DOJ Criminal Division Releases Criteria for Evaluating Companies’ Ability to Pay Fines

The criminal division of the U.S. Department of Justice formalized the criteria it will use to evaluate corporate defendants’ claims of inability to pay fines or monetary penalties. The memorandum, published October 8, 2019, provides what the government described as an “analytical framework” for evaluating assertions by a business organization, and brings greater transparency over prosecutorial decision-making.

The criteria do not apply to claims individuals might assert of an inability to pay fines in a criminal action.

This framework is based in large part upon the statutory sentencing factors set forth at 18 U.S.C. § 3572(a) & (b), the federal sentencing guidelines set forth in U.S.S.G. §§ 8C2.2 & 8C3.3 and the Justice Manual’s principles regarding the consideration of collateral consequences in resolving a corporate criminal case.

In prepared remarks, Assistant Attorney General Brian A. Benczkowski stated the memo provides the “range of factors” the government will consider for “legitimate questions” of a company’s inability to pay a fine or other monetary penalty.

The factors include the ability to raise capital, the cause of the company’s financial condition, the “significant and likely collateral consequences” on the company and whether the company will be able to pay restitution to victims. If a company cannot in fact pay the appropriate fine or penalty, from the government’s perspective and calculations, the government’s lawyers should recommend an adjustment to the amount.

Accompanying the memo is a questionnaire that drills down on the company’s “financial picture,” including cash flow projections, operating budgets, acquisition or divestiture plans and asset encumbrances. A company that asserts an inability to pay argument is expected to provide a complete and timely response to the questionnaire, as well as to any follow-up inquiries.

Before an “inability to pay” argument can be considered by the Department of Justice, the government and corporate defendants must reach an agreement as to both the form of a corporate criminal resolution, and the monetary penalty that is appropriate based on the law and facts, irrespective of inability to pay considerations.

If criminal division attorneys find that a company is unable to pay the otherwise appropriate fine or penalty, the government may recommend an adjustment to the amount, but only to the extent necessary to avoid “threatening the continued viability of the organization” and/or “impairing the organization’s ability to make restitution to victims.”

That recommendation must then receive approval from the chief of the relevant section or from the assistant attorney general if the proposed reduction exceeds 25%.