Response or Comment
Center on Corporate Governance
Center for Contract and Economic Organization
The new "Draft Guidelines for Organizational Defendants" released by the U.S. Sentencing Commission on October 25, 1990, explicitly adopt a "'carrot and stick' approach" to sentencing. While the boldly instrumental use made of sentencing penalties and credits in these guidelines will trouble some, the larger question is whether the Commission's social engineering will work. Two issues stand out: First, is the Commission's carrot mightier than its stick? At first glance, this may seem a surprising question because the "stick" in the Commission's guidelines seemingly packs a Ruthian wallop: fines under the draft guidelines are based on a multiple of the greater of (a) the pecuniary gain to the defendant, (b) the pecuniary loss to victims, or (c) an amount from a fine table, scaled to reflect the seriousness of the offense, which table goes up to a maximum of $165,000,000. Thus, because the maximum multiplier is three, a fine of up to $495,000,000 is authorized for the most serious offenses, and, in cases where a pecuniary gain or loss is readily calculable, even greater fines could be presumptively required.
Still, this "stick" may be illusory, because the Commission's "carrot" will often trivialize it. Under §8C1.2(e), the multiplier can range as high as three, but if certain mitigating factors are present, it can fall as low as 0.15. The net result is extraordinary latitude. Assume for example that the base fine is $1,000,000. The operation of the multiplier then permits the actual fine imposed to range from $3,000,000 (i.e., a multiplier of three) to $150,000 (a multiplier of 0.15). In short, at any given fine level, depending on the presence or absence of these mitigating factors, the maximum fine will normally be twenty times the minimum fine; thus, rather than curtailing historical sentencing variation, these guidelines may well increase the range of actual outcomes.
The second issue surrounding the Commission's use of incentives involves its possible confusion of ends and means. The introduction to the Commission's draft indicates that the proposed guidelines "seek to provide clear incentives for organizations to strengthen internal mechanisms for deterring, detecting, and reporting criminal conduct by their agents and employees by providing tough penalties when organizations fail to take such steps." Ultimately, the Commission's inventive structure seeks to reward compliance plans, internal monitoring, and the noninvolvement of senior management in the criminal activity. These are means to an end – the reduction of crime – rather than ends in themselves. Although the relevance of these factors seems clear, the cost of achieving them in terms of the sentencing goal of general deterrence is not. The unknown variables are (1) the degree to which compliance plans and internal monitoring reduce criminal activity, (2) the ability of courts to distinguish legitimate, effective internal monitoring from cosmetic or half-hearted attempts, and (3) the impact on general deterrence of reducing fines to a nominal level if such structural controls and procedures are institutionalized. It is easy, of course, to conclude that prudence dictates moderation in the absence of perfect knowledge, but this comment will conclude with a more specific suggestion: there is a better way to evaluate the corporation's efforts at crime prevention than to judge them at the moment of sentencing. Specifically, mitigation credits should be awarded on a provisional basis, through the vehicle of a suspended sentence, so that they thus remain subject to forfeiture if the organization is involved in related civil or criminal offenses during a reasonable period of unsupervised probation.
John C. Coffee Jr.,
"Carrot and Stick" Sentencing: Structuring Incentives for Organizational Defendants,
Fed. Sent'g. Rep.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/528