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United States v. Banks – Third Circuit Rejects USSG’s “Intended Loss” Concept

Posted by Brian Ketcham | Nov 30, 2022 | 0 Comments

Earlier today (Nov. 30, 2022), the Court of Appeals for the Third Circuit issued a precedential opinion that invalidates the “intended loss” provision described in the Application Notes to Section 2B1.1 of the U.S. Sentencing Guidelines.  See United States v. Banks, Case Nos. 19-3812 & 20-2235 (3d Cir. Nov. 30, 2022).  The Third Circuit's sound reasoning should be adopted by other Circuits and, if it is, many defendants charged with economic crimes may face substantially less prison time exposure.  Further, the Third Circuit's reasoning should also be applied to a similar provision in the Guidelines applicable to criminal tax offenses, where a defendant's prison exposure is also directly tied to the amount of “loss” at issue in the case. 

The defendant in Banks was charged with several offenses, including wire fraud, related to a scheme to defraud a financial company (FOREX.com) that facilitates investments in the foreign currency exchange market.  The scheme was relatively simple: the defendant opened accounts, deposited funds into the accounts, and then attempted to withdraw larger amounts from the accounts before FOREX detected that the accounts contained insufficient funds to cover the withdrawals.  In furtherance of the scheme, the defendant made numerous false statements about his identity, income, job, net worth, and bank balances.  Critically, however, FOREX actually lost nothing as a result of the defendant's scheme because it “did not transfer a single dollar to [the defendant].”  The defendant was convicted after a jury trial.  

At sentencing, the Court determined that the defendant was responsible for an “intended loss” of $324,000 based on the total amount of fraudulent deposits he had made.  That amount triggered a massive 12-point increase in the applicable Sentencing Guidelines.  In practical terms, even though FOREX lost no money, the defendant was punished as though it had and, instead of facing a base offense level 7 (which carries an advisory imprisonment range of just 0-6 months), he faced an adjusted offense level of 19 (which carries an advisory imprisonment range of 30-37 months).  The sentencing court's analysis relied exclusively on Application Note 3 to Sec. 2B1.1, which sets out a “general rule” that “loss is the greater of actual loss or intended loss.” 

The defendant raised numerous issues on appeal.  This post is limited to the Court's analysis of Section 2B1.1's meaning of “loss” as applied to sentencing determinations for economic crimes.  In its opinion, the Court noted that under recent Supreme Court decisions it would not simply defer to the U.S. Sentencing Commission's interpretation of the term “loss,” but would instead conduct an independent analysis of the term considering the “text, structure, history, and purpose” of Sec. 2B1.1.  In so doing, the Court observed that Sec. 2B1.1 itself does not mention separate descriptions of “actual loss” or “intended loss,” and that the concept of intended loss appears only in the commentary to Sec. 2B1.1 (i.e., Application Note 3).

The Court next analyzed different definitions of the term “loss” that appear in dictionaries and noted that the Sixth Circuit had conducted a similar analysis of what “loss” ordinarily means in United States v. Riccardi, a case that was decided last year.  The Court then determined that no definition of “loss” suggested that its ordinary meaning includes “intended loss.”  Accordingly, the Court concluded that the commentary to Application Note 3 should be given no weight and held that, in the context of sentencing enhancements under 2B1.1 based on economic losses, “the ordinary meaning of the word ‘loss' is the loss the victim actually suffered.” 

As noted above, should the Third Circuit's reasoning in Banks be adopted by other Circuits, or if its opinion is challenged and affirmed by the Supreme Court, it will benefit many white-collar defendants (and others charged with economic crimes), who often face extraordinarily high Guidelines exposure, even where the actual crime at issue may have resulted in little or no actual financial harm to a victim.

An interesting side question is what effect, if any, Banks may have on the similar Guidelines for tax offenses.  Those crimes are covered by Sec. 2T1.1.  That section does not have an Application Note similar to Application Note 3 under Sec. 2B1.1.  That said, Sec. 2T1.1 itself contains a “special instruction” instructing Courts that in most criminal tax cases “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).  Of course, a key difference is the fact that this instruction appears in Sec. 2T1.1 itself, while the “intended loss” instruction the Court disregarded in Banks appears in just the Application Notes to Sec. 2B1.1.  That said, it is hard to deny that these provisions are nearly identical and, if the intended loss concept should be ignored by Courts so, too, should a hypothetical tax loss that may have resulted if a tax scheme worked as a defendant intended. 

The opinion can be found here:

https://www2.ca3.uscourts.gov/opinarch/193812p.pdf

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