Criminal sanctions

 

Author Definition

 

Definition

Criminal sanctions are the penalties imposed on those who commit crimes. Whether a sanction is criminal or civil flows not from the nature of the penalty, but from the wrongdoing it punishes. Indeed, there are similarities in the penalties imposed for criminal and civil wrongdoing. Much depends on jurisdiction, including whether the sanction seeks to punish the wrongdoer, remunerate the victim, or both, as well as how the sanction is calculated. Thus, the U.S. has criminalized certain agreements in restraint of trade, whereas certain E.U. Member States and other jurisdictions outside the U.S. have criminalized only bid-rigging arrangements, but the E.U., which has not criminalized anticompetitive conduct, imposes administrative and civil sanctions.

 

Commentary

When applied to individuals, the distinction between criminal and civil sanctions is stark: in jurisdictions in which anticompetitive conduct is criminal, individuals may be sentenced to prison, but in jurisdictions in which anticompetitive conduct is a civil wrong, sanctions do not include jail time. When applied to corporations, however, the distinction between criminal and civil sanctions is less apparent. In the United States, for example, a corporation entering a plea agreement and paying a criminal fine is nonetheless subject to restitution, which is more akin to a traditional equitable remedy and form of civil penalty.

It is also the case that the manner in which criminal fines are determined often hinges on concepts imported from the civil arena. In the U.S., under the Sherman Act, corporations that commit antitrust violations are subject to fines of up to $100 million, but in the alternative the Department of Justice (DOJ) may seek to impose penalties based on the unlawful gains or losses occasioned by anticompetitive activity. That is, the alternative penalty is rooted in the damage caused or the amount by which the perpetrator is unjustly enriched, both of which are civil concepts. Likewise, when it comes to bid-rigging offenses specifically, fines are assessed based on a formula provided in the U.S. Sentencing Guidelines (the Guidelines) that starts with the “volume of affected commerce” (or VOAC). The Guidelines are largely silent as to how VOAC is to be determined, but they do explain that VOAC is a proxy for “actual gain or loss,” and “actual loss” is the “reasonably foreseeable pecuniary harm that resulted from the offense.” In other words, VOAC resembles in many respects the general rule for assessing civil damages and, in effect, VOAC approximates (and is a shortcut for calculating) the damage caused by the violation. The punitive element of the fine calculation is conducted after a determination of VOAC. The court calculates 20 percent of VOAC to determine a base fine, which is subsequently multiplied depending on a “culpability score” reflecting the circumstances of the particular case, including aggravating and mitigating factors.

The E.U. Commission, although it only imposes civil sanctions for anticompetitive agreements or abusive practices in violation of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), uses a methodology similar to the DOJ. Like the DOJ, the Commission undertakes a two-step process. First, it calculates the “value of sales,” or VOS, which is similar to the American concept of VOAC. VOS is the value of the undertaking’s sales of goods or services to which the infringement directly or indirectly relates in the relevant geographic area. The basic amount of the fine is a percentage of VOS. The percentage used is determined based on the gravity and duration of the offense. Second, as in the U.S., in the E.U. the basic fine amount is then adjusted based on circumstances of the case, including aggravating and mitigating factors.

It is notable that, although the U.S. levies criminal sanctions and the E.U. imposes civil sanctions, when it comes to fining organizations the methodology is similar insofar as both start with an approximation of the gain from the misconduct and then add a further amount determined based on the circumstances of the case to punish the misconduct. It remains an open question whether, in the U.S., the additional assessment of restitution is redundant given the stated reason for assessing a criminal fine. Finally, irrespective of jurisdiction, a formulaic approach to assessing fines is subject to over-penalizing the wrongdoer because the calculation of VOAC, VOS and similar concepts tend to include sales that demonstrably are not impacted by the underlying conduct of the defendant. The impact of over-counting is beyond the scope of this definition but is something worthy of further deliberations by fine-assessing agencies.

Author

  • Paul Weiss (Washington)

Quotation

Joseph J. Bial, Criminal sanctions, Global Dictionary of Competition Law, Concurrences, Art. N° 88940

Visites 815

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 
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