Intentions and consequences: changes to the sentencing guidelines for fraud

On April 9, the US Sentencing Commission approved changes to the federal sentencing guidelines for fraud cases, in response to longstanding criticism from the defense bar and certain federal judges that the (non-mandatory) guidelines lead to inconsistent and overly harsh sentences for certain financial crimes.

The Commission’s changes would enable judges using the guidelines to assign more weight to both the offenders’ intent and to the consequences of the offense (i.e., the financial harm suffered by victims).

Four of the most important changes are:

1. Quality over quantity. The amendments allow for harsher punishment for financial crimes where even one defendant suffers substantial financial hardship, rather than the previous emphasis on the number of victims (that may have suffered only small losses). 

2. Narrowing of intent. The Commission narrowed the definition of "intended loss" from pecuniary harm "that was intended to result" to what the defendant "purposely sought to inflict." This change narrows the intent requirement by applying a subjective standard that looks at the harm the defendant intended to cause rather than the harm that a reasonable person would have expected. 

3. Narrowing application of "sophisticated means" enhancement. The amendments would limit the use of the sentencing enhancement for offences involving "sophisticated means" to instances where the defendant intentionally engaged in sophisticated means, looking to this defendant specifically rather than to co-conspirators or to the offence as a whole. In addition, this amendment would require judges to determing whether the offence used sophisticated means relative to other offenses of the same type, rather than relative to other (potentially less sophisticated) crimes. 

4. Inflation adjustment. The amendments add an inflation adjustment to the calculation of fraud loss for the first time, which the DOJ has estimated would reduce sentences in fraud cases by 26% on average. 

The Department of Justice objected to the latter three amendments, claiming: (1) that the narrower definition of intended loss would require a subjective interpretation and would allow defendants to claim that they had not intended any harm; (2) that the existing application of the sophisticated means enhancement is more effective for punishing sophisticated crimes; and (3) that the inflation adjustment would negate a “societal consensus” that supports tougher punishments for fraud.

The amendments, approved by the Commission on April 9, will be submitted to Congress on May 1 and, absent objection by Congress, will take effect November 1.