White-Collar Federal Sentencing: Is “Intended Loss” Irrelevant?

February 2023

White-Collar Federal Sentencing: Is “Intended Loss” Irrelevant?

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You may also be interested in our article explaining how the sentencing process works in federal court.

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White-collar federal sentences are typically driven by the amount of loss caused by a crime.  To most people’s surprise, however, that “loss” calculation includes “intended loss,”[1]  which is the amount of monetary harm a defendant “sought to inflict,” even if that harm “would have been impossible or unlikely to occur.”[2]  To illustrate, in a case involving fraudulent loan applications, a defendant’s loss amount could include all the loans she applied for, even if every application was denied and she never received a single dollar from her crime.

That rule, however, might be changing.  At the end of November, in a case called United States v. Banks, the Third Circuit rejected the “intended loss” rule and ordered that a defendant be resentenced based only on the “actual loss” he caused, which was $0.[3]  That defendant, Banks, was originally sentenced to nearly nine years in prison based on $324,000 in “intended loss,” but he will now be resentenced based on $0 of actual loss.  The same issue is pending before the Fifth Circuit.[4]

Why is the Rule Changing?

In most white-collar federal cases, the defendant’s Sentencing Guidelines are determined under Guideline 2B1.1, which directs courts to increase a defendant’s offense level based on the amount of “loss” involved.  For example, a $15,000 loss would raise the Guidelines by 2 points, and a loss of $1,500,000 would add 14 points.[5]  The Guideline itself does not define “loss,” but its “commentary” defines it as “the greater of actual loss or intended loss.”[6]

Historically, courts have treated Guideline “commentary,” including the “intended loss” provision, as authoritative in most circumstances.  Under that view, the commentary provides concrete guidance on how to apply the Guidelines, and commentary is “binding on federal courts” unless it clearly contradicts the relevant Guideline.[7]  Recently, however, that view has been changing.

In 2019, the Supreme Court decided Kisor v. Wilkie,[8] which now requires courts to determine if an agency regulation is “genuinely ambiguous” before giving deference to agency rules about how to interpret the regulation.  If a regulation is not ambiguous, courts should give no deference to the agency’s interpretive rules.

Several courts, including the Third Circuit in Banks, have applied Kisor to the Sentencing Guidelines.  Under that view, the Guidelines are regulations, and the Guideline commentary is a list of interpretive rules. As a result, courts should only give deference to a provision of the Guideline commentary if it states a reasonable reading of a genuinely ambiguous Guideline.[9]  In 2B1.1, the word “loss” is not genuinely ambiguous, so the Third Circuit rejected the commentary’s “intended loss” rule as an improper expansion of an unambiguous Guideline.[10]

The Fifth Circuit has not yet applied Kisor to the Guidelines, so Guideline commentary remains binding in this circuit.[11]  But the en banc court recently heard oral argument and appears poised to revisit the issue.[12] Update (7/24/23): In United States v. Vargas, 74 F.4th 673 (5th Cir. 2023) (en banc), the court held that Kisor did not clearly change the law, so the Guideline commentary is still binding unless it clearly contradicts the text of the Guideline.

Looking Ahead

In the meantime, white-collar practitioners should consider arguing that loss amount should be limited to actual, not intended, loss.  That alone could take years off any potential prison sentence.  For example, one defendant’s Sentencing Guideline range would have recommended 9 to 15 months in prison based on actual loss, but the district court imposed a 57‑month sentence after using the amount of intended loss instead.[13] 

This argument could also have broader implications for federal sentencing, and defendants should challenge any Guideline commentary that expands or contradicts the text of an unambiguous Guideline.  For example, under another provision of the commentary to 2B1.1, every stolen credit card or gift card is treated as a $500 loss, even if the defendant never attempted to use the card.[14]  Additionally, the “career offender” Guideline commentary reaches inchoate offenses including conspiracy and attempt, even though the Guideline itself covers over substantive offenses.[15]  Other Guidelines might be open to similar attack.  Ultimately, the Supreme Court may take up the issue, given the still-significant role that the “advisory” Guidelines play in the federal criminal justice system and the already-existing circuit split on the issue. 

[1] USSG § 2B1.1, cmt. n.3(A).

[2] § 2B1.1, cmt. n.3(A)(ii) (emphasis added).

[3] Nos. 19-3812 & 20-2235, 2022 WL 17333797 (3d Cir. Nov. 30, 2022).

[4] US v. Smart, No. 22-20409 (briefing suspended pending en banc decision in US v. Vargas, No. 21-20140).

[5] § 2B1.1(b)(1)(B), (H).

[6] § 2B1.1, cmt. n.3(A) (emphasis added).

[7] E.g., Stinson v. US, 508 U.S. 36 (1993).

[8] 139 S. Ct. 2400 (2019).

[9] See US v. Campbell, 22 F.4th 438 (4th Cir. 2022); US v. Nasir, 17 F.4th 459 (3d Cir. 2021) (en banc); US v. Riccardi, 989 F.3d 476 (6th Cir. 2021); but see US v. Lewis, 963 F.3d 16 (1st Cir. 2020).

[10] Banks, 2022 WL 17333797, *7.

[11] See US v. Lagos, 25 F.4th 329, 335 (5th Cir. 2022) (citing Stinson, 508 U.S. at 38).

[12] Vargas, No. 21-20140 (en banc oral argument held on Jan. 24, 2023).

[13] Smart, No. 22-20409.

[14] The defendant in Smart has also challenged that portion of the commentary.

[15] USSG § 4B1.2.  That is the issue before the en banc court in Vargas.

KHALIL & LAKE is a white-collar litigation boutique focusing on federal criminal law, appeals, and complex investigations in a variety of business sectors. If you have any questions about these issues, or if you would like a copy of any materials mentioned here, please let us know.