This article was originally published in New York Law Journal. Any opinions in this
article are not those of Winston & Strawn or its clients. The
opinions in this article are the authors’ opinions
only.
Victims of corporate misconduct have traditionally relied on
civil litigation to force corporate wrongdoers to make them whole.
While our civil justice system has been an effective vehicle for
compensating victims, that system has drawbacks, including the time
and expense involved in litigating a case to conclusion.
However, when corporate misconduct rises to the level of a
crime, and when that crime results in a federal criminal
conviction, victims have an alternative: an order of restitution as
part of the corporate defendant’s criminal sentence. As
discussed below, victims enjoy several strategic advantages in a
restitution proceeding that they do not in civil litigation.
In addition, the time and expense for a victim to pursue a
restitution application are generally a fraction of what would be
required to litigate a claim. Attractive as the option of a
restitution claim may be, pursuing a restitution claim remains a
relatively underutilized alternative, likely because victims’
rights to restitution, and the procedures for obtaining restitution
through the federal criminal justice system, are not widely
understood (or at least not as well understood as the procedures
for filing and litigating a civil complaint).
This article first explains those restitution rights and the
procedures for vindicating them and then discusses the advantages
that a restitution application offers. In particular, it begins by
outlining the statutory framework for seeking restitution in a
criminal proceeding and the common issues that arise within that
framework.
The article then explains how the restitution process works in
practice and highlights several cases that illustrate the
importance of a victim’s ability to claim restitution on the
victim’s own behalf.
Finally, the article discusses a number of advantages of
asserting a claim for restitution over filing a civil
complaint.
STATUTORY FRAMEWORK FOR SEEKING RESTITUTION IN A CRIMINAL
PROCEEDING
The statutory framework for seeking restitution has both
substantive and procedural components. A victim’s substantive
right to restitution can be found in either the Mandatory Victims
Restitution Act (MVRA), 18 U.S.C. §3663A, or the Victim and
Witness Protection Act (VWPA), 18 U.S.C. §3663. The Crime
Victims’ Rights Act (CVRA), 18 U.S.C. §3771, which is
implemented by the Federal Rules of Criminal Procedure (Fed. R. Cr.
P.), provides victims with procedural mechanisms to vindicate their
substantive rights.
Altogether, this framework gives victims a roadmap for when and
how to assert restitution claims in criminal proceedings.
MVRA: The MVRA requires that a court
order restitution payments to victims of specified crimes without
consideration of the defendant’s economic circumstances. 18
U.S.C. §3663A(a)(1) (“Notwithstanding any other provision
of law, when sentencing a defendant convicted of an offense
described in subsection (c), the court shall order, in addition to,
or in the case of a misdemeanor, in addition to or in lieu of, any
other penalty authorized by law, that the defendant make
restitution to the victim of the offense or, if the victim is
deceased, to the victim’s estate.”).
There are three primary considerations to determine whether a
crime victim qualifies for restitution under the MVRA: (1) whether
the defendant committed a qualifying offense; (2) whether the crime
victim is a “victim,” as defined in the MVRA; and (3)
whether the crime victim has suffered physical injury or pecuniary
loss. 18 U.S.C. § 3663A(a)(1), (c)(1)(A), (c)(1)(B));
United States v. Archer, 671 F.3d 149, 169 (2d Cir.
2011).
As to the first issue, the MVRA sets forth the types of offenses
which trigger a restitution obligation: (1) crimes of violence as
defined in 18 U.S.C. § 16; (2) offenses against property under
Title 18 or under section 416 of the Controlled Substances Act,
including any offense committed by fraud or deceit; (3) offenses
described in section 3 of the Rodchenkov Anti-Doping Act of 2019;
(4) offenses described in 18 U.S.C. §1365 (relating to
tampering with consumer products); and (5) offenses under 18 U.S.C.
§670 (relating to the theft of medical products). 18 U.S.C.
§ 3663A(c)(1)(A).
As to the second issue, the MVRA broadly defines
“victim” to mean “a person directly and proximately
harmed as a result of the commission of an offense for which
restitution may be ordered including, in the case of an offense
that involves as an element a scheme, conspiracy, or pattern of
criminal activity, any person directly harmed by the
defendant’s criminal conduct in the course of the scheme,
conspiracy, or pattern.” 18 U.S.C. § 3663A(a)(2); see
also United States v. Marsh, No. 10-cr-0480, 2011 WL 5325410,
at *14 (E.D.N.Y. Oct. 26, 2011) (“A crime is the proximate
cause of victims’ losses where the nature of the scheme makes
those losses reasonably foreseeable.”).
Although this definition is broad, whether a person qualifies as
a victim under the MVRA is often contested and may ultimately be a
reason the court denies a victim’s restitution request,
particularly if that request is not supported by the government.
Compare, e.g., United States v. Dharia, 284 F.
Supp. 3d 262 (E.D.N.Y. 2018) (intervenors were not
“victims” under the MVRA because they could not
demonstrate direct harm resulting from the criminal conduct),
with U.S. v. Martin, 803 F.3d 581, 594 (11th Cir.
2015) (affirming district court’s decision to treat successor
lenders as victims of mortgage fraud because it was “entirely
foreseeable to [Defendant] not only that the original lenders would
rely on the fraudulent applications, but that the mortgages would
be resold to other lenders that would rely on the applications as
well”), and United States v. Boeing Co., No.
21-cr-5-O, 2022 WL 13829875, at *9 (N.D. Tex. Oct. 21, 2022)
(concluding that the “tragic loss of life that resulted from
the two airplane crashes was a reasonably foreseeable consequence
of Boeing’s conspiracy to defraud the United States”).
Third, with respect to loss, a victim of a qualifying offense
must be able to demonstrate actual losses. United States v.
Rivernider, No. 10-cr-222, 2014 WL 12692296, at *2 (D. Conn.
Nov. 25, 2014). To satisfy this requirement, the victim must set
forth “‘[a] reasonable approximation of losses supported
by a sound methodology.'” (Quoting United States v.
Gushlak, 728 F.3d 184, 196 (2d Cir. 2013)). This, too, can be
a controversial aspect of a restitution claim, as loss calculations
may be complicated, and there may be other “victims” in
the chain of causation, making it difficult to determine who bore
what losses.
Finally, there are two caveats to the MVRA that apply when
certain offenses are at issue: in the case of an offense against
property or an offense under the Anti-Doping Act, the MVRA does not
apply if the court finds that (i) “the number of identifiable
victims is so large as to make restitution impracticable,” or
(ii) “determining complex issues of fact related to the cause
or amount of the victim’s losses would complicate or prolong
the sentencing process to a degree that the need to provide
restitution to any victim is outweighed by the burden on the
sentencing process.” 18 U.S.C. §3663A(c)(3)(B); Fed.
Ins. Co. v. U.S., 882 F.3d 348, 366 (2d Cir. 2018) (“A
victim’s right to restitution is not absolute: even the MVRA,
the very name of which conveys that restitution is mandatory,
recognizes that restitution need not be imposed if the court finds
that correctly calculating or apportioning restitution would be
impractical or would unduly prolong the sentencing
process.”).
VWPA: The VWPA provides a
discretionary alternative to the MVRA. The VWPA applies to a wider
range of offenses, but many of the other requirements of the MVRA
still apply.
CVRA and the Fed. R.
Cr. P: The CVRA guarantees victims the right to inter
alia, notice of criminal proceedings, information, the right
to confer with the government, and “full and timely
restitution as provided in law.” 18 U.S.C. § 3771(a)(6).
As the U.S. Court of Appeals for the Second Circuit has explained,
“the CVRA confers standing on victims to seek restitution on
their own behalf, rather than relegating them to bystander status
while the government decides, for its own reasons and pursuant to
its own strategy, whether, for whom, and in what amount to seek
restitution.” Fed. Ins., 882 F.3d at 359.
The CVRA further imposes obligations on both the court and the
government to ensure that a crime victim is afforded their rights
under the CVRA, including the right to restitution. 18 U.S.C.
§ 3771(b), (c)(1).
Fed. R. Cr. P. 60 (Victim’s Rights) implements the
procedural protections of the CVRA and similarly mandates that a
victim is entitled to timely notice of criminal proceedings, to
attend the proceedings, and to be heard at those proceedings. Fed.
R. Cr. P. 60(a). Rule 60 also states that the rights provided under
the rule can be asserted by a victim, a victim’s representative
or an attorney for the government in the district where the
defendant is being prosecuted.
Fed. R. Cr. P. 32(i)(4)(B) (Sentencing and Judgment) further
implements the CVRA by requiring the court to address any victim
who is present at sentencing and to “permit the victim to be
reasonably heard.”
ASSERTING RESTITUTION CLAIMS: ENGAGING WITH THE GOVERNMENT
The CVRA imposes an obligation on federal prosecutors to
“make their best efforts to see that crime victims are
notified of, and accorded, the rights described in [the
CVRA],” and provides victims with a right to “confer with
the attorney for the Government in the case.” 18 U.S.C.
§3771(c)(1), (a)(5).
In addition, recently updated Department of Justice Guidelines
require department personnel to make their best efforts to provide
victims with the rights set forth in the CVRA “as early in the
criminal justice process as is feasible and appropriate, including
prior to the execution of a non-prosecution agreement, deferred
prosecution agreement, pretrial diversion agreement, or plea
agreement.” U.S. Dep’t of Just., 2022 Attorney General
Guidelines for Victim and Witness Assistance.
Victims should take advantage of these protections and should
engage with the government early and often regarding their
potential entitlement to restitution. Although the government
should—and in many cases will—initiate such contact and
keep victims apprised of case developments, victims should be
proactive about initiating these conversations if the government
has not. Engaging the government early will ensure that the victim
is top-of-mind before important developments occur that
may implicate a victim’s right to restitution—for
example, the negotiation of a plea agreement.
Early engagement is particularly important in situations where
the government may disagree with a victim’s entitlement to
restitution. For example, the government may dispute whether the
claimed victim was directly and proximately harmed by the
defendant’s conduct or otherwise qualifies for restitution
under the MVRA.
Alternatively, the government may take the position that
calculating the victim’s actual losses is too complex such that
the work required to formulate a restitution order would unduly
“complicate or prolong the sentencing process.”
See 18 U.S.C. § 3663A(c)(3)(B).
Although victims theoretically have the same rights to assert
claims for restitution after a plea agreement has been negotiated
and presented to the court for approval, in practice it may be much
more difficult for a victim to do so at that point.
In particular, if the government has already entered into a plea
agreement with a defendant that does not call for restitution, the
prosecutors may have an incentive to resist any potential
modification, such as the imposition of restitution, which might
derail a carefully negotiated resolution. In that circumstance, a
victim might well find its restitution application opposed not just
by the defendant but by the government as well.
On the other hand, a victim that engages with the government
before a plea agreement is finalized has an opportunity to persuade
the prosecutors that restitution is appropriate, and, if
successful, the government can use its leverage in plea
negotiations to convince the defendant to agree to restitution as
part of the resolution.
In sum, the best-case scenario is that a victim engages with the
government early, and the government advocates for a restitution
award on the victim’s behalf. However, regardless of the
government’s position, the CVRA provides victims with a right
to appear in the criminal case and to request restitution. Several
recent cases illustrate that process.
ASSERTING RESTITUTION CLAIMS: GOING TO COURT
United States v. OZ Africa Mgmt. GP
First, in United States v. OZ Africa Management,
16-00515 (E.D.N.Y. 2016), an alternative investment and hedge fund
manager, Och-Ziff Capital Management Group LLC, and its wholly
owned subsidiary, OZ Africa Management GP LLC, pleaded guilty to
one count of conspiracy to bribe officials in the Democratic
Republic of Congo and Libya to secure natural resources deals and
other investments, in violation of the Foreign Corrupt Practices
Act.
The bribery scheme caused investors (former shareholders of
mining company Africo Resources Ltd.) to lose mining rights in an
African mine. The plea agreement provided that “any fine or
restitution imposed by the Court will be due and payable within ten
(10) business days of sentencing,” but otherwise was silent as
to who, if anyone, was entitled to restitution and in what
amount(s). OZ Africa Mgmt. GP 16-00515 (Docket Entry No.
11 ¶ 12).
Two weeks before the defendant was scheduled to be sentenced,
approximately 50 shareholders in Africo filed a motion requesting
confirmation of victim status and an award of restitution pursuant
to the MVRA. (Docket Entry No. 26). The government opposed the
shareholders’ request for restitution, arguing that the
shareholders had not shown direct or proximate causation of
quantifiable harm from defendant’s conduct specifically, and
that the shareholders’ damages were too speculative to merit a
restitution award. (Docket Entry No. 39 at 13–15).
The court ultimately sided with the shareholders, deeming them
victims under the MVRA and later awarding them over $135 million in
restitution. (Docket Entry No. 110 at 1).
United States v. Glencore (Glencore I)
More recently, in United States v. Glencore, 22-00071
(D. Conn. 2022) (Glencore I), defendant Glencore Ltd.
admitted to engaging in a scheme to commit commodity price
manipulation, in violation of 18 U.S.C. §371, by fraudulently
manipulating the price of certain fuel oil benchmark prices.
As set forth in the plea agreement between Glencore and the
government, Glencore’s manipulation either fraudulently lowered
the cost of fuel oil that Glencore purchased from, or fraudulently
raised the cost of fuel oil that Glencore sold to “Trading
Firm A.” Glencore I (Docket Entry No. 18, Attachment
A ¶¶ 7–9). The government and the defendant further
agreed, however, that “the amount of loss resulting from the
offense c[ould] not be reasonably determined, and thus the parties
believe[d] there [wa]s no basis for an order of restitution.”
(Docket Entry No. 18 ¶ 21(e)).
Prior to sentencing, P.M.I. Trading Designated Activity Company
(PMI) and its parent company Petróleos Mexicanos (PEMEX)
appeared in the action identifying PMI as “Trading Firm
A” and requesting an opportunity to be heard on the issue of
restitution pursuant to the CVRA and MVRA. (Docket Entry No. 26)
(The authors were counsel for PMI and PEMEX in this proceeding).
The court adjourned Glencore’s sentencing to give PMI and PEMEX
an opportunity to be heard on the issue of restitution. (Docket
Entry Nos. 28 & 29).
Before any briefing was submitted, Glencore and Pemex/PMI
reached a confidential settlement agreement that resolved the
restitution claims. (Docket Entry No. 58).
United States v. Glencore (“Glencore
II”)
Finally, in a related case filed against Glencore involving
bribery and market manipulation allegations, potential victims of
the scheme appeared in the action to seek restitution on their own
behalf. See United States v. Glencore Int’l A.G.,
22-0297 (S.D.N.Y. 2022) (“Glencore II“). In
response, Glencore acknowledged that the victims were harmed by its
crime and stated that it was “prepared to pay
restitution,” but disputed the amount of loss claimed by the
victims. Glencore II (Docket Entry No. 25 at 1, 6).
The government did not oppose an award of restitution to the
victims, but took “no position on the amount of direct and
proximate loss suffered by Claimants resulting from Glencore’s
bribe,” claiming that all of the relevant evidence belongs to
defendants and the claimants. (Docket Entry No. 28 at 2).
The court resolved the restitution request on Feb. 27,
2023—one day before Glencore’s sentencing. The court
awarded the victims $29,691,165 in restitution and prejudgment
interest at a rate of over 5%. (Docket Entry No. 38).
In each of these cases, the government failed to initiate or
pursue restitution claims for the victims. Yet the CVRA enabled the
victims to seek restitution on their own behalf, leading to a
restitution award in Och-Ziff and Glencore II and
a settlement in Glencore I.
ADVANTAGES OF RESTITUTION OVER CIVIL LITIGATION
As the cases discussed herein demonstrate, there are a number of
advantages to pursuing restitution in a criminal case rather than
relying on separate civil proceedings to make a victim whole.
To start, victims have a strategic advantage at a sentencing
proceeding in a criminal case because the defendant has already
been found guilty of (and in some cases pled guilty to) the
challenged conduct. Thus, a victim does not have the burden of
proving that the defendant committed the offense.
Moreover, in a case where the defendant has pled guilty, the
defendant will almost always be seeking credit at sentencing for
having accepted responsibility for its actions. However, one of the
customary indicators of whether a defendant has fully accepted
responsibility is whether that defendant has taken steps to make
amends for its wrongdoing, most importantly by making its victims
whole (at least where the defendant has the financial resources to
do so).
Indeed, the Sentencing Guidelines specifically reference the
voluntary payment of restitution as a factor for the court to
consider in determining whether a downward adjustment for
acceptance of responsibility is appropriate. See, e.g.,
Application Note 1 to U.S.S.G. § 3E1.1 (listing
“voluntary payment of restitution prior to adjudication of
guilt” as a factor for courts to consider in determining
whether an individual defendant qualifies for a reduction for
acceptance of responsibility).
Victims’ rights include the right to be heard at sentencing
generally, and, thus, victims have the right to object to a request
for such a downward adjustment (or, indeed, to any request for
leniency) on the basis of a defendant’s failure to make
voluntary restitution. See 18 U.S.C. § 3771(a)(4);
Fed. R. Civ. P. 60(a)(3). Because most defendants who have pled
guilty will want to avoid victims’ presentations of such
arguments at sentencing, victims have considerable leverage to
induce pleading defendants to provide restitution voluntarily.
Second, resolution of restitution claims in a criminal
proceeding typically occurs within a relatively quick time frame.
For example, in Glencore I, only a few months elapsed
between the time Glencore entered into its plea agreement (in May
2022) and the time of the settlement (in August 2022).
Third, and relatedly, the burden and cost of submitting a
request for restitution are less than those associated with
bringing a civil litigation. This is attributable, in part, to the
relatively quick timeframe of restitution proceedings and, in part,
to the fact that the victim need not engage in lengthy discovery
and motion practice to prove a defendant’s guilt. While there
still are expenses associated with asserting a restitution claim,
including those associated with proving victim status and loss
amount, those burdens and costs are substantially lower than those
involved in a civil litigation.
Fourth, there may be a number of technical defenses available to
a defendant in a civil litigation that are not applicable in the
restitution context. For example, although defendants in civil
litigation may be able to defeat claims on jurisdictional grounds
or on the basis of the applicable statute of limitations, no
similar rules preclude claims for restitution under the CVRA and
MVRA for a defendant who has been convicted of a crime.
Finally, pursuant to the CVRA, victims are entitled to full and
“timely” restitution. And when such awards are ordered as
part of a judgment in a criminal case, there is often a quick
payment. For example, in OZ Africa Mgmt. GP, the
restitution award was due “immediately and in full.”
OZ Africa Mgmt. GP, 16-00515 (Docket Entry No. 110).
Similarly, in Glencore II, the court ordered that the
restitution be paid to the clerk of court 10 days after sentencing.
Glencore II (Docket Entry No. 39).
CONCLUSION
In sum, the CVRA provides crime victims with an important
procedural tool to vindicate their rights to restitution—it
allows crimes victims to advocate for themselves, even when the
government does not, and provides them with a cost-efficient and
timely way to be made whole.
Reprinted with permission from the September 8, 2023 edition of
New York Law Journal © 2023 ALM Media Properties,
LLC. All rights reserved. Further duplication without permission is
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