The U.S. Department of Justice released guidelines on October 8, 2019 that aim to provide federal prosecutors with more guidance on how to approach claims by white collar defendants that they are unable to pay fines or penalties sought by prosecutors for criminal infractions. The guidelines are a positive development for companies that often find themselves unable to pay the fines that are otherwise deemed appropriate by the DOJ after considering the law and facts of a given case.

Assistant Attorney General Brian Benczkowski announced the guidelines, and an accompanying questionnaire, and expressed hope that the materials would promote transparency inside and outside of the DOJ, allow prosecutors to utilize a more uniform set of considerations and give companies looking to resolve matters greater insight into prosecutors’ thinking.

The guidelines stress that before any inability to pay argument is considered by the DOJ, prosecutors and a corporate defendant must agree upon the monetary penalty that is appropriate based solely on the law and facts. Prosecutors and the government’s accounting experts may then use a company’s responses to a DOJ questionnaire with a view towards making a more informed and fair determination concerning a company’s ability to pay. The questionnaire considers a wide range of factors including recent cash flow projections, operating budgets and projections of future profitability, capital budgets and projections of annual capital expenditures, proposed changes in financing or capital structure, acquisition or divestiture plans, restructuring plans, claims to insurers, encumbered assets and liens. 

In addition to financial metrics, prosecutors are urged to consider the collateral consequences of the imposition of a fine that may be beyond the means of a corporate defendant, such as the impact on pensions, employee jobs at a company and product shortages that may cause disruption to the larger market. Prosecutors are also urged to consider whether a proposed fine will impair the organization’s ability to make restitution to any victims.

The guidelines and questionnaire represent a positive step by the DOJ toward assessing fair and sensible penalties for corporate defendants in white collar cases. Polsinelli will continue to monitor developments in this area and will work with clients to assist them in negotiating equitable resolutions with the government.