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The US DOJ takes the view that criminal fines should sting but should not be so large as to put companies out of business or otherwise threaten their viability. It has recently published guidance for prosecutors assessing assertions by a business that it is unable to pay an otherwise appropriate criminal fine or monetary penalty. Organizations facing large criminal fines or monetary penalties should conform their conduct and expectations accordingly.
On October 8, 2019, the U.S. Department of Justice Criminal Division (the “DOJ”) released a memorandum and Inability-to-Pay Questionnaire (the “Questionnaire”), intended to provide guidance and an analytical framework for prosecutors to assess assertions by a business organization that it is unable to pay an otherwise appropriate criminal fine or monetary penalty.
Before prosecutors may consider an inability to pay argument, the parties must agree on a form of a corporate criminal resolution and the appropriate monetary penalty based on the law and facts, “irrespective” of inability to pay considerations. The burden of establishing an inability to pay rests with the business organization. The organization must provide a complete and timely response to the 11-point Questionnaire, as well as any follow up inquiries. Responses to the Questionnaire provide a picture of the company’s financial status, including its cash flow, operating budget, and divestiture plans. The analysis can be complex, and in most cases companies and prosecutors will each need to engage an accounting expert to examine the company’s financial condition.
Should a prosecutor find an organization is unable to pay the fine or penalty, he or she should recommend an adjustment only to the extent necessary to avoid (1) threatening the continued viability of the organization, (2) causing a severe adverse collateral consequence, and/or (3) impairing the organization’s ability to make restitution to victims. However, where an organization “operated primarily for a criminal purpose or primarily by criminal means,” a criminal fine or monetary penalty “shall be set at an amount (subject to the statutory maximum) sufficient to divest the organization of all of its net assets.”
Adjustments may consist of a reduction in the proposed fine or penalty, or the implementation of an installment schedule.
Prosecutors will analyze the organization’s Questionnaire responses to determine the company’s current assets and liabilities and compare current and anticipated cash flows against working capital needs. Where legitimate questions exist regarding an organization’s inability to pay, DOJ attorneys will consider a range of factors, including:
The DOJ’s memorandum and Inability-to-Pay questionnaire (included as Attachment A) are available here.
18 October 2019
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