Impact of United States v. Banks: Using “Actual” Loss Instead of “Intended” Loss

Wooden brown judge gavel on the table, copy space, - Intended loss concept

The United States Sentencing Guidelines provide courts with a framework for sentencing criminal defendants. In cases involving allegations of financial conduct and economic losses, the Guidelines place a heavy emphasis on the amount of loss as a primary driver of the sentence.

Under §2B1.1, which addresses “Larceny, Embezzlement, and Other Forms of Theft,” loss is defined in the Commentary to the Guideline, as the greater of intended loss or actual loss.

Third Circuit States that “Ordinary Meaning of Loss…Is Actual Loss”

But, the Third Circuit Court of Appeals, in U.S.A. v. Banks, ruled that courts should use actual loss, and not intended loss, when sentencing defendants for economic crimes. The decision represents a significant victory for white-collar criminal defendants. In the wake of the Banks decision, defendants will be sentenced according to the actual harm they caused, rather than according to the prosecution’s inflated notions of what their “intent” was.

The Impact of Banks on Other Sentencing Decisions

The Third Circuit’s ruling also stated that to the extent that the Commentary expands the Sentencing Guidelines, the Commentary must be afforded no weight. In rendering the decision, the Court quoted, a prior case of U.S.A. v. Nasir,“ that, similarly, stated: If the Sentencing Commission’s commentary sweeps more broadly than the plain language of the guideline it interprets, we must not reflexively defer.” Applying this rationale to a lower court’s interpretation of the Federal Sentencing Guideline, the court stated “The ordinary meaning of ‘loss’ in the context of §2B1.1 is ‘actual loss.”

Thus, the Third Circuit’s reasoning in Banks gives the defense the opportunity to challenge the long-standing practice of deferring to the Commentary in other criminal cases. Even though Banks involved the interpretation of the amount of loss in cases of fraud, defendants can argue for lower sentences where the government seeks higher sentences based upon Commentary to the Sentencing Guidelines.

Applying Banks to Sentencing in Cases Alleging Financial Crimes

The Banks decision will have a significant impact on federal sentencing for financial crimes. Consider the following federal financial crimes and how sentencing decisions will play out when applying the court’s rationale in Banks.

Identity Theft

In cases involving allegations of identity theft and fraud related to the use of access devices and unauthorized use of a computer, the government calculates sentencing recommendations based on the number of credit card numbers found in the defendant’s possession and multiples that number times $500 (Federal Sentencing Guidelines §2B1 cmt. n. 3(F)(i)).

For example, in USA v. Diarra, (E.D. Pa.) No. 19-392, the government sought to sentence the defendant based on a $106,807,634 intended loss. But the defendant was sentenced based on a mere $66,000 of actual loss.

Copyright, Trade Secret, and Trademark Infringement

In cases involving alleged copyright, trade secret, and trademark infringement under 17 USC §506(a)(1)(A) and 18 USC §§1832, 2319(b)(1), the government applies §2B5.3 cmt. n. 2(A) and seeks to calculate the sentence as the retail value of the item times the number of items. In USA v. Gonzalez, (E.D. Pa.) No. 21-367, the government sought to sentence the defendant based on an intended loss of $167,817,004.60.

But because the language of §2B5.3(b)(1) refers to §2B1.1, the defense argued that the Commentary should not apply and stipulated to a loss of $4,000,000, which resulted in a significantly lesser sentence.

Medicare Anti-Kickback, and Healthcare Fraud

In cases alleging Medicare fraud or healthcare fraud, the government regularly claims that the sentence should be calculated on the total amount paid by Medicare. But under Banks, that value should be calculated as the net value, calculated as the gross receipts less the cost of goods, overhead, et cetera. A defendant can successfully petition for a lower sentence by arguing that the government’s position overstates the seriousness of the offense or the actual net loss.

Securities Fraud

In cases of securities fraud, the government often seeks to sentence defendants based on trades that were contemplated but never completed. The prosecution then uses these contemplated trades when calculating the intended loss using the number of shares discussed by co-conspirators and all of the outstanding shares issued at the desired price. This calculation, of course, results in a massive number and the potential for a very severe sentence.

But after Banks, the court should consider completed trades only.

Wire Fraud, Mail Fraud, and Bank Fraud

In cases alleging fraud involving wire fraud, mail fraud, PPP loan fraud, and EIDL loan fraud, the government regularly claims that the amount of loss should be calculated as the total amount of loan proceeds. But under Banks, the sentence should be calculated based only on loan amounts the defendant obtained as a direct result of the fraud, and any loan amounts the defendant would have otherwise received should be subtracted from the amount of loss.

Similarly, in cases alleging welfare fraud, the government will claim that a defendant should be sentenced based on the total amount of benefits paid. But applying Banks, the loss amount would be reduced by the amount of benefits the defendant would have received elsewhere and result in no actual loss to the government.

Contact Hope Lefeber for Aggressive and Experienced Federal Criminal Defense

Applying the Federal Sentencing Guidelines to a criminal case is complex and nuanced. Seemingly trivial details can have a significant impact when calculating the amount of loss on which a defendant will be sentenced. The Third Circuit’s decision in Banks is a massive victory for defendants. But for this decision to have its intended effect, you must work with a skilled and experienced federal criminal defense attorney who understands the subtleties of federal criminal sentencing and can use the decision for maximum benefit to argue for a reduction in your sentence.

Federal criminal defense attorney Hope Lefeber has been defending people accused of crimes in federal court for more than 30 years. She began her career as an enforcement attorney for the United States Securities & Exchange Commission (SEC). Today, she uses that experience to defend people facing white-collar criminal charges in federal court.

To put Ms. Lefeber’s expertise to work for you, contact us today to schedule a confidential consultation to discuss your case.