Not so long ago, an individual or an organization convicted of a crime would have no idea what sort of sentence the judge would hand down. Robbing a bank could land someone in prison for 10 years or could simply lead to long-term probation, depending on the judge.
To make sentencing somewhat more predictable, in 1984 Congress created the U.S. Sentencing Commission. Its mandate: to limit judicial discretion by establishing uniform sentences for federal crimes. But instead of merely standardizing sentences, the commission has jacked up criminal penalties to unprecedented—and unjustified—levels.
The proposed penalties are particularly onerous in the murky area of corporate crime, where zealous prosecutors armed with new interpretations of antitrust law or environmental regulations can create criminals overnight. The new corporate penalties, charges the commission's former chief economist, will cost consumers from tens to hundreds of billions of dollars a year. But, unless altered by Congress, they will become law within six months.
As an administrative agency similar to the Federal Communications Commission or the Securities and Exchange Commission, the U.S. Sentencing Commission has great latitude to set policy. But it is not a legislative body: The Supreme Court ruled in the U.S. v. Mistretta separation-of-powers case that the commission must rely on empirical research and use an open administrative process when it enacts new penalties.
Unfortunately, the commission's decisionmaking has been anything but reasoned, and it has treated empirical findings with contempt. It has acted, as Justice Antonin Scalia characterized it in his dissent, as a "junior varsity Congress" unable to insulate itself from political pressures.
Conversation with Commissioner Ilene Nagel underscores her attention to signals from the public about corporate crime. She claims that "firms are getting away with serious crimes" and cites public opinion polls showing that "70 to 80 percent believe white-collar crimes are treated too leniently." She also contends that "fines in the past were so inadequate" that the commission should not be constrained by past practices but instead by "what fines should be to be both punitive and deterrent."
Federal circuit judge William Wilkins, the commission's chairman, has said that "past practice…cannot be the guiding force" behind sanctions against organizations, including corporations. From recent congressional hikes in some penalties for serious crimes, he infers that all past penalties are irrelevant.
For such a powerful group, the Sentencing Commission is little known. Appointed by President Reagan and approved by Congress, the original commissioners included Wilkins, sociologist Nagel, economist Michael Block, law professor Paul Robinson of Rutgers University, parole commissioner Helen Carothers, federal judge George MacKinnon, and Stephen Breyer, a federal circuit judge and an architect of Sen. Edward Kennedy's airline deregulation plan.
The atmosphere at the commission meetings was frequently tense. Alliances often came unglued after shouting matches between commissioners and staff. Commissioners Robinson and Block resigned; Breyer left when his term expired in 1989. None of the original members has been replaced.
The remaining commissioners are a sociologist whose primary concern is "sending firms a message that crime can't pay," a former prison warden, and two federal judges who came to the bench after careers as prosecutors (one of whom, MacKinnon, is 84 years old and rarely attends meetings because of ill health). The commission, charges Block, now relies on "feelings instead of facts" to shape policy.
Other critics charge that the commission has never been constrained by empirical research. Attorney Samuel Buffone, chairman of the American Bar Association's Committee on U.S. Sentencing Guidelines, says that when the commission increased individual penalties for armed robbery in 1987, its changes weren't based on empirical studies of previous sentencing patterns or on expert testimony from law enforcement or banking officials. Rather, says Buffone, there was a "general sense that 'these guys are getting off too light' so [the commissioners] picked some figure out of the air to ratchet up the sentence. That's the antithesis of reasoned decisionmaking."
When the commission took up the issue of corporate crime in 1988, it again abandoned past sentencing practice as the basis for its actions. Block, now a professor of law and economics at the University of Arizona, spent over a year working on a set of sentences based both on previous procedures and on a model of economic efficiency. His proposals caused a battle between traditionalists who claim that all crimes warrant severe penalties and efficiency advocates who contend that penalties should repay the social costs of crime but should not punish parties who work to prevent future crimes.
Using the economic model, a firm that dumps toxic chemicals in a river would clean up the spill and pay for any public health damages or other costs the spill caused. If the firm dumped the chemicals secretly, or tried to prevent the authorities from detecting the spill, it would receive heavy additional fines; however, if the spill were accidental, or if the firm actively assisted with the cleanup, further penalties would not be assessed.
Excessive penalties might also "overdeter"—leading innocent parties to devote resources to prevent merely being suspected of a crime. Former commission economist John Lott cites studies showing that uncertain law enforcement procedures and ambiguously defined crimes overdeter. Excessive or arbitrary penalties also cause firms to spend money on attorneys and lobbyists rather than on providing better goods and services.
Dominated by traditionalists, the commission summarily rejected Block's proposals (soon afterward he resigned) and started drafting more-punitive guidelines. It now proposes two sets of penalties, one of which will become federal law unless Congress passes a law to change them.
Option I calls for mandatory corporate fines based on a multiplier equal to the criminal activity's "social cost"—which the commission defines as the higher of the gross gain a company achieved from committing the crime, or the gross loss from paying restitution for the crime. This is a new definition; previous social costs were based on restitution alone. The sentencing judge must then issue a fine either two or three times the amount of the multiplier in addition to any restitution or any civil penalties. Based on current mean penalties, Option I would increase corporate criminal penalties 7 to 10 times.
Option II is even more severe. Block says it calls for "fines ranging from $250 to $374 million without providing a hint of how these fine levels were determined." In a Vanderbilt University study, he notes, previous penalties were subjected to guidelines as stringent as Option II. The result: Median corporate fines increased 15 to 30 times.
The new guidelines also introduce corporate probation, which a judge can assess in lieu of or in addition to fines. A judge might use probation, Nagel suggests, when a crime is deemed to be so serious that an "appropriate" fine can't be assessed. But it is an option when any company is convicted.
The commission says that a company on probation would simply report to a judge or court-appointed attorney to make sure it pays fines or takes the proper steps to prevent future crimes. But the guidelines place no limits on the probation officer's power. Theoretically at least, a company on probation could be prevented from issuing or selling stock, hiring employees, or even purchasing office supplies.
Overall, the commission has both reduced the variance in fines—its original mandate—and increased their severity. Critics claim these guidelines are so severe that they will be counterproductive: They will eliminate the flexibility judges need to reward companies who cooperate and will actually discourage corporate officers from dealing honestly with law enforcement authorities. And they will encourage corporations to fight every case to the bitter end, rather than plea bargain.
Currently, a judge can drastically reduce or eliminate penalties when a company turns itself in or deals harshly with rogue employees. The new guidelines will allow at most a 20- to 30-percent reduction in fines.
"The commissioners refuse to acknowledge that firms need to protect themselves," says Block. "Employees of firms will commit crimes—the firms can't prevent all of them. [As a company], you're better off not turning yourself in."
Other firms will be punished for ambiguously defined crimes. Lott, who is now a professor at UCLA's Anderson Graduate School of Management, notes that the rules governing insider trading violations, antitrust infractions, and environmental damage change frequently. As a result, defendants may be convicted for doing things that weren't considered illegal when the acts were committed.
As an example, Block cites wetlands rules. "What is a violation of federal law is very fuzzy," he says. "People who are filling up ditches on their own land may now end up in federal prison for 27 months. These people may be guilty of something, but it isn't a heinous crime."
By dismissing research on past practice and relying instead on the whims of public opinion, the Sentencing Commission has left itself vulnerable to future legal challenges. Scalia's dissent in the Mistretta case could prompt another separation-of-powers lawsuit from a convicted party who believed its penalty was arbitrary. What Block calls the current commission's "flight from empirical reality" may be its eventual undoing.
The Business Roundtable and other industry groups hope that, with only four commissioners seated, the commission will delay its final proposals until it has a full complement of seven members. Nagel sloughs off that request, accusing the business community of wishing that "someone with [Block's philosophy] will be nominated." It looks like the commission will present its recommendations to Congress on May 1, as scheduled.
Because the commission seems unimpressed with empirical data and economic theory, former commissioner Block is frustrated. "As an economist," he says, "these arguments drove me crazy. The commission believes that firms will pay these penalties. But in the end the consumer pays." He also concludes, "if we're going to have criminal penalties altered because of public pressures, I'd rather have the varsity [that is, Congress] making the changes, not an insulated, appointed body."
Rick Henderson is researcher/reporter for REASON.