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| Lloyd Liu |
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| Hilary LoCicero |
The prosecutors' novel theory of the case — that the defendant was criminally responsible for convincing banks to unwittingly process cannabis-related transactions — colored the case from start to finish.
During the sentencing phase in August, U.S. District Judge Jed Rakoff of the Southern District of New York refused to treat the entire $156 million in transactions facilitated by the defendant as the relevant loss.
This decision is notable because it highlights from a unique angle the way that U.S. sentencing laws place an outsized emphasis on financial elements of criminal activity even when they have a tenuous relationship with a defendant's criminal intent.
Hamid "Ray" Akhavan was convicted in March 2021 on one count of conspiracy to commit bank fraud. Akhavan was charged with deceiving banks so that they would process $156 million or so in payments to marijuana retailers, despite the fact that the banks had internal compliance policies that forbade such services. There was no allegation that Akhavan had obtained any of the processed funds himself; he was simply a middleman.
In advance of sentencing, the parties extensively briefed the issue of loss under U.S. Sentencing Guidelines Section 2B1.1, which was complicated by the fact that no party had actually lost any money as a result of the transactions. Because of that unusual posture, Judge Rakoff directed the parties to provide briefing on the impact of Section 2B1.1, Note 3(b), which provides that "[t]he court shall use the gain that resulted from the offense as an alternative measure of loss only if there is a loss but it reasonably cannot be determined."[1]
The government argued that the entire $156 million the banks had been "tricked into releasing" was a reasonably determinable loss amount and should be used in the guidelines calculation, and thus, that it was not necessary to calculate the defendant's gain.[2] The government adopted a fallback position that, because Akhavan had gained at least $17 million in processing fees through the criminal scheme, that figure also could be deemed the loss amount.[3]
Counsel for Akhavan urged the court to conclude that, because there was no loss whatsoever, Comment 3(b) to Section 2B1.1, which directed the court to consider gain only if there is a loss was not applicable.[4]
Ultimately, Judge Rakoff imposed a sentence of 30 months incarceration, after finding that there was, in fact, no loss that had resulted from Akhavan's conduct. At sentencing, Judge Rakoff observed, "It appears to me that there's never been a case where the guidelines were more irrational, silly and ridiculous than in this case."[5]
The government's arguments about how the loss amount should be calculated under Section 2B1.1 nevertheless carried over to its position on forfeiture. The government sought the entire $156 million in forfeiture or, alternatively, the $17 million in fees that Akhavan had received. Akhavan argued that forfeiture could not be ordered because he had not obtained any of the money in question, as is required under the forfeiture laws, and that a forfeiture order would violate the Eighth Amendment's prohibition against excessive fines.[6]
Judge Rakoff found that the government sufficiently established that Akhavan had obtained $17 million for purposes of forfeiture under Title 18 of the U.S. Code, Section 982(a)(2).[7] He concluded, however, that a forfeiture of $17 million would constitute an excessive fine in violation of the Eighth Amendment and reduced the amount to approximately $100,000.
Relying on the U.S. Supreme Court's 1998 decision in U.S. v. Bajakajian, Judge Rakoff concluded that a fine of $17 million would be "grossly disproportional to the gravity of [Akhavan's] offense." The court explained its reasoning as follows:
As laid out above, there was no articulable loss to any party as a result of Akhavan's crime and a $17 million forfeiture order is seventeen times the maximum fine and 170 times the actual fine imposed in this case.[8]
This outcome makes sense both practically and equitably. It would be difficult to reconcile a conclusion that Akhavan's term of incarceration should be determined based on a loss amount far less than the $17 million, and yet he should be subject to forfeiture in that amount.
Judge Rakoff's analysis may be useful precedent for defense counsel in future white collar prosecutions, even after accounting for the unique facts of Akhavan's case.[9] Loss amounts play, by far, the largest part in calculating recommended sentences in federal criminal cases involving fraud and property crimes.
While most white collar criminal cases involve some loss as a result of the criminal conduct, there is an important subset of cases that result in defendants being held accountable for loss amounts greatly disproportionate to their culpability. Cases in which defendants are charged and convicted of criminal conspiracy despite playing a minor role in the events at issue, are commonplace and not far removed from the facts of Akhavan.
These cases have been a deep source of frustration for defense lawyers who represent lesser offenders in conspiracy cases yet must defend against the possibility of an enormous loss amount.[10] Judge Rakoff's decision begs the question: If a sentence in Akhavan based on a $17 million loss amount was so untethered to the defendant's conduct as to be unsupportable — and unconstitutional, as concerns forfeiture — is it not equally unfair to adopt such an expansive view in conspiracy cases?
Section 2B1.1 of the Sentencing Guidelines has been the subject of debate — and derision — for decades, for this reason and others. As Barry Boss and Kara Kapp note in "How the Economic Loss Guideline Lost its Way, and How to Save It"[11]:
The current loss table is ... a poor proxy for relative culpability in many cases. For example, the loss calculation fails to account for the extent to which the offender personally profited from the offense. Indeed, each offender is responsible for the total reasonably foreseeable loss attributable to all co-defendants, regardless of how much each offender personally profited from that amount.[12]
The facts of Akhavan illustrate this conundrum.
There already has been significant judicial pushback against the unjustified impact of Section 2B1.1. Courts depart or vary below the guidelines in the majority of cases to which Section 2B1.1 applies.[13]
However, the government and presentence report writers still adhere closely to Section 2B1.1, as was the case in Akhavan. And, troublingly, the pushback is not consistent throughout the U.S. While Boss and Kapp note that from 2015 through 2019, "more than 50 percent of sentences issued to fraud offenders were below the guideline range," a significant percentage of sentences were not, and as Boss and Kapp further note, the guidelines nevertheless have a "significant anchoring effect."[14]
Defendants who are similarly situated but convicted in different judicial districts thus can receive markedly different sentences — a result that is anathema to the purpose of the guidelines.
Boss and Kapp have a modest proposal that might have alleviated a lot of the controversy in Akhavan: to narrow the concept of loss under Section 2B1.1 to a consideration of actual loss. This starting point would provide a better sense of the defendant's relative culpability, a focus that is becoming increasingly necessary as the U.S. Department of Justice continues to seek indictments under increasingly tangential theories of culpability.
This would not, of course, restrict a court from considering intended loss altogether, given that the guidelines are purely permissive. And none of this is to say that intended loss is completely irrelevant to sentencing in all cases. It has a place where, for example, scheme is thwarted before it has a chance to succeed, though even that line of analysis is fraught.
But the central question that policymakers in the U.S. should be contemplating is how these factors should weigh upon a sentencing judge's mind and influence the outcome of his or her decision. Despite the undoubtedly excellent judgment of jurists like Judge Rakoff, who have seen firsthand, and vowed to combat, overcriminalization in this country,[15] the guidelines remain the predominant anchor point to sentencing.[16]
Akhavan exemplifies the Section 2B1.1 loss amounts mentality that reverberates beyond crafting a sentence. No guidance can be perfect, and there is always bound to be fuzziness at the edges. However, Akhavan is only just another of a legion of cases that show the too-often untethered results that stem from the Section 2B1.1 framework. The time for reform is now.
Lloyd Liu is a partner and Hilary Holt LoCicero is a founding partner at Bennett LoCicero & Liu LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] U.S. v. Akhavan, 20-CR-188 (JSR) (S.D.N.Y. August 2021). Docket Entry No. 315 at 1.
[2] DE 318 at 5.
[3] Id. at 3-4.
[4] DE 317 at 4.
[5] Stewart Bishop, "Businessmen Get Prison For Cannabis Bank Processing Con," Law360, June 18, 2021, https://www.law360.com/articles/1395688/businessmen-get-prison-for-cannabis-bank-processing-con.
[6] DE 317 at 13.
[7] DE 352 at 11-13.
[8] Id. at 19.
[9] Judge Rakoff has been outspoken about his concerns with respect to current sentencing framework. See Why The Innocent Plead Guilty and the Guilty Go Free, at 23 ("[T[he guidelines, like the mandatory minimums, provide prosecutors with weapons to bludgeon defendants into effectively coerced plea bargains.").
[10] David Debold and Matthew Benjamin provide an illustrative example in "'Losing Ground' – In Search of a Remedy for the Overemphasis on Loss and Other Culpability Factors in the Sentencing Guidelines for Fraud and Theft," 160 U. Penn. Law Rev. PENNumbra 141, 152-53.
Take an accountant at a public company who is deliberately ignorant of a subordinate's improper bookkeeping. Assume that this defendant turns a blind eye because he is afraid the company might miss its earnings target, and he is under great pressure not to let that happen in light of the negative reaction the year before when his honest reporting of a bookkeeping mistake caused the company to fall short. With a public company that issues millions of shares, even small inflation in the price of a stock can add up to tens of millions of dollars in loss. Even if this defendant never sold any stock, and therefore never realized a penny of gain from the fraud, the guidelines would treat him the same as a career con man who creates a phony company, runs it as a Ponzi scheme, pockets tens of millions in proceeds for his own benefit, and flees the country. Motive, intent, and personal gain are all important offense characteristics that do not get accounted for in the guidelines.
[11] Barry Boss and Kara Kapp, "How the Economic Loss Guideline Lost its Way, and How to Save It," 18 Ohio St. J. Crim. L. 605 (Spring 2021).
[12] How the Economic Loss Guideline Lost its Way at 617.
[13] Id. at 621, n. 75.
[14] Id. at 621-2.
[15] More broadly, when discussing the overall phenomenon of our criminal justice system, Judge Rakoff himself has suggested that, "If there were the political will to do so, we could eliminate mandatory minimums, eliminate sentencing guidelines, and dramatically reduce the severity of our sentencing regimes in general." Why The Innocent Plead Guilty and the Guilty Go Free, at 30.
[16] See "Why the Innocent Plead Guilty and the Guilty Go Free" at 24 ("But what really puts the prosecutor in the driver's seat is the fact that the prosecutor – because of mandatory minimums, sentencing guidelines, and simply his ability to shape whatever charges are brought – can effectively dictate the sentence by how he drafts the indictment. [ . . . ]. [I]t is the prosecutor, not the judge, who effectively exercises the sentencing power, albeit cloaked as a charging decision.").
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