Reform of the Federal Criminal Laws

and the Subcommittee's working rule of using a "knowing" instead of a "reckless" state of mind in most instances. The Roundtable believes that the wide use of a "knowing" state of mind is consistent with the existing state of the law and the fundamental proposition that criminality should involve "mens rea."

Chapter 5 of the Working Draft establishes reasonable rules governing complicity. Section 501(a) (1) (B) provides that an accomplice is one who "knowingly" commands, induces, procures or aids another in the commission of an offense "with intent that the offense be committed." The Roundtable accepts the well-established line of cases that "conscious avoidance" or "willful blindness" satisfies the requirements for a "knowing" state of mind. Turner v. United States, 396 U.S. 398 (1970); United States v. Jewell, 532 F. 2d 697 (9th Cir. 1976); United States v. Jacobs, 475 F. 2d 270 (2d Cir. 1973). Accord S. Rep. No. 605, 95th Cong., 1st Sess. 59 (1977).*

Section 502 clarifies the liability of an organization for the conduct of its agents, rendering them liable for offenses committed within the agent's actual, implied or apparent authority, where the agent intends to benefit the organization. Although this rule will render an organization criminally liable where an agent has acted contrary to company policy or even personal instructions, the Roundtable recognizes this as the existing law, United States v. Cadillac Overall Supply Co., 568 F. 2d 1078 (5th Cir. 1978); United States v. Hilton Hotel Corp., 467 F. 2d 1030 (9th Cir. 1972), cert. denied, 407 U.S. 1125 (1973), and supports the provision as an effective way to encourage diligent supervision of employee law compliance.

These and the other rules of complicity contained in Chapter 5 make it appropriate for the Subcommittee to have rejected the novel offenses of "reckless failure to supervise" and "omission to perform a duty," proposed in Sections 403 (c) and (b) respectively in S. 1437 of the 95th Congress, because of their vague and sweeping nature and because they might permit liability without consciousness of or participation in the wrong doing. See Jeffries and Stephan, "Defenses, Presumptions and Burden of Proof in the Criminal Law," 88 Yale L.J. 1325, 1371-76 (1979) on criminal liability without fault. The provisions of Chapter 5 governing complicity reach just about every conceivable case where an individual intends to have a significant role in wrongdings which occur within the organizational context.

Second, the Subcommittee has also limited itself to the codification of Title 18, leaving codification of non-Title 18 offenses for a later time. This is sound because many non-Title 18 offenses are in the regulatory area, and these present different problems in a number of ways:

(a) Most Title 18 crimes are recognized by society as evil or dangerous; accordingly, there is little likelihood of innocent transgression. Regulatory requirements on the other hand are not malum in se, but involve conduct which is illegal because it has been forbidden.

(b) Regulatory offenses are often complex, detailed, not easily understood. They are frequently described in less accessible rules, not statutes, and governed by little precedent, and hence the ambit of i'legal conduct is difficult both to know and predict.

(c) A comprehensive regulatory system would involve greatly different conditions and requirements. General provisions intended to cover the gamut of different regulatory offenses would be a crude response to a subtle problem and would not reflect the many differences involved.

For these reasons the Roundtable believes that the penal provisions not presently contained in Title 18 should be separately examined after enactment of the proposed criminal code. That separate examination should consider:

(a) The appropriate level of culpability for each particular offense, taking into account the character of the offense;

(b) Whether for particular offenses a specific intent should be required, especially where present law contains a requirement of willfulness; and (c) Whether in particular cases penal sanctions are appropriate. The Working Draft will cross-reference all non-Title 18 felonies, but it apparently does not seek to change the substance of those offenses. We believe this approach is a proper way to have the proposed Code refer to major felonies, while recognizing that non-Title 18 offenses need separate treatment, at a later date. It is not clear from the Working Draft what the Subcommittee intends to do as to the grading and sentencing aspects of non-Title 18 felonies.

Hereinafter the "Senate Report."

Third, the Working Draft, except in instances where there is a clear proof of the need for change, codifies existing law. Generally, the Working Draft has not become the vehicle for the creation of novel offenses or, for the most part, novel sanctions. The Subcommittee, wisely in our view, rejected the novel and sweeping offense of "reckless endangerment" proposed in Section 1617 of S. 1437, preferring to deal with this problem by fact-specific offenses. The Subcommittee also rejected the offense of "consumer fraud" proposed in Section 1738 of S. 1437 in light of the fact that the Federal Trade Commission was in 1975 empowered under the Magnuson-Moss amendments to the Federal Trade Commission Act, 15 U.S.C. 57b, to pursue the very matters covered by the proposed offense, and that the offense defined in Section 2534 of "executing a fraudulent scheme" provides adequate criminal sanctions against fraud on purchasers. In the area of sentencing, the Subcommittee has properly rejected the devices of restitution and order of notice proposed in Sections 2005 and 2006 of S. 1437. These latter provisions were rejected not only as novel but because they raise both constitutional questions under the Fifth and Seventh amendments and severe practical problems in the administration of criminal justice."

Further we commend the Subcommittee for its work to date in making needed reforms in sentencing which would (i) reduce disparity in sentencing, (ii) give defendants but not the government a right of appeal, (iii) promote public confidence in the criminal justice system by "truth in sentencing measures"; and (iv) assign to the Committee on Sentencing of the Judicial Conference the promulgation of sentencing guidelines.

III.

The Working Draft of the Subcommittee is, of course, an unfinished document. The Roundtable believes there are significant omissions to be supplied and revisions to be made before the Working Draft is enacted into law. These involve (A) fine levels and sentences, (B) jurisdiction, (C) double jeopardy, (D) corporate records and statements and (E) organized crime offenses. We turn next to a consideration of each of these important matters.

A. FINE LEVELS AND SENTENCES

1. Fine levels.-Section 3502 (a) tentatively sets a maximum level of $100,000 for felony crimes and $10,000 for misdemeanors. It makes no distinctions between organizations and individuals.

The Roundtable recommends that a distinction be made between organizations and individuals and that the maximum felony fine for organizations be $500,000, except in antitrust cases where it should be $1,000,000, reflecting the additional resources frequently possessed by organizations. For individuals the maximum felony should remain at $100,000. It also recommends that for misdemeanors the maximum fine for organizations be $100,000 and for individuals $10,000.

These recommendations are consistent with the fine levels in S. 1437 at Section 2201 (b). The Roundtable believes that these recommended higher levels will deter organizational and individual crime more effectively.

2. Alternative fine.-Section 3502(b) provides that in lieu of a fine under Subsection (a), a defendant who is found guilty of an offense through which pecuniary gain is directly derived may be sentenced to pay a fine of not more than the "gross gain so derived." The Roundtable opposes this novel sentence provision because:

(a) It raises serious constitutional questions by confronting any individual defendant with the choice between waiving his Fifth Amendment right not to incriminate himself and foregoing his natural desire to present evidence to limit the amount of the alternative fine either at trial or in the sentencing proceeding. See North Carolina v. Pearce, 395 U.S. 711 (1969); Spevack v. Klein, 385 U.S. 511, 514 (1967); Malloy v. Hogan, 378 U.S. 1, 8 (1964).

(b) The provision generates a new set of complex damage issues to be determined in the criminal trial, but does not provide satisfactory procedures for determining the amount of the fine. The Presentence Hearing Procedure at Section 3106 is inadequate to satisfy defendant's due process rights, since the defendant's ability to subpoena and call or cross-examine witnesses is not a matter of right. Moreover, the fact question of the "direct gain derived" will always be heard by a judge a possible violation of defendants' right to a jury trial.

See Roundtable Comment of April 28, 1978 at 3-4, 10-20.

(c) Because determination of the alternative fine would especially in regulatory cases-prove complex, nothing short of a post-conviction "trial" may be adequate. Yet such a procedure would delay the imposition of sentence and contravene the well-accepted sentencing principle that, to be effective and fair, a sentence should be swift and certain.

(d) The provision fails to address the serious questions presented by the interrelation between this novel criminal fine and civil actions for restitution, SEC disgorgement or antitrust treble damages.

3. Conditional discharge and probation.—Current practice includes restitution as a condition of probation where the defendant so agrees or consents. This is a salutary practice which restores victims to their former status, while, because of the consent by the defendant, eliminating the problem of the violation of his due process rights in the determination of the amount of restitution. The Roundtable supports such consensual restitution.

Section 3324 (a) (1) (B) “Conditions of probation," however, directs a Court to require that as a condition of a sentence of probation, a defendant make restitution to any victim for any damages or loss caused by the offense for which the defendant is convicted, unless the Court rules restitution is impractical. The provision omits to state that a sentence of probation cannot be entered without the defendant's consent, and we recommend that it do so. Otherwise, Section 3324 would have the effect of establishing the novel criminal sentence of restitution, the very provision which the Subcommittee expressly deleted from the Working Draft.

Section 3304 (b) (1) also empowers a Court using the sentence of "conditional discharge" to require the defendant to "make restitution to a victim *** for actual damages * * caused by the offense for which the defendant is convicted * * The conditional discharge section fails to state that restitution may not be entered without the consent of the defendant. The deliberations of the Subcommittee indicate that "conditional discharge" was intended to be the counterpart for the organization of probation. If so, the provision for making restitution should be consensual for organizations, just as it is in current practice for individuals.

To do otherwise would be to establish, under the name "conditional discharge," mandatory restitution in the face of the Subcommittee's decision to delete restitution as a normal sentence. We note that the Subcommittee rejected the restitution provision found in Section 2006 of S. 1437 for one or more of the following reasons advanced by the members in debate:

Section 2006 did not establish procedures for courts to determine the victims and the amount of their loss. Neither of these matters is necessarily determined in a criminal trial.

Absent a full evidentiary proceeding (including the right of cross examination), efforts to establish the victims and the amount of their loss may impair defendant's Fifth Amendment rights of due process.

To protect the defendant's rights, and responsibly and fairly determine the victims and the amount of loss probably requires a full-fledged "trial." Such a "trial," particularly in complex economic and regulatory cases, would delay imposition of sentence, contrary to the well-established rule that sentencing should be swift and certain.

Introducing restitution to the criminal process distorts it. The complaining witness acquires a direct, personal economic stake in the result of the case, threatening the integrity of criminal proceedings. Simultaneously, the prosecutor becomes engaged in private recoveries for individuals, but at taxpayer expense a questionable application of his resources.

The Roundtable concurs with the views of the members of the Subcommittee concerning nonconsensual Restitution, and would oppose the sections addressing "Conditions of probation" and "Conditions of conditional discharge" if they do not make the restitutional provisions therein consensual.

4. Prohibition on indemnification for fines.-Section 3505 introduced the new provision that it a fine is imposed on an agent or shareholder of an organization, "the fine shall not be paid, directly or indirectly, out of the assets of the organization."

It appears that this would prohibit indemnification or insurance covering such fines, regardless of the circumstances, or the good faith conduct of the agent, or the absence of reasonable cause to believe the conduct involved was unlawful.

This is contrary to existing state laws, many of which provide that a corporation shall have the power to indemnify a director, officer, employee or agent against fines:

if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful."

The existing state law provision is quite limited and appears fair and reasonable. Section 3505 should be deleted and this question left to state law.

B. JURISDICTION

1. Extraterritorial jurisdiction.-The Roundtable believes that a complete codification of the federal criminal laws should set forth the circumstances under which the United States will asset its jurisdiction over actors and activities primarily located abroad.

The Section 111 of the Working Draft recognizes the issue, but has not yet provided a solution to it.

For conduct abroad to be made criminal, Judge Learned Hand, in United States v. Aluminum Company of America, 148 F.2d 416, 443 (2d Cir. 1945), stated it is settled law that the conduct outside a state's borders must have "consequences inside its borders which the state reprehends ***." Section 18(b) of the Restatement (Second) of the Foreign Relations Law of the United States, states that the "consequences" or "effect" in the United States "must be 'substantial' and the direct and foreseeable result of the foreign conduct." There is a presumption against extraterritorial jurisdiction unless a contrary intent is clear. Restatement, supra, Section 38.

The reasons for requiring a substantial interest are well-founded:

(a) Prosecutorial resources are limited, and should be applied to significant national purposes.

(b) Extraterritorial applications of U.S. criminal law create problems of both enforcement and fairness, which may bear more heavily on the defendant than the prosecutor.

(c) The Sixth Amendment right of the accused to compulsory process may be meaningless where foreign witnesses are involved.

The Roundtable believes that the Working Draft should contain a provision which provides for extraterritorial jurisdiction where the offense is committed in whole or in part within the United States, the accused participated outside the United States and there exists a substantial federal interest in pursuing the matter by investigation or proescution. The prosecution should, of course, be consistent with principles of comity. Timberlane Lumber Co. v. Bank of America, N.T. & S.A., 549 F.2d 597 (9th Cir. 1976). The provision should further state that a "substantial federal interest" exists where the conduct causes or threatens harm of the type sought to be prevented in any particular offense (i) within the United States, or (ii) to a United States person, or (iii) to the United States.

2. Restraint in exercise of concurrent jurisdiction.-Over the last few decades, there has been a dramatic growth of what the Brown Commission called “auxiliary federal jurisdiction," that is jurisdiction over essentially local offenses. This jurisdiction has usually been based on Congressional power over communications facilities, the U.S. mail or interstate and foreign travel. Its exercise has been chiefly a matter of prosecutorial discretion.

This rapid expansion of the federal government's role in local law enforcement has disturbing implications for the preservation of a reasonable balance between the national and state governments. In the 95th Congress, the House Subcommittee on Criminal Justice was particularly concerned about this issue and it appears to have been one of the principal reasons for its failure to accept S. 1437 as a basis for federal criminal law reform:

[T]he subcommittee's own analysis of S. 1437 led it to conclude that the bill is seriously flawed. [Two] of the most obvious flaws are: overall expansion of Federal criminal jurisdiction, [and] enhancement of the power and discretion of the prosecutor. . . . Report of The Subcommittee on Crimi

* E.g., ABA-ALI Model Bus. Corp. Act 5(a) (1979): Del. Code Ann. tit. 8, § 145(a); Ill. Rev. Stat. ch. 32, 42.12(a) Mich. Comp. Laws 8 450.1561; Ohio Rev. Code Ann. $1701.13 (E) (1) and 15 Pa. Cons. Stat. Ann. § 1410(A).

3. Conditional discharge and probation.-Current practice includes restitution as a condition of probation where the defendant so agrees or consents. This is a salutary practice which restores victims to their former status, while, because of the consent by the defendant, eliminating the problem of the violation of his due process rights in the determination of the amount of restitution. The Roundtable supports such consensual restitution.

Section 3324 (a)(1) (B) "Conditions of probation," however, directs a Court to require that as a condition of a sentence of probation, a defendant make restitution to any victim for any damages or loss caused by the offense for which the defendant is convicted, unless the Court rules restitution is impractical. The provision omits to state that a sentence of probation cannot be entered without the defendant's consent, and we recommend that it do so. Otherwise, Section 3324 would have the effect of establishing the novel criminal sentence of restitution, the very provision which the Subcommittee expressly deleted from the Working Draft.

Section 3304 (b) (1) also empowers a Court using the sentence of "conditional discharge" to require the defendant to "make restitution to a victim *** for actual damages * * caused by the offense for which the defendant is convicted "The conditional discharge section fails to state that restitution may not be entered without the consent of the defendant. The deliberations of the Subcommittee indicate that "conditional discharge" was intended to be the counterpart for the organization of probation. If so, the provision for making restitution should be consensual for organizations, just as it is in current practice for individuals.

Section 2006 did not establish procedures for courts to determine the victims and the amount of their loss. Neither of these matters is necessarily determined in a criminal trial.

To protect the defendant's rights, and responsibly and fairly determine the victims and the amount of loss probably requires a full-fledged “trial.” Such a "trial," particularly in complex economic and regulatory cases, would delay imposition of sentence, contrary to the well-established rule that sentencing should be swift and certain.

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Reform of the Federal Criminal Laws: Hearings, Ninety-second Congress, First ...