The DOJ’s Corporate Inability to Pay Guidance & the 2020 Outlook for White Collar Prosecutions
White Collar Crime and Internal Investigations Alert 12/04/19 Luke Cass
At the Global Investigations Review's October 2019 meeting, Assistant Attorney General Brian A. Benczkowski made two significant announcements about the Department of Justice’s (DOJ) white collar crime enforcement efforts.
First, he announced that the DOJ has issued written guidance for prosecutors to assess a business organization’s inability to pay a criminal fine or monetary penalty sought by the Criminal Division. The guidance consists of a memorandum detailing the DOJ's policy and an Inability-to-Pay Questionnaire, which will aid federal prosecutors in evaluating a business organization's assertion that it is unable to pay an otherwise appropriate criminal fine or monetary penalty.
According to the memorandum, a business organization's inability to pay an agreed upon criminal fine or monetary penalty will often be determined by an analysis of its responses to the Inability-to-Pay Questionnaire. The DOJ will likely pay particular attention to a company's responses to questions regarding its current assets and liabilities, and may compare current and anticipated cash flows against working capital needs.
Federal prosecutors may consider a number of factors before settling on an ultimate figure, including:
- Background on Current Financial Condition. This includes an assessment of the organization's current financial condition, but will also likely track recent movement of capital, acquisitions, and distributions.
- Alternative Sources of Capital. An ability to raise capital through existing or new credit lines or by selling assets or equity will be examined. An organization’s existing capital is not dispositive of its inability to pay if it can raise additional funds.
- Collateral Consequences. Federal prosecutors are advised that they may consider the effect a proposed monetary penalty is likely to have on layoffs, product shortages, or market competition. This includes a company’s ability to fund pension obligations or provide for items required by law or regulation. It also may include potential impacts on growth or future opportunities.
- Victim Restitution Considerations. Federal prosecutors are also required to assess whether the proposed criminal fine or monetary penalty will impair an organization's ability to make restitution to any victims.
Federal prosecutors who conclude an organization is unable to pay the otherwise appropriate criminal fine or monetary penalty should recommend an adjustment to the monetary penalty amount, but only to the extent necessary to avoid (1) threatening the continued viability of the organization and/or (2) impairing the organization's ability to make restitution to victims.
Mr. Benczkowski also announced the reorganization of the Securities and Financial Fraud Unit within the Fraud Section. The unit was renamed the “Market Integrity and Major Frauds Unit," and has been designed to capture the “broad range of fraud enforcement work that its prosecutors actually perform.”
Here are six points on the Criminal Division’s recent announcements:
- A deal must be struck before payment discussions are held. According to the DOJ’s memorandum, the parties must first reach an agreement as to both the form of a corporate criminal resolution (e.g., non-prosecution agreement, deferred prosecution agreement, or corporate guilty plea) and the monetary penalty that is appropriate based on the law and facts, “irrespective of inability to pay considerations.”
- A company has the burden of demonstrating its inability to pay, and the DOJ expects full cooperation in assisting it in making an accurate determination. Full cooperation means a company will need to provide prosecutors with information and access to company personnel, respond to inquiries, and complete timely responses to its Inability-to-Pay Questionnaire. Companies should also anticipate that, in some cases, prosecutors will consult an accounting expert to vet the financial condition of the business.
- A negotiated amount can take various forms. It may consist of an appropriate reduction in the proposed criminal fine or monetary penalty, or the use of an installment schedule to facilitate the payment of the proposed fine or penalty amount over a reasonable period of time.
- Where the proposed reduction of a criminal fine or monetary penalty exceeds 25 percent, approval from the Assistant Attorney General for the Criminal Division is required.
- The rebranded Market Integrity and Major Frauds Unit means increased specialization with “dedicated teams” for: (1) Securities Fraud, (2) Commodities Fraud, (3) Government Procurement Fraud, (4) Fraud on Financial Institutions, and (5) Consumer Fraud, Regulatory Deceit, and Investor Schemes. Look for the change to reflect increased investigations and prosecutions as data analytics are siloed between various teams.
- Mr. Benczkowski stated that the Fraud Section charged 406 individuals in 2018 – a 33 percent increase from the prior year – with 10 corporate enforcement actions, and more than $1 billion in corporate U.S. criminal fines, penalties, restitution and forfeiture as part of resolutions that returned $3 billion globally. He also stated that the DOJ is “on track to surpass these benchmarks in 2019.”
For more information on white collar matters, internal investigations, or other enforcement issues please contact your Quarles & Brady attorney or:
- Luke Cass: (202) 780-2638 / [email protected]