Updated on April 18, 2024. See update below. 

While only advisory, the U.S. Sentencing Guidelines nonetheless are a significant driver of risk and exposure for clients facing federal criminal charges. Therefore, defense counsel must be adept at navigating the Sentencing Guidelines’ impact on their clients throughout the pendency of a criminal investigation and trial. It is likewise crucial that counsel be aware when there are proposed changes, so they are able to evaluate the effect the changes may have for a client’s criminal exposure. In December 2023, the U.S. Sentencing Commission proposed certain amendments to the Sentencing Guidelines, two of which in particular could have significant effects on white collar criminal cases. Specifically, defense counsel in white collar matters should be aware of the proposed amendments to the Guidelines’ loss calculation provisions and consideration of acquitted conduct, which could impact federal criminal defendants at sentencing.

1. Proposed Amendment to U.S.S.G. § 2B1.1

In calculating the advisory sentencing guidelines for a majority of financial crimes, the guidelines calculation typically begins using U.S.S.G. § 2B1.1. This guideline includes a loss table that increases the offense level based on the amount of loss resulting from an offense. The increase operates on a gradient scale. If an offense involves $6,501 to $15,000 of loss, it warrants a two-level increase. The scale continues up to a 30-level increase for loss exceeding $550 million. Application note 3(A) of the commentary provides a general rule for courts to use to calculate loss: the greater of the “actual loss” (the reasonably foreseeable pecuniary harm from the offense) or the “intended loss” (the pecuniary harm that the defendant purposely sought to inflict, including impossible or unlikely harm). The commentary defines the terms “actual loss,” “intended loss,” “pecuniary harm,” and “reasonably foreseeable pecuniary harm.”

In Stinson v. United States, the Supreme Court held that commentary “that interprets or explains a guideline is authoritative unless it violates the Constitution or a federal statute, or is inconsistent with, or a plainly erroneous reading of, that guideline.” 508 U.S. 36, 38 (1993). Whether and how much Auer deference should be afforded various guideline commentary provisions has been debated in recent years after the Supreme Court’s decision in Kisor v. Wilkie. See Auer v. Robbins, 519 U.S. 452 (1997). In Kisor, the Supreme Court limited the application of Auer deference to only those situations in which the regulation is “genuinely ambiguous.” 139 S. Ct. 2400, 2415 (2019). But Kisor does not specifically discuss how these limitations on deference affect the Sentencing Guidelines and its commentary. In the wake of this unsettled question, lower courts have taken differing approaches on whether Kisor’s holding changed the broad deference afforded to the Guidelines’ commentary under Stinson.

Recently, the Third Circuit held that Application Note 3(A) of the commentary to § 2B1.1 is not entitled to deference in United States v. Banks, 55 F.4th 246 (3d Cir. 2022). The Third Circuit held that Kisor altered the deference afforded to the commentary when it considered what constitutes a loss. The court held that “the term ‘loss’ is unambiguous in the context of § 2B1.1. Citing Kisor, the Third Circuit reversed the district court’s use of intended loss under § 2B1.1 and held that the commentary need not be referenced because the loss in the context of the guideline text is not ambiguous. “A plain and ordinary reading of § 2B1.1 confirms ‘loss’ means ‘actual loss.’” Banks, 55. F.4 258, fn. 56.  The Banks defendant went from offense level 19 — based on a 12-level increase for $324,000 in “intended loss” — to level seven for $0 in “actual loss.” Based on his criminal history category, the practical outcome of his decreased offense level resulted in a recommended guidelines range that was three to five years lower than before.

Difference of thought in the deference afforded to the Guidelines’ commentary has created a circuit split. For example, the loss calculations for defendants in the Third Circuit are now computed differently than in circuits that continue to apply Auer deference to the Guidelines’ commentary under Stinson. See e.g., United States v. You, 74 F.4th 378, 397 (6th Cir. 2023) (holding the term “loss” in § 2B1.1 ambiguous under Kisor’s framework and deferring to the Sentencing Commission’s commentary to permit the use of intended loss as an enhancement).

In an effort to make loss calculations more consistent and avoid unwarranted sentencing disparities, the Sentencing Commission has now proposed an amendment to address this divide.¹ The proposed amendment would do the following:

• Create notes to the loss table in § 2B1.1(b)(1).
• Move the general rule establishing loss as the greater of actual loss or intended loss from the commentary to the guideline itself as part of the notes.
• Move the rule providing for the use of gain as an alternative measure of loss from the commentary to the notes.
• Move the definitions of “actual loss,” “intended loss,” “pecuniary harm,” and “reasonably foreseeable pecuniary harm” from the commentary to the notes.

Additionally, the proposed amendment would make corresponding changes to the commentary to §§ 2B2.3 (Trespass), 2C1.1 (Offering, Giving, Soliciting, or Receiving a Bribe; Extortion Under Color of Official Right; Fraud Involving the Deprivation of the Intangible Right to Honest Services of Public Officials; Conspiracy to Defraud by Interference with Governmental Functions), and 8A1.2 (Application Instructions – Organizations), which calculate loss by reference to the commentary to § 2B1.1.

Though this proposed amendment would reinforce the Sentencing Commission’s position that financial crime sentences can properly be based upon the “intended loss” — if greater than the “actual loss,” the impact of this proposed amendment would be unfavorable to white collar criminal defendants whose conduct caused no actual loss. As discussed above, the guidelines ranges can be substantially increased in these instances, leading to significantly higher sentences.

This increased punishment for losses that have yet to, and may never, occur is often prominent in bank fraud cases where the government’s position on loss is often greater than the actual loss sustained. For example, in late 2021, the Department of Justice (DOJ) charged multiple defendants for their involvement in a fraudulent Paycheck Protection Program (PPP) scheme. In the defendants’ loan applications, they sought over $35 million in PPP loans (“intended loss”) but only received approximately $18 million (“actual loss”). See Four Charged in $35 Million COVID-19 Relief Fraud Scheme, Dec. 15, 2021. Under the Sentencing Guidelines loss table in § 2B1.1 that difference can tack on years to the recommended guideline sentence depending upon the offender’s criminal history and total offense level. While this proposed amendment returns white collar defendants to the loss enhancement environment that existed before Kisor, practitioners should continue to argue that the use of intended loss as a sentencing enhancement overstates the harm suffered and unfairly punishes defendants for hypothetical futures that never came to exist.

2. Proposed Amendment to U.S.S.G. § 1B1.3

The Sentencing Commission also proposed changes to the Guidelines to minimize in varying degrees the impact of acquitted conduct on a defendant’s sentence. Section 1B1.3 discusses “relevant conduct,” meaning the principles and limits of sentencing accountability for the purpose of determining a defendant’s guideline range. Pursuant to § 1B1.3(a)(1), relevant conduct includes “all acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by the defendant,” and all acts and omissions of others “in the case of a jointly undertaken criminal activity,” that “occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense.” Moreover, Chapter Six, Part A of the Guidelines Manual addresses sentencing procedures that are applicable in all cases. Section 6A1.3 provides for resolution of any reasonably disputed factors important to the sentencing determination, and allows for the court to consider “relevant information without regard to its admissibility under the rules of evidence applicable at trial, provided that the information has sufficient indicia of reliability to supports its probable accuracy.”

Currently, acquitted conduct is not explicitly addressed in the Guidelines Manual, except for the parenthetical summary citation to United States v. Watts, which held that the lower evidentiary standard at sentencing permits a sentencing court’s consideration of acquitted conduct. 519 U.S. 148, 154 (1997). Watts essentially permitted a sentencing court to consider acquitted conduct under the guidelines through the operation of § 1B1.3 (Relevant Conduct (Factors that Determine the Guideline Range)), together with § 1B1.4 (Information to be Used in Imposing Sentence) and § 6A1.3 (Resolution of Disputed Factors (Policy Statement)).

The proposed amendment is a result of the Commission’s consideration of possible amendments to the Guidelines Manual to prohibit the use of acquitted conduct in applying the guidelines. See U.S. Sent’g Comm’n, “Notice of Final Priorities,” 88 FR 60536 (Sept. 1, 2023).

The proposed amendment seeks to revise the Guidelines Manual to address the use of acquitted conduct for purposes of determining a sentence. The proposed amendment presents three options:

• Option 1: Amend the commentary to § 6A1.3 to make conforming revisions addressing the use of acquitted conduct for purposes of determining the guideline range. This option would element acquitted conduct from the definition of relevant conduct.
• Option 2: Amend the commentary to § 1B1.3 to add a new application note providing that a downward departure may be warranted if the use of acquitted conduct has a disproportionate impact in determining the guideline range relative to the offense of conviction. The amendment brackets the possibility of limiting the departure’s application in cases in which the impact is “extremely” disproportionate. It also clarifies in a parenthetical that acquitted conduct is conduct [underlying] (constituting an element of) a charge of which the defendant has been acquitted by the trier of fact in federal court or upon a motion of acquittal pursuant to Rule 29 of the Federal Rules of Criminal Procedure.
• Option 3: Amend § 6A1.3 to add a new subsection (c) addressing the standard of proof required to resolve disputes involving sentencing factors. The proposed amendment provides that a preponderance of the evidence standard generally is appropriate to meet due process requirements and policy concerns in resolving such disputes. However, it further provides that acquitted conduct should not be considered unless it is established by clear and convincing evidence.

The Sentencing Commission received 44 comments specific to its proposed amendments affecting acquitted conduct. Senators Richard Durbin and Cory Booker, who both sit on the Senate Judiciary Committee, wrote in support of Option 1, citing concerns over the Fifth Amendment right to due process and the Sixth Amendment’s right to a jury trial. U.S.S.C., 2023-2024 Amendment Cycle: Proposed Amendments/Public Comment to 88 FR 89142, at 47-55. Four district court judges in the Northern District of Georgia also wrote in support of Option 1—though cited concerns over the definition of “acquitted conduct.” Id. at 40-42.

The Department of Justice, Criminal Division took a differing view commenting that the Sentencing Commission cannot practically exclude acquitted conduct from the court’s consideration. Id. at 47-55. The comment cited to 18 U.S.C. § 3661 for this position which states that “no limitation shall be placed on the information concerning the background, character, and conduct of a person convicted of an offense which a court of the United States may receive and consider for the purpose of imposing an appropriate sentence.” Id. With the caveat of revising the proposed definition of “acquitted conduct,” the DOJ supported Option 2 as it believes it “would present fewer administrability concerns, litigation risks, and uncertainty.” Id.

The Commissioners will meet on April 17, 2024, to vote to promulgate the proposed amendments. White collar practitioners should be ready for the implementation of these proposed amendments, which may have an outsized effect on the evaluation of a white collar defendant’s potential sentencing exposure, both during pre-trial negotiations with the government and post-trial advocacy with the court.

Update: On April 17, the U.S. Sentencing Commission voted unanimously to adopt the proposed amendments to the Guidelines. With respect to the acquitted conduct proposal, the Sentencing Commission adopted Option 1 discussed above, which prohibits judges from using acquitted conduct to increase the sentences of defendants who receive mixed verdicts at trial.  The Sentencing Commission will explore whether to make this amendment retroactive, so practitioners should continue to follow this issue.

The Sentencing Commission will deliver the amendments to Congress by May 1, 2024, and if Congress does not act to disapprove the changes, they will go into effect on Nov. 1, 2024.

---

¹This amendment is especially noteworthy because Judge Luis Felipe Restrepo, who currently serves as a vice-chair on the Sentencing Commission, was also a member of the panel in Banks that rejected the use of intended loss. This may be a signal that the Third Circuit’s concerns regarding the use of intended versus actual loss were cabined to where the language specifically appeared, and not, to the substantive equities of sentencing a defendant using a loss amount that never came to fruition.