The U.S. Sentencing Guidelines (“Guidelines”) play an important, and often misunderstood, role in the final resolution of Foreign Corrupt Practices Act (“FCPA”) investigations involving the U.S. Justice Department (“DOJ”). Those unfamiliar with the Guidelines often make two opposite, but equally significant, mistakes in interpreting them.
The first is to ignore the Guidelines when considering potential exposure and strategies relating to FCPA compliance, thereby underestimating the role the Guidelines play in settlement negotiations with the DOJ and the ultimate fine to be paid. The second is to inflate the significance of the Guidelines, assuming their application is an inflexible process that will lead to a clear and pre-determined penalty. Either interpretation can result in an uninformed negotiating position with the DOJ and missed opportunities to mitigate financial exposure in a potential settlement. In truth, the Guidelines provide a reasonable framework that can significantly focus negotiations, while also allowing both sides considerable room to justify a settlement figure that they consider appropriate.
By way of background, the Guidelines apply to all federal criminal cases. The U.S. Sentencing Commission designed the Guidelines (under authority provided by Congress) to maximize uniformity and proportionality in federal sentencing. The Guidelines also aim to make federal sentencing more predictable, curtailing the sometimes arbitrary discretion that prosecutors, judges, and the parole commission have traditionally held in setting federal sentences. Importantly, however, after the 2005 United States v. Booker decision by the U.S. Supreme Court, the Guidelines no longer have binding authority on federal judges, but do representthe fundamental starting point for a sentencing judge. In corporate plea agreements and deferred prosecution agreements, an agreed-upon Guidelines range and recommended sentence is typically adopted by the sentencing judge.
The Guidelines calculations for organizations (such as corporations) are determined through a multi-step process:
- First, determine the correct offense guideline, based on the charges and conduct at issue.
- Second, apply any appropriate offense adjustments, based on the victim, value of loss or other activity, role in the conduct, and obstruction of justice. This calculation results in a total offense score and base fine.
- Next, utilize the Guidelines applicable to the sentencing of organizations. This begins with a base culpability score.
- Additional points are added according to various potential aggravating characteristics. Points may also be subtracted based on potential mitigating characteristics, such as acceptance of responsibility.
- The sum of this calculation provides a total score, which corresponds with a “multiplier” range.
- The multiplier is applied to the base fine to result in a final penalty range.
Under a Guidelines calculation, points are awarded based on the severity of the offense and various other aggravating factors, while points are subtracted for certain mitigating factors. The higher the final score, the higher the ultimate fine range.
Although the seemingly mechanical nature of these calculations suggests a static approach to the determination of fines and penalties, there is significant flexibility in certain portions of the Guidelines, which allow for variations in the ultimate fine a company may face. Thus, despite the Guidelines’ stated aims of uniformity and predictability, in a complicated and wide-ranging investigation, particularly in FCPA context, the government and company defense counsel often present disparate sentencing calculations, both of which may be (technically) consistent with the Guidelines. This calculus can be further modified based on the sentencing factors reflected in 18 U.S.C. § 3553 (a), which are binding upon judges.
For example, the following are some of the key areas that can impact a final FCPA penalty:
- The specific offense guideline used -- Two different offense guidelines typically arise in the FCPA context: one for embezzlement and fraud/deceit offenses, USSG § 2B1.1, which is frequently, although not uniformly, applied to accounting violations; and one for anti-bribery violations, USSG § 2C1.1. Notably, the anti-bribery guideline typically results in a fine range that is several times higher than the range under § 2B1.1. Negotiations over the appropriate charge and guideline offense are therefore critical to the overall outcome of an FCPA case. Practitioners should be wary of agreeing to anti-bribery charges or to factual statements that admit bribes were paid, as either of these can trigger a § 2C1.1 calculation.
- Amount of bribes paid and/or loss to the victim(s) -- This calculation can also have a substantial impact on the eventual penalty figure. Inherent factual limitations make this area open to the greatest manipulation and negotiation. Today’s FCPA investigations often cover a broad range of potentially inappropriate conduct, both geographically and historically. A decision to limit the settlement terms to one country in a multi-country investigation or to a specific timeframe can greatly reduce the final penalty range.
- Organizational unit enhancement -- Under the Guidelines, companies face enhanced punishment if any individual considered “high level personnel” was culpable in the misconduct. The degree of the enhancement is linked to the size of the organization or organizational unit overseen by the culpable managers. A determination that the culpability stopped at a subsidiary level, rather than implicating the parent company, may not only limit the resolution to the subsidiary level, but also reduce the eventual fine as well.
- Cooperation and compliance program -- Under the Guidelines, an organization may receive a three-point deduction for an effective compliance and ethics program. This deduction is only available if a number of prerequisites are met. A further five-point deduction is available to organizations that promptly and voluntarily disclose the misconduct to the government and cooperate throughout the investigation. If the organization did not self-disclose but fully cooperated throughout the investigation, a three-point deduction is applicable. If the organization did not fully cooperate but eventually demonstrated affirmative acceptance of responsibility, a one-point deduction is awarded. In practice, the value of self-disclosure and/or an effective compliance program may be worth more than the Guidelines imply, as the government typically agrees to apply a further “discount” to the final Guidelines range, partly based on these factors. The DOJ also frequently cites extraordinary cooperation as a justification for a penalty “discount.”
Federal prosecutors consider settlement terms through the lens of the Guidelines. Keeping the aforementioned issues in mind will allow a company to best position itself in the context of an FCPA settlement negotiation. More importantly, the company that adopts and implements an effective compliance program will not only reduce its chances of encountering federal prosecutors, but also mitigate its penalty in the event of an FCPA resolution.