The sentencing of criminal defendants continues to create controversy.  There are so many categories of crime and ranges of punishment – the issue always calls for difficult judgments and inevitably results in vigorous debate.

In this three-part series, I plan to examine some of the issues surrounding sentencing of white-collar defendants and deterrence.  It is often presumed that stiff sentencing of white-collar defendants is an important means to deter other potential criminals from engaging in white-collar crimes.  To be frank, the question itself is difficult to answer because of definitional issues.  What crimes are included in the definition of white-collar crimes?  The analysis becomes even more difficult when you add corporations into the mix and seek to determine what sentences deter corporate white-collar crimes.

Federal judges have broad discretion in determining the appropriate punishment from white-collar defendants.  Specifically, judges are required “to impose a sentence sufficient, but not greater than necessary,” to respond to the “seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense.”  Such a prescription covers the relevant issues but defining each of these factors is the difficult part of the job.

In focusing on white-collar defendants, judges face a difficult set of considerations.  According to Judge Jed Rakoff (see Here), an outspoken federal judge on these issues, the most effective way to deter white-collar crime is to impose stiff sentences on individual actors.  Judge Rakoff argues that sentencing individuals has more deterrence value than imposing large corporate fines for a criminal conviction, and imposing a deferred prosecution agreement or non-prosecution agreement.

Judge Rakoff contends that corporations that pay large fines and suffer negative publicity have no incentive to change their cultures.  In his view, corporate punishments are viewed as a cost of doing business.  In criticizing the current DOJ focus on corporate crime, Judge Rakoff suggests that DOJ’s focuses on corporate prosecutions instead of individual  senior executives because it is easier to prosecute a corporation than to build a criminal case against individual defendants.  Judge Rakoff has a point – it takes more time and effort for prosecutors to build cases against individual defendants, and such cases are not always easy to win at trial.

A prosecutor has to devote time to building cases against lower-level offenders and “flipping” them to cooperate against higher-level executives in the food chain.  To build a case requires  time, and carries with it significant risks that such an effort may not be successful.

As a result, federal prosecutors have outsourced prosecution work to large law firms and relied on them to develop evidence sufficient to charge a corporation (or at least threaten the company with criminal charges).  Such prosecutions rarely, if ever, go to trial.  Prosecutors hold all the cards in these investigations given the broad sweep of respondeat superior and corporate liability.

Along with the focus on corporate crime, prosecutors have applied tools previously used in individual criminal cases – a deferred prosecution or non-prosecution agreement – to corporate prosecutions.  Prosecutors have argued that such agreements provide an incentive for companies to change their corporate culture and reduce the risk of misconduct.

Whether such agreements have had a positive impact on corporate cultures is up for debate.  No significant research has been completed in this area, and it is an important issue to be resolved.

Notwithstanding these developments, and based on his lengthy career, Judge Rakoff contends that white-collar criminals, almost universally, fear going to prison.  He argues that the threat of going to jail is a major deterrent, and is much more effective than corporate prosecutions in preventing corporate misconduct.

Judge Rakoff contends that more than half of white-collar offenders are recidivists.  Based on this fact alone, Rakoff contends that prosecuting corporations instead of individuals has had no significant impact on corporate crime.

Unfortunately, Judge Rakoff’s reliance on US Sentencing Commission data to prove his point may not be so persuasive.  According to a recent report issued by the US Sentencing Commission (Here), The Criminal History of Corporate Offenders, just over half (52.4 percent) of serious fraud offenders in fiscal year 2016 had a prior criminal record.  However, of the serious fraud offenders, traffic offenses were the most common (44 percent), followed by larceny (41.7 percent), public order (39.1 percent), fraud (36.8 percent) and drug possession (24.8 percent).  To the extent this data supports the claim that many white-collar offenders are recidivists, Judge Rakoff’s point has merit — criminal deterrence and stiff prison sentences for individuals falling into this category may be warranted.