. in the Commissioners Conference Room.
The following Commissioners and staff participated in the meeting:
Diana E. Murphy, Chair
Ruben Castillo, Vice Chair
William K. Sessions, III, Vice Chair
John R. Steer, Vice Chair
Michael E. O’Neill, Commissioner
Edward F. Reilly, Jr., Commissioner Ex Officio
Eric H. Jaso, Commissioner Ex Officio
Timothy B. McGrath, Staff Director
Charles Tetzlaff, General Counsel
Judith Sheon, Special Counsel
Chair Murphy started the meeting by welcoming members of the public and press. She stated that guests may notice that there were fewer people at the table because the Commission now has two vacancies. Chair Murphy stated that there are now only five voting members, and thus far no nominations have been made to fill the vacancies.
Chair Murphy stated that the Commission would be talking about publishing a number of proposed amendments and issues for comment to assist the Commission in developing the work that it will continue during the year. She stated that normally the Commission would vote on amendments in April because the Sentencing Reform Act requires that amendments be submitted to Congress by May 1 of each year. The Sentencing Reform Act also allows Congress to ask the Commission to promulgate amendments on an emergency basis, however, when Congress perceives a pressing need. Chair Murphy stated that at this meeting the Commission would be taking up proposed amendments and issues for comment relating to two complicated areas Congress has given the Commission to address: Campaign Finance and Corporate Fraud. Chair Murphy said that the Commission is proceeding in two ways, by promulgating emergency amendments, and by publishing issues for comment regarding permanent amendments.
Chair Murphy stated that the first item on the agenda was the approval of the minutes for the two November 2002 public meetings. Vice Chair Steer requested minor technical changes to the minutes. The request was seconded by Vice Chair Castillo. The minutes for November 19, 2002, and November 20, 2002, were approved, as corrected, by unanimous voice vote.
21st Century Department of Justice Appropriations Reauthorization Act
Chair Murphy began by explaining the Commission’s process for amending the guidelines, noting that it publishes proposals for public comment and the responses help inform the Commission’s final decision. She asked General Counsel Charles Tetzlaff to begin with the Department of Justice Appropriations Reauthorization Act.
General Counsel Tetzlaff stated that in November 2002, the Commission published general issues for comment on how to implement two directives contained in the 21st Century Department of Justice Appropriations Reauthorization Act (the “Act”). General Counsel Tetzlaff stated that the current proposal provides an amendment to implement the directive to provide an enhancement for the use of body armor for a crime of violence or drug-trafficking crime, and additional issues for comment on the implementation of the directive to provide an enhancement for offenses involving influencing, assaulting, resisting, impeding, retaliating against, or threatening federal judges, magistrates, or certain other federal officials. The proposal also includes issues for comment regarding increased statutory maximum penalties provided for certain offenses and other miscellaneous provisions in the Act. General Counsel Tetzlaff noted that the proposal also seeks public comment on whether the appropriate offense level increase for the use of body armor is two, four, or six.
General Counsel Tetzlaff stated that a motion would be in order to publish the proposal for public comment for a sixty day comment period and to authorize staff to make technical and clarifying changes.
Vice Chair Castillo moved to publish the proposal. Seconded by Vice Chair Sessions.
Vice Chair Castillo stated that he believes the use of body armor in violent offenses and drug offenses is a particularly evil offense characteristic. He stated that the use of body armor conveys the message that the user plans to engage in violent combat with law enforcement officers and to do violence to others. Vice Chair Castillo stated that this is very different from carrying a weapon for protection, and he would set the offense level for the use of body armor at the highest of the proposed levels. He stated that he looks forward to receiving public comment on this particular issue.
Chair Murphy then called for a voice vote. The motion to publish the proposals relating to the 21st Century Department of Justice Appropriations Reauthorization Act passed by unanimous voice vote.
Oxycodone
General Counsel Tetzlaff provided the Commission with an overview of the proposed amendment. He stated that this proposed amendment responds to proportionality issues in the sentencing of oxycodone trafficking. Oxycodone is an opium alkaloid found in certain prescription pain relievers such as Percocet and Oxycontin. This prescription drug generally is sold in pill form, and the sentencing guidelines currently establish penalties for oxycodone trafficking based on the entire weight of the pill. The proportionality issues arise because of the formulations of the different medicines and because different amounts of oxycodone are found in pills of identical weight. To remedy these proportionality issues it is proposed that sentences for oxycodone offenses be calculated using the weight of the actual oxycodone instead of the current mechanism of calculating the weight of the entire pill. Currently the Drug Equivalency Tables in §2D1.1 equate one gram of oxycodone mixture to 500 grams of marijuana. The proposal would equate one gram of actual oxycodone to 6,700 grams of marijuana. This equivalency would keep penalties for offenses involving ten milligrams of Oxycontin identical to current levels but would increase penalties for all other doses of Oxycontin. At the same time, penalties for Percocet would be reduced substantially.
General Counsel Tetzlaff stated that a motion would be in order to publish the proposal for public comment, including an issue for comment as to whether the amendment should be made retroactive, with a sixty day comment period, and to authorize staff to make technical and clarifying changes.
Commissioner O’Neill moved to publish the proposal as stated by General Counsel Tetzlaff. Seconded by Vice Chair Steer.
Vice Chair Castillo stated that this proposal demonstrates the Commission’s responsiveness to members of Congress who brought to the Commission’s attention the problems that oxycodone is causing throughout the country. He stated that he is pleased to join in the effort to combat this drug.
Commissioner O’Neill stated that he believes it is important to respond to Congress on this issue. He stated that oxycodone is a prescription medication that when properly used, brings tremendous relief to many people who suffer from pain. Commissioner O’Neill stated that it is very unfortunate that people are abusing this beneficial drug. He joined Vice Chair Castillo in stating that he is pleased the Commission is working to combat oxycodone offenses.
Vice Chair Steer clarified that a request for a retroactivity analysis is a standard procedure the Commission employs when considering lowering the guideline sentence for a particular category of offenses; the request should not be interpreted as a signal that the Commission is necessarily ready to move in that direction, but it makes the issue available for public comment.
The motion to publish the proposed amendment and issues for comment regarding oxycodone, and to authorize staff to make technical and clarifying changes, passed unanimously by voice vote.
Cybersecurity
General Counsel Tetzlaff introduced the proposed issues for comment regarding cybercrime and cybersecurity. He stated that on December 18, 2002, the Commission published a general issue for comment relating to the implementation of a directive in the Homeland Security Act of 2002 (the Cyber Security Enhancement Act of 2002). Section 225 of the Cyber Security Enhancement Act of 2002 directs the Commission to review and amend, if appropriate, the sentencing guidelines and policy statements applicable to persons convicted of an offense under section 1030 of title 18, United States Code, to ensure that the sentencing guidelines and policy statements reflect the serious nature of such offenses, the growing incidence of such offenses, and the need for an effective deterrent and appropriate punishment to prevent such offenses.
The directive also includes a number of factors for the Commission to consider, including the potential and actual loss resulting from the offense, the level of sophistication and planning involved in the offense, whether the offense was committed for purposes of commercial advantage or private financial benefit, whether the defendant acted with malicious intent to cause harm in committing the offense, the extent to which the offense violated the privacy rights of individuals harmed, whether the offense involved a computer used by the government in furtherance of national defense, national security, or the administration of justice, whether the violation was intended to, or had the effect of, significantly interfering with or disrupting a critical infrastructure, and whether the violation was intended to, or had the effect of, creating a threat to public health or safety, or injury to any person.
The proposed issues for comment seek additional public input on how the Commission should address the directive and the extent to which the eight factors described in the directive have or have not been addressed by the guidelines.
General Counsel Tetzlaff stated that a motion would be in order to publish the issues for comment with a sixty day comment period and to authorize staff to make technical and clarifying changes.
Vice Chair Sessions moved to publish the cybersecurity issues for comment. Seconded by Vice Chair Steer.
Vice Chair Castillo expressed concern that the Commission must evaluate this very complex issue in the short time frame set by Congress. Vice Chair Castillo stated that implementing the directive contained in the Cyber Security Enhancement Act of 2002 will require a broad and complicated evaluation of the sentencing guidelines because multiple guidelines address cybercrime. He stated that he wants to be fully responsive to Congress, but he believes that this situation illustrates the need to have a better dialogue with Congress to avoid these kinds of deadlines. Vice Chair Castillo stated that the Commission has two vacancies and is facing a resource issue. He stated that despite the pressing deadline, the Commission will do its best to respond fully to the directive.
Vice Chair Sessions stated that he agrees that this is an important issue and illustrates the process by which the Commission operates. This directive will require an incredible amount of work from an incredibly competent staff. He stated that before any guideline amendment is promulgated, the Commission undertakes a tremendously detailed process through which all alternatives are considered. Thorough staff work and analysis ensure that the proposed amendment reflects accurately Congressional mandates and is consistent with the guidelines system as a whole. Vice Chair Sessions stated that this process and analysis are especially important when considering a complex issue like cybercrime. He stated that this issue also illustrates the Commission’s willingness to be fully responsive to Congress. Vice Chair Sessions stated that Congress has asked the Commission to address cybersecurity in a short period of time, and the Commission will do its best to accomplish that directive.
Vice Chair Steer stated that cybersecurity is not an area that has been neglected by the Commission or by Congress. He believes this is the third time in the last few years that Congress has amended the statutes relating to cybercrime and the Commission has responded each time by amending the guidelines. Vice Chair Steer stated that the Commission now will get to work within the time table set by Congress and do its best.
The motion to publish for comment the proposed issues pertaining to cybersecurity with a sixty day comment period, and to authorize staff to make technical and clarifying changes, passed unanimously by voice vote.
Campaign Finance
Chair Murphy stated that some of the Commissioners’ comments on cybersecurity serve to foreshadow the next two items on the agenda, campaign finance and corporate fraud. Chair Murphy stated that both areas involve complex statutory schemes with directives to the Commission to promulgate emergency amendments. Chair Murphy said that the Commission and staff have worked very hard in these areas and would now be voting on emergency amendments. In April the Commission will return to both campaign finance and corporate fraud to consider the enactment of permanent amendments in these areas.
General Counsel Tetzlaff recognized the hard work of the campaign finance policy development team led by Thomas Brown and staffed by Judy Sheon, Bobby Evans, and Patrick Smith. General Counsel Tetzlaff noted that an emergency amendment schedule requires a prodigious amount of work, and he thanked the team for its hard work and accomplishments.
General Counsel Tetzlaff stated that the proposed amendment responds to the Bipartisan Campaign Reform Act of 2002 (the “Act”), which gave the Commission emergency authority to promulgate amendments to implement the directives in the Act not later than February 3, 2003. Among other things, the Act increased the statutory maximums for violations of the Federal Election Campaign Act of 1971 (the “FECA”). Previously these violations were misdemeanors. The FECA bans the use of soft money, places restrictions on hard money contributions, bans contributions and donations by foreign nationals, and creates a number of other offenses, including prohibiting conduit contributions under section 320 of the FECA.
The proposed amendment implements the directives of the Act by expanding the scope of Chapter Two, Part C (Offenses Involving Public Officials) by providing within Part C a new guideline for offenses under the FECA and related offenses. The proposed amendment provides for a base offense level of eight. The proposed amendment creates a number of specific offense characteristics, including: (1) a specific offense characteristic at section (b)(1) that uses the fraud loss table at §2B1.1 to incrementally increase the offense level according to the dollar amount of the illegal transactions; (2) a two part enhancement at subsection (b)(2), providing for the greater of a two level enhancement if the offense involved a contribution, donation, or expenditure from a foreign national, and a four level enhancement if the offense involved a contribution, donation, or expenditure from a foreign government or organization; (3) an alternative pronged enhancement at subsection (b)(3) if the offense involved a donation, contribution, or expenditure, disbursement, or receipt of government funds, or if the defendant committed the offense for the purpose of achieving a specific, identifiable nonmonetary Federal benefit; (4) an enhancement at subsection (b)(4) if the defendant engaged in thirty or more illegal transactions during the course of the offense, whether or not the defendant was convicted of the conduct; (5) an enhancement at subsection (b)(5) if the contribution, donation, or expenditure was obtained through, or a solicitation was made by, intimidation, threat of harm, including pecuniary harm, or coercion; (6) a cross reference in the new guideline to either the bribery guideline or the gratuity guideline, if the offense involved such conduct and the resulting offense level is greater than that determined under the new guideline.
General Counsel Tetzlaff stated that a two part motion would be in order to promulgate the proposed amendment as an emergency amendment, effective January 25, 2003, and to publish for public comment the proposed amendment as a permanent amendment with a sixty day comment period, and to authorize staff to make technical and clarifying changes.
Vice Chair Castillo moved to publish the proposed emergency and permanent
amendments with a sixty day comment period, and to authorize staff to make
technical and clarifying changes. Seconded by Vice Chair Steer.
Vice Chair Castillo stated that he is glad that the Commission and staff
have worked to draft this new guideline. He said that in his view, campaign
finance offenses strike at the very heart of our democracy. Vice Chair Castillo
stated that he would have set the base offense level at ten, but the Department
of Justice is satisfied with a base offense level of eight; Vice Chair Castillo
said that he accepts this because the Department has prosecutorial discretion.
Vice Chair Castillo stated that his mission for the remaining time that he
serves as a Commissioner is to increase the penalties for public corruption
across the board. He added that this might be a result of his experience
with such offenses in Chicago, but in the interim he is happy to vote for
this guideline. Vice Chair Castillo thanked the staff for their work in bringing
about this emergency amendment.
Vice Chair Sessions complimented the staff for its work and coordinated effort with the Department of Justice in drafting this guideline. He stated that he believes the staff and members of the Department of Justice arrived at a guideline proposal that accurately reflects Congressional concerns. Vice Chair Sessions agreed with Vice Chair Castillo’s statement that these types of offenses strike at the heart of our democracy. He also believes that the penalties are low. He is concerned that the statutory maximum penalties, between one and five years, are too low. Vice Chair Sessions stated that he believes that when this guideline is applied, the sentence frequently will be at or near the statutory maximum. He stated that he hopes the Commission will recommend to Congress that it increase the statutory maximums because this is the kind of offense which strikes at the heart of our form of government, particularly when contributions are made by people in foreign governments or on behalf of foreign governments.
Vice Chair Steer thanked the staff of the Commission and of the Federal Election Commission and the Public Integrity Section of the Department of Justice for their coordinated efforts in this area. He stated that campaign finance is an area in which the Commission does not have in-house expertise. Vice Chair Steer added that one of the things that makes the staff so good is that they seek expert help from others when needed. He stated that he appreciates the assistance from the Federal Election Commission and the Public Integrity Section in response to the call for assistance. Vice Chair Steer stated that he believes this proposal is a good guideline and a fair compromise.
Vice Chair Steer stated that he does not want to overgeneralize about the seriousness of campaign finance offenses, adding that this is not to undercut anything said by his colleagues. Vice Chair Steer stated that offenses in this area run the gamut from what Congress has classified as Class A misdemeanors, regulatory-type offenses punishable by a maximum of one year in prison, such as exceeding permissible campaign contribution limits, to more serious offenses. Vice Chair Steer stated that one cannot assume, and indeed the analysis of the cases in this area does not support, that there is always the readily apparent corrupt purpose in mind. He added that some of these violators simply are intent on furthering a cause or a candidate they especially want to support. Vice Chair Steer stated that some of the conduct that is covered by this series of statutes constitutes very serious offenses, and he will have no difficulty in joining his colleagues in making a recommendation to Congress that the maximum penalties be raised higher than the current five year statutory maximum, especially when foreign governments are involved, when there are serious misrepresentations, or when there is coercion. Vice Chair Steer stated that some of these things are dealt with by the specific offense characteristics in the guideline, but in many instances the Commission has moderated the effect of these enhancements because Congress has kept the statutory maximum sentence at five years. He stated that addressing these offenses, spanning the spectrum from less serious to very serious, is a complicated endeavor.
Commissioner O’Neill stated that he agrees with much of what was stated by his colleagues. He said that he echoed the previous comments and compliments about the coordinated effort between staff of the Commission and of the Federal Election Commission and Public Integrity Section of the Department of Justice in bringing together a complicated and very satisfactory guideline. Commissioner O’Neill stated that these types of offenses strike at the heart of our democracy. He expressed some concern that the Act may infringe upon the right to free speech, and he hopes that, given that the Act covers a gamut of expression, the Department of Justice in its prosecutorial discretion will proceed with a great degree of deliberation and seriousness. Commissioner O’Neill stated that he agrees that the sentences for bribery and corruption should be addressed by the Commission. He stated that, in his view, it is absolutely appalling that bribery crimes and other public corruption crimes are punished lightly in comparison to other serious offenses such as drug offenses because bribery and public corruption constitute the greatest betrayal of the republic. Commissioner O’Neill stated that he looks forward to recommending to Congress that the statutory maximums for these offenses be increased appropriately.
Ex Officio Commissioner Jaso stated that he appreciates the compliments paid
to the Department of Justice for its work in this coordinated effort. He thanked
career prosecutors, members of the Public Integrity Section, and Jonathan Wroblewski
in the Office of Policy and Legislation for their hard work in this area. Ex
Officio Commissioner Jaso stated that he echoes the Commission’s call
for higher statutory maximum penalties for public corruption offenses. He stated
that the reason why the Department of Justice supported a base offense level
of eight is that there is a consensus that the offenses targeted by the Act
are not as serious as quid pro quo bribery, yet they are more serious than
purely commercial transactions. Ex Officio Commissioner Jaso stated that the
penalty is appropriate and that now these types of crimes will be punished
by jail time. He noted that the Commission, Public Integrity Section, and Federal
Election Commission have all been very mindful of potential first amendment
issues. He stated that he believes the proposed amendment was crafted to be
as narrow and focused as possible.
Chair Murphy called for a vote on the two part motion. The motion to publish
the proposed emergency amendment with an effective date of January 25, 2003,
to publish the proposed amendment as a permanent amendment with a sixty day
comment period, and to authorize staff to make technical and clarifying changes,
passed unanimously by voice vote.
Corporate Fraud
Chair Murphy stated that the Commission has worked quickly and industriously on the issue of corporate fraud since Congress passed the Sarbanes-Oxley Act of 2002 (the “Act”). She stated that the Commission has a two part response: (1) a proposed emergency amendment implementing the directives contained in the Act; and (2) proposed issues for public comment to aid the Commission as it continues through the amendment process and considers permanent amendments related to corporate fraud in April of this year.
General Counsel Tetzlaff recognized the excellent work of the corporate fraud team, led by Ken Cohen, and staffed by Courtney Semisch, Janeen Gaffney, Theresa Cooney, Lisa Klem, Paula Desio, Alan Dorhoffer, and Britney Beer. He noted that the team chair was responsible for congressional liaisons and was short a staff person while he chaired the team. General Counsel Tetzlaff stated that the team had worked expeditiously and had coordinated efforts with outside experts and he thanked the team for all their had work.
General Counsel Tetzlaff stated that this proposed amendment implements directives to the Commission contained in sections 805, 905, and 1104 of the Sarbanes-Oxley Act of 2002, Pub. L. 107–204 (the “Act”). The Act requires the Commission to promulgate guideline amendments under emergency amendment authority not later than January 25, 2003.
First, in accordance with the directives in the Act, the proposed amendment expands the victim table in §2B1.1(b)(2). Currently, that subsection provides a two level enhancement if the offense involved more than ten but less than 50 victims and a four level enhancement if the offense involved 50 or more victims. The proposed amendment provides an additional two levels for a total of six levels if the offense involved 250 or more victims.
Second, the proposed amendment modifies subsection (b)(12)(B) of §2B1.1. That section currently provides a four level enhancement and a minimum offense level of 24 if the offense substantially jeopardized the safety and soundness of a financial institution. The proposed amendment expands the scope of this enhancement by providing two additional prongs in response to the directive. The first prong applies to offenses that substantially endanger the solvency or financial security of an organization that, at any time during the offense, was a publicly traded company or had 1,000 or more employees. The second prong applies to offenses that substantially endangered the solvency or financial security of 100 or more victims, regardless of whether a publicly traded company or other organization was affected by the offense. The corresponding application note to the new enhancement sets forth a non exhaustive list of factors that the court shall consider in determining whether the offense endangered the solvency or financial security of a publicly traded company or an organization with 1,000 or more employees.
Third, the proposed amendment provides a new four level enhancement at §2B1.1(b)(13). The enhancement applies if the offense involved a violation of securities law and, at the time of the offense, the defendant was an officer or director of a publicly traded company.
Fourth, the proposed amendment expands the loss table at subsection (b)(1). The proposed amendment provides two additional levels to the table; an increase of 28 levels for offenses in which the loss exceeded $200,000,000, and an increase of 30 levels for offenses in which the loss exceeded $400,000,000. The proposed amendment also amends the tax table in §2T4.1 to conform to the proposed changes made to the loss table in §2B1.1.
Fifth, the proposed amendment implements the directives pertaining to obstruction of justice offenses. First, the proposed amendment increases the base offense level in §2J1.2 (Obstruction of Justice) from level twelve to level fourteen. Second, the proposed amendment adds a new two level enhancement to §2J1.2 that applies if the offense (i) involved the destruction, alteration, or fabrication of a substantial number of records, documents or tangible objects; (ii) involved the selection of any essential or especially probative record, document, or tangible object to destroy or alter; or (iii) was otherwise extensive in scope, planning, or preparation.
Sixth, the proposed amendment addresses new offenses created by the Act. Section 1520 of title 18, United States Code, is referenced to §2E5.3 (False Statements and Concealment of Facts in Relation to Documents Required by the Employee Retirement Income Security Act; Failure to Maintain and Falsification of Records Required by the Labor Management Reporting and Disclosure Act). This offense provides a statutory maximum of ten years’ imprisonment if the defendant certifies the publicly traded company’s periodic financial report knowing that the statement does not comply with all SEC requirements (and twenty years’ imprisonment if that certification is done willfully).
General Counsel Tetzlaff stated that a motion would be in order to promulgate the proposed emergency amendment with an effective date of January 25, 2003 and to authorize staff to make technical and clarifying changes.
Vice Chair Castillo moved to promulgate the emergency amendment and authorize staff to make technical and clarifying changes. Seconded by Commissioner O’Neill.
Chair Murphy noted that the emergency amendment, if passed, would be effective
until November 1, 2003.
Vice Chair Castillo stated that since he arrived at the Commission he has
made it one of his missions to increase the penalties for white collar criminals.
He stated that the message of today’s amendment is very simple — white
collar offenders, if you do the crime, you will serve the time. Vice Chair
Castillo stated that the second message from today’s amendment is that
crimes in the suites will be treated the same as, or in some cases, more
seriously than crimes in the streets. He stated that this amendment is the
right thing to do and is fully responsive to the concerns of Congress.
Vice Chair Castillo remarked that he is very proud that the Commission and staff have led the fight against white collar crime. He stated that two years ago, well before some of the recent and highly publicized corporate scandals, the Commission significantly increased the penalties for the group of white collar defendants who commit large-scale sophisticated economic crimes that affect numerous innocent victims. Vice Chair Castillo stated that this is the same group of people that Congress was concerned about in the Sarbanes-Oxley Act. The net result of the Commission’s pre Sarbanes-Oxley actions was that the sentences for the high-end, high-dollar white collar fraud cases were doubled.
Vice Chair Castillo stated that in addition to the Commission’s previous actions, he believes that the penalties for the high-end crimes should be increased. He added that this proposed emergency amendment accomplishes that goal while the Commission continues its work in precisely targeting the offenders who cause the greatest economic harm to society. He stated that this proposed amendment focuses on publicly traded corporations and corporate officers who perpetrate frauds and addresses the substantial number of victims involved in large-scale economic crimes. He added that the proposed emergency amendment increases the penalties at the high end, focuses on securities law violations, and increases the penalties for obstruction of justice. This amendment represents a high water mark for the Commission and the increase in penalties for obstruction of justice highlights the need to increase penalties for perjury. Vice Chair Castillo stated that perjury and obstruction of justice are both serious offenses that cannot be tolerated in our criminal justice system. He stated that he has written on this very subject and has no hesitation in dealing harshly with either of these two offenses. Vice Chair Castillo concluded by stating that today is a happy day as we fully comply with Congressional concerns about white collar crime.
Chair Murphy stated that in addition to the Commission’s work in addressing white collar crime, last year the Commission set up an ad hoc advisory group on the organizational guidelines for the purpose of obtaining expert input on the operation of and possible need for changes in the sentences for organizations. Chair Murphy said that the Commission has done considerable work in the area of corporate crime prior to the enactment of the Sarbanes-Oxley Act.
Vice Chair Sessions commented on the historical context of the Commission’s work in the area of white collar crime. He stated that two years ago, the Commission substantially increased the penalties for fraud offenses. Vice Chair Sessions said that these increases came after years of intensive study, starting with the work of prior Commissions. In October of 2000, this Commission hosted an economic crime symposium to solicit academic, expert, and staff input regarding all possible aspects of economic crimes. Vice Chair Sessions stated that after such thorough, careful, and deliberate study, the Commission promulgated guideline amendments that significantly increased penalties for white collar and fraud offenses. This action came well before the Sarbanes-Oxley Act. Vice Chair Sessions stated that as a result of these increases, persons who intentionally and willfully defraud numerous people of a lot of money face extraordinarily high penalties.
Vice Chair Sessions stated that it is important to recognize that this Commission has stood for the proposition that the penalties for economic crimes had to be increased. He said that the Commission fully responds to Congressional directives and concerns. The penalties for high dollar white collar fraud offenders will be increased substantially because this is what Congress asked the Commission to do. Vice Chair Sessions stated that the Commission has responded appropriately to the directives in the Sarbanes-Oxley Act. Now persons who face criminal charges for high dollar fraud also face years and years in prison. Vice Chair Sessions stated that is a message the Commission stands for, and it is reaffirmed with today’s amendment. He personally agrees with this message.
Vice Chair Steer stated that he concurs with much of what his fellow commissioners have said. He noted some concern with a couple of the directed enhancements that are incorporated in the proposed emergency amendment. Vice Chair Steer said that in his view, the Commission has done a fairly good job overall of being responsive to specific Congressional directives. He stated that the enhancement for the number of victims causes him some concern. He said that in the Commission’s 2001 iteration of the economic crime package, it properly added an enhancement for up to 50 or more victims. The Commission also added an enhancement for mass marketing in response to telemarketing fraud offenses. Vice Chair Steer stated that Congress has asked the Commission to expand the victim table, and the Commission has done so by adding an enhancement for 250 or more victims. He stated that his concern about this enhancement is two fold. First, this very complicated guideline also takes into account the amount of monetary harm, and there exists the potential for double counting as a high number of victims often may be associated with high monetary harm. Second, there is an increased chance for anomalous results in cases where a large number of victims are each harmed to a minor degree and the penalty may be substantially more severe than if there were fewer victims but greater harm. That said, the purpose behind the multiple victim enhancement is a good one, and he will support the enhancement.
Vice Chair Steer expressed concern about the proposed enhancement for substantially jeopardizing the financial security of 100 or more victims. He stated that the Commission searched for a practical means of effecting Congress’s desire that when a substantial number of victims are put in financial jeopardy, the sentence is increased. Vice Chair Steer noted that the Commission has included a provision for enhanced penalties for offenders who endanger the financial security of companies with more than 1000 employees. He stated that this factor can be readily proven in court. Vice Chair Steer stated that the difficulty with the enhancement for endangering the financial security of 100 or more victims is that proving an offense directly caused financial detriment to each victim could become a complicated and difficult endeavor. Vice Chair Steer stated that nevertheless, he supports the proposed amendment as a whole in that it responds to specific Congressional directives which were well intentioned.
Vice Chair Steer stated that he is concerned that it is becoming too easy for Congress to give overly specific directives to the Commission without perhaps a full appreciation of all possible ramifications of the directive. He added that the Commission itself does not always fully appreciate all the ramifications of a particular approach. Vice Chair Steer stated that this Commission has a track record of being responsive to specific directives, but he believes there needs to be a mechanism for relief, including appropriate guideline amendments, if some of the enhancements prove difficult in practice.
Vice Chair Castillo stated that, in his view, counsel on the defense bar, federal prosecutors, and federal trial judges are highly competent and will be able to resolve the difficult factual issues presented by the enhancement for jeopardizing the financial security of 100 or more victims.
Commissioner O’Neill stated that this proposed emergency amendment represents an important step. He stated that when Congress passed the Sarbanes-Oxley Act, it recognized the incredible harm and economic dislocation caused by individuals who perpetrate fraud on the market or pillage corporations for their own pecuniary gain. Commissioner O’Neill added that the Commission was a bit ahead of the curve when it passed the economic crime package in 2001, recognizing the need for an increase in penalties for serious high dollar white collar offenders.
Commissioner O’Neill expressed some concern about the likely passage of today’s amendment. He stated that this concern derives from the Commission’s organic statute which requires that the sentencing guidelines provide an effective deterrent. Commissioner O’Neill said that the hope in enacting this amendment is to provide a message to the corporate community that fraud simply will not be tolerated and that if one engages in this type of illegal conduct, then jail time will follow. He stated that although he recognizes the importance of enhancements for such offense characteristics as endangering the financial solvency of an institution or the financial security of a large number of victims, it is important to not move too far afield from actual criminal intent. Commissioner O’Neill stated that in some fraud cases, the offender might have the intent to commit fraud or to steal, but not necessarily the intent to undermine the financial soundness of a corporation or to destroy individual investors or to destroy people’s pension funds or financial security. He stated that if one of the principal purposes of the organic statute is that the punishment fits the crime and provides both specific and general deterrence, then it is especially important to be mindful of actual criminal intent. Commissioner O’Neill stated that in addition to the proof problems identified by Vice Chair Steer, he has these generalized concerns.
Commissioner O’Neill said that the Commission will be able to provide follow up in determining whether these substantial increases in the penalties for corporate crime in fact have a deterrent effect on the market. He added that each year that is added to sentences has important societal costs to both the individual defendant and to the government. Commissioner O’Neill said that the way we allocate prosecutorial and prison resources should be aimed at securing the greatest general and specific deterrence. He added that this proposed emergency amendment may have been created rather quickly and may not have the perfect formulation, but it will be important to determine whether these substantial increases have a real impact on the corporate world. Commissioner O’Neill stated that he supports the need to assess the operation of the organizational guidelines and consider whether those guidelines engender better corporate citizens. He concluded by stating that it is incumbent upon the Commission to verify that the guidelines fulfill their purposes.
Vice Chair Castillo responded that, in his view, the organizational guidelines have been a success. He stated that an effective corporate compliance program, however, is only as good as the people behind it. Vice Chair Castillo added that under the leadership of Chair Murphy, the Commission has created an advisory committee on the organizational guidelines. He stated that if there are improvements to be made he is confident that the committee will come up with them, and he will approach those recommendations with an open mind.
Chair Murphy added that some of the corporate scandals that recently have been in the news actually came out of companies with excellent paper compliance programs. She stated that we have learned that there is a huge difference between a paper program and an effective program. Chair Murphy said that she hopes the advisory committee will make recommendations to the Commission to help foster effective compliance programs.
Ex Officio Commissioner Jaso stated that the Department of Justice opposes this proposed emergency amendment for the reasons outlined in its public comment submission.
Chair Murphy stated that as she understands it, the Department of Justice does not object to the content of the amendment but would like other provisions in the amendment.
Ex Officio Commissioner Jaso stated that the Department of Justice does not support the proposed amendment because the amendment does not substantively change the fraud loss table which is at the heart of the guidelines’ treatment of these types of criminals. He added that the Department of Justice also has some objections to some of the specific offense characteristics. Ex Officio Commissioner Jaso said that for example, the Department believes that the specific offense characteristics should carry a back stop of a substantial penalty level to parallel the treatment of what is currently in the guidelines pursuant to FIRREA and to reflect the effects of the criminal activity on the solvency of financial institutions. Ex Officio Commissioner Jaso stated that the current proposal reflects improvements that have been made since the initial proposal for public comment, but that without the back stop, the Department of Justice does not believe the penalties will be sufficient for these types of cases.
Vice Chair Castillo stated that this is an emergency amendment and the Commission is fully open to obtaining more information from the Department of Justice as it completes the amendment cycle and promulgates this proposal as a permanent amendment. He added that he is certain the Commission welcomes further information from the Department of Justice because the Commission’s goal is to bring about the best enforcement mechanism in the area of white collar crime.
Chair Murphy then called for the vote to promulgate the proposed amendment as an emergency amendment, effective January 25, 2003, and to authorize staff to make technical and clarifying changes. The motion passed unanimously by voice vote.
Vice Chair Steer stated that he wished to move consideration of a supplemental emergency amendment that deals with a change in the base offense level and change in the fraud loss table. Seconded by Commissioner O’Neill. Vice Chair Steer stated that his proposal seeks to achieve a compromise between what the Commission previously has done in the 2001 economic crime package and the requests from the Department of Justice. First, the proposal would provide for a one level, or 12.5%, increase in the base offense level from a six to a seven for what Congress has classified as the statutorily more serious fraud and theft offenses, specifically those that are punishable by a term of imprisonment of ten years or more. Vice Chair Steer stated this would cover approximately 54% of fraud convictions and approximately 46% of the theft/embezzlement type convictions that are sentenced under §2B1.1. Second, the proposed amendment provides a modest change in the loss table breakpoints that is designed to achieve a reasonable compromise between the existing table and that proposed by the Department of Justice.
Vice Chair Steer illustrated how the proposal will change the existing penalty levels. He stated that currently, assuming a first-time offender who accepts responsibility, if the loss amount is less than $30,000, then that defendant is eligible for a straight probation sentence. The proposal would reduce that threshold modestly to $25,000 for the less serious level six offenses, and to $10,000 for the more serious level seven offenses. Currently, defendants are eligible for probation with confinement conditions for loss amounts up to $70,000. The proposal would reduce that amount to $50,000 for the less serious level six offenses, and to $25,000 for the more serious level seven offenses. Currently, defendants are eligible for split sentences at a threshold amount of $120,000. The proposal would reduce that amount to $100,000 for the less serious level six offenses, and $50,000 for the more serious level seven offenses.
Vice Chair Steer stated that the proposal is not dramatic when considered in light of loss table proposals previously considered by the Commission. He stated that the proposal would not fully return the punishment levels at the low end to the penalty ranges in place prior to the promulgation of the economic crime amendments in 2001, which modestly lowered offense levels for fraud and theft offenses with loss amounts less than $70,000. Vice Chair Steer noted that the proposal is less punitive than a proposal considered by a previous set of commissioners, and accepted by three. Vice Chair Steer added that the proposal is less punitive than a recommendation made to the Commission by the Criminal Law Committee of the Judicial Conference (CLC). He noted that the CLC ultimately approved the 2001 amendment package. Vice Chair Steer stated that this proposal is not outlandishly serious for offenses at the low end of the loss table. He stated that the proposal affects offenses at the high end of the table, with loss amounts of $800,000 or more, with a two level or 25% increase in penalties over the current guideline range.
Vice Chair Steer stated that he offers this approach because he believes the
Commission has done a good job in responding to the more specific directives
contained in the Sarbanes-Oxley Act, but in his view Congress desires to increase
punishment for all such offenses as evidenced by new higher statutory maximums.
Vice Chair Steer stated that Congress has increased penalties for such offenses
as telemarketing fraud, cybercrime, identity theft, telephone cloning, financial
institution fraud, and healthcare fraud; the enactment of the Sarbanes-Oxley
Act indicates Congressional focus on punishing corporate fraud. Vice Chair
Steer stated that the message he takes from the Act and the message he believes
the Commission should take is that Congress is increasingly concerned about
this entire category of specific intent crimes that deprive people of their
hard-earned money. Vice Chair Steer stated that the Commission has a responsibility
to respond vigorously to specific and general directives and this proposal
is designed to accomplish that goal. He requested comment from the other Commissioners.
Vice Chair Castillo stated that he cannot support the proposal in good conscience
for several reasons. Vice Chair Castillo stated that there is a miscommunication
occurring that is fundamental to this debate. He quoted from a January 8,
2003 media article that stated, “the Justice Department’s current
pursuit of corporate executives who cheat investors may be undercut by proposed
sentencing guidelines for white collar criminals.” Vice Chair Castillo
said that statement is fundamentally wrong. He stated that white collar criminals
get no solace from the Sentencing Commission.
Vice Chair Castillo stated part of the miscommunication stems from the fact that this is a very complicated area of the guidelines. He mentioned that Vice Chair Steer earlier had referred to the wide gamut of crimes that can be covered by the Campaign Finance Act. Vice Chair Castillo stated that the proposal to change the loss table would apply to more than 100 federal offenses and their various permutations. He stated that the public should understand that there is no single guideline that only applies to white collar criminals; rather, a series of guidelines target various criminal behaviors to set appropriate punishments. Vice Chair Castillo stated that this proposal would thus affect a lot of people who are not white collar offenders and this could have many unintended consequences. He said that the fraud loss table applies to blue collar, low level, unsophisticated economic crimes that have readily identifiable victims. He stated that he would provide several examples of the type of offense to which he is referring and noted that the emergency amendment that just passed would likely change his hypotheticals.
Vice Chair Castillo stated that the Commission struggles mightily to target precisely those who cause the greatest societal harm. He stated that it is critical to be very precise and careful about the use of prison and investigative resources. Vice Chair Castillo said that, respectfully, he must depart from Vice Chair Steer’s thinking on this issue and that it would be unfortunate if there were a continued investigative focus on giving low level offenders a straight prison sentence. Vice Chair Castillo stated that, in his view, that would be wrong and that it is not what Congress intended with the Sarbanes-Oxley Act.
Vice Chair Castillo stated that he, like Vice Chair Steer, is very victim oriented. He stated that his main concern is that sending low level blue collar offenders directly to prison actually would hurt the victims of their crimes because then the defendant would be unable to make restitution to the victim. Vice Chair Castillo stated that if the proposal were implemented, a loss as low as $6,000 would be affected. He said that currently, for low level single victim crimes, the punishment emphasis properly is placed on a balanced assessment of the defendant’s employment situation, real ability to make restitution, and the harm caused. He stated that he is comfortable that our dedicated and competent federal judges can continue to balance all those factors and arrive at a just sentence. If this proposal is implemented, harm would be unduly emphasized over all other relevant factors. He stated that this would ultimately harm the victim of the crime. Vice Chair Castillo stated that he has had situations as a judge where he has had to struggle with the notion that if the defendant is sentenced to a straight term of imprisonment and he or she is employed, then you take away the very ability to make restitution. In his experience, the victim would choose to be made whole by having his or her money back.
Vice Chair Castillo stated that he does not believe that when Congress passed the Sarbanes-Oxley Act it intended, for example, to send the defendant who steals $6,000 in medicare checks to a strict jail term and deprive the government of its right to get restitution and instead spend $40,000 on incarceration. Vice Chair Castillo stated that he simply cannot conclude that this was the desired result of the legislation. He stated that if this was indeed what Congress intended, as the Justice Department asserts, then Congress would need to make that absolutely clear and he duly would enact such a directive. Vice Chair Castillo noted that as the legislation refers to serious fraud offenses and securities offenses, it consistently instructs the Commission to consider both aggravating and mitigating circumstances in setting appropriate sentences. Vice Chair Castillo stated that on his best good faith evaluation of the corporate fraud legislation, he cannot conclude that Congress intended to increase punishment for low level offenders. He added that this does not mean that today is a great day for white collar offenders. Vice Chair Castillo said that the emergency amendment just enacted appropriately and precisely targets serious white collar offenses and does not harm victims of crimes at the low end of the loss table.
Vice Chair Castillo stated he is very proud of the Commission’s record of being responsive to Congress and its careful work in formulating a guidelines system that does not take a one-size-fits-all approach to sentencing. If the Commission had more time, it might be able to study this issue further. He noted that he identifies large-scale frauds as those with approximately $100,000 or more in loss. He stated that he could be wrong in this assessment but would need much more careful study including prison impact data before reconsidering it. Vice Chair Castillo stated that the Commission is under a strict deadline, but that as it continues through the amendment cycle and enacts permanent amendments pertaining to corporate fraud, the Commission can debate this issue, receive input from the Department of Justice, and perhaps can arrive at an acceptable compromise. Vice Chair Castillo stated that, in his view, enacting this proposal without further study would take the country in the wrong direction and would have unintended consequences. Vice Chair Castillo concluded by stating that he has a proven record of being tough on white collar crime, both as a prosecutor and as a federal judge, and recently sentenced ATM Corporation to a $100 million fine; however, as much as he supports punishment for white collar criminals, he cannot support this proposal.
Vice Chair Sessions stated that he had comments relating to both the process and substance of the proposal. He said that he has served on the Commission for three years and has found it to be an incredibly valuable experience for a number of reasons. First, before a decision is made, all possible permutations are carefully studied. Vice Chair Sessions stated that Vice Chair Steer’s comment about the importance of understanding all possible ramifications of a particular guideline change is exactly correct. Vice Chair Sessions stated that this proposal would affect approximately 10,000 defendants per year, or roughly 20% of the federal case load. Vice Chair Sessions stated that such a monumentally important decision must be made only after careful study and input from all parts of the criminal justice system and interested groups.
Vice Chair Sessions stated that one of the things he has most enjoyed about serving on the Commission is participation in the deliberate process by which the Commission studies all possible ramifications of proposed guideline amendments, especially prison impact studies. He noted that the economic crime package of 2001 was passed unanimously after five years of study. Vice Chair Sessions stated that this deliberative process allows the Commission to reach consensus by taking the wisdom of the group and outside input to achieve just guidelines.
Vice Chair Sessions stated that the Sarbanes-Oxley Act gave the Commission emergency amendment authority to respond to Congressional concern about serious fraud cases. Vice Chair Sessions stated that the Commission had responded accordingly to the directives in the Act, and did so by unanimously passing an emergency amendment. Consensus was reached through hard work, careful study, and attention to the Congressional directives. Vice Chair Sessions stated that it is the Department of Justice’s position that the amendment should be expanded to include an increase in penalties for low level white collar offenders. He said that the Department of Justice could be correct, that it may be the will of Congress for the Commission to revisit the fraud loss and tax loss tables enacted in 2001. Vice Chair Sessions stated that if that is the case, then as experts in the field of sentencing, it is the Commission’s responsibility to fully understand the ramifications and not respond to a proposal that only has been considered for a few days. He stated that further study is necessary because it leads to a consensus. Vice Chair Sessions said that he appreciates that Vice Chair Steer and the Department of Justice believe today’s amendment is a violation of the spirit of the Sarbanes-Oxley Act. If that is the case, then the Commission should consider the proposal with the same careful study that is devoted to other guideline amendments.
Vice Chair Sessions commented on the merits of the proposal, noting that many of his assertions about the Commission’s analytical process are arguments taken from Vice Chair Steer’s comments about the need to study complex amendment proposals carefully. Vice Chair Sessions remarked that someone reading the press reports might get the notion that the Commission is giving low level fraud defendants a break. He stated that this is not the case. Further, the loss table does not cover only fraud, but 20% of all federal criminal cases in the United States. Vice Chair Sessions stated that the loss table would apply, for example, to a person who steals from mailboxes, or to a group of young persons who damage or destroy federal property such as a cabin in a national park. The Sarbanes-Oxley Act does not address such low level offenders. Vice Chair Sessions said that it is important to recognize that this proposal would affect much more than just fraud cases. He stated that the issue is one of great complexity and importance; therefore it is the Commission’s responsibility to make sure it understands every possible ramification. Vice Chair Sessions stated that he would join in suggesting that this proposal be put on the agenda for this amendment cycle so that the Commission may study it further, obtain input from interested groups, work toward a consensus, and arrive at what is just.
Commissioner O’Neill stated that two years ago, the Commission enacted significant changes to the fraud guidelines that were the result of five years of study. He stated the Commission had held a number of hearings, hosted a full academic symposium at George Mason University School of Law, and undertook a thorough study of the guidelines and statutes that would be affected. Commissioner O’Neill said that in a perfect world, the Commission would have the time and opportunity to assess systematically and empirically the impact of the changes made in 2001. He noted that prior to Enron, Tyco, and WorldCom, the Commission nearly doubled penalties for offenses at the high end of the loss table. Commissioner O’Neill stated that in a perfect world, the Commission would have the opportunity to assess those changes at the high end and also time to assess changes made at the low end for offenders whose crimes did not merit the serious punishment that sophisticated fraudsters deserved.
Commissioner O’Neill stated that similarly in a perfect world, the Commission would not have combined the fraud and theft tables because of the different quantum of intent for theft and sophisticated fraud offenses. He stated that he believes it was a mistake to combine the tables, despite having supported the economic crime package as a whole. Commissioner O’Neill stated that consolidation of the tables is especially problematic now because although the Sarbanes-Oxley Act is clearly targeted at persons who commit serious commercial fraud, it likely was not intended to target the person who destroys park property or even a low level embezzler.
Commissioner O’Neill stated that in striving to simplify the guidelines, the Commission unfortunately placed itself in this situation where raising penalties for sophisticated financial fraud also affects those who are considerably less culpable. He said that he would prefer to reconsider the entire table and the nature of the offenses involved in order to effectuate the goals of Congress and the Department of Justice and to provide important prosecutorial incentives and effective deterrence.
Commissioner O’Neill stated that, in his view, Congress intends for the Commission to reconsider the tables and increase penalties across the board. He added that this might not be his vote if he were a legislator, but ultimately the power to set penalties appropriately lies with Congress. Commissioner O’Neill stated that he is supportive of Vice Chair Steer’s proposal and believes there is room for compromise and that Vice Chairs Castillo and Sessions bring enormous experience in the area of white collar crime. Commissioner O’Neill stated that he believes there is much room for agreement and he hopes the next act the Commission takes will be to fully effectuate Congressional intention. He stated that in the interim, the emergency amendment is a good step and he hopes the Department of Justice finds it useful.
Ex Officio Commissioner Jaso stated that he respectfully disagrees that this is a particularly complex matter, noting that the guidelines are full of complexities. He stated that in his view and in the Department of Justice’s view, there is sufficient support in the legislative history and text of the Sarbanes-Oxley Act for the Commission to increase penalties across the board for white collar offenses. Ex Officio Commissioner Jaso mentioned the staff’s demonstrated ability to work on very urgent and complex matters to reach sophisticated solutions.
Ex Officio Commissioner Jaso stated that he would provide some background on the Sarbanes-Oxley Act and the roles of the Department of Justice and the Sentencing Commission. Last summer the President announced a comprehensive plan to renew public confidence in corporate America and revise trust in its markets. As a central part of this plan, the President called on Congress to increase maximum penalties for federal fraud and obstruction of justice crimes, and called on the Commission to increase the applicable penalties to ensure that real prison time is the rule, rather than the exception, for all corporate criminals and those who enrich themselves through fraud. Ex Officio Commissioner Jaso stated that given the events of the past year and a half, it is beyond debate that the so-called white collar crimes, not only on the scale of Enron and WorldCom, but also much smaller scale offenses, cause devastating harm to innocent victims. He added that the criminals who commit these frauds should be punished with a combination of exacting financial penalties and the certain imposition of significant prison terms.
Ex Officio Commissioner Jaso stated that financial crime merits more than financial penalties; otherwise the perpetrators can write off the cost of the fine as a mere cost of doing business. He said that when corporate criminals and fraudsters are sentenced to probation, home detention, or months rather than years in prison, it undermines our faith in both the economic and criminal justice systems. Ex Officio Commissioner Jaso stated that too often, white collar criminals are eligible for relatively lenient sentences under the current guidelines. He said that wealthy defendants with highly paid defense counsel are able to convince judges to depart downward from more severe sentences by pointing to community ties, charitable donations (frequently made with ill-gotten funds), purported physical addictions such as alcoholism and gambling, lack of criminal record, aberrant behavior, and promises to make restitution.
Ex Officio Commissioner Jaso stated that with regard to low level fraud offenders, there is an obvious disagreement between what the Department of Justice and certain members of the Commission consider “white collar crime,” “corporate crime,” or “blue collar crime.” He said that with respect to the example that Judge Castillo used, an offense with a $6,000 loss, this would clearly be a crime eligible for a probationary sentence under Vice Chair Steer’s proposal which the Department of Justice supports. Ex Officio Commissioner Jaso stated that many frauds with relatively low level losses, such as those in the $15,000 - $50,000 range, are indeed very serious crimes; further, in many instances the federal government is the only entity that will investigate and prosecute those crimes. Ex Officio Commissioner Jaso noted, for example that bankruptcy fraud has no state jurisdiction, and though the loss levels may be low, bankruptcy fraud wreaks significant damage on the justice system.
Ex Officio Commissioner Jaso stated that congressional members of both parties share the President’s concern and the public’s concern that in too many cases corporate criminals get lenient sentences or can avoid going to jail all together. He stated that Senator Biden held extensive hearings where the witnesses presented varying viewpoints on the sentencing of white collar offenders, calling for increased penalties, decreased penalties, or for the economic crime package to remain unchanged. He stated that, in the Department of Justice’s view, Congress has already weighed the policy considerations and has made the general call for increased penalties. Congress passed legislation that significantly increased the statutory maximum penalties for mail and wire fraud from five years to twenty years in prison and included directives to the Commission to modify the guidelines to reflect those increases.
Ex Officio Commissioner Jaso stated that the last Congress, which was not known for its bipartisan spirit of cooperation or prompt action, quickly passed the Sarbanes-Oxley Act into law with virtual unanimity. He stated that there has been much discussion about whether Congress really intended the Commission to revisit the fraud loss table and increase penalties across the board, or whether Congress was only focusing on the billion dollar corporate fraud cases. Statements about the Act made by Senators Biden and Leahy support the Department of Justice's position. Senator Biden stated, “Our bill also directed the U.S. Sentencing Commission to review our existing federal sentencing guidelines. As you know, the sentencing guidelines carefully track the statutory maximum penalties that Congress sets for specific criminal offenses. Our bill requires the Sentencing Commission to go back and recalibrate the sentencing guidelines to raise penalties for the white collar offenses affected by this legislation.” Senator Leahy stated, “This act is not intended as criticism of the current guidelines, which were based on the hard work of the Commission to conform with the goals of prior existing law. Rather, it is intended to join the provisions of the Act which substantially raise current statutory maximums in the law as a policy expression that the former penalties were insufficient to deter financial misconduct and to request the Commission to review and enhance its penalties as appropriate in that light.”
Ex Officio Commissioner Jaso averred that the Department of Justice has worked closely with the Commission to respond to the directives in the Act. He noted that in August, the Attorney General personally pledged the support of the Department of Justice in meeting the deadlines set by the Act. Ex Officio Commissioner Jaso stated that in October, the Department of Justice submitted a detailed proposal that it believes responds to the directives intended by Congress. This submission proposes to amend the fraud loss table, the heart of the guidelines treatment of fraud crimes, so that criminals who commit fraud will go to prison with exceptions only in the cases of nominal frauds with no aggravating circumstances. For major cases, such as the corporate accounting director whose fraud drives the company out of business and shareholders into bankruptcy, or the executive who orders document shredding to thwart federal regulators from discovering the truth about the business’s failing earnings, the Department’s proposal would provide significant penalty enhancements that would ensure that such criminals go to jail for a very long time. This would ensure that a corporate criminal’s peers would think twice before following in his or her footsteps. Deterrence is a major point and rationale behind the Department’s proposal, and white collar criminals act rationally from greed, rather than passionately. They are very calculating and know well the types of penalties they may face.
Ex Officio Commissioner Jaso stated that when the Commission published for comment the proposed emergency amendment, the Department of Justice expressed its views that the proposal did not go far enough in increasing penalties. He stated that when the Commission asked the Department to provide evidence of improper downward departures by federal judges, the Department turned to career prosecutors and recently submitted a detailed appendix describing several dozen recent cases. Some involve multimillion dollar corporate fraud where the defendant avoided or minimized prison time by successfully claiming mitigating circumstances.
Ex Officio Commissioner Jaso stated that Department of Justice has worked to discuss its proposal with the Commission in an effort to craft an amendment that would engender consensus. He stated that progress has been made and this progress is represented by the amendment offered by Vice Chair Steer, which is a reasonable compromise that increases penalties across the board and is fully responsive to Congress. Differences in opinion among Commissioners have precluded prompt action on what the President, Department of Justice, and the Congress believe is a matter of great national importance. The Department of Justice is therefore disappointed and frustrated with today’s vote. The emergency amendment leaves virtually unchanged the fraud loss table. The enhancements that have been included, while literally responsive to the specific directives in the Act, will have little effect on the vast majority of white collar and other fraud cases prosecuted by the federal government each year.
Ex Officio Commissioner Jaso stated that the Commission has done nothing to address or even acknowledge the increasingly severe problem of federal judges ignoring the existing guidelines to grant lenient sentences or even probation to wealthy, well connected criminals. The evident media interest in the Commission’s actions demonstrates strong public interest in this important issue, and today’s action sends the wrong message to the corporate world, to citizens concerned about the economy and the nation’s markets, and to persons who would use guile rather than force to rob others. Ex Officio Commissioner Jaso stated that the Department will be reviewing its options, including the possibility of seeking direct legislative action.
Chair Murphy spoke to clarify a misperception that could have arisen from some of the comments and from several recent media articles referring to the Commissioners as two Republicans and three Democrats. She stated that there never has been an issue over which the Commission was divided on partisan lines. Chair Murphy stated that she sees this emergency amendment as a work in progress. She noted that there are differences of opinion because there is not clarity for some as to what “serious crime” includes in the Sarbanes-Oxley Act. There also are differences of opinion as to whether crimes with a lower loss amount should be considered serious offenses. Chair Murphy stated that her judgment is that the Commission has more work to do in this area, and the process by which the Commission publishes issues for comment will help it to reach consensus on the best possible solution.
Vice Chair Castillo stated that this discussion involves a minor difference of opinion in one area of the guidelines. He stated that the passage of the emergency amendment is a very positive step, and that any white collar offender who takes solace from today’s action is incredibly naive. Vice Chair Castillo stated that whether a white collar offender goes to jail for ten years or nine years and eight months, he will face certain prison time. Vice Chair Castillo stated that he also is frustrated with today’s discussion because, in his view, the Commission and the Department are talking at each other, not with each other. He said that he absolutely agrees that it is important to be tough on white collar criminals and corporate crooks and would therefore readily adopt the Department of Justice’s loss proposal for loss amounts over $100,000. Vice Chair Castillo stated that it is important to be realistic about the types of crimes that are covered by the loss table, including such offenses as credit card fraud, bank teller embezzlement, theft of government medicare checks, theft from casinos on federal land, theft from automatic teller machines, postal theft by employees, and use of cancelled stamps. These are not corporate white collar crimes as he defines the term, and perhaps this is the fundamental difference between the Department's view and his own.
Vice Chair Castillo stated that Congress knows the guidelines and knows how to get exactly what it wants from the Sentencing Commission. He noted, for example, that Congress provided a very specific directive in the Sarbanes-Oxley Act to enhance penalties under §2B1.1 for crimes with significantly more than 50 victims. Vice Chair Castillo stated that the Commission responded accordingly by adding that specific enhancement. He added that he cannot believe that Congress simply failed to communicate a directive to increase penalties across the board if it had intended such a consequence. Vice Chair Castillo stated that he is very willing to work with the Department to reach a consensus. He is not sure whether his perception that white collar crimes are characterized by loss amounts of $100,000 or more is correct, and he would be willing to compromise on that issue. It is critical that the guidelines do not sweep in an unintended group of offenders and have an unintended impact on the prison system. Vice Chair Castillo noted that Bill Mercer, a U.S. Attorney and Chair of the Attorney General’s Advisory Committee Subcommittee on Sentencing Guidelines, indicated that white collar offenses generally would involve much more than a $6,000 loss. Vice Chair Castillo stated that the Department of Justice might suggest simply changing the fraud loss table and then trusting federal judges to use their discretion and depart where appropriate, but this would not work because the Department has concerns about departure rates. Further, in his view this is not how the guidelines should operate.
Vice Chair Castillo stated that the Department of Justice has provided the Commission with a list of cases that it believes indicate improper departures. He combed through the list of case summaries and discovered that in many instances, the trial judge’s departure was reversed by the Court of Appeals. He stated that the government can appeal sentences that are outside the guideline range, and he did not perceive a problem with the final decisions relating to departures. He added that only two of the departure case examples provided by the Department of Justice involved loss amounts less than $50,000. He would like greater documentation of perceived departure problems with lower loss amounts. Vice Chair Castillo stated that he is confident that the Commission and the Department can reach accord. He concluded by stating that the Commission has a responsibility to improve the criminal justice system.
Vice Chair Steer stated that he has tremendous respect for the views expressed by his colleagues, although he has a few disagreements. Vice Chair Castillo’s comments about restitution illuminate an important point. He stated that Congress also has expressed the importance of restitution and has mandated restitution for all of these white collar offenses; further, the guidelines also require restitution. Vice Chair Steer stated that restitution is not the only goal sought by the legislation. He said that deterrence and the prevention of crime perhaps are more important goals. He has not seen any empirical evidence that correlates the payment of restitution with a particular type of sentence imposed. Vice Chair Steer added that even if this were established, he is not sure that Congress would agree that there should be more probationary or split sentences rather than imprisonment sentences. He stated that, in his view, deterrence, prevention of crime, and just punishment are overriding goals.
Vice Chair Steer stated that he too would prefer that the Commission had more time to evaluate this issue and present more data to the public. He believes this is the Commission’s own fault because it has had the Department’s proposal and request since October. In his view the Commission has moved entirely too slowly to consider fully the aspects of the proposal dealing with changes in the loss table and the base offense level. Vice Chair Steer said that he hopes the Commission will address the departure issue in the near future. He stated that he personally supports reasonable departure opportunities but believes that the Commission has an obligation under the landmark Koon decision to examine departures periodically because Koon states that it is up to the Commission and not the appellate courts to set policy in this area.
Vice Chair Steer noted that some Commissioners are in disagreement as to what constitutes a serious fraud offense. He does not have the experience of being a sentencing judge himself, nor does he think that most members of Congress have such experience. He considers mail theft to be a serious offense, particularly when a significant amount of social security checks are stolen. He noted that under his proposal, mail theft would be a level six offense that would have increased penalties only if substantial losses were involved. Vice Chair Steer stated that there are differences in opinion about what constitutes a serious offense even among federal judges. He said that the Commission recently had received a letter from a judge in Arizona who implored the Commission to increase penalties for mail theft because in that judge’s experience, mail theft was employed as a source of funds for drugs. The Commission needs to have further discussion to try to come to a consensus on these issues. He stated that, in his view, it is unfortunate that legislative efforts may go in the direction of specifically directing the Commission. This should not be necessary because the Commission’s antennae should be honed sufficiently so that it can respond to Congress without the Department having to ask Congress to legislate specific directives. He fears that any directive may impose sentences of far greater severity than that in his proposal or even that proposed by the Department of Justice. If this happens, the Commission may be damaged institutionally, thus harming the rapport the Commission has worked so hard to build with Congress.
Vice Chair Steer stated that it is evident that the Commission cares deeply about this issue and that the commissioners have genuinely tried to do what is right. He stated that it did not appear that there were the requisite four votes necessary to promulgate his proposed supplemental amendment, so he moved to withdraw it from consideration. Vice Chair Steer expressed his hope that the proposal would be considered as part of a package of issues for comment to allow the Commission further study as it proceeds through the amendment cycle and considers permanent amendments in April. Commissioner O’Neill, who had seconded the motion for consideration, did not object to the proposal being withdrawn.
General Counsel Tetzlaff then provided the Commission with an overview of proposed issues for comment pertaining to corporate fraud. He stated the Commission requests comment regarding whether, when it repromulgates the emergency amendment as a permanent amendment, the loss table should be modified more extensively to provide increased offense levels for offenses involving lower loss amounts. Additionally, the Commission requests comment regarding whether, when it repromulgates the emergency amendment as a permanent amendment, it should amend §2B1.1(a) to provide an alternative base offense level, either in conjunction with, or in lieu of, an amendment to the loss table, that would apply based on the statutory maximum term of imprisonment applicable to the offense of conviction. As part of the emergency amendment, the Commission promulgated a new enhancement that provides a four level enhancement if the offense involved a violation of securities law and, at the time of the offense, the defendant was an officer or director of a publicly traded company. The Commission seeks comment on whether it should include in this enhancement, for example, a registered broker or dealer, an associated person of a registered broker or dealer, an investment adviser, or a person associated with an investment adviser. There is also a proposed issue for comment as to whether the Commission should provide separate guidelines for theft, fraud, and property destruction offenses that currently are referenced to §2B1.1. Finally, there is an issue for comment for cases involving fraud-related contempt.
General Counsel Tetzlaff stated that a motion would be in order to publish the issues for comment for a sixty day comment period, to publish the emergency amendment for comment as a permanent amendment for a sixty day comment period, and to authorize staff to make technical and clarifying changes.
Vice Chair Castillo moved to publish the issues for comment and emergency amendment for comment as a permanent amendment, all with a sixty day comment period and to authorize staff to make technical and clarifying changes. He stated that he also would like to move consideration of an issue for comment regarding a proposed loss table with no changes below the $100,000 loss threshold. The motion, as amended, was seconded by Vice Chair Sessions.
Vice Chair Steer stated that he had no objection to Vice Chair Castillo’s proposed issue for comment. He requested that staff also include a reference to a previously published issue for comment regarding raising the base offense level for the perjury guideline.
Chair Murphy then called for a voice vote on the motion. The motion passed
unanimously by voice vote.
Chair Murphy thanked those present for their interest and attendance and
thanked staff and all commissioners for their hard work. She adjourned the
meeting at 12:40 p.m.