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Gauging Organizational Exposure to Environmental Criminal Liability Q-5

I. INTRODUCTION

A. The Importance of the ProposedEnvironmental Sentencing Guidelines forOrganizations

Understanding the United States SentencingCommission’s Draft Environmental SentencingGuidelines2 (“proposed guidelines”) is importantfor a host of reasons.

First, although these guidelines have not beenformally adopted,3 they nonetheless provide amethodology for evaluating a business organiza-tion’s exposure to criminal liability for conductthat impacts the environment. The general fineprovisions set forth in the existing organizationalsentencing guidelines (“organizational guide-lines”), which are contained in Chapter 8 of theGuidelines Manual, do not apply to the environ-mental offense conduct described in Chapter 2,part Q.4 The Sentencing Commission instructscourts to determine fines in this excluded area byreference to traditional criteria contained in thegeneral sentencing provisions of Title 18 of theUnited States Code.5 By setting forth a detailedrange of fines6 for organizations convicted ofenvironmental crimes, the proposed guidelinesprovide invaluable insight for criminal defense

attorneys who handle investigations and enforce-ment actions, whether brought by theEnvironmental Protection Agency (“EPA”), theDepartment of Justice (“DOJ”), or state and localenvironmental officials.7 Obviously, the guidelinesare important because they may eventually beadopted, at which point they would becomemandatory for federal courts unless the particularcircumstances of a case merited a deviation fromthem, something that the Justice Departmentclaims should be a “rare occurrence.”8 Moreover,while judges still have essentially unfettered con-trol of sentencing in the area of environmentalcrime, they might follow the guidelines wherethey offer the most comprehensive frameworkavailable.9

Second, given its detailed guidance on of howto craft a successful environmental complianceprogram, the guidelines are a must-read for com-pliance officers and attorneys who counsel smallto large organizations that are subject to environ-mental statutes and regulations.10

Third, a new unprecedented focus on corpo-rate accountability signifies that the sentencingguidelines have heightened applicability outsidethe traditional context of white-collar defense.The recent legacy of corporate scandals has

Gauging Organizational Exposure to Environmental CriminalLiability: A Comparison of the Proposed EnvironmentalSentencing Guidelines to the Organizational Guidelines andthe Department of Justice’s Revised Principles of FederalProsecution of Business Organizations

Marcellus A. McRaeMatthew D. Taggart 1

Gibson, Dunn & Crutcher LLPLos Angeles, California

stimulated the public’s appetite for federal prose-cution of wayward corporations and their direc-tors and officers. This is most apparent in theexplosion of statutes promoting corporate liabili-ty, most notably the Sarbanes-Oxley Act,11 andthe Feeney Amendments to the PROTECT Act.12 Itis also apparent in the DOJ’s own internal poli-cies. Deputy Attorney General Larry Thompson’sJanuary, 2003 memorandum revising the princi-ples of corporate prosecution,13 made explicit theDOJ’s more aggressive posture toward corporatecrime. Thompson noted the need for “increasedemphasis on and scrutiny of a corporation ororganization’s cooperation,” and described thedepartment’s opinion that”[t]oo often businessorganizations, while purporting to cooperate witha Department Investigation, in fact take steps toimpede the quick and effective exposure of thecomplete scope of wrongdoing under investiga-tion.”14 The proposed guidelines are important forin-house counsel as well. These individuals, inwhom corporate directors and officers have cometo confide and trust, but who serve the corporate“entity,”15 have complex fiduciary duties that can-not be attended to without a keen understandingof the substantive laws affecting their clients’industries. The guidelines form a key part of theoverall “risk management” puzzle.

B. Comparative Analytical ApproachWe will use a comparative approach to

explain how the proposed guidelines overlapwith and diverge from the existing organizationalguidelines and the DOJ’s revised Principles ofFederal Prosecution of Business Organizations(a.k.a. the Thompson Memo).

Discussing the proposed guidelines in thecontext of the Thompson Memo serves twoimportant purposes. First, where charging andsentencing principles are the same, one shouldnot disregard the latter, whether or not they havebeen formally adopted. Even the most skepticalmembers of the defense bar must acknowledgethat, while they may have every reason tobelieve that federal judges will cautiously guardtheir sentencing discretion (particularly in the

wake of the PROTECT Act), judges might be lessinclined to formulate a disposition when theguidelines provide a simple matrix tailored toenvironmental offenses.

Second, and perhaps more importantly, bycontrasting the factors that influence prosecutori-al leniency with the available environmental sen-tencing guidance, one can obtain a morenuanced, multi-layered view of liability. This isespecially important in today’s universe of limit-ed prosecutorial discretion. Indeed, according tothe United States Attorneys’ Manual, which setspolicy for federal prosecutors and controls overall DOJ policy statements (except those directlyemanating from the Attorney General), prosecu-tors must charge a defendant with the most seri-ous offense that is consistent with the nature ofhis conduct for which a conviction may beobtained.16 Ideally, attorneys representing organi-zations should consider all elements of exposure,including the likelihood of an investigation, thepotential for indictments against the corporationand/or individual employees, and the likely fines,restitution and/or incarceration of individualsthat may result from prosecution.

Comparing the proposed environmentalguidelines with the existing organizational guide-lines serves several important purposes as well.First, by analyzing critical differences in howfines are calculated under the proposed guide-lines as compared with the organizational guide-lines, attorneys should come away with a betterunderstanding of both. Second, since effectivecompliance programs constitute the single mostimportant mitigating factor under the proposedenvironmental guidelines and the organizationalguidelines, an analysis of the compliance criteriacontained in both will give organizations a clear-er sense of how their programs should bedesigned and managed.

In considering these three important docu-ments, lawyers may get a more practical sense ofwhether a federal prosecutor will press chargesagainst a corporation or small business and oftheir chances for reduced fines and leniency.

Q-6 Marcellus A. McRae, Matthew D. Taggart

II. WHAT ARE THE PROPOSED ENVIRONMENTALSENTENCING GUIDELINES?

A. Applicability The proposed guidelines, like the organizational

guidelines in Chapter Eight of the SentencingGuidelines,17 apply to organizations and not indi-viduals.18 In evaluating potential liability forenvironmental crimes for officers, directors andother individuals employed by an organization,one should review Chapter Two, Part Q ofthe guidelines.

B. Status The guidelines were first proposed in March

1993. They were revised after extensive feedbackfrom the public; and a second version was pub-lished by the Sentencing Commission in 1993.19

The proposed guidelines were drafted by anAdvisory Working group composed of membersof the defense bar, academics, judges, businessrepresentatives and members of public interestgroups.20 They were meant to be inserted into theexisting Sentencing Guidelines as Chapter Nine.However, the Sentencing Commission neverapproved the proposal. Despite the DOJ’sincreased focus on environmental crime, thereare no signs that the Commission plans to recon-sider the proposed environmental guidelinesanytime soon. The Commission is continuouslyrevising the Sentencing Guidelines, as reflectedin recent report of the Ad Hoc Advisory Groupon the Organizational Guidelines (whose pro-posed amendments to Chapter Eight were justrecently published in the Federal Register forcomment).21 Yet, there has been no movement onthe proposed environmental guidelines.

The proposed guidelines contains four majorsubstantive portions which address: (1) how tocalculate fines for environmental offenses, (2)aggravating and mitigating factors in sentencing,(3) effective compliance programs, and (4) pro-bation. This paper addresses each of the firstthree topics.22

C. A Different Approach to Fines: AComparison with the Organizational Guidelines

Fines are determined under the proposedguidelines by obtaining a numerical figure basedupon the seriousness of the crime or crimes com-mitted,23 the so-called “primary offense level,”and adjusting that figure upward or downwardbased on aggravating or mitigating factors (just ascourts do in the case of run-of-the-mill crimeslike larceny or assault). The sum, or net offenselevel, corresponds to a percentage of the maxi-mum statutory fine for each criminal count ofwhich the defendant is charged.

Despite some basic similarities, the proposedguidelines’ fine calculus differs substantially fromthat of the organizational guidelines. Ironically,where the proposed environmental guidelinespermit courts to come up with fairly precise dol-lar values for certain categories of harms, fraudor other economic crimes that may involve fairlyexact losses are punished by reference to a finerange. Under the organizational guidelines, thebase offense level is initially converted into a“base fine” under Section 8C2.4. Mitigating andaggravating factors are weighed to generate a“culpability score” under Section 8C2.5 whichcorresponds to a minimum and maximum multi-plier under Section 8C2.6. Once the multipliersare obtained, they are multiplied by the base fineand the sentencing judge is left with a rangefrom which to select a fine depending upon ahost of policy factors.24

In brief, the organizational guidelines provideus with a range of possible fines through a multi-plication-driven process whereas the environ-mental guidelines, through a simple process ofaddition and subtraction, can be used to obtainspecific fine amounts for which a defendant maybe liable. In this sense, they may be much easierfor defendants to understand and utilize than theorganizational guidelines.


III. GAUGING ORGANIZATIONAL EXPOSUREUSING THE PROPOSED GUIDELINES

A. What Kind of Environmental Harm?:Identifying a Primary Offense Level

First, as with the organizational guidelines,25

one determines the primary offense level usingthe individual sentencing criteria for environ-mental crimes contained in Chapter Two, Part Q(entitled “Offenses Involving The Environment”),which looks to so-called “offense conduct.”26 Asthe Introductory Commentary to the chapter ofthe organizational guidelines dealing withoffense conduct notes, “[e]ach offense has a cor-responding base offense level and may have oneor more specific offense characteristics thatadjust the offense level upward or downward.”27

Base offense levels range anywhere from six totwenty-four, with the highest score correspond-ing to a crime involving knowing endanger-ment28 based on mishandling of toxic orhazardous substances; and the lowest corre-sponding to a negligent mishandling or record-keeping-type violation. For sentencing purposes,there are five main categories of environmentaloffenses in which the numerous substantivefederal statutory environmental crimes all fall:29

2Q1.1: Knowing Endangerment ResultingFrom Mishandling Hazardous orToxic Substances, Pesticides or OtherPollutants (24)

2Q1.2: Mishandling of Hazardous or ToxicSubstances or Pesticides; Record-keeping, Tampering, and Falsification;Unlawfully Transporting HazardousMaterials In Commerce (8)

2Q1.3: Mishandling of Other EnvironmentalPollutants; Recordkeeping, Tampering,and Falsification (6)

2Q1.4: Tampering or Attempted Tamperingwith Public Water System; Threateningto Tamper with a Public Water System(16-22)

2Q2.1. Offenses Involving Fish, Wildlife, andPlants (6)

These numbers are then adjusted upward ordownward depending upon the existence of spe-cific offense characteristics. Specific offensecharacteristics should not be confused with theaggravating or mitigating factors (which are dis-cussed below). Although they are very similar tothe aggravating and mitigating factors, we mightthink of the former as describing the kind, ratherthan the degree, of criminal conduct. Commonspecific offense characteristics are:30

Resulted in ongoing, continuous or repetitivedischarge, release or emission (6)

Otherwise involved discharge of hazardousor toxic substance or pesticide (4)

Resulted in disruption of public utilities orevacuation of community or cleanuprequired a substantial expenditure (4)

Involved transport, treatment storage or dis-posal without a permit or in violation of apermit (4)

If recordkeeping offense reflected effort toconceal a substantive environmentaloffense, use offense level for substantiveoffense

Offense levels for crimes that result in death orserious injury, or create a substantial risk ofdeath or serious injury, can be adjusted in twodifferent ways. The heightened risk might betreated as a specific offense characteristic andthe primary offense level increased by a fixedamount (for example, nine levels for a mishan-dling of toxic substances violation under Section2Q1.2 and eleven levels for a mishandling orother environmental pollutants violation underSection 2Q1.3). Alternatively, if death or bodilyresulted, Chapter 2 is clear31 that an upwarddeparture from the guidelines may be warrantedunder Chapter 5, Part K.32

B. How Much Harm?: Aggravating andMitigating Factors Under the Guidelines

Primary offense levels are adjusted upward ordownward depending on the existence of certainmitigating and aggravating factors, which are


referred to as “culpability factors.”33 The culpabil-ity factors underscore the relevance of theseproposed guidelines for defense attorneys andin-house counsel in that they track closely withboth contemporary Department of Justice poli-cies on prosecution of corporations and the orga-nizational guidelines.

1. Aggravating Factors The following mitigating factors can result in a

substantial increase in the offense level:

Management Involvement: The top aggravatingsentencing factor under the proposed guidelinesis whether persons of substantial authority (i.e.“substantial authority personnel”)34 “participatedin, condoned, solicited, or concealed the crimi-nal conduct, or recklessly tolerated conditions orcircumstances that created or perpetuated a sig-nificant risk that criminal behavior ... wouldoccur.”35 Such involvement may result in a six-level increase in the offense level.36 Substantialauthority personnel includes both managerialemployees and others who are not necessarilypart of management but exercise “substantial dis-cretion when acting within the scope of theirauthority.”37 They are different from “high-levelpersonnel,” which comprises individuals whohelp to shape company policy, such as directors,officers and division or unit heads and personswith substantial ownership interest in an organi-zation,38 although involvement of high-level per-sonnel in an environmental crime may trigger thesix-level increase.

These employee classifications derive from theorganizational guidelines.39 Involvement in ortolerance of criminal activity also leads to thegreatest increase in the culpability score underthe organizational guidelines. They call for aone- to five-level increase in the culpabilityscore depending on the size of the organizationand whether substantial authority personnel orhigh-level personnel are involved in the crime.40

This top aggravating factor also correspondsroughly to the first41 DOJ criterion in whether tocharge a corporation (i.e. after initial consideration

of the nature of the offense): “the pervasiveness ofwrongdoing in the corporation, including the com-plicity in, or coordination of, the wrongdoing bycorporate management.”42

Where the proposed environmental guidelinesare fairly unclear about the threshold for findingcomplicity among employees, leaving us onlywith general categories, the Thompson Memomakes clear that the key is to balance the serious-ness of the environmental harm against theamount of high-level involvement. To wit, a fairlyminor infraction (e.g. misreporting without anyharm caused by discharge) might not result inprosecution unless there was high-level corporateinvolvement whereas truly serious environmentaldamage could lead to prosecution whether or notdirectors or officers were involved.43

To summarize, in cases in which actual envi-ronmental damage is negligible, the govern-ment’s ability to obtain evidence of high levelinvolvement or knowledge may play a significantrole in its analysis of whether to prosecute.

Past Compliance History:44 Under the proposedsentencing guidelines, the impact of past criminalconduct upon sentencing depends upon howrecently it occurred and whether it involved thesame facility. If “any part” of the offense of whichthe defendant has been convicted took place lessthan five years following another state or federalcriminal environmental adjudication, a two- tofour-level increase results.45 A five-level increaseresults if the past criminal adjudication involved thesame facility at issue in the current conviction.46

An organization’s civil compliance historywithin the last five years is also a factor. A one-level increase results where a company’s civilenforcement record in the last five years revealsa “disregard ... of its environmental regulatoryresponsibilities,” whereas a two-level increaseresults where its civil enforcement recordinvolves similar misconduct to that of which ithas been convicted.47

An organization’s enforcement history is alsothe second culpability factor under the organiza-tional guidelines,48 although they consider anorganization’s civil and criminal history datingback a full ten years. A one-level increase occurs


under the guidelines where the current offensewas committed less than ten years after a crimi-nal adjudication based on similar misconduct ora civil/administrative adjudication based on twoor more separate instances of similar miscon-duct.49 A two level increase results if the afore-mentioned adjudications took place within fiveyears of the current offense.50

The DOJ’s second consideration in whether toprosecute a company, likewise, is the company’s“history of similar conduct,” although the DOJcriteria sweep more broadly than the proposedguidelines.51 Previous environmental enforce-ment actions are relevant to charging decisionsregardless of when they occurred. Like the pro-posed guidelines and the organizational guide-lines, the Thompson Memo is explicit that non-criminal conduct should be considered, includ-ing “non-criminal guidance, warnings, or sanc-tions.”52 But unlike the proposed guidelines andthe organizational guidelines, the ThompsonMemo does not assign different weights to priorcivil and criminal misconduct.

The Thompson Memo encourages prosecutorsto disregard the corporate structure, by factoringthe conduct of subsidiaries and affiliates intowhether a corporation should be charged. Theproposed guidelines seem to provide a more rea-sonable, measured approach, treating a sub-sidiary as part of the organization only where itis not “separately managed” by “independentmanagement.”53 The organizational guidelines,likewise, indicate that the prior civil and criminalconduct of a “separately managed line of busi-ness”54 is only relevant to the organization’s priorhistory if it is involved in the current offense.55

Violation of An Order: Under the proposedguidelines, a one- to three-level increase in theoffense level results if the environmental crimeviolated an administrative order, a judicial order,a condition of probation, a cease and desistorder, or when the violation occurs following anotice of violation for the same offense conduct.56

The organizational guidelines call for a one-pointincrease in the culpability score if the organiza-tion violated a condition of probation and a two-point increase if it violated a judicial order or a

condition of probation by engaging in similarmisconduct.57 The Thompson Memo does notspecifically address violations of judicial ordersor probation as a factor in prosecutorial leniency.

Concealment: A three-level increase resultsunder the proposed guidelines where any employ-ee or agent of the company knowingly tries toconceal violations or obstructs any investigation.58

A five-level increase results if the person fallswithin the category of substantial authority per-sonnel. In terms of both prosecution and sentenc-ing, concealment may be viewed as the antagonistof cooperation and self-reporting, which is a keymitigating factor under the proposed environmen-tal guidelines. The organizational guidelines, like-wise, call for a three-level increase a defendant’sculpability score for obstruction of justice, whichincludes instances where an organization “willful-ly obstructed or impeded, attempted to obstruct orimpede, or aided, abetted, or encouraged obstruc-tion of justice during the investigation, prosecu-tion, or sentencing of the instant offense...”(emphasis added).59

Concealment and obstruction of justice fallwithin the ambit of “Cooperation and VoluntaryDisclosure,” which is the third factor guidingprosecutorial decision making under theThompson Memo.60 The Memo calls on prosecu-tors to consider “whether the corporation, whilepurporting to cooperate, has engaged in conductthat impedes the investigation (whether or notrising to the level of criminal obstruction).”61

Unlike courts, prosecutors will weigh obstructivebehavior by an organization regardless ofwhether it was “knowing” or “willful.” TheMemo warns prosecutors to be on the lookoutfor broad assertions of corporate representationof employees or former employees, directions bycounsel to employees not to cooperate and fail-ure to promptly disclose known illegal conduct,among other things.62

Absence of Compliance Program or OtherOrganized Effort: A four-level increase resultsunder the proposed guidelines where an organiza-tion had no compliance program in place prior tothe charged offense or, alternatively, “had such aprogram in form only and had substantially failed


to implement such a program.”63 A complianceprogram, strictly speaking, is not necessary wherean organization can show an “organized effort” toachieve compliance, which the commentary tothe guidelines describes as “a genuine organizedeffort to monitor, verify and bring about compli-ance with environmental requirements.”64

Although the proposed guidelines set forth severalfactors for environmental compliance as a mitigat-ing factor in another subsection, there is norequirement that a defendant corporation complywith these factors to avoid increased liabilityunder this subsection.65

By contrast, while the organizational guide-lines also reward organizations that have effec-tive compliance programs with a significantreduction in their culpability score, unlike theproposed guidelines, they do not treat theabsence of such a program as an aggravatingfactor.66 Indeed, this difference between theproposed guidelines and the organizationalguidelines implicates an important part of thedebate over whether the proposed guidelines aretoo stringent, which we take up below in thediscussion of compliance as a mitigating factor.Suffice it to say that, as one article put it, the pro-posed guidelines created a “sweeter carrot” anda “larger stick” than the organizational guide-lines. Not only would effective compliance pro-grams result in a greater reduction in fines underthe proposed environmental guidelines than wasavailable for other kinds of corporate crimeunder the existing organizational guidelines, butfailure to implement any such program couldalso result in a substantial fine increase.67

The October 7, 2003 Report of the Ad HocAdvisory Group on the OrganizationalSentencing Guidelines specifically consideredwhether the organizational guidelines should beamended to provide for increased culpabilityscores for organizations that fail to adopt effectivecompliance programs.68 The Group concludedthat such an amendment would disproportionate-ly impact small companies and thus was undesir-able. First, it pointed out that of the 1089 cases inwhich sentencing occurred under the organiza-tional guidelines between 1991 and 1999, only

three defendants qualified for compliance credit.Second, it noted that few small companies havean awareness of the compliance incentives in theguidelines, let alone the resources to set up suchprograms. Moreover, the DOJ specifically told theAd Hoc Group that it opposed increasing culpa-bility scores for organizations that fail to adopteffective compliance programs.69

2. Mitigating Factors

Commitment to Environmental Compliance:An effective compliance program is the singlemost important mitigating factor in sentencingunder both the proposed environmental guide-lines and the existing organizational guidelines.Such programs can lead to a significant reduc-tion in fines.

A three- to eight-level reduction may beobtained under the proposed guidelines wherean organization proves that prior to the chargedoffense it demonstrated a bona fide commitmentto compliance in light of the size and nature ofits business, including “detection and deterrenceof criminal conduct by its employees andagents.”70 Participation, ratification or willfulblindness of high-level individuals to offensesraises a rebuttable presumption that the organi-zation lacked the requisite commitment.71

Substance is critical here. To obtain such areduction, an organization must demonstrate thatit has “substantially satisfied” seven highly-specif-ic criteria contained in subsection 9D1.1(a) of theproposed guidelines, which is reproduced below.

(a) Minimum Factors Demonstrating aCommitment to Environmental Compliance

(1) Line Management Attention toCompliance. In the day-to-day opera-tions of the organization, line managers,including executive and operating offi-cers at all levels, direct their attention,through the management mechanismsutilized throughout the organization(e.g. objective setting, progress reports,


operating performance reviews, depart-mental meetings), to measuring, main-taining and improving the organization’scompliance with environmental lawsand regulations. Line managers routine-ly review environmental monitoringand auditing reports, direct the resolu-tion of identified compliance issues,and ensure application of the resourcesand mechanisms necessary to carry outa substantial commitment.

(2) Integration of Environmental Policies,Standards and Procedures. The organi-zation has adopted, and communicatedto employees and agents, policies, stan-dards and procedures necessary toachieve environmental compliance,including a requirement that employeesreport any suspected violation to appro-priate officials within the organization,and that a record will be kept by theorganization of any such reports. To themaximum extent possible given thenature of its business, the organizationhas analyzed the work functions (e.g.,through standard operating procedures)assigned to its employees and agents sothat compliance will be achieved, veri-fied and documented in the courseof performing the routine work ofthe organization.

(3) Auditing, Monitoring, Reporting andTracking Systems. The organizationhas designed and implemented, withsufficient authority, personnel andother resources, the systems andprograms that are necessary for: (i) fre-quent auditing (with appropriate inde-pendence from line management) andinspection (including random, and,when necessary, surprise audits andinspections) of its principal operationsand all pollution control facilities toassess, in detail, their compliance withall applicable environmental require-ments and the organization’s internalpolicies, standards and procedures, as

well as internal investigations andimplementation of appropriate, fol-low-up countermeasures with respectto all significant incidents of non-compliance; (ii) continuous on-sitemonitoring, by specifically trainedcompliance personnel and by othermeans, of key operations and pollu-tion control facilities that are eithersubject to significant environmentalregulation, or where the nature andhistory of such operations or facilitiessuggests a significant potential fornon-compliance, (iii) internal report-ing (e.g. hotlines), without fear of retri-bution, of potential non-complianceto those responsible for investigatingand correcting such incidents, (iv)tracking the status of responses toidentified compliance issues to enableexpeditious, effective, and document-ed resolution of environmental com-pliance issues by line management;and (v) redundant, independentchecks on the status of compliance,particularly in those operations, facili-ties or processes where the organiza-tion knows, or has reason to believe,that employees or agents may have, inthe past, concealed non-compliancethrough falsification or other means,and in those operations, facilities, orprocesses where the organization rea-sonably believes such potential exists.

(4) Regulatory Expertise, Training andEvaluation: The organization hasdeveloped and implemented, consis-tent with the size and nature of itsbusiness, systems that are designedand adequate to: (i) maintain up-to-date, sufficiently detailed understand-ing of all applicable environmentalrequirements by those employees andagents whose responsibilities requiresuch knowledge; (ii) train, evaluateand document the training and evalu-ation of all employees and agents of


the organization both upon entry intoa new position in the organizationand on a refresher basis, as to theapplicable environmental require-ments, policies, standards (includingethical standards) and proceduresnecessary to carry out their responsi-bilities in compliance with thoserequirements, policies and standards;and (iii) evaluate employees andagents sufficiently to avoid delegatingsignificant discretionary authority orunsupervised responsibility to per-sons with a propensity to engage inillegal activities

(5) Incentives for Compliance. The orga-nization has implemented a system ofincentives, appropriate to its size andthe nature of its business, to providerewards (including as appropriate,financial rewards) and recognition ofemployees and agents for their contri-butions to environmental excellence.In designing and implementing salesor production programs, the organi-zation has ensured that these pro-grams are not inconsistent with theenvironmental compliance programs.

(6) Disciplinary Procedures. In responseto infractions, the organization hasconsistently and visibly enforced theorganization’s environmental policies,standards and procedures throughappropriate disciplinary mechanisms,including, as appropriate, termina-tion, demotion, suspension, reassign-ment, retraining, probation andreporting individuals’ conduct to lawenforcement authorities.

(7) Continuing Evaluation and Enforce-ment. The organization has imple-mented a process for measuring thestatus and trends of its effort toachieve environmental excellence,and for making improvements oradjustments, as appropriate, inresponse to those measures and to

any incidents of non-compliance. Ifappropriate to the size and nature ofthe organization, this should includea periodic, external evaluation of theorganization’s overall programmaticcompliance effort, as reflected inthose factors.72

Small organizations are required to demon-strate the same “degree of commitment” to envi-ronmental compliance as large corporations,even though the proposed guidelines indicatethat less formality or dedicated resources arerequired in this context.73

By design, these seven compliance factors arefar more specific than the seven compliance fac-tors set forth in the organizational guidelines.Professor John C. Coffee, a member of theAdvisory Group on Environmental Sanctionswrote that:

the proposed environmental guidelinesrepresent a severe critique of the exist-ing organizational guidelines, particular-ly with regard to the current guidelines’easily manipulated credit for corporatecompliance plans ... most of theAdvisory Panel that drafted the newguidelines was skeptical of both theorganizational premises upon which theexisting guidelines rest and the likeli-hood that adoption of such complianceplans would have significant beneficialeffect upon corporate behavior.74

Some members of the Advisory Group onEnvironmental Sanctions opposed the compli-ance criteria contained in the proposed environ-mental guidelines as a result of their specificity.First, they claimed that the program set an unre-alistic “Cadillac” or “gold” standard for compli-ance.75 Second, they argued that requiring “sub-stantial satisfaction” of each of the listed criteriawas excessive and that credit should be availableto defendants who could demonstrate a goodfaith effort at compliance. Third, the programallegedly contained too many command and


control requirements, cutting against establishedmanagement approaches that “establish objec-tives and leave it to the entity to fashion a pro-gram that effectively achieves those objectives.”76

However, despite the objections of some mem-bers of the Advisory Group on EnvironmentalSanctions, the organizational guidelines do pro-vide organizations with additional guidance onthe steps they can take to ensure that they receivecredit for effective compliance.

As a general matter, to receive credit for effec-tive compliance under the organizational guide-lines, an organization must have “exercised duediligence in seeking to prevent and detect crimi-nal conduct by its employees and other agents.”77

Application Note 3(k) of the organizationalguidelines then list seven minimum criteria thatan organization must meet to satisfy the “duediligence” requirement.

§ 8A1.2. Application Instructions–Organizations

Application Notes:

(k) An “effective program to prevent anddetect violations of law” means aprogram that has been reasonablydesigned, implemented and enforcedso that it generally will be effective inpreventing and detecting criminalconduct. Failure to prevent or detectthe instant offense, by itself, does notmean that the program was not effec-tive. The hallmark of an effective pro-gram to prevent and detect violationsof law is that the organization exer-cised due diligence in seeking to pre-vent and detect criminal conduct byits employees and other agents. Duediligence requires at a minimum thatthe organization must have taken thefollowing types of steps:

(1) The organization must have estab-lished compliance standards andprocedures to be followed by itsemployees and other agents thatare reasonably capable of reducing

the prospect of criminal conduct.(2) Specific individual(s) within high-

level personnel of the organiza-tion must have been assignedoverall responsibility to overseecompliance with such standardsand procedures.

(3) The organization must have useddue care not to delegate substan-tial discretionary authority toindividuals whom the organiza-tion knew, or should have knownthrough the exercise of due dili-gence, had a propensity toengage in illegal activities.

(4) The organization must have takensteps to communicate effectivelyits standards and procedures to allemployees and other agents, e.g.,by requiring participation in train-ing programs or by disseminatingpublications that explain in apractical matter what is required.

(5) The organization must have takenreasonable steps to achieve com-pliance with its standards, e.g., byutilizing monitoring and auditingsystems reasonably designed todetect criminal conduct by itsemployees and other agents andby having in place and publiciz-ing a reporting system wherebyemployees and other agentscould report criminal conduct byothers within the organizationwithout fear of retribution.

(6) The standards must have beenconsistently enforced throughappropriate disciplinary mecha-nisms, including, as appropriate,discipline of individuals responsi-ble for the failure to detect anoffense. Adequate discipline ofindividuals responsible for anoffense is a necessary componentof enforcement, however, theform of discipline that will be


appropriate will be case specific.(7) After an offense has been detect-

ed, the organization must havetaken all reasonable steps torespond appropriately to theoffense and to prevent furthersimilar offenses—including anynecessary modifications to itsprogram to prevent and detectviolations of law.

The Ad Hoc Advisory Group on theOrganizational Guidelines’ October 2003 reportproposed an overhaul of the organizational guide-lines’ compliance criteria.78 First, to reflect theimportance of compliance programs, the Groupproposed that the definition of an “effective pro-gram” be removed from the IntroductoryCommentary and codified as a new, separateguideline (Section 8B2.1). Second, based on itsopinion that true compliance requires not merely“conduct restrictions and information gatheringactivities aimed at preventing and detecting viola-tions of law,” but “positive actions which demon-strate that law compliance is a key value within anorganization,”79 the Group proposed that theguidelines specifically require organizations to“promote an organizational culture that encour-ages a commitment to compliance with the law.”80

Third, and most important, the Group pro-posed changes to six of the seven minimum com-pliance criteria listed above. The Group proposedchanging the first criterion, which calls for stan-dards and procedures to facilitate the detection of“criminal conduct,” so that the procedures target“violations of law” in the broadest sense (includ-ing regulatory and civil infractions).81

The Group objected to the second criterion,which requires that organizations assign responsi-bility for compliance programs to specific indi-viduals within high-level personnel, on thegrounds that it was “not minimally sufficient toidentify the responsibilities of organizationalactors for compliance.”82 Pointing to the recentspate of corporate scandals involving high-levelmalfeasance, the Group underlined the need foreven higher-level involvement in compliance

activities as well as the need for candid and opencommunication between top company and com-pliance executives. The new amended criterionrequires that “organizational leadership ... beknowledgeable about the content and operationof the program to prevent and detect violations oflaw” and that “the organization’s governingauthority ... exercise reasonable oversight withrespect to the implementation and effectivenessof the program...”83 The new term “governingauthority” refers to either the board of directorsor, if there is none, the highest governing body ofan organization,84 whereas “organizational lead-ership” embraces both “high-level” and “substan-tial authority personnel.”85 Moreover, the newthird criterion is explicit that the specific individ-ual within high-level personnel who is responsi-ble for compliance must have direct access tosenior organizational management.86

The third compliance criterion of the organi-zational guidelines, which currently requiresorganizations to use due care not to delegatesubstantial authority to persons whom it knew orshould have known “had a propensity to engagein illegal activities,”87 has been widely criticizedas the “most inscrutable” aspect of the definitionof an effective compliance program.88 TheAdvisory Group emphasized that the stepsinvolved in identifying which individuals withina given company might be prone to illegal con-duct could expose an employer to liability fordefamation, violation of state and federal anti-discrimination statutes and privacy laws, amongother things.89 The criterion was changed to statethat organizations must use “reasonable effortsnot to include within the substantial authoritypersonnel of the organization any individualwhom [it] knew, or should have known,” had a“history of engaging in violations of law” orother conduct inconsistent with an effectivecompliance program.90 The key differencebetween the old and the new criterion is that thehighly vague and ambiguous term “propensity”has been replaced with the term “history.”

The fourth criterion, which addresses communi-cation of compliance standards to employees andagents, was changed to reflect the Advisory


Group’s view that effective training programs anddissemination of publications describing standardsare mandatory elements of a program, rather thanmere examples of one.91 Likewise, the fifth criteri-on was changed to reflect that monitoring, audit-ing and evaluation programs are essential, ratherthan optional, parts of effective compliance.92

Consistent with the current trend favoringincreased protection of so-called “whistleblow-ers,”93 criterion five was adapted to require thatorganization’s maintain a reporting system thatspecifically provides for “anonymous reporting.”94

Criterion six, which addresses organizationalaccountability and enforcement of compliancestandards, was changed slightly based on theAdvisory Group’s sense that organizations mustnot only discipline unacceptable conduct, butmust also create positive incentives for compli-ance.95 The text of the revised criterion states thatan organization’s program must be enforced con-sistently “through appropriate incentives to per-form in accordance with such a program anddisciplinary measures for engaging in violationsof law...”96 No substantive changes were pro-posed to the seventh criterion, which requires anorganization to respond to detected violations oflaw and make appropriate modifications to itsprogram to prevent similar conduct.

While the proposed guidelines are still morespecific than the organizational guidelines as theyare tailored to environmental compliance, theforegoing proposed amendments to the organiza-tional guidelines are currently being consideredby the Sentencing Commission and may soonbecome law. Hence, compliance programs shouldbe constructed with these new criteria in mind.

The Ad Hoc Advisory Group’s report affirmsthe importance of involving top executives andboard members in compliance operations andensuring that compliance officers have openchannels of communication with decision mak-ers within a company or firm. It reinforces thatcertain elements of a compliance program oncethought to be discretionary, such as training andregular reporting mechanisms, may soon bemandatory. Finally, it affirms that companies willbe rewarded for a proactive, incentive-based

approach to compliance.The Ad Hoc Advisory Group’s proposed

amendments also track closely with the DOJ’scurrent focus on corporate compliance. One ofthe principal reasons for the DOJ’s revision of itsprinciples on corporate prosecution wasrenewed skepticism regarding the legitimacy ofcorporate compliance programs. The ThompsonMemo urges prosecutors to inquire whether“corporate governance mechanisms ... are trulyeffective rather than mere paper programs.”97

Accordingly, the section of the Memo addressingcompliance programs, which it treats as thefourth factor in leniency, values substance overform when it comes to compliance. As theMemo states, “[t]he department has no formalguidelines for corporate compliance programs ...[t]he fundamental questions any prosecutorshould ask are: ‘Is the corporation’s complianceprogram well designed.’ and ‘Does the corpora-tion’s compliance program work?’”98

The Thompson Memo focuses upon broadquestions as to whether the corporation has acompliance program at all, and whether thereare effective training, auditing and reportingmechanisms in place within the company.

The DOJ principles are stricter than the pro-posed environmental guidelines only in the areaof director- and officer-level accountability. TheThompson Memo echoes the concerns expressedby the Ad Hoc Advisory Group on theOrganizational Guidelines regarding the need fortop-level management to be involved in compli-ance. Where the proposed guidelines merelyinquire into whether executives at all levels“direct their attention” to compliance issues,99 theThompson Memo asks whether “directors [are]provided with information sufficient to enable theexercise of independent judgment” and whetherdirectors and management are given “timely andaccurate information sufficient to allow them toreach an informed decision regarding the organi-zation’s compliance with the law.”100

If an organization’s compliance program com-ports with both the proposed environmentalguidelines and the Ad Hoc Advisory Group onthe Organizational Guidelines proposed new


guideline on effective compliance programs (i.e.Section 8B2.1), it may be better-positioned toobtain leniency from the DOJ at the prosecution,plea bargaining and/or sentencing stages.

Cooperation and Self-Reporting: The secondgreatest reduction under the proposed guidelines,three- to six-levels, may be obtained via coopera-tion and self-reporting. The second mitigatingfactor under the guidelines is whether the organi-zation, “(a) prior to an imminent threat of disclo-sure or investigation, and (b) within a reasonablyprompt time after becoming aware of an offense,”reported the offense to appropriate governmentalauthorities, “fully cooperated in the investigation”and demonstrated recognition of its responsibili-ty.101 A four-level reduction results where anorganization pleads guilty before the governmentwas put to “substantial effort or expense” inpreparing its case, “fully cooperated with the pros-ecution,” and “took all reasonable steps to assessresponsibility within the organization and preventrecurrence.”102 A two-level reduction results wherethe organization does all of these things but failsto disclose the names and identities of individualswithin the corporation who it has actual or con-structive knowledge were involved in illegalconduct. Full cooperation is defined as disclosureof “all pertinent information known to or ascer-tainable by [the organization] that would assistlaw enforcement personnel.”103

The challenge for a defense attorney, of course,is to gauge the extent to which waiver of the self-evaluation, work product and attorney-client privi-leges may be required down the road in exchangefor leniency (either in terms of non-prosecution, aplea agreement or a reduction in sentencing).

This is more complicated than it might appearat first. The Commentary to the subsection oncooperation in the proposed guidelines is clearthat “pertinent information” does not encompasswaiver of privilege or identification of responsibleparties, noting that before applying a three- to six-level mitigation, “the court must determine thatthe organization has fully cooperated with theexception of supplying the names of individualsor privileged information.”104 Yet, the DOJ is muchless clear about whether it will require waiver of

privileges in exchange for prosecutorial leniency.Cooperation and voluntary disclosure, as the

DOJ calls it, is the third factor in whether tocharge an organization, preceding complianceprograms. The Thompson Memo, however, is farmore exacting as to what precisely “cooperation”entails, offering defendants a better sense of themany risks that come with helping the govern-ment investigate their businesses. In determiningwhether a corporation deserves credit for cooper-ation, a prosecutor may, “if necessary,” weighwaiver of privileges both with respect to internalinvestigations and communications between cor-porate employees, officers and directors, on theone hand, and counsel, on the other hand.Waiver is reportedly never mandatory.105

The recent report of the Ad Hoc AdvisoryGroup on the Organizational Guidelines, alsoaddressed the role of waiver of privileges inleniency, noting a sharp difference of opinionbetween the defense bar and the Department ofJustice regarding the extent to which waivers maybe required for cooperation credit from the DOJ.106

Many members of the defense bar have arguedthat the organizational guidelines should beamended to explicitly state that waivers are notneeded for a downward departure based uponsubstantial assistance, whereas the DOJ called anysuch amendment unnecessary since there is noexpress policy requiring waiver of privileges.107

Moreover, whereas the proposed environmen-tal guidelines allow a two-level reduction wherean organization pleads guilty and “cooperatedwith the prosecution in all relevant respectsexcept by failing to disclose the names and iden-tities of responsible individuals known to it,”108

the Thompson Memo strongly implies thatleniency will be denied if organizations fail tohand over the names of the wrongdoers. Thememo states that “the prosecutor should be waryof attempts to shield corporate officers andemployees from liability by a willingness of thecorporation to plead guilty.”109

A defendant or target of an investigation mustweigh the benefits of cooperation with the gov-ernment, including the possibility of obtainingleniency (whether in the form of nonprosecution,


a plea bargain or a reduced sentence) against theserious risks that such cooperation entails,including potentially devastating exposure tocriminal, civil and class-action litigation that canresult from waiver of privileges. The questionremains whether a company can meaningfullyassess the benefits of cooperation and voluntarydisclosure when it cannot know whether waiverof self-evaluation, work-product and attorney-client privileges may be required down the road.

C. Bottom Line Liability: Calculating FinesUnder the Proposed Guidelines

The Basic Fine CalculationOnce one identifies the primary offense level

for each offense and aggravating and mitigatingfactors are taken into account, a fine for eachcriminal count may be determined under theproposed environmental guidelines by referenceto the Offense Level Fine Table contained in PartE of the proposed guidelines.110 The defendantmust pay a percentage of the maximum statutoryfine for each count depending upon the finaloffense level. For example, for a count with a netoffense level ranging from zero to six, a defen-dant organization would pay ten percent of themaximum statutory fine. The defendant wouldpay one hundred percent of the maximum statu-tory fine when the net offense level was twenty-four or higher. The Offense Level Fine Table isattached at Appendix A.

Multiple Criminal CountsDeparting from the Sentencing Guidelines’

standard method for grouping multiple criminalcounts, the proposed guidelines generally requirecourts to issue a sentence for each offense ofwhich a defendant is convicted. The proposedguidelines approach to fines bears little resem-blance to Chapter 3, Part D of the currentSentencing Guidelines, which states that whereoffenses charged in multiple-count indictmentsare closely intertwined, only the more seriousoffense should be charged unless the other counts“represent additional conduct that is not account-ed for by the guidelines.”111 The purpose of thisgrouping procedure is to prevent multiple punish-ment for the substantially similar offense conduct.

The Commission claims in the IntroductoryCommentary to Chapter 3 that this practice is jus-tified because the “combined” offense level stillreflects the additional criminal counts for whichthe defendant is never separately sentenced. Towit, the conduct is reflected in sentencingenhancements that result from the specific offensecharacteristics of the combined offense level.

The Advisory Group on EnvironmentalSanctions, which was responsible for drafting theproposed environmental guidelines, claimed thatsuch grouping is not appropriate for environmen-tal offenses committed by organizations becauseit could “understate the harm that environmentalcrimes can cause.”112 Presumably the groupmeant that meaningful valuation of environmen-tal harms, such as destruction of habitat or loss ofa water source, would be impossible. Although,applying a hypothetical offered by Chapter 3,according to which a defendant who commits anassault causing bodily injury during a bank rob-bery is sentenced only for the robbery count andnot for the assault count,113 one could argue thatmeaningful valuation of assault or other non-eco-nomic harms is equally implausible.

Fine Limitations To avoid unduly harsh outcomes, however, the

proposed environmental guidelines also gavejudges significant discretion to reduce fines.Where multiple counts all pertain to a singlecourse of ongoing conduct (such as a continuingdischarge) and do not involve “independent voli-tional acts,” a court can reduce the fines so longas the judge is satisfied that the resulting fine ulti-mately “reflects the seriousness of the offense.”114

On the other hand, mitigation may not lead tofine reduction of more than fifty percent in thefinal offense level.115 In no event may the fine beless than the defendant’s economic gain plus thecosts of prosecution.116 Similarly, the court mustreduce a fine that would impair the defendant’sability to make restitution to the victim.117

A court may impose a fine below the levelrequired under the proposed guidelines if itdetermines that: (1) imposition of the fine wouldessentially ruin the defendant’s business due toits inability to pay the fine (even on a reasonableinstallment schedule), (2) the defendant is not a


“criminal purpose organization” as defined inSection 8C1.1 of the existing organizationalguidelines; and (3) the defendant has notengaged in “a sustained pattern of serious envi-ronmental violations.”118

Whether or not they provide a sufficient coun-terweight to the proposed guidelines’ anti-group-ing approach, these limitations comport with theorganizational guidelines’ preference for broadfine ranges as opposed to a strict per se approachto sentencing.

Fines Measured By Gains And LossesWhile it is important to analyze potential fines

using the tables contained in the proposed envi-ronmental guidelines, defendants and targets ofenvironmental investigations should also remem-ber that the most serious exposure in majorwhite collar prosecutions usually stems from theill-gotten gains or losses resulting from the defen-dant’s conduct. Under Section 8C2.4 of the orga-nizational guidelines, for example, the base fineis the greatest of the pecuniary gain or lossresulting from the offense, or the amount corre-sponding to the offense level.119 In many largecorporate criminal prosecutions, the losses tovictims and/or ill-gotten gains far exceed themaximum fines under the fine table.

Moreover, Section 3571 of Title 18 of theUnited States Code provides that where an offenseresults in pecuniary gain to the defendant or inpecuniary loss to a third party, a federal judge mayalso impose an fine equivalent to twice theamount of the loss or gain.120 In sum, a fine issuedpursuant to Section 3571 may be significantlyhigher in an environmental case than the maxi-mum fine under the proposed guidelines.

D. ConclusionEnforcement of our national environmental

statutes is a top priority for federal prosecutors,and the DOJ has committed more energy andresources to prosecuting environmental offensesthan at any time in history. Attorney GeneralJohn Ashcroft and Head of the Environmentaland Natural Resources Division Tom Sansonettirecently announced that for Fiscal Year 2003, theDOJ collected an all-time record $203 million incivil penalties in environmental cases.121 This is

in contrast with an average of $75 million peryear for the preceding three years.

As Sansonetti indicated, these civil penaltiesserve as strong evidence of the DOJ’s commit-ment to environmental prosecution:

The Division will continue to moveaggressively against individuals, part-nerships and companies that seek toavoid the cost of environmental com-pliance and thereby gain an economicadvantage over their competitors thatdo comply. We shall seek penalties thatforce the non-complier both to revertthe economic benefit reaped by non-compliance and to pay a stiff penalty toserve as a deterrent for others.

Likewise, the number of cases prosecuted by theDOJ’s Environmental Crimes Section continues toincrease. Although data is hard to come by, in2002 the Environmental Crimes Section of the DOJbrought some sixty-nine indictments and obtainedjail time in twenty-two instances.122

The defense bar, compliance officers and in-house attorneys all should have a rudimentaryunderstanding not only of the substantive law gov-erning their clients’ industries, but of the concreterisks that come with breaking these laws. TheDOJ’s Principles of Federal Prosecution of BusinessOrganizations can help lawyers to see more clear-ly which cases will be a priority for law enforce-ment, which are susceptible to plea bargaining orcivil settlement and whether leniency can likely beobtained on the basis of an organizations history ofgood behavior or compliance.

The proposed environmental guidelines, whilefleshing out many of these same factors in federalprosecutorial decision making, may also givedefendants a sense of their liability should they beprosecuted, and further clarify incentives for coop-eration and voluntary disclosure to the govern-ment. Moreover, because the compliancecriteria contained in the proposed guidelinesare stricter than those contained in the existingorganizational guidelines, complying with themmight increase an organization’s chances to obtainleniency at both the investigation, prosecution,plea-bargaining and sentencing stages.


ENDNOTES

1. Marcellus McRae is a partner in the LosAngeles Office of Gibson, Dunn & Crutcher LLPand is the Co-Chair of the firm’s Business Crimesand Investigations Practice Group. Mr. McRae isalso a member of the firm’s Litigation and Laborand Employment Practice Groups. MatthewTaggart is an associate in the Los Angeles Officeof Gibson, Dunn & Crutcher LLP and practices inthe firm’s Business Crimes and Labor &Employment Practice Groups.

2. United States Sentencing Commission,Draft Environmental Sentencing Guidelines[hereinafter “Proposed Guidelines”] (proposedNov. 1993).

3. Gary Lincenberg has pointed out that theSentencing Commission had several reasons forexcluding environmental offenses from the fineprovisions contained in the organizational sen-tencing guidelines, see infra note 6. First, the finecriteria contained in the organizational guide-lines focus upon the financial losses caused by adefendant. Lincenberg notes that environmentallosses are more complex and may be “perceivedto include aesthetic, public safety, or other non-monetary concerns.” Gary S. Lincenberg,Sentencing of Environmental Crimes, in THE

ENVIRONMENTAL CRIMES CASE 112, 113 (Gary S.Lincenberg & David S. Krakoff, eds., 1999).Second, the Commission was unsure of how toset a maximum ceiling for fines where federalcriminal environmental laws reflected Congress’sclear intent that penalties increase with eachpassing day that the environmental damage con-tinues. See id.

4. See U.S. SENTENCING GUIDELINES MANUAL

§ 8C2.1, commentary at 463 (2003) [hereinafter“USSG”] (available at http://www.ussc.gov/2002/guid.htm). Other important categories ofcases, such as food and drug and export controlviolations are also not covered by the organiza-tional guidelines’ fine provisions. See id.

5. See id. § 8C2.10 (“For any count orcounts not covered under § 8C2.1 (Applicabilityof Fine Guidelines), the court should determinean appropriate fine by applying the provisions of18 U.S.C. §§ 3553 and 3572.”).

6. Two of the three substantive parts of theorganizational guidelines do apply to environ-mental offenses. See id. § 8A1.1, ApplicationNote 2. The Commentary is clear that while thesections of chapter 8 relating to fine calculationsapply only to specified offenses, “[t]he other pro-visions of this chapter apply to the sentencing ofall organizations for all felony and Class A mis-demeanor offenses.” Part B, entitled “Remedyingthe Harm from Criminal Conduct,” addressesrestitution, remedial orders and community ser-vice. See id. § 8B1.1. The Sentencing commis-sion is clear that all convicted organizationsmust remedy any harm caused by the offense,including the “full amount of the victim’s loss.”See id. § 8B1.1 (“Restitution—Organizations”).Part D, entitled “Organizational Probation,”specifies that probation will be required whenimmediate payment of fines is excused or wherean organization with fifty or more employees atthe time of sentencing does not have an effectivecompliance program in place. See id. § 8D1.1(“Imposition of Probation—Organizations”).

7. Enforcement of environmental laws is arelatively decentralized process. Many states,including New Jersey and California, have hadcriminal environmental statutes on the books fordecades, even before the EPA began hiring crimi-nal investigators in the 1980s. Moreover, statescontinue to share enforcement responsibility forkey federal environmental statutes like the CleanWater Act. See 42 U.S.C. §§ 1251-1387 (2003).

8. The Sentencing Reform Act of 1984 (Title IIof the Comprehensive Crime Control Act of 1984)is mandatory and binding upon federal judgesalthough a sentencing court may depart from theguidelines and issue a sentence outside prescribedranges where “there exists an aggravating or


mitigating circumstance of a kind, or to a degree,not adequately taken into consideration by theSentencing Commission in formulating the guide-lines.” See 18 U.S.C. § 3553 (b)(1) (2003). The cur-rent Justice Department, for its part, has made clearits view that so-called downward departures fromthe sentencing guidelines should be a “rare occur-rence,” except where the government has peti-tioned a court for such a reduction based uponsubstantial assistance from a defendant or pursuantto early-disposition or fast-track programs. SeeMemorandum from Attorney General JohnAshcroft to All Federal Prosecutors, DepartmentPolicies and Procedures Concerning SentencingRecommendations and Sentencing Appeals 3 (July28, 2003) [hereinafter “Ashcroft Memo”].

9. Aside from the concerns alluded to infootnote 3, supra, many may object to theSentencing Commission issuing guidance in anarea in which judicial sentencing practices con-tinue to develop. After all, the guidelines weremeant to reflect prevailing national sentencingpractices in order to bring rationality and certain-ty to the process (except where Congress dictat-ed that prevailing practices were unacceptableand deviation was required). As the introductorysection of the guidelines points out, prior to pro-mulgating the Guidelines in 1987, theCommission reviewed data drawn from 10,000presentence investigations, reviewed crimes asdistinguished in substantive criminal statutes,and looked to the United States ParoleCommission’s guidelines and resulting statisticsand other data to distill “which distinctions areimportant in present practice.” See USSG, supranote 4, § 1A1.3 (2003). Since most criminalenvironmental statutes have only been on thebooks for thirty years or so, see supra note 29,and enforcement and investigative capabilitieshave developed very slowly, a persuasive claimcan be made that it is to early for theCommission to draw any empirical conclusionsabout environmental sentencing practices. Ifthere is no mature prevailing practice yet, thenallowing the Commission to dictate sentencing

rather than judges might be characterized as aninappropriate delegation of power. Cf. Mistrettav. United States, 109 S.Ct. 647 (1989) (affirmingconstitutionality of the United States SentencingCommission under separation of powers princi-ple and non-delegation doctrine).

10. Although the organizational guidelinescontain criteria for an “effective compliance pro-gram,” the environmental guidelines containdetailed discussion on how to craft an environ-mental program. See discussion, infra, at 16-20.

11. See The Sarbanes-Oxley Act of 2002,Pub. L. No. 107-204, 116 Stat. 745 (2003),among other things, made it illegal to fire or oth-erwise discriminate against an employee for pro-viding information or assisting an investigationregarding what the employee “reasonablybelieves” is a securities violation. See 18 U.S.C.§ 1514A(a)(1) (2003). In expanding whistleblow-er protection, the Act also makes it a crime toknowingly or intentionally interfere with a per-son’s employment or “livelihood” in retaliationfor providing truthful information to law enforce-ment relating to the possible commission of anyfederal offense. See 18 U.S.C. § 1513(e) (2003).

12. See Pub. L. No. 108-21, 117 Stat. 650(2003). These last-minute additions to the ChildAbduction Prevention Act, contained in Section401, severely restricted the ability of federaljudges to deviate from the federal sentencingguidelines and raised the standard of review ofappeals involving sentencing reductions from a“due deference” to a de novo standard. See id.These changes also led Attorney General JohnAshcroft to significantly revise the U.S. Attorney’sManual to call for greater scrutiny of judges whogrant sentencing reductions with any regularity.See Ashcroft Memo, supra note 8, at 4.

13. See Memorandum from Deputy AttorneyGeneral Larry Thompson, to Heads of DepartmentComponents, Principles of Federal Prosecutionof Business Organizations (Jan. 20, 2003)


[hereinafter “Thompson Memo”] (available athttp:/ /www.usdoj.gov/dag/cft f /corporate_guidelines.htm).

14. Id. at 1.

15. See, e.g., MODEL RULES OF PROFESSIONAL

CONDUCT Rule 1.13 (2003) (setting forth the“entity approach” to corporate representation).

16. See UNITED STATES ATTORNEYS MANUAL,§ 9-27.300 [hereinafter USAM] (“SelectingCharges—Charging Most Serious Offenses”).

once the decision to prosecute hasbeen made, the attorney for the gov-ernment should charge, or should rec-ommend that the grand jury charge,the most serious offense that is consis-tent with the nature of the defendant’sconduct, and that is likely to result in asustainable conviction. If mandatoryminimum sentences are also involved,their effect must be considered, keep-ing in mind the fact that a mandatoryminimum is statutory and generallyoverrules a guideline. The “most seri-ous” offense is generally that whichyields the highest range under the sen-tencing guidelines.

17. See USSG, supra note 4, ch.8.

18. See Proposed Guidelines, supra note 2,§ 9A1.1. “Organization” broadly encompasseseverything from partnerships and traditional cor-porations to unions, trusts and pension funds.See 18 U.S.C. § 18 (2003).

19. See id.

20. See id.

21. See United States Sentencing Commission,Report of the Ad Hoc Advisory Group on theOrganizational Sentencing Guidelines (Oct. 7,

2003) [hereinafter “Ad Hoc Advisory GroupReport”] (available at http://www.ussc.gov/corp/advgrprpt/advgrprpt.htm).

22. Since the probation criteria contained inPart B of the organizational guidelines apply toenvironmental offenses, see supra note 6, analy-sis of the probation-related proposals in the pro-posed guidelines has negligible value in gaugingan organization’s exposure.

23. See USSG, supra note 4, § 8C2.1-4.When a court finds that an organization wasoperated primarily for a criminal purpose or bycriminal means, both the organizational guide-lines and the proposed environmental guidelinesmandate a fine sufficient to divest the organiza-tion of all of its net assets. Compare id. § 8C1.1with Proposed Guidelines, supra note 2, § 9B1.1(“Determining the Fine—Criminal PurposeOrganizations”). An example of “criminal pur-pose” under the organizational guidelines is “anorganization established to participate in the ille-gal manufacture, importation, or distribution of acontrolled substance.” Id. § 8C1.1 commentary at462. An example of “criminal means” is “a haz-ardous waste disposal business that had no legiti-mate means of disposing of hazardous waste.” Id.

24. See USSG, supra note 4, § 8C2.8(“Determining the Fine Within the Range”).

25. See id. § 8C2.3 (“Offense Level”).

26. See Proposed Guidelines, supra note 2,§ 9B.2.1.

27. See USSG, supra note 4, ch. 2 commen-tary at 43.

28. “Knowing endangerment” is defined as“knowledge that the violation placed another per-son in imminent danger of death or serious bodilyinjury.” See id. § 2Q1.1 commentary at 265.


29. The main federal environmental statutescountenancing criminal liability are TheResource Conservation and Recovery Act, 42U.S.C. §§ 6901-6992k (2003), the Federal WaterPollution Control Act (known as the Clean WaterAct), 33 U.S.C. §§ 1251-1387 (2003), TheComprehensive Environmental Response,Compensation, and Liability Act, 42 U.S.C. §§ 9601-9675 (2003), The Clean Air Act, 42 U.S.C.§§ 7401-7561q (2003), The Federal Insecticide,Fungicide, and Rodenticide Act, 7 U.S.C. §§ 136-136y (2003), and The Toxic Substances ControlAct, 15 U.S.C. §§ 2601-2692 (2003).

30. While several offenses have specificoffense characteristics in common, the character-istics vary depending upon the offense. Counselshould use the Sentencing Manual to verifywhich characteristics apply to which crimes.

31. See § 2Q1.1 Application Note 1.

32. Consistent with the language of 18U.S.C. § 3553(b), see supra note 5, underChapter 5 a sentencing court can impose asentence outside the established range of theguidelines where “there exists an aggravating ormitigating circumstance of a kind, or to a degree,not adequately taken into consideration by theSentencing Commission in formulating theguidelines that should result in a sentence differ-ent than that described.” See USSG, supra note4, § 5K2.0 (“Grounds for Departure (PolicyStatement)”). See, e.g., § 5K2.1 (“If death result-ed, the court may increase the sentence abovethe authorized guideline range.”).

33. See Proposed Guidelines, supra note 2,§ 9C1.1-2.

34. Id. § 9C1.1, cmt.1, makes clear thatalthough the determination of an employee’s sta-tus should be made on a case-by-case basis, “forthe purposes of environmental sanctions, plantmanagers and senior environmental compliancepersonnel” fall into this category.

35. Id.

36. See id.

37. See § 9A1.1 Application Note 2(k).

38. Id. Application Note 2(e).

39. See USSG, supra note 4, § 8A1.2Application Note 3(b)-(c).

40. See § 8C2.5(b) (“Involvement in orTolerance of Criminal Activity”).

41. The Thompson Memo notes that the ninefactors which it directs prosecutors to consider in“conducting an investigation, determiningwhether to bring charges and negotiate pleaagreements” are not exhaustive and that a “aprosecutor should weigh all of the factors nor-mally considered in the sound exercise of prose-cutorial judgment.” See Thompson Memo at 3-4.These other factors are contained in Section 9-27.220 of the United States Attorneys’ Manual,and include such basic things as sufficiency ofthe evidence and the likelihood of success attrial. See USAM, supra note 16, §9-27.220.

42. See Thompson Memo, supra note 13, at 3.

43. Id. at 5.

44. The proposed guidelines treat an organi-zation’s criminal compliance history and its civilcompliance history as separate and independentaggravating factors. We consolidated them herefor ease of exposition. See Proposed Guidelines,supra note 2, § 9C1.1.(b)-(c).

45. See id. § 9C1.1(b). The appropriate pointrange depends on the severity of the prior con-duct, whether it occurred at locations undercommon management, and whether the priormisconduct occurred under a predecessor com-pany. If the conduct took place on the watch ofmanagement of an acquired company, the court


will inquire into whether that management hasbeen “substantially changed” by the acquiringcompany. See id.

46. Id. § 9C1.1(b).

47. See id. § 9C1.1(b)-(c).

48. See USSG, supra note 4, § 8C2.5(c).

49. Id.

50. Id.

51. Thompson Memo, supra note 13, at 3.

52. Id.

53. See Proposed Guidelines, supra note 2, §9C1.1(b) cmt. 3.

54. See § 8C2.5 Application Note 5. A “sepa-rately managed line of business” is defined as a“subpart of a for-profit organization that has itsown management, has a high degree of autono-my from higher managerial authority, and main-tains separate books of account.” Id.

55. See id.

56. The Comment calls for a one levelincrease for violating an administrative order,two levels for violating a judicial order and threelevels where a violation runs afoul of multipleprior orders and “evidences contempt by thedefendant.” See id. The term contempt is notdefined.

57. See USSG, supra note 4, § 8C2.5(d).

58. See Proposed Guidelines, supra note 2, §9C1.1(e).

59. USSG, supra note 4, § 8C2.5(e).

60. See Thompson Memo, supra note 13, at 3.

61. Id. at 8.

62. Id.

63. See Proposed Guidelines, supra note 2,§ 9C1.1(f).

64. See id., cmt. 1.

65. Comment 1 to Section 9C1.1(f) states thatin order to avoid a fine increase for failure tomaintain a compliance program under this sub-section, a defendant “need not include all of thefactors required to demonstrate a commitment toenvironmental compliance pursuant to Section9C1.2. See id.

66. See USSG, supra note 4, § 8C2.5(f).

67. Paul E. Fiorelli & Cynthia J. Rooney, TheEnvironmental Sentencing Guidelines ForBusiness Organizations: Are There Murky WatersIn Their Future, 22 B.C. ENVTL. AFF. L. REV. 481,495 (1995).

68. See Ad Hoc Advisory Group Report,supra note 21, at 131.

69. See id. at 132. However, DOJ representa-tives did suggest that the Sentencing Commissionconsider adding commentary to § 8C2.5(f) statingthat “failure to have an effective program to pre-vent and detect violations of law could beweighed against larger organizations as evidencethat ‘an individual within high-level personnel ofthe organization ... condoned or was willfullyignorant of the criminal conduct.” Id. They alsofavored an increase in the culpability score underthe organizational guidelines where “absence ofany compliance program will signal a significantdeviation from recognized practice.” Id.

70. See Proposed Guidelines, supra note 2, § 9C1.2.


71. Id.

72. See Proposed Guidelines, supra note 2, § 9D1.1(a)(1)-(7).

73. See id. cmt. 3.

74. John C. Coffee, Jr., Environmental Crimeand Punishment, N.Y. L.J., 5 (Feb. 3, 1994).

75. Report on Advisory Group Work onSentencing Guidelines for OrganizationsConvicted of Environmental Crimes, DissentingViews By Lloyd S. Guerci and MeredithHemphill, Jr., 16-17 (Dec. 8, 1993).

76. Id.

77. USSG, supra note 4, § 8A1.2, ApplicationNote 3(k).


79. Id. at 51.

80. Id. at 53, § 8B2.1(a)(2). Although promot-ing a culture of compliance with the law isframed as a requirement, the Advisory Groupstated that the recommendation “will not imposeupon organizations anything more than the lawrequires.” Id.

81. See id. § 8B2.1(b)(1).

82. Id. at 57.

83. Id. at 59.

84. See id.

85. See USSG, supra note 4, § 8A1.2Application Note 3(b)-(c).

86. See id. § 8B2.1(b)(2) para. 3.

87. See USSG, supra note 4, § 8A1.2Application Note 3(k)(3).

88. Ad Hoc Advisory Group Report, supranote 21, at 64.

89. See id. at 65.

90. Id. § 8B2.1(b)(3).

91. Id. § 8B2.1(b)(4).

92. See id. § 8B2.1(b)(5).

93. See supra note 12 (discussing Sarbanes-Oxley Act of 2002).


95. See id. at 86.

96. Id. § 8B2.1(b)(6) (emphasis added).

97. See Thompson Memo, supra note 13,Introduction.

98. Id.

99. See Proposed Guidelines, supra note 2,§ 9D1.1(a)(1).

100. See Thompson Memo, supra note 13, at10 (citing In re Caremark, 698 A.2d 959 (Del. Ct.Chan. 1996)).

101. See Proposed Guidelines, supra note 2, §9C1.2(b). Note that no credit is obtained merelyfor compliance with applicable federal reportingrequirements. See id.

102. Id.

103. See id. commentary.


104. Id..

105. Thompson Memo, supra note 13, at 7.

106. See Ad Hoc Advisory Group Report,supra note 21, at 99-102.

107. See id. at 101-02.

108. Proposed Guidelines, supra note 2, § 9C2(b)(3).

109. Thompson Memo at 8.

110. See Proposed Guidelines, supra note 2,§ 9E1.1.

111. See USSG, supra note 4, ch. 3, pt. D.commentary at 321-22.

112. See Proposed Guidelines, supra note 2, § 9E1.2 cmt. 1.

113. See USSG, supra note 4, ch. 3, pt. D.commentary at 321.

114. See Proposed Guidelines, supra note 2, § 9E1.2. The first count may not be reduced.However, the maximum statutory fine for eachsubsequent count is reduced by a factor of afraction consisting of a numerator of one and adenominator equivalent to the number of thecount. For example, the fine for the secondcount would be reduced by one-half.

115. See id.. § 9E1.2(b).

116. See id. § 9E1.2(c).

117. Remember that the restitution and reme-diation requirements of Chapter 8 apply to envi-ronmental offenses. See supra note 6.

118. See Proposed Guidelines, supra note 2, § 9E1.2.

119. See USSG, supra note 4, § 8C2.4.

120. See 18 U.S.C. § 3571 (2003).

121. See Press Release, Justice DepartmentAnnounces FY2003 Record Year For Recovery ofCivil Penalties in Environmental Cases (Dec. 16,2003) (available at www.usdoj.gov/opa/pr/2003/December/03_enrd_694.htm).

122. See Stephen P. Solow, EnvironmentalCrime Update: What Is The State of FederalEnvironmental Law Enforcement?, 2003 A.B.A.Section of Environment, Energy & Resources(March 13, 2003).


Appendix A

Offense Level Fine Table

Offense Level Percentage Max. Stat. Fine

0-6 10

7 10-20

8 15-25

9 20-30

10 25-35

11 30-40

12 30-50

13 35-55

14 40-60

15 45-65

16 50-70

17 55-75

18 60-80

19 65-85

20 70-90

21 75-95

22 80-100

23 85-100

24 or more 100


gauging organizational exposure to environmental criminal ......gauging organizational exposure to...

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