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Third Circuit Rejects A Sentencing Guidelines Calculation For Economic Crimes Based On “Intended Loss”

On Wednesday, November 30, 2022, the United States Court of Appeals for the Third Circuit decided United States v. Banks, Case Nos. 19-3812 & 20-2235 (3d Cir. Nov. 30, 2022), a significant case in which the court, sitting en banc, held that calculation of the advisory sentence under United States Sentencing Guidelines (USSG) § 2B1.1—which applies, inter alia, to “larceny, embezzlement, and other forms of theft”—should not include “intended loss” as described in an “Application Note” appended by the United States Sentencing Commission.

The defendant in Banks was convicted of wire fraud (among other offenses) related to a scheme to defraud a foreign currency exchange business, Gain Capital Group (Gain Capital). Banks opened accounts at Gain Capital, into which he wired funds drawn on bank accounts that held insufficient funds and then attempted to withdraw from Gain Capital the full sum of the purportedly wired funds. Gain Capital, however, in the Third Circuit’s words, “did not transfer a single dollar to Banks” and “suffered no actual loss.”

Nevertheless, the district court at sentencing determined Banks was responsible for an “intended loss” of $324,000, based on the total of his fraudulent deposits at Gain Capital. This increased the advisory USSG sentencing level by 12 points, from a base offense level of 7 (carrying an advisory sentence range of 0-6 months imprisonment) to an offense level of 19 (which carries an advisory imprisonment range of 30-37 months).  The district court justified increasing a potential non-prison sentence to a potential three years’ incarceration by relying on USSG § 2B.1.1, Application Note 3(A), which provides, in relevant part, that “loss is the greater of actual loss or intended loss”  and defines “intended loss” as “the pecuniary harm that the defendant purposely sought to inflict,” including “pecuniary harm that would have been impossible or unlikely to occur.” Id. § 3(A)(ii).

On appeal, the Third Circuit held that where the U.S. Sentencing Commission’s commentary “sweeps more broadly than the plain language of the guideline it interprets,” a court need not defer to the Commission. The Court relied in part on a U.S. Supreme Court decision from three years ago, which the Third Circuit interpreted to mean that a government agency’s interpretation of its own regulation is only relevant if it clarifies a genuine ambiguity in the regulation. United States v. Kisor, __ U.S. __, 139 S. Ct. 2400, 2415-18 (2019). That USSG § 2B1.1 itself does not mention “actual” versus “intended” loss  renders the Guideline unambiguous and “indicates that the Guideline does not include intended loss,” since the ordinary meaning of “loss” (as defined in various dictionaries) is “actual loss.” As a result, the Third Circuit concluded that “in the context of a sentence enhancement for basic economic offenses, the ordinary meaning of the word ‘loss’ is the loss the victim actually suffered.”

Under this court’s reasoning, white-collar defendants and others charged with non-tax economic crimes should not face the greatly inflated USSG advisory sentences when their crimes caused little or no actual financial harm to a victim.

Will The Reasoning Of Banks Expand To Include Tax Offenses?

Hopefully, the spirit underlying Banks will be applied to tax offenses. The government will likely continue to seek harsh sentences in such cases, arguing that Banks’ reasoning is not directly on point. The government may say that, in contrast to USSG § 2B1.1, Application Note 3(A) at issue in Banks, the Guideline that applies to tax offenses, USSG § 2T1.1, includes in the Guideline itself (rather than in a nonbinding Application Note) a “special instruction” that, “If the offense involved tax evasion or a fraudulent or false return, statement, or other document, the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed)” (emphasis added). The government may look to prior cases, including a non-precedential decision from the Third Circuit itself, where the court wrote that “‘tax loss’ is the amount of loss the defendant intends to bring about, not the amount of loss to the government that actually results.” United States v. Miller, 595 Fed. Appx. 166, 169 (3d Cir. 2014) (non-precedential op.) (emphasis added) (citation omitted).

It is possible, however, that Banks will have a broader impact and lead to more reasonable sentences. Despite the regulation vs. agency interpretation analysis in Kisor and Banks, there is, however, no denying that the description of intended loss in USSG § 2B1.1, Application Note 3(A) is nearly identical to that in USSG 2T1.1’s “special instruction.” There is no equitable reason why a tax defendant who does not, in fact, deprive the government of tax should face a sentence exponentially greater than a defendant who is guilty of an unsuccessful wire fraud or larceny. After Banks, courts may be more inclined to avoid calculating tax loss based on a hypothetical amount of tax that would have been due if a defendant’s failed tax scheme had been successful.