Environmental Crimes and the Sentencing Guidelines: The Time Has Come . . . and It Is Hard Time

Judson W. Starr and Thomas J. Kelly Jr.

Editors' Summary: Criminal prosecution is becoming an increasingly important component of the federal government's environmental enforcement strategy. The recent issuance of the federal Sentencing Guidelines has dramatically increased the role of criminal enforcement in environmental law. The guidelines require judges to impose specific sentences within certain ranges for various categories of environment crimes. Defendants are unlikely to escape with probation, as was often the case in preguideline prosecutions. This Article analyzes the impacts and mechanics of the guidelines. The authors conclude that companies and individuals must recognize the real threat of criminal prosecution and should implement procedures to uncover and correct any compliance problems.

Judson Starr is a partner in the Washington, D.C., office of Venable, Baetjer, Howard & Civiletti, where he focuses on environmental litigation, corporate accountability assessments, and investigations. Before joining the firm in October 1988, he served as the first Chief of the Environmental Crimes Section in the Land and Natural Resources Division of the Department of Justice, where he was responsible for the creation, development, and direction of the federal environmental crimes program. A frequent panelist, lecturer, and author on environmental enforcement issues, Mr. Starr is a 1975 graduate of Georgetown University Law Center. Thomas Kelly is a senior associate in the Washington, D.C., office of Venable, Baetjer, Howard & Civiletti and practices in the firm's Investigation & Defense Group. Before joining the firm, he was an Assistant U.S. Attorney in the District of Columbia. Mr. Kelly received his law degree in 1980 from the Catholic University of America. The authors wish to thank Gregory Winfree for his assistance in preparing this Article.

[20 ELR 10096]

People engaged in business activities subject to regulation under the environmental laws probably took little note of the rules recently published by the U.S. Sentencing Commission.¹ Some individuals may be doomed, however, to long remember the far-reaching and serious impact of these rules. Those who practice law in the environmental field also need to appreciate these new rules and the manner in which they change the landscape of environmental enforcement. One thing that can be said with certainty about these new rules is that criminal enforcement of the environmental laws has been vigorously and zealously augmented.

By publishing these new rules, environmental crimes attained parity with other so-called white-collar or managerial crimes, if not "big league status" compared with serious crimes of violence. Judges will now be required to view environmental crimes far more seriously than they have in the past, and defendants in these cases are just beginning to experience their impact. The rules are but one more indication of the permanent place environmental crimes have come to occupy in the law enforcement community² and in the federal government's overall environmental enforcement strategy.³

In a nutshell, these rules require judges to follow strict measures within certain guidelines when sentencing for specifically designated crimes — including a category separately identified as environmental offenses. In what used to be a highly subjective process, the rules remove nearly all discretion that judges have traditionally enjoyed at the sentencing stage. Now it is more a matter of making mathematical computations.⁴ Removing unwarranted disparities [20 ELR 10097] to ensure proportionality in sentencing among defendants found guilty of similar conduct was one of the goals of the Sentencing Commission. Ostensibly, criminals convicted of one offense in California now will receive the same sentence for a similar conviction of the same offense in Maine. Another goal was to remove the uncertainty that previously characterized the sentencing process and make it less of a guessing game. If a defendant pleads guilty or is convicted of certain charges, it is now much less a jurisdictional lottery as to what sentence will be imposed than under the previous process. These changes in the rules have also dramatically altered the role for counsel. New strategies to deal with these changes are called for at all stages of the process, but now more than ever, before charges are brought and after a conviction or a guilty plea.

Sentences will now be determinate, meaning that the convicted individual will serve the entire length of the sentence subject only to limited "good time" credits.⁵ To further this goal, parole has been abolished to ensure that the sentence imposed by the court is the sentence the offender will serve. Also, judges cannot impose a sentence only to then suspend it in favor of a period of probation, as has frequently happened in environmental cases. The Sentencing Commission has set the ranges for periods of incarceration in all categories of crimes and is particularly harsh on environmental crimes.⁶ Jail time will become the norm rather than the exception under the new rules.

No longer can one charged with environmental wrong-doing take refuge in the relatively light sentences typically imposed for environmental violations. People engaged in business who have typically capitalized on their first-time offender status will now find their background less relevant as a mitigating factor. Those who have claimed that the conviction was for mere "technical" or regulatory violations, which caused neither harm to the environment nor threat to the public's health and safety, will now find little solace in these rules. In fact, most of those who have been convicted for environmental offenses and have received only probation would now most likely spend time behind bars under the new sentencing rules. This further underscores why the new rules are important to understand, particularly in light of all the other indicia⁷ evidencing an increase in environmental prosecutions.

The first two cases to be sentenced under the new sentencing rules illustrate these points. In those cases, the defendants were sentenced to 21 months and 27 months in jail, respectively, upon their convictions.⁸ Both cases involved illegal dredging and filling of wetlands, an offense which had never yielded a jail sentence in any pre-guidelines case.⁹

Mechanics of the New Sentencing Guidelines: How the Rules Work for Individuals

To determine the range of sentences a judge may impose on an environmental offender, the acts underlying each count of an indictment must be thoroughly analyzed under the federal environmental enforcement provisions as encompassed by the sentencing guidelines.¹⁰ The first environmental enforcement provision¹¹ covers offenses involving knowing endangerment under the Clean Water Act¹² and the Resource Conservation and Recovery Act (RCRA).¹³ Both statutes contain versions of the "knowing endangerment" rule, which provides for penalties of fine or imprisonment (or both) for a person who knew at the time of the violations that he had "place[d] another person in imminent danger of death or serious bodily injury . . . ."¹⁴ The other two guidelines deal with offenses involving the mishandling of hazardous or toxic substances or pesticides,¹⁵ and with the mishandling of "other pollutants."¹⁶ The guidelines ascribe a numerical base offense level depending on the type of violation.¹⁷ Added or subtracted to the base offense level are certain amounts for "specific [20 ELR 10098] offense characteristics."¹⁸ These amounts are added to the base level to account for such factors as repeated discharges of pollutants¹⁹ or for discharges without a permit.²⁰ Adjustments may also be made depending on the actual or potential harm that resulted from the offense, augmented by the presence of certain enumerated factors, such as the nature and quality of the substance involved, the duration of the offense, and the risk associated with the offense.²¹ Once the specific offense characteristic amount has been added to the base number, further adjustments to the total are made depending on the culpability of the particular defendant. For example, if the defendant was a ring leader, organizer, supervisor, or manager, the offense level is increased by two to four levels.²² A downward adjustment can result depending on the defendant's remorse or "[w]here the defendant clearly demonstrates a recognition and affirmative acceptance of personal responsibility for the criminal conduct."²³ For multiple-count convictions, the above steps are repeated and the total offense level is calculated pursuant to the multiple-count provisions found at Section 3D of the guidelines. In general, the multiple-count provisions will increase a sentence only when the offense represents conduct that is not otherwise accounted for by the guidelines. Thus, in most environmental cases the multiple-count provisions will not result in an increased sentence because the provisions already provide for repetitive and ongoing misconduct.²⁴

After the total offense level is calculated and the defendant's prior criminal history is taken into account,²⁵ the range for the particular sentence is derived from the sentencing table. For example, a total offense level of eight translates to a sentencing range of two to eight months of incarceration.²⁶ Finally, the guidelines establish specific rules concerning sentencing options. For example, probation can only be awarded when the minimum term of imprisonment in the range specified by the sentencing table is zero months, (offense levels one through six).²⁷ Similarly, a defendant may be considered for community confinement (i.e., halfway house) if the minimum term of imprisonment specified by the sentencing table is at least one but not more than six months (offense levels seven through 10).²⁸ In such a case, the court has the option of sentencing the defendant to a halfway house for the minimum term followed by a period of probation.²⁹ The guidelines also provide for supervised release, restitution, and fines.

Judges can depart from the sentences prescribed by the guidelines but will find it difficult to sentence a defendant below the suggested minimum sentence. There are two enumerated instances, however, where the court can depart downward. The first instance is where the defendant has provided substantial assistance to the government and the government moves for a departure. The guidelines state: "Upon motion of the government stating that the defendant has made a good faith effort to provide assistance in the investigation or prosecution of another person who has committed an offense, the court may depart from the guidelines."³⁰

The second instance is when the court makes a determination "that there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines."³¹ It should be noted, however, that judges may also use this section to depart upward when imposing a sentence. In either of these two circumstances, the court is required to state on the record its reasons for departing from the guideline range and either side may appeal the decision.

How the Rules Apply to Past Cases

To better understand how these calculations work, this section discusses how they would apply to several earlier cases. These illustrations also demonstrate the difference between what an individual might have received under the guidelines compared with what the defendant actually received before the guidelines were enacted. The difference is considerable and ominous.

In one of the earliest reported environmental crime cases, United States v. Frezzo Brothers, Inc.,³² the defendants were convicted by a jury on six counts of willfully and negligently discharging pollutants into a navigable water of the United States without a permit, in violation of the Clean Water Act.³³ Frezzo Brothers, Inc., was a family-operated corporation engaged inthe mushroom farming business. As a part of the business, the company produced compost to provide a growing base for the mushrooms. The compost was composed mainly of hay and horse manure mixed with water, which was allowed to ferment outside on wharves.

The Frezzo's farm had a 114,000-gallon concrete holding tank designed to contain and recycle run-off water from the compost wharves. The farm also had a separate storm water run-off system that carried rainwater through a pipe to a channel box located on adjoining property owned by another mushroom farm. The channel box was connected by a pipe to a tributary, which flowed directly into a navigable waterway.

The corporate defendant, Frezzo Brothers, Inc., and individual defendants, Guido and James Frezzo, were [20 ELR 10099] charged and convicted of six counts³⁴ of Clean Water Act violations stemming from repeated unpermitted discharges of contaminated compost run-off water into the nearby waterway. The corporate defendant was fined $ 50,000, and the individual defendants received jail sentences of 30 days each and fines totaling $ 50,000.

Analyzing the case under the guidelines, each defendant would receive a base offense level of six, since the offense involved the mishandling of environmental pollutants.³⁵ Moreover, each defendant would receive a six-level upward adjustment under specific offense characteristics to account for the repeated discharge of the pollutant,³⁶ and an additional four-level upward adjustment for the disposal of the pollutant without a permit.³⁷ The total offense level thus equals 16 which, under the guidelines, translates to a sentencing range of 21 to 27 months in jail.³⁸

Because the six-count indictment was composed of closely related counts involving substantially the same activity, the defendants' offense level would not increase because of the additional counts for which they were convicted.³⁹ However, the defendants could possibly have received a two-level upward adjustment for their aggravated role in the offense in addition to the above adjustments, for a total offense level of 18, if it had been determined that they were the organizers, leaders, managers, or supervisors in the criminal activity.⁴⁰ Translated under the sentencing guidelines, the defendants could have been sentenced from 27 to 33 months in jail, clearly more stringent than the one-month sentence actually imposed.

In a more recent case, United States v. Hoflin,⁴¹ the defendant was convicted of aiding and abetting the disposal of hazardous waste during his tenure as Director of Public Works for the City of Ocean Shores, Washington, in violation of RCRA.⁴² He was also convicted of aiding and abetting the burial of sludge at the city's sewage treatment plant, contrary to the conditions of the plant's operating permit and in violation of the Clean Water Act.⁴³

The Public Works Department of Ocean Shores had purchased 3,500 gallons of paint for road maintenance from 1975 through 1982. As painting jobs were finished, 55-gallon drums containing paint waste were returned to the Public Works Department's yard. Empty drums were to be used elsewhere or given away, but evidence produced at trial revealed that the defendant directed an employee of his department to bury a number of drums containing spent paint wastes at the sewage treatment plant.

Almost two years after the burial of the drums, a former employee reported the incident to state authorities. After inspecting the plant, the state authorities referred the matter to EPA. EPA's criminal investigators recovered the drums, but because several of the drums had no lids or had been crushed, paint wastes had already leaked into the soil. EPA's soil samples tested positive for hazardous wastes under RCRA.⁴⁴ In addition, it was revealed during the investigation that the defendant had directed several truck loads of grease, which had been collected at a city-owned facility, to be buried in the ground in violation of the Clean Water Act.⁴⁵

The grand jury indicted the defendant on three counts,⁴⁶ and the jury found the defendant guilty on two counts. The district court suspended the imposition of sentence and placed the defendant on two years probation. Had the offenses occurred subsequent to November 1, 1987, the effective date of the sentencing guidelines, the result would have been significantly different.

Under the guidelines, Hoflin would have received a base offense level of eight, since the offense involved the mishandling of a hazardous substance.⁴⁷ He would also have received a four-level upward adjustment to account for the discharge, release, or emission of hazardous substances.⁴⁸ Further, he would have received an additional four-level upward adjustment for the disposal of paint wastes without a permit, for a total offense level of 16.⁴⁹

For the Clean Water Act violations, no additional jail time would have resulted because only misdemeanor charges were available at that time. Congress has since upgraded knowing violations of the Clean Water Act to felony status.⁵⁰ If the evidence had supported a felony charge, Hoflin may have received an additional upward adjustment.

Moreover, the defendant might have received at least a two-level upward adjustment for being "an organizer, leader, manager, or supervisor" in the offense conduct.⁵¹ Thus, had the defendant been sentenced under the federal sentencing guidelines, he probably would have received an offense level of 18, which is equal to a sentencing range of 27 to 33 months in jail.⁵² Probation would not have been an option to the district court judge unless the court could have pointed to some factor that the Sentencing Commission had not taken into consideration when formulating the guidelines,⁵³ a highly unlikely result.

The above two examples are intended to give the reader a sense of the guidelines. Under the new sentencing guidelines, it is difficult to predict a jail sentence with absolute certainty unless all the sentencing materials and facts are [20 ELR 10100] available. One fact, however, that can be stated with complete certainty is that many people convicted for environmental offenses are now going to be sentenced to jail. The question is no longer whether a defendant in environmental cases will go to prison, but rather for how long.⁵⁴

In addition to the potential jail sentence, the white-collar defendant must also be aware that he could receive a substantial fine. The guidelines require that except in certain limited circumstances, "the court shall impose a fine in all cases."⁵⁵ The exceptions allow a defendant to establish either that he is not able to pay all or part of the fine or that the fine would unduly burden his dependents. The court may then impose a lesser fine or waive the fine altogether.⁵⁶ Depending on the offense level, the guidelines provide minimum and maximum fines. For example, for an offense level of 16, the range of fines is $ 5,000 to $ 50,000.⁵⁷

Environmental Offenders Face a Greater Likelihood of Jail Under the Guidelines

In United States v. Mills,⁵⁸ application of the guidelines was a matter of first impression in an environmental case. Some of the offenses occurred prior to the effective date of the guidelines; others fell within its jurisdiction. The defendants were indicted on six counts of knowingly dredging a canal and discharging fill materials in wetlands in violation of the Clean Water Act.

At issue was a tract of land on which a previous owner had filled wetlands to build a driveway. Soon after the U.S. Army Corps of Engineers notified the landowner that he needed a permit in order to place the fill material, the landowner sold the parcel of land to Ocie Mills and his son for approximately one-third of its fair market value. The evidence at trial established that the defendants had purchased the property with full knowledge that a permit was required and with the intention of ignoring any cease and desist order issued by the Corps of Engineers. Consequently, the defendants continued to fill the wetlands. Interestingly, the six-count indictment charged the defendants with three counts that predated the guidelines and with three counts that were subject to the guidelines. A jury convicted the defendants on all six counts. The district court sentenced the defendants to 21-month terms of imprisonment on the guideline offenses.

The jail sentence was derived as follows. A base offense level of six was assigned because the violations involved the mishandling of environmental pollutants other than toxic wastes.⁵⁹ Because the offense resulted in an "ongoing, continuous or repetitive discharge, release, or emission of a pollutant into the environment," six more points were added from the special offense characteristics.⁶⁰ In addition, the offense level was increased an additional four levels, for a total of 16, because the offense involved discharging without a permit.⁶¹ The total offense level translated to a period of incarceration between 21 to 27 months of real jail time without possibility of parole.⁶²

Similarly, in United States v. Pozsgai,⁶³ the defendant was charged with 41 counts of systematically filling a 14-acre tract of land despite repeated warnings by inspectors of the Corps of Engineers that such activity required a permit under the Clean Water Act. The defendant continued the illegal activity even after receiving a cease and desist order and a temporary restraining order enjoining him from further unpermitted fill activity. Counts 16 through 41 of the indictment were subject to the sentencing guidelines. Upon conviction, the trial court imposed a 27-month sentence, the maximum within the applicable range.⁶⁴ Additionally, the judge fined the defendant $ 200,000, imposed a special assessment of $ 2,000, and ordered the restoration of the wetlands property in accordance with a plan established by the Corp of Engineers.

At the time of sentencing, the trial judge stated:

I think the sentence has to take into account not only punishment for the high degree of willfulness but [should] also serve as a deterrent to others who will doubtless be tempted by economic pressures which many people, I suppose most people, show to violate those laws and the deterence has to be that if they play the lottery of the criminal justice system and are caught that the costs will be high.⁶⁵

In United States v. Bogas,⁶⁶ the third environmental case to be subject to the sentencing guidelines, the government is seeking a seven-year sentence for William N. Bogas, a former commissioner of the Cleveland Hopkins International Airport. Bogas pled guilty to two felony charges: making false statements to EPA in violation of 18 U.S.C. § 1001 and failing to report the release of a hazardous substance into the environment, a violation of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).⁶⁷

The charges related to the March 1988 illegal burial of 148 drums containing various quantities of toluene, xylene, flammable paint wastes, and an assortment of other materials in a pit at the Cleveland Hopkins Airport. As part of the burial, the drums were crushed by a bulldozer, releasing much of their contents into the environment. Local police and fire officials discovered the burial as it [20 ELR 10101] was occurring. The tenor of the subsequent indictment reflected the government's exasperation with Bogas' conflicting testimony. Bogas first stated that he had no knowledge of any drums being disposed of in the pit; he then represented that only eight to ten empty drums were disposed of in the pit, and later represented that the drums had previously contained water-based paints.

Yet to be adjudged under the new rules, Bogas faces a maximum prison sentence of three years under CERCLA and a $ 250,000 fine. For his false statement to EPA, he now faces the maximum of five years of imprisonment and a $ 250,000 fine.

Guidelines Still Allow Room for Flexibility

Attorneys on both sides of an environmental crimes investigation today must take the sentencing procedures seriously from the earliest stages of the case. The practitioner who fails to understand the impact of the new rules on a client cannot effectively represent that client. Likewise, the prosecutor will also build a case with an eye to the guidelines. Yet, although the new rules appear to be essentially mathematical, they do not entirely handcuff either side in the sentencing process. Rather, the new sentencing guidelines allow room for some flexibility when dealing with environmental offenses.

Whether dealing with an environmental crime or an ordinary criminal case, some fundamental areas of the guidelines must be thoroughly understood. One important area is the section that defines the defendant's "relevant conduct." The guidelines state, in part:

The conduct that is relevant to determining the applicable guideline range includes . . . all acts and omissions committed or aided and abetted by the defendant, or for which the defendant would be otherwise accountable, 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, or that otherwise were in furtherance of that offense.⁶⁸

The above provision goes on to state that the defendant's relevant conduct may be used to determine his base offense level, specific offense characteristics, and adjustments. To illustrate this point, if a defendant enters a guilty plea or is convicted of mishandling environmental pollutants,⁶⁹ he would be assigned a base offense level of six and would be eligible for probation. A sentencing judge, however, could increase the offense level an additional six levels pursuant to the relevant specific offense characteristic if the defendant's relevant conduct resulted in an "ongoing, continuous or repetitive discharge."⁷⁰ Thus, by considering the defendant's relevant conduct, the court may substantially increase the sentencing range and take away any alternative sentencing options. In this example, without any further adjustments, the defendant's sentence could be increased to 16 months of incarceration with no chance for probation or community confinement.⁷¹

The net effect of the relevant conduct provision is to render the number of counts in the indictment irrelevant because the defendant's relevant conduct could result in the same sentence whether the conviction was for one or for 15 counts. For example, if a defendant pleaded guilty to one count in exchange for the dismissal of the remaining 14 counts, he could possibly receive the same sentence regardless of the number of counts dismissed if the court took into account his relevant conduct concerning the counts dismissed. Furthermore, counsel must be aware that any admission of incriminating information not known to the government prior to the imposition of sentence may potentially increase the offense level because the court is permitted to take that information into account when determining the sentence.

Another important provision of which the practitioner must be aware is the two-level reduction for a defendant's "acceptance of responsibility." As previously noted, the guidelines provide for a two-level reduction of the base offense level for a defendant who clearly demonstrates a "recognition and affirmative acceptance of personal responsibility" for the offense.⁷² Moreover, the availability of a reduction under this provision is not controlled by whether the conviction was by trial or guilty plea. Thus, it is anticipated that the defendant will always attempt to negotiate this reduction.

Another significant aspect of the sentencing guidelines concerns cooperating with the government. The so-called work-off provision provides that upon motion by the government, the court can depart from the guidelines when a defendant has provided "substantial assistance in the investigation or prosecution of another person who has committed an offense."⁷³ Assuming that the client is a target of the investigation, he must be apprised of the fact that by cooperating with the government, there exists the possibility that the court may depart from the guidelines. This is an extraordinary provision because it permits the sentencing judge to award probation to a person who would otherwise face incarceration. Furthermore, the government is permitted to file a motion for a reduction of the sentence based on the ongoing cooperation of the defendant for up to one year after the sentencing date.⁷⁴

Another important aspect of the guidelines is the heightened role of the probation officer. Under the guidelines, the probation officer's power has dramatically changed. The probation officer, serving as the independent arm of the court, is required to identify and resolve legal and factual issues and bring the facts of the offense to the attention of the court by preparing the presentence report, a critical document for both sides. The report will state the relevant facts, any disputes between the government and defense counsel and the evidence on which they rely, the factors that argue for aggravation or mitigation of the sentence or for a departure from the guideline range, and the sentencing decisions the court must make to meet the standard of proof for applying or not applying a specific factor.

Either side can brief areas of disagreement for argument before the sentencing court. To do so however, it is important to consult the local rules of the U.S. district court in which the client will be appearing. The rules will specify what a defendant must do to preserve the right to argue [20 ELR 10102] his interpretation of the relevant calculations at the time of sentencing and to preserve the right of appeal.⁷⁵

Finally, to be an effective advocate in the environmental arena, the practitioner must be aware of the environmental provisions that specifically invite the opportunity for negotiations. For example, Section 2Q1.3 (Mishandling of Other Environmental Pollutants) appears at first to be solely mathematically oriented. The defendant is assigned an offense level of six that is subject to various adjustments depending on which specific offense characteristic applies. Closer inspection, however, quickly reveals that the section contemplates more. The application notes found within each of the environmental provisions provide additional flexibility. To illustrate, Section 2Q1.3(b) lists the various specific offense characteristics applicable to the above offense. Subsection (4) states: "If the offense involved a discharge without a permit or in violation of a permit, increase by 4 levels." Consulting the application notes that interpret the offense characteristics, however, reveals that the defendant's offense level is adjusted up to two levels in either direction depending on the nature and quantity of the substance involved and the risk associated.⁷⁶ Thus, in a typical environmental case this may lead to a mini-trial and a battle between each side's experts over the risk associated with a particular hazardous or toxic substance.

This is just a sampling of the mental processes the practitioner must go through, and the list goes on. In addition to the demands these cases place on the practitioner, the sentencing guidelines require mastering the nuances of both the criminal and environmental laws and procedures.

Prospect of Increased Jail Time Does Not Diminish Potential for Fines

In addition to the potential jail sentence, the environmental offender must also be aware that he could be required to pay a substantial fine. Under the guidelines, the court "shall impose a fine in all cases," with only two exceptions.⁷⁷

Depending on the offense level, the guidelines provide for a minimum and maximum fine range. For example, at offense level 21, the fines range from $ 7,500 to $ 75,000.⁷⁸ The probation department plays a key role at this stage to determine what fine should be assessed. It will conduct an investigation resulting in the presentence report, which will include a determination of the defendant's ability to pay a fine.⁷⁹

When determining the appropriate fine, the sentencing judge is not limited to the fine table found within the guidelines. If the judge determines that the defendant derived some pecuniary gain from the offense, or if the offense resulted in a pecuniary loss to someone other than the defendant, the judge may fine the defendant the greater of twice the gain or twice the loss, unless imposition of a fine would unduly complicate or prolong the sentencing process.⁸⁰ In environmental cases, this section has the potential of resulting in some starting fines.⁸¹

Applicability of Sentencing Guidelines to Corporations

The Sentencing Commission has recently promulgated Proposed Guidelines to govern the sentencing of organizations in federal courts.⁸² Generally, the Proposed Guidelines are intended to punish the organization for its criminal conduct and to induce companies to take reasonable and prudent steps to prevent criminal conduct through self-policing mechanisms.⁸³ The Proposed Guidelines have the designed effect of inducing companies to come forward with incriminating evidence when it is discovered and before the government begins its investigation. In this way, the Proposed Guidelines also create their own voluntary disclosure program and encourage companies to go beyond the typical environmental audit in use before the guidelines, and to create in-house environmental compliance mechanisms. The incentives for instituting such self-policing mechanisms are overwhelming in the face of increased corporate liability and, derivatively, individual liability for upper level management. For example, the Proposed Guidelines consider the aiding and abetting of an offense by upper level management as an aggravating factor increasing a corporation's potential liability.⁸⁴ A corporation may be further penalized if upper-level management obstructs or fails to prevent the obstruction of any investigation into corporate misdeeds.⁸⁵ In certain cases, the Proposed Guidelines may provide for the removal of corporate directors from office in the wake of illicit conduct.⁸⁶

[20 ELR 10103]

The Sentencing Commission has drafted two options for determining the guideline fine range for organizational defendants. Option I generally follows the formula prescribed by the Alternative Fines Act.⁸⁷ The guideline fine range is based on the greater of the gross pecuniary loss to the victims or gross pecuniary gain to the defendant caused by the offense. Alternatively, a statutory amount is obtained by determining the base offense level for the specific offense,⁸⁸ increased or decreased by percentage adjustments reflecting aggravating or mitigating circumstances.⁸⁹

Option II follows the mathematical method prescribed by the Sentencing Commission and utilized in the Fine Table for Individuals.⁹⁰ The guideline fine range is based entirely on the applicable offense level assigned to the relevant conduct. Offense level adjustments reflect the existence of aggravating or mitigating factors and are added or subtracted accordingly.⁹¹ Although Options I and Ii both provide sanctions for activities falling within their scope, substantially different fine levels may result based on the same offense with the same aggravating or mitigating factors, depending on which method is used.⁹²

The Proposed Guidelines fine range may further be tailored to the offense by considering various subjective factors.⁹³ The Sentencing Commission has reiterated that pursuant to the United States Code, a court is required to consider factors such as the nature and circumstances of the offense and the history and characteristics of the defendant corporation; the corporation's income, earning capacity, size and financial resources; whether the corporation can pass on to consumers or other persons the cost of the fine; and the degree of difficulty of detecting the violation.⁹⁴

Applying the Proposed Guidelines to United States v. Frezzo Brothers, Inc.⁹⁵ highlights the disparate impact and compares the results obtained by applying Options I and II. Under Option I, Frezzo Brothers, Inc., would have been subjected to the same offense levels as the individual defendants, for a total offense level of 16.⁹⁶ After the requisite subjective considerations have been made, the court would apply the maximum guideline fine range of 300 percent, which would translate to a base fine of $ 300,000.⁹⁷ The court would then add a 20 percent upward adjustment for upper level management participation in the offense plus an additional 20 percent for obstructing the investigation, for a total statutory fine of $ 420,000. This total statutory fine would then be compared with the gross pecuniary loss (if any) or the gross pecuniary gain (if any) to determine the applicable fine. The corporation would be fined the greater amount.

Applying Option II to Frezzo, the same base offense level of 16 would translate to a fine range of $ 300,000 to $ 700,000. An upward level adjustment of one would be added for upper level management participation in the offense and an additional upward level adjustment of one would be added for any obstruction of the investigation. Thus, the total offense level increases to 18, which translates to a guideline fine range of $ 700,000 to $ 1,520,000. The applicable fine would be determined within the range after consideration of the requisite subjective factors, offset calculations, and any other applicable considerations.⁹⁸ As one can see, under either proposal Frezzo Brothers, Inc., would face a substantially increased penalty compared with the $ 50,000 fine it actually paid.⁹⁹

Comparing the results of the two options illuminates the disparity in potential liability. Option II appears to impose the stiffest penalties based on the same relevant conduct and, based on the monetary penalties assigned to each offense level, mathematically imposes the stiffest penalties throughout the fine range.¹⁰⁰ This result would remain constant [20 ELR 10104] had Option I not included an alternative fines provision.¹⁰¹ Requiring the corporate defendant to recompense double or triple the amount of actual damages (loss) or requiring the corporate defendant to restitute double or triple the amount of any additional gross revenue accumulated due to the offense could expose a corporation to potentially ruinous liability.

In all, both options of the Proposed Guidelines reaffirm the government's committment to vigorously prosecute white-collar crimes in general and environmental crimes in particular. By extending liability into the corporate arena, offenses may be attacked on dual fronts. The individual defendant as well as the organizational defendant must atone for their crimes to benefit the greater public good.

Conclusion

Over the last 20 years U.S. industry has faced increasing environmental regulation. Although the law has constantly been evolving, enforcement, at least until the new sentencing procedures, has lagged behind. Today, violations of these regulations may very well lead to criminal convictions and incarceration for managers and officers who fail to follow the rules or who allow others to break them.

Avoiding liability under the government's tough new approach to environmental enforcement, fortified by the far-reaching impact of the sentencing guidelines, requires a realistic understanding of the problem and a willingness to undertake a full assessment of the risks now faced by companies and individuals. The first step to avoiding the harsh result of the sentencing guidelines is to recognize that the threat of criminal prosecution is real and that in today's enforcement climate, no one, not even those remotely responsible for environmental compliance, is immune from criminal prosecution. One must also understand that one does not have to be bad to do bad when it comes to environmental crimes. The "black heart" requirement commonly associated with other criminal activity is not necessary to sustain a conviction.

The second step to avoiding prosecution is to ensure compliance by implementing procedures that go well beyond those used in the traditional environmental audit. When most environmental auditing practices and procedures were developed, little, if any, consideration was given to limiting exposure to individual criminal liability, since criminal enforcement of the environmental laws had not yet come of age. With the development of the government's criminal program, however, uncovering — and correcting — systematic, institutional, and individual compliance problems has become a top priority.

In the final analysis, prevention comes far cheaper than mounting a criminal defense. Companies that make environmental compliance a genuine priority can avoid the consequences of the sentencing guidelines, and their officers can spend more time in the boardroom than in the courtroom.

1. These rules, which became effective on November 1, 1987, are contained in the U.S. Sentencing Commission Guidelines Manual [hereinafter GUIDELINES MANUAL] published by an eight-member commission established by the Comprehensive Crime Control Act of 1984, 18 U.S.C. § 3551 et seq. and 28 U.S.C. § 991 et seq. The guidelines are reprinted at 18 U.S.C.A. app. at 62 (West Supp. 1989). The constitutionality of the Commission and its guidelines were recently upheld in Mistretta v. United States, 109 S. Ct. 647 (1989). The Commission has recently issued Proposed Guidelines governing the sentencing of organizations. See infra text accompanying notes 82-101.

2. In 1987, the Attorney General upgraded the Environmental Crimes Unit to a Section. In 1988, EPA's criminal investigators achieved permanent law enforcement powers when Congress passed the Powers of the Environmental Protection Agency, Pub. L. No. 100-582, § 4(a), 102 Stat. 2958 (1988) (codified at 18 U.S.C. § 3063) (West Supp. 1989).

3. See, e.g., Hedges, Enviro-Cops on the Prowl for Polluters, U.S. News & World Rep., Oct. 9, 1989, at 23; Weber, Corporate Crime of the '90s, L.A. Times, Nov. 25, 1989, at A1, col. 1.

4. One commentator has said that the charts and commentary that make up the guidelines "look more like a tax table than a handbook for dispensing justice." Applying Formula to Justice, Sentencing Rules Limit Judge's Discretion, Wash. Post, June 12, 1989, at A1.

5. After the first full year that a sentence has been served, a defendant is entitled to a reduction of 54 days per year for what formerly was described as "time off for good behavior." 18 U.S.C. § 3624(b).

6. Because the Sentencing Commission had less historical data to draw on for environmental crimes as compared with other crimes, the Commission set the range of sentences for environmental crimes at a level judged by the Commission to be "appropriate" when placed in the context of other white-collar crimes for which data were available. "The Commission was also aware that Congress has expressed views in favor of tougher penalties for white collar offenses, a category that includes many environmental offenders. Environmental offenses can — and quite often do — pose a threat to society that far outweighs their number." Address by Judge William A. Wilkins, Chairman, U.S. Sentencing Commission, National Conference on Local and State Enforcement of the Environmental Laws (Mar. 30, 1989).

7. Resources dedicated to the investigation and prosecution of environmental crimes continue to increase at EPA, the Federal Bureau of Investigation, and the Department of Justice on the federal level as well as on the state and local levels. See Address by The Honorable Dick Thornburgh, Attorney General of the United States, The Oceans '88 Conference (Oct. 31, 1988). Congress had given additional impetus to increased enforcement by upgrading environmental crimes from misdemeanors to felonies when it reauthorized the Clean Water Act in 1987 and the Resource Conservation and Recovery Act in 1986.

8. See infra text accompanying notes 58-62, 63-65.

9. Courts have traditionally suspended imposition of jail terms and have awarded probation. For example, in United States v. Holland, No. 83 Crim. 891 (S.D. Fla. May 27, 1988), James Holland received a suspended six-month prison term and was placed on probation. Similarly, in United States v. Marathon Development Corp., No. 87 Crim. 129-MC (D. Mass. Apr. 4, 1987), Terrance Goeghegan, a senior vice president, received a suspended six-month prison term and was placed on probation for one year. The court also imposed a $ 10,000 fine. Finally, in United States v. The Bill Walters Cos., No. 88 Crim. 375 (D. Colo. Dec. 22, 1988), Walters was fined $ 15,000 and received no prison term.

10. GUIDELINES MANUAL, supra note 1, § 2Q (Offenses Involving the Environment).

11. Id. § 2Q1.1 (Knowing Endangerment Resulting From Mishandling Hazardous or Toxic Substances, Pesticides or Other Pollutants) [hereinafter Knowing Endangerment].

12. 33 U.S.C. §§ 1251-1387, ELR STAT. FWCPA 001-065.

13. 42 U.S.C. §§ 6901-6992, ELR STAT. RCRA 001-050.

14. See Clean Water Act § 309(c)(3), 33 U.S.C. § 1319(c)(3), ELR Stat. FWCPA 036; RCRA § 3008(e), 42 U.S.C. § 6928(e), ELR STAT. RCRA 021.

15. GUIDELINES MANUAL, supra note 1, § 2Q1.2 (Mishandling of Hazardous or Toxic Substances or Pesticides; Recordkeeping, Tampering, and Falsification) [hereinafter Hazardous Substances].

16. Id. § 2Q1.3 (Mishandling of Other Environmental Pollutants; Recordkeeping, Tampering, and Falsification) [hereinafter Other Pollutants].

17. Section 2Q1.2 (Hazardous Substances) assigns a base offense level of 8, while § 2Q1.3 (Other Pollutants) assigns a base offense level of 6. Section 2Q1.1 (Knowing Endangerment) assigns a base offense level of 24 for mishandling any environmental pollutant that endangers another (scienter is a requisite).

18. See GUIDELINES MANUAL, supra note 1, §§ 2Q1.2(b), 2Q1.3(b). Section 2Q1.1 (Knowing Endangerment) does not include a list of specific offense characteristics. The application note provides, however, that an upward departure may be warranted if death or serious bodily injury result from the crime.

19. Id. § 2Q1.2(b)(1)(A) & application note 5; § 2Q1.3(b)(1)(A) & application note 4.

20. Id. § 2Q1.2(b)(4) & application note 8; § 2Q1.3(b)(4) & application note 7.

21. See generally id. §§ 2Q1.2(b), 2Q1.3(b).

22. Id. § 3B1.1 (Aggravating Role).

23. Id. § 3E1.1 (Acceptance of Responsibility).

24. See id. §§ 2Q1.2(b)(1)(A), 2Q1.3(b)(1)(A).

25. Id. § 4A1.1 (Criminal History Category).

26. Id. § 5A (Sentencing Table).

27. Id. § 5B1.1(a)(1).

28. Id. § 5B1.1(a)(2). For example, if the defendant's total offense level equals eight, the sentencing range would be two to eight months. Therefore, the court must impose at least a two-month period of community confinement before it can award probation. See id. § 5C2.1 (Imposition of a Term of Imprisonment).

29. Id. § 5C2.1(c)(3), (d)(2).

30. Id. § 5K1.1 (Substantial Assistance to Authorities) (policy statement).

31. Id. § 5K2.0 (Grounds for Departure) (policy statement).

32. 602 F.2d 1123 (3d Cir. 1979).

33. Clean Water Act §§ 301(a), 309(c), 33 U.S.C. §§ 1311(a), 1319(c), ELR STAT. FWCPA 025, 036.

34. 602 F.2d at 1124.

35. GUIDELINES MANUAL, supra note 1, § 2Q1.3(a).

36. Id. § 2Q1.3(b)(1)(A).

37. Id. § 2Q1.3(b)(4).

38. Provided that the defendant has no prior criminal history. Id. § 5A (Sentencing Table).

39. Id. § 3D1.2 (Groups of Closely Related Counts).

40. Id. § 3B1.1 (Aggravating Role).

41. 880 F.2d 1033, 19 ELR 21140 (9th Cir. 1989).

42. RCRA § 3008(d)(2)(A), 42 U.S.C. § 6928(d)(2)(A), ELR STAT. RCRA 021.

43. Clean Water Act § 309(c)(1), 33 U.S.C. § 1319(c)(1), ELR STAT. FWCPA 036.

44. RCRA § 3008(d)(2)(A), 42 U.S.C. § 6928(d)(2)(A), ELR STAT. RCRA 021.

45. Clean Water Act § 309(c)(1), 33 U.S.C. § 1319(c)(1), ELR STAT. FWCPA 036.

46. Count One charged Hoflin with conspiracy to dispose of hazardous wastes without having obtained a permit in violation of 18 U.S.C. § 371 and 18 U.S.C. § 2. Count Two charged the defendant with the disposal of paint wastes without a permit in violation of 18 U.S.C. § 2 and RCRA. Count Three charged the defendant with the disposal of grease in violation of 18 U.S.C. § 2 and the Clean Water Act. The jury found the defendant guilty on Counts Two and Three.

47. GUIDELINES MANUAL, supra note 1, § 2Q1.2.

48. Id. § 2Q1.2(b)(1)(B).

49. Id. § 2Q1.2(b)(4).

50. Clean Water Act § 309(c)(2), 33 U.S.C. § 1319(c)(2), ELR STAT. FWCPA 036.

51. GUIDELINES MANUAL, supra note 1, § 3B1.1(c).

52. Id. § 5A (Sentencing Table).

53. Id. § 5K2.0 (Grounds for Departure).

54. In another recent case, United States v. McKiel, No. 89 Crim. 24-N (D. Mass. June 29, 1989), Robert McKiel, president of Astro-Circuit Electroplating Co., former head of the Lowell, Massachusetts, Chamber of Commerce, and a Korean War veteran, was ordered to serve four months of his one-year jail sentence after he pleaded guilty to daily discharging 48,000 gallons of waste water containing copper, lead, and nickel into city sewers and the Merrimack River, a source of drinking water for several Massachusetts cities. McKiel's Clean Water Act violations were buttressed with RCRA violations for storing hazardous wastes at the facility for more than 90 days. Although illegal activity had been traced back to 1984, McKiel was sentenced to prison based on the post-1987 guidelines violations, despite the fact that his insolvent corporation had installed a state-of-the-art pollution control system that failed to keep them within effluent limits.

55. GUIDELINES MANUAL, supra note 1, § 5E4.2 (Fines for Individual Defendants) [hereinafter Fine Table].

56. Id.

57. Fine Table, supra note 55, § 5E4.2(c)(3).

58. No. 88 Crim. 03100 (N.D. Fl. Apr. 17, 1989).

59. GUIDELINES MANUAL, supra note 1, § 2Q1.3 (Other Pollutants).

60. Id. § 2Q1.3(b)(1)(A).

61. Id. § 2Q1.3(b)(4).

62. Id. § 5A (Sentencing Table).

63. No. 88 Crim. 00450 (E.D. Pa. July 13, 1989).

64. Clearly, the trial court took into account the defendant's recalcitrance with respect to the cease and desist order and the temporary restraining order when imposing the maximum sentence allowed under the sentencing guidelines range.

65. Transcript of sentencing at 66-67, Pozsgai (No. 88 Crim. 00450) (statement of Honorable Marvin Katz, District Judge).

66. No. 88-282 (N.D. Ohio filed Oct. 4, 1988).

67. CERCLA § 103(b), 42 U.S.C. § 9603(b), ELR STAT. CERCLA 011.

68. GUIDELINES MANUAL, supra note 1, § 1B1.3.

69. Id. § 2Q1.3.

70. Id. § 2Q1.3(b)(1)(A).

71. Id. § 5C2.1(f).

72. Id. § 3E1.1.

73. Id. § 5K1.1; see also 18 U.S.C. § 3553(e).

74. FED. R. CRIM. P. 35(b). This rule also allows the court to lower the sentence below the statutory minimum. Id.

75. Appellate review of a sentence calculated under the guidelines is limited to determining whether the guidelines were properly applied. 18 U.S.C. § 3742.

76. GUIDELINES MANUAL, supra note 1, § 2Q1.3, application note 7, states:

Subsection (b)(4) applies where the offense involved violation of a permit, or where there was a failure to obtain a permit when one was required. Depending upon the nature and quantity of the substance involved and the risk associated with the offense, a departure of up to two levels in either direction may be warranted.

77. See supra text accompanying notes 55-56.

78. See supra text accompanying note 57.

79. GUIDELINES MANUAL, supra note 1, § 5E4.2(f).

80. 18 U.S.C. § 3571(d). The alternative fine provision states:

Alternative fine based on gain or loss — If any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person, other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss, unless imposition of a fine under this subsection would unduly complicate or prolong the sentencing process.

81. 18 U.S.C. § 3571(d). The section has yet to be fully applied to environmental offenses. The fine in certain cases would be considerable.

82. The Proposed Guidelines are presented as a new chapter to the Guidelines Manual: "Chapter Eight — Sentencing of Organizations" and are available at 54 Fed. Reg. 47056 (Nov. 8, 1989).

83. Under §§ 8C2.1(d)(3)(C) (Option I) and 8C2.1(b)(3)(C) (Option II), the court will reduce the fine by 20 percent (Option I) or one level (Option II) "[i]f the offense represented an isolated incident of criminal activity that was committed notwithstanding bona fide policies and programs of the organization reflecting a substantial effort to prevent conduct of the type that constituted the offense. . . ." Moreover, pursuant to §§ 8C2.1(d)(3)(A) (Option I) and 8C2.1(b)(3)(C) (Option II), an opportunity to reduce the potential fine by 30 percent (Option I) or one level (Option II) exists if the organization reports the offense to the government upon discovering the offense and before the threat of disclosure or the commencement or imminent commencement of any governmental investigation. Thus, by self-policing or self-reporting, the organization may substantially reduce its criminal penalty.

84. See Proposed Guidelines, supra note 82, §§ 8C2.1(d)(2)(A) (Option I), 8C2.1(b)(1)(A) (Option II).

85. See id. §§ 8C2.1(d)(2)(D) (Option I), 8C2.1(b)(1)(D) (Option II).

86. Id. § 8 (Specific Issues for Comment No. 15).

87. 18 U.S.C. § 3571.

88. Proposed Guidelines § 8A1.2 (Application Instructions — Organizations) generally follows the applicable guideline sections from Section 2 of the Guidelines Manual (Offense Conduct). The Proposed Guidelines for organizations use the same offense levels as those imposed on individuals. The numerical value is then translated into a suitable monetary fine which is then compared to the gross pecuniary gain or loss.

89. Proposed Guidelines, supra note 82, § 8C2.1 (Determining the Fine Guideline Range — Organizations (Option I)). Regardless of how the fine is determined, the percentage adjustments are calculated based on the total fine.

90. GUIDELINES MANUAL, supra note 1, § 5E4.2(c)(3); see supra text accompanying notes 55-57.

91. Proposed Guidelines, supra note 82, § 8C2.1 (Determining the Fine Guideline Range — Organizations (Option II)).

92. Although at first Option II seems to offer stiffer penalties, Option I offers the greatest range of potential liability. The minimum of the guideline fine range provides for 200 percent of the gross loss, gain, or statutory amount while the maximum of the guideline fine range provides for 300 percent of the gross loss, gain, or statutory amount. Thus, while the maximum guideline fine range under Option II has a ceiling of $ 374,000,000, Option I contains no ceiling limits, and, coupled with double or treble damages, may greatly exceed any contemplated Option II damages.

93. See Proposed Guidelines, supra note 82, § 8C2.2 (Determination of the Fine Within the Guideline Range) (policy statement).

94. Id.

95. 602 F.2d 1123; see supra notes 32-40 and accompanying text.

96. Guido and James Frezzo had been charged with a base offense level of six for mishandling environmental pollutants aggravated six levels upward for repeated discharges and further aggravated four levels upward for discharging without a permit. See supra notes 35-38 and accompanying text.

97. Although a court could conceivably apply the 200 percent minimum guideline fine range, for purposes of illustration, the maximum fine range was chosen (particularly since the conduct appears egregious).

98. Proposed Guidelines § 8C3.3 (Reduction of Fine Based on Inability to Pay) allows a court to depart from the strictures of the Proposed Guidelines and impose a fine below what would otherwise be required if the organization is not able to pay the fine or the fine payments would interfere with any restitutionary obligations imposed by the court.

99. The Proposed Guidelines may also provide for an offset equaling any amount of fines imposed on the owners of closely held organizations in their individual capacities. See Proposed Guidelines, supra note 82, § 8C4.1 (Fines Imposed Upon Owners of Closely Held Organizations). Provided Frezzo Brothers, Inc., meets this threshold, any fine assessed against the corporation would be reduced by the amount of the fine assessed against the Frezzo brothers individually. This section acknowledges that the allocation of appropriate punishment may be achieved by offsetting, since many closely held corporations are but alter egos of their owner-managers. Proposed Guidelines, supra note 82, § 8C4.1, application note. The Sentencing Commission has also highlighted for discussion whether a full or partial offset for fines imposed on such owners is appropriate. See id. § 8 (Specific Issues for Comment No. 14).

100. At offense level 20, for instance, Option I imposes a range of $ 600,000 to $ 900,000, while Option II imposes a range of $ 2,100,000 to $ 4,750,000. It should be noted, however, that Option I factors in aggravating or mitigating circumstances after the base offense has been calculated while Option II factors in aggravating or mitigating circumstances as part of the base offense level. So although offense level 20 is used for comparative purposes, it may not necessarily be dealing with the same relevant conduct comprising the offense.

101. Proposed Guidelines, supra note 82, § 8C2.1(d)(1)(A), (B).