On October 8, 2019, the U.S. Department of Justice (“DOJ”) announced new guidance detailing the criteria prosecutors will consider when evaluating corporate defendants’ claims of an inability to pay a criminal fine or monetary penalty. The announcement reflects the DOJ’s emphasis on enhancing transparency to the corporate community about its enforcement priorities, processes, and procedures.
Inability to Pay Memorandum and Questionnaire
DOJ published a memorandum to provide an “analytical framework” for evaluating a company’s inability to pay a claim (“Benczkowski Memorandum”). The Benczkowski Memorandum clarifies that the ability of a corporate defendant to pay is not a threshold issue in its negotiations with the government. Before DOJ will consider a claim of inability to pay, the corporate defendant and DOJ must first agree to the form of the criminal resolution, whether by guilty plea, a deferred prosecution agreement, or nonprosecution agreement, as well as the amount that the monetary penalty would be based on the conduct at issue without consideration of the company’s financial condition. Only then should attorneys in DOJ’s Criminal Division consider a range of factors enumerated in the Benczkowski Memorandum, including:
- What gave rise to the organization’s current financial condition? (e.g., whether the alleged lack of money is the result of intentional corporate decisions like dividends, distributions, or compensation to ownership and management; investments like capital improvements or acquisitions; or engaging in related party transactions);
- Alternative sources of capital (e.g., whether the company has credit lines or booked reserves);
- Significant and likely collateral consequences of the fine or penalty to the company (e.g., pension obligations, layoffs, or product shortages); and
- Whether the proposed fine or penalty will impair the company’s ability to pay restitution to victims.
These factors do not supersede, and should be applied in conjunction with, the statutory sentencing factors in 18 U.S.C. § 3572 and U.S. Sentencing Guidelines §§ 8C2.2 and 8C3.3.
A detailed questionnaire accompanies the Benczkowski Memorandum to provide objective data in support of a company’s request. Corporate defendants are required to provide DOJ with voluminous information, including recent cash flow projections, operating budgets, acquisition or divestiture plans, encumbered assets, audited financial statements, and income tax returns for five years.
If a company is in fact unable to pay the agreed-upon fines and penalties after evaluation of these factors and its financial information, and often after consultation with an accounting expert for the government, Criminal Division attorneys should recommend an adjustment to the monetary penalties and fines “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.”
Guidance on corporate defendants’ ability to pay claims is consistent with DOJ’s increased emphasis on transparency in its decision-making processes with respect to corporate prosecutions, including its April 2019 guidance on evaluating corporate compliance programs and the factors DOJ will use to determine if a program is operating effectively in practice. It is also in line with the October 2018 guidance clarifying that monitors should be approved only in cases where there is a demonstrable need and not as punishment.
Both the substance of DOJ’s recent guidance and its strategy to publicize the guidance are “part and parcel” of DOJ’s goal “to establish more predictable guideposts by which companies can gauge expectations, conform their conduct, and act as responsible corporate citizens.”