Get Your Tutsi Fruitsi: Calculating FCPA Fines Under The Sentencing Guidelines

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dayThe Marx Brothers’ movies will live in infamy – they were hilarious, creative, and always relevant.

One of my favorites was A Day at The Races, and the scene that applies with force to FCPA enforcement – Chico was scamming Groucho by selling Groucho a number of books and manuals needed to calculate the winning horse for a race.  Chico was selling the books under the guise of his “Get Your Tutsi Fruitsi Ice Cream.”  As Groucho falls prey to Chico, Groucho lamented, “I’m getting a Tutsi Fruitsi right here.”  See here for a great clip of the scene.

The same complicated calculation process applies to determining a company’s sentence under the Sentencing Guidelines, except Chico is not the one pushing the books.

As a former AUSA in Washington, D.C., I spent a lot of time in court and became very familiar with the US Sentencing Guidelines.  In the pre-Booker days, the Sentencing Guidelines were “mandatory” in the sense that a trial judge had to follow them or come up with some good reasons not to do so.  In today’s world, the Guidelines are “advisory,” which means that judges follow them when they want to do so, and ignore them when they want to do so.

In the FCPA arena, DOJ adheres to the Sentencing Guidelines in its enforcement papers and provides transparency as to the calculation of the ultimate penalty for a specific company.day2

My criticism of DOJ in this area is that the discount for cooperation and voluntary disclosure should be defined in advance rather than “taken into account.”  There is no question that DOJ provides a discount for cooperation – in many cases, it has been about a 25 percent reduction from the bottom of the guideline range for fines.

Prosecutors are more than happy to provide some definition to a plea agreement in advance when it comes to individuals. In many cases, the only issue up for debate is the nature and extent of a defendant’s cooperation, if he or she chooses to seek a downward departure for cooperation with the government.

In the FCPA context, it is difficult to advise a company of the potential benefits of cooperation when the results could be: (a) a declination; (b) a non-prosecution agreement with a reduced fine; (3) a deferred prosecution agreement with a reduced fine; (4) a subsidiary criminal guilty plea to an indictment/information charging a criminal offense, along with a fine; and (5) a parent or acting company guilty plea to an indictment/information charging a criminal offense; and/or (6) a combination of all of the above as demonstrated in the recent Hewlett-Packard settlement.

In order to get on the same page as everyone, let’s go back to the Sentencing Guidelines and take a look at the relevant sections.

day3First, the sentencing calculation begins with the well-established bribery Section 2C1.1 (a)(2) which assigns a base offense level of 12 for a defendant that is not a “public official.”

Second, specific offense characteristics from Section 2C1.1 (b)(1) and (b)(3) are typically added, for multiple bribes (+2) and involvement of foreign elected officials (+4), bringing the base offense total to 18.

Third, another specific offense characteristic from Section 2C1.1(b)(2)and a cross-reference to the “Loss Table” at Section 2B1.1 is usually added to reflect the “value of the benefit received” from the bribery.  Depending on this level of this “value” above $5000, the base offense level typically goes up significantly because of the ranking of “loss” in the table.  Assuming the value was for $10 million in contracts, the addition would be 20 base offense points, brining the total now to 38.

With this base offense calculation, the sentencing inquiry now moves to Section 8C2.4(a)(1) for the determination of a sentencing guideline range.  Under the sentencing table (and assuming that (a)(1) applies, the base offense fine is $72,500,000.

Under the Organizational Guidelines, a Culpability Score has to be calculated:  (a) Section 8C2.5(a), a starting amount of 5 points; (b) Section 8C2.5(b), an addition of 4 points because the business unit in which the violation occurred or the willfully ignorant actor existed was 1000 or fewer employees; and (c) Section 8C2.5(g)(3), the company earned a 5 point reduction for voluntary disclosure and full cooperation of a violation that was not known to the government and disclosed within a reasonable time of learning of the conduct.  In this case, the total culpable points would be 5+4-5=4 points.

This figure could go higher if the company had obstructed justice, had a prior history of bribery or violated an existing court order in committing the violation (e.g. a Deferred Prosecution Agreement).

Under this Section a company could earn a 3-point reduction for an “effective” compliance plan.  However, a review of sentencing guideline data has shown that only a handful of companies have ever earned the 3-point reduction.

Section 8C2.6 sets out the applicable multipliers to be used in calculating the sentencing range based on the culpability score.  For a culpability score of 4, the range is multiplied by a minimum of 0.80 and the maximum 1.60.

The minimum and maximum numbers are applied to the base offense fine of $72,500,000 to reach $58,000,000 on the bottom and $116,000,000 at the top of the range.day4

DOJ and the company will negotiate a resolution within the range or below the range (to reflect a cooperation discount) and request the court to approve the specific resolution under Federal Rules of Criminal Procedure 11(c)(1)(C).

Topics:  DOJ, Enforcement Actions, FCPA, Fines, Sentencing

Published In: General Business Updates, Criminal Law Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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