Loss Amounts in Federal Sentences: Calculating Economic and Financial Losses in Federal Felonies
Posted on by Michael Lowe.
Federal Sentencing Guideline 2B1.1 explains how to calculate monetary loss in a variety of crimes, such as tax evasion, structuring, wire fraud, money laundering, and mortgage fraud.
Financial crimes prosecuted by the federal government usually involve a lot of money that builds into a large economic loss for its victims. Criminal creativity being what it is, there are a wide variety of statutes that define and outlaw different activities under federal law. These include: tax evasion, structuring, wire fraud, money laundering, and mortgage fraud.
The common denominator in these financial crimes is the victims’ economic losses. The United States Sentencing Commission (USSC) has established a specific Sentencing Guideline, §2B1.1, to explain how this “loss” is defined for purposes of conviction and sentencing, as well as confirming that it involves not only reasonably foreseeable pecuniary harm but also intended loss, as well.
Economic Crimes and USSG §2B1.1
Recently, the USSC released a report regarding how this guideline has been applied in federal courts. See, “What Does Federal Economic Crime Really Look Like?” written by Courtney Semisch, Ph.D. and published by the United States Sentencing Commission in January 2019.
From their report, we know that this sentencing guideline applies most often in cases involving: (1) embezzlement; (2) theft; (3) financial institution (bank) fraud; and (4) government benefits fraud, although the guideline itself is used in the sentencing of seventeen (17) different types of federal economic crimes.
As for the numbers, the highest loss calculations using USSG 2B1.1 during the report’s research time frame involved (1) securities and investment fraud ($2,105,620); (2) health care fraud ($1,086,205); (3) mortgage fraud ($999,721); and (4) government procurement fraud ($739,455).
Accordingly, any criminal defense lawyer representing white collar crime defendants in federal prosecutions should be aware of the impact of USSG §2B1.1, but particularly for those who are facing conviction and sentencing for bank fraud, health care fraud, embezzlement; mortgage fraud; and securities and investment fraud.
Loss under the United States Sentencing Guidelines
In calculating a sentence under the federal sentencing guidelines, the first issue for USSG §1B1.1 must be what constitutes “loss” under this guideline?
The Guideline provides as its General Rule that “subject to the exclusions in subdivision (D), loss is the greater of actual loss or intended loss.”
Actual loss: the reasonably foreseeable pecuniary harm that resulted from the offense.
Intended loss: (I) means the pecuniary harm that the defendant purposely sought to inflict; and (II) includes intended pecuniary harm that would have been impossible or unlikely to occur (e.g., as in a government sting operation, or an insurance fraud in which the claim exceeded the insured value).
Pecuniary harm: means harm that is monetary or that otherwise is readily measurable in money. Accordingly, pecuniary harm does not include emotional distress, harm to reputation, or other non-economic harm.
For ease, many refer to actual loss under this Guideline as the “but for” loss. It’s important to note that even if the accused did not get any money or pecuniary gain in his or her endeavors, under this Sentencing Guideline and its definition of loss, the sentence can still be enhanced under the guideline calculations.
Judge Makes the Call
While arguments may be made at the sentencing hearing, it is the judge who makes the decision regarding the actual loss amount.
The Guidelines instruct the judge that he or she “need only make a reasonable estimate of the loss.” USSG §2B1.1, comment. (n.3(C)). The court may consider a variety of different factors and can pick from competing methods of calculating loss. United States v. Sullivan, 765 F.3d 712, 716 (7th Cir. 2014).
Defense counsel must be detailed in his or her analysis of the particular case. Under federal law, “loss” for purposes of sentencing calculations includes all relevant conduct.
This means that the judge can consider both charged and uncharged conduct as well as things for which the accused has been acquitted. The judge is also able to consider indirect amounts that involve losses not directly attributable to the defendant. See, e.g., US v. Hoffman-Vaile, 568 F.3d 1335 (11th Cir. 2009)(where Medicare conviction included losses both to the federal government and its Medicare insurance program but also the indirect losses sustained by the patients as victims of the same fraud scheme).
Guideline Calculations: USSG §2B1.1
We have explained how the Sentencing Guidelines operate in earlier discussions; essentially, there is a point system that works to calculate the individual sentence, using base points as well as “enhancements” and “mitigating factors.”
For more, including illustrations taking the reader through the Sentencing Manual, see:
- Federal Sentencing Guidelines On Federal Child Pornography Cases
- Federal Crimes and Sentencing Guidelines: Health Care Fraud
- Methamphetamine Trafficking and Federal Sentencing
- Relevant Conduct In The Federal Sentencing Guidelines: Acquittals And Uncharged Conduct.
When the defendant is charged with economic crimes involving financial losses, then USSG §2B1.1 comes into play.
Base Offense Level
USSG §2B1.1 provides for a base offense level of 6 – or 7- levels. This is the starting point for the guideline calculation. Here is the basic offense assessment before other characteristics of the crime are considered. As stated in the Guideline:
(a) Base Offense Level:
(1) 7, if (A) the defendant was convicted of an offense referenced to this guideline; and (B) that offense of conviction has a statutory maximum term of imprisonment of 20 years or more; or
(2) 6, otherwise.
19 Specific Offense Characteristics
There are nineteen (19) Specific Offense Characteristics accompanying USSG §2B1.1. Some will increase the sentence (aggravating factors) while others lessen the calculation (mitigating factors).
While the court must go through this list of Specific Offense Characteristics each time there is a sentence calculation involving an economic crime, not all of these 19 Specific Offense Characteristics will apply in each case. There are those that cover a wide range of felonies and others that are pretty specific.
For instance, consider a health care fraud prosecution. The USSG §2B1.1 Specific Offense Characteristic at subsection (b)(7) provides for a 2-, 3-, or 4-level offense level increase for a defendant convicted of a federal health care offense involving a government health care program with losses of more than $1,000,000, more than $7,000,000, or more than $20,000,000, respectively.
This Specific Offense Characteristic is an enhancement. However, it is limited in application to health care fraud cases. It is also limited to cases involving a specific level of financial loss.
Three Most Common Specific Offense Characteristics under USSG §2B1.1
Some of these Specific Offense Characteristics will apply to most economic crime sentencing calculations. Three of the most common are those involving the loss table (§2B1.1(b)(1)), the victims table (§2B1.1(b)(2)), and the sophisticated means enhancement (§2B1.1(b)(10)).
1. Loss Table (USSG §2B1.1(B)(1))
The loss table contains 15 categories of “loss,” which increase the sentence depending upon the amount of loss involved in the case. For instance, there is the category of “more than $6,500” which corresponds to a 2-level increase above the base offense level. Another example is the category “more than $550,000,000” which corresponds to a 30-level increase above the base offense level.
From the Guideline, here is the complete Loss Table:
(1) If the loss exceeded $6,500, increase the offense level as follows:
|Loss (apply the greatest)||Increase in Level|
|(A) $6,500 or less||no increase|
|(B) More than $6,500||add 2|
|(C) More than $15,000||add 4|
|(D) More than $40,000||add 6|
|(E) More than $95,000||add 8|
|(F) More than $150,000||add 10|
|(G) More than $250,000||add 12|
|(H) More than $550,000||add 14|
|(I) More than $1,500,000||add 16|
|(J) More than $3,500,000||add 18|
|(K) More than $9,500,000||add 20|
|(L) More than $25,000,000||add 22|
|(M) More than $65,000,000||add 24|
|(N) More than $150,000,000||add 26|
|(O) More than $250,000,000||add 28|
|(P) More than $550,000,000||add 30.|
Understandably, some types of crimes will involve larger amounts of money and a corresponding category of loss. The Sentencing Commission reports that four specific offense types usually have much higher loss amounts, and accordingly higher enhancements: (1) securities and investment fraud; (2) health care fraud; (3) mortgage fraud; and (4) government procurement fraud.
2. Victims Table (USSG §2B1.1(B)(2))
Under this Guideline, “victim” is defined as (A) any person who sustained any part of the actual loss determined under subsection (b)(1); or (B) any individual who sustained bodily injury as a result of the offense. “Person” includes individuals, corporations, companies, associations, firms, partnerships, societies, and joint stock companies.
USSG §2B1.1(b)(2) provides for offense level enhancements based upon two things: first, the number of victims and second, the extent of harm to those victims. It states:
(Apply the greatest) If the offense—
(A) (i) involved 10 or more victims; (ii) was committed through mass-marketing; or (iii) resulted in substantial financial hardship to one or more victims, increase by 2 levels;
(B) resulted in substantial financial hardship to five or more victims, increase by 4 levels; or
(C) resulted in substantial financial hardship to 25 or more victims, increase by 6 levels.
From this table, the base offense jumps up by 2-levels if 10 or more victims were involved, and can rise as much as 6-levels if there were 25 or more victims.
However, it must be noted that while this is a commonplace enhancement in the Guidelines, there are cases where this enhancement arguably does not apply at all. If the victim is a government agency, for instance, there can be no increase in sentencing under this Guideline because the Victim’s Table does not apply.
3. Sophisticated Means Enhancement (USSG §2B1.1(b)(10))
The sophisticated means enhancement at USSG §2B1.1(b)(10) provides that:
If (A) the defendant relocated, or participated in relocating, a fraudulent scheme to another jurisdiction to evade law enforcement or regulatory officials; (B) a substantial part of a fraudulent scheme was committed from outside the United States; or (C) the offense otherwise involved sophisticated means and the defendant intentionally engaged in or caused the conduct constituting sophisticated means, increase by 2 levels. If the resulting offense level is less than level 12, increase to level 12.
Here, sentencing is enhanced when complex or intricate conduct is involved, relating to either the execution of the crime itself or concealing the offense afterwards.
Exclusions from Loss Calculation Under USSG §2B1.1
Not every bit of financial loss is included in the Sentencing Guideline Economic Loss Calculation of USSG 2B.1.1. The judge cannot consider the following:
1. Interest, Finance Charges, Late Fees, Penalties and Similar Costs
The Sentencing Commission explains in the application notes to USSG §2B1.1 that the loss calculation is not to include any interest, finance charges, late fees, penalties, amounts based on an agreed-upon return or rate of return, or similar costs. USSG §2B1.1, comment. (n.3(D)(i)).
If the judge includes any of these items, it is reversible error. See, e.g., US v. Morgan, 376 F.3d 1002 (9th Cir. 2004)(reversible error to include interest charges in bank fraud sentencing matter).
2. Costs to the Government and Costs Incurred By Victims
Litigation costs in pursuing a criminal case against the accused cannot be included in the loss calculation under the Sentencing Guidelines. Specifically, the costs to the government and the costs to the victims to aid in the prosecution of the defendant are not included in any loss calculation. USSG §2B1.1, comment. (n.3(D)(ii)).
Again, any attempt to do so by the sentencing court is reversible error. See, United States v. Schuster, 467 F.3d 614, 618–20 (7th Cir. 2006).
Credits Against Loss Calculation Under USSG §2B1.1
There are two ways that the defendant can lower the loss calculation by crediting amounts against it.
1. Money (and Property) Returned or FMV of Services Rendered
The judge must reduce the amount of loss by the amount of any money returned by the accused, as well as the value of any property he or she returned. Key here is when the property is returned: anything returned after detection will not be credited against the loss figure.
Additionally, the loss calculation under USSG 2B1.1 must be lessened by a credit for the total fair market value of services rendered by the defendant (or those acting jointly with him or her) to the victim before the offense was detected.
Failure to provide these credits is reversible error. United States v. Prange, 771 F.3d 17 (1st Cir. 2014).
Defense counsel must be ready to argue the amount of these credits. When the court finds it is not reasonably practicable to separate legitimate from fraudulent conduct, it becomes the defendant’s burden of proof to establish the proper amount to credit in the loss calculation.
When the defendant pledged collateral pledged or provided it as part of the circumstances forming the basis of the complaint, the loss calculation under USSG 2B1.1 must reflect that collateral with a reduction from the loss total of the amount the victim recovered by the time of sentencing. The Guidelines state the loss is to be reduced by, “[i]n a case involving collateral pledged or otherwise provided by the defendant, the amount the victim has recovered at the time of sentencing from disposition of the collateral, or if the collateral has not been disposed of by that time, the fair market value of the collateral at the time of sentencing.” USSG §2B1.1, comment. (n.3(E)(ii)).
Importance of Detailed Criminal Defense in Federal Loss Calculations
Needless to say, things can be detailed and tedious for any defense lawyer representing someone accused of a federal felony involving economic crimes and the loss calculations of USSG §2B1.1. However, the ramifications of a thorough investigation into the financial damages asserted by the prosecution and the paperwork supporting the criminal charges can be huge when tallies are made.
This can be true both at the sentencing hearing as well as in the appeals process. The wrong loss calculation at trial is grounds for reversal on appeal.
Not only must the prosecutor and the judge correctly assess and administer the Sentencing Guidelines themselves insofar as the base offense level and any enhancements or mitigating factors, there must be an accurate consideration of credits against the loss calculation and the care to avoid including things that are specifically not to be included in the tallies (such as interest charges).
Of course, a defense attorney who is able to start work defending when investigations are still in progress has much more ability to help his client than the attorney who is not hired until days before the sentencing hearing. The sooner the better in these representations.
Comments are welcomed here and I will respond to you -- but please, no requests for personal legal advice here and nothing that's promoting your business or product. Comments are moderated and these will not be published.