AMENDMENT 719

Amendment: Section 2B1.1, effective February 6, 2008 (see Amendment 714), is repromulgated with the following changes:

Section 2B1.1(b) is amended by striking subdivision (16) as follows:

"(16) If the offense involved fraud or theft involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with a declaration of a major disaster or an emergency, increase by 2 levels.";

by redesignating subdivisions (11) through (15) as subdivisions (12) through (16), respectively; by inserting after subdivision (10) the following:

"(11) If the offense involved conduct described in 18 U.S.C. § 1040, increase by 2 levels. If the resulting offense level is less than level 12, increase to level 12.";

in subdivision (12), as redesignated by this amendment, by inserting "resulting" before "offense level"; and

in subdivision (14), as redesignated by this amendment, by striking "(b)(13)(B)" and inserting "(b)(14)(B)".

The Commentary to §2B1.1 captioned "Statutory Provisions" is amended by inserting "1040," before "1341-1344,".

The Commentary to §2B1.1 captioned "Application Notes" is amended in Note 3 by striking subdivision (A)(v)(IV) as follows:

"(IV) Disaster Fraud Cases.—In a case in which subsection (b)(16) applies, reasonably foreseeable pecuniary harm includes the administrative costs to any federal, state, or local government entity or any commercial or not-for-profit entity of recovering the benefit from any recipient thereof who obtained the benefit through fraud or was otherwise ineligible for the benefit that were reasonably foreseeable.".

The Commentary to §2B1.1 captioned "Application Notes" is amended in Note 10 by striking "(b)(11)" and inserting "(b)(12)" each place it appears.

The Commentary to §2B1.1 captioned "Application Notes" is amended in Note 11 by striking "(b)(13)(A)" and inserting "(b)(14)(A)" each place it appears.

The Commentary to §2B1.1 captioned "Application Notes" is amended in Note 12 by striking "(b)(13)(B)" and inserting "(b)(14)(B)"; by striking "(b)(13)(B)(i)" and inserting "(b)(14)(B)(i)"; and by striking "(b)(13)(B)(ii)" and inserting "(b)(14)(B)(ii)".

The Commentary to §2B1.1 captioned "Application Notes" is amended in Note 13 by striking "(b)(14)" and inserting "(b)(15)" each place it appears; by striking "(b)(14)(iii)" and inserting "(b)(15)(iii)" each place it appears; and by striking "(b)(13)(B)" and inserting "(b)(14)(B)" each place it appears.

The Commentary to §2B1.1 captioned "Application Notes" is amended in Note 14 by striking "(b)(15)" and inserting "(b)(16)" each place it appears.

The Commentary to §2B1.1 captioned "Application Notes" is amended by striking Note 15 as follows:

"15. Application of Subsection (b)(16).—

Definitions.—For purposes of this subsection:

‘Emergency’ has the meaning given that term in 42 U.S.C. § 5122.

‘Major disaster’ has the meaning given that term in 42 U.S.C. § 5122.",

and by redesignating Notes 16 through 20 as Notes 15 through 19, respectively.

The Commentary to §2B1.1 captioned "Application Notes" is amended in Note 19, as redesignated by this amendment, by striking "(b)(14)(iii)" and inserting "(b)(15)(iii)"; and by adding at the end the following:

"(D) Downward Departure for Major Disaster or Emergency Victims.—If (i) the minimum offense level of level 12 in subsection (b)(11) applies; (ii) the defendant sustained damage, loss, hardship, or suffering caused by a major disaster or an emergency as those terms are defined in 42 U.S.C. § 5122; and (iii) the benefits received illegally were only an extension or overpayment of benefits received legitimately, a downward departure may be warranted.".

The Commentary to §2B1.1 captioned "Background" is amended by inserting after the paragraph that begins "Subsection (b)(10)(C)" the following:

"Subsection (b)(11) implements the directive in section 5 of Public Law 110–179.".

The Commentary to §2B1.1 captioned "Background" is amended in the paragraph that begins "Subsection (b)(12)(B)" by striking "(b)(12)(B)" and inserting "(b)(13)(B)";

in the paragraph that begins "Subsection (b)(13)(A)" by striking "(b)(13)(A)" and inserting "(b)(14)(A)";

in the paragraph that begins "Subsection (b)(13)(B)(i)" by striking "(b)(13)(B)(i)" and inserting "(b)(14)(B)(i)";

in the paragraph that begins "Subsection (b)(14)" by striking "(b)(14)" and inserting "(b)(15)"; and by striking "(b)(14)(B)" and inserting "(b)(15)(B)"; and

by striking the paragraph that begins "Subsection (b)(16) implements" as follows:

"Subsection (b)(16) implements the directive in section 5 of Public Law 110–179.".

Reason for Amendment: This amendment re-promulgates as permanent the temporary, emergency amendment (effective Feb. 6, 2008) that implemented the emergency directive in section 5 of the "Emergency and Disaster Assistance Fraud Penalty Enhancement Act of 2007," Pub. L. 110–179 (the "Act"). The directive, which required the Commission to promulgate an amendment under emergency amendment authority by February 6, 2008, directed that the Commission forthwith shall –

promulgate sentencing guidelines or amend existing sentencing guidelines to provide for increased penalties for persons convicted of fraud or theft offenses in connection with a major disaster declaration under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5170) or an emergency declaration under section 501 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5191) . . ..

Section 5(b) of the Act further required the Commission to –

(1) ensure that the sentencing guidelines and policy statements reflect the serious nature of the offenses described in subsection (a) and the need for aggressive and appropriate law enforcement action to prevent such offenses;

(2) assure reasonable consistency with other relevant directives and with other guidelines;

(3) account for any aggravating or mitigating circumstances that might justify exceptions, including circumstances for which the sentencing guidelines currently provide sentencing enhancements;

(4) make any necessary conforming changes to the sentencing guidelines; and

(5) assure that the guidelines adequately meet the purposes of sentencing as set forth in section 3553(a)(2) of title 18, United States Code.

The emergency amendment addressed concerns that disaster fraud involves harms not adequately addressed by §2B1.1 (Larceny, Embezzlement, and Other Forms of Theft; Offenses Involving Stolen Property; Property Damage or Destruction; Fraud and Deceit; Forgery; Offenses Involving Altered or Counterfeit Instruments Other than Counterfeit Bearer Obligations of the United States) by (1) adding a two-level enhancement if the offense involved fraud or theft involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with a declaration of a major disaster or an emergency; (2) modifying the commentary to the guideline as it relates to the calculation of loss; and (3) providing a reference to §2B1.1 in Appendix A (Statutory Index) for the offense at 18 U.S.C. § 1040 (Fraud in connection with major disaster or emergency benefits) created by the Act.

This amendment repromulgates the temporary, emergency amendment as permanent, with the following changes. First, the amendment expands the scope of the two-level enhancement to include all conduct described in 18 U.S.C. § 1040. Thus, the amendment expands the scope of the enhancement to include fraud or theft involving procurement of property or services as a contractor, subcontractor or supplier, rather than limiting it to the conduct described in the emergency directive. The limited emergency amendment authority did not permit the Commission to include such conduct in the enhancement promulgated in the emergency amendment. However, the directive in section 5 of the Act covers all "fraud or theft offenses in connection with a major disaster declaration" and, therefore, expansion of the scope of the enhancement to apply to all conduct described in 18 U.S.C. § 1040 is appropriate.

Second, the amendment modifies the enhancement to include a minimum offense level of 12. The Commission frequently adopts a minimum offense level in circumstances in which, as in these cases, loss as calculated by the guidelines is difficult to compute or does not adequately account for the harm caused by the offense. The Commission studied a sample of disaster fraud cases and compared those cases to other cases of defrauding government programs. This analysis supported claims made in testimony to the Commission that the majority of the disaster fraud cases resulted in probationary sentences because the amount of loss calculated under subsection (b)(1) of §2B1.1 had little impact on the sentences. The Commission also received testimony and public comment identifying various harms unique to disaster fraud cases. For example, charitable institutions may have a more difficult time soliciting contributions because fraud in connection with disasters may erode public trust in these institutions. Moreover, the pool of funds available to aid legitimate disaster victims is adversely affected when fraud occurs. Further, the inherent tension between the imposition of fraud controls and the need to provide aid to disaster victims quickly makes it difficult for relief agencies and charitable institutions to prevent disaster fraud. All of these factors provide support for a minimum offense level.

Third, the amendment adds a downward departure provision that may apply in a case in which the minimum offense level applies, the defendant is a victim of a major disaster or emergency, and the benefits received illegally were only an extension or overpayment of benefits received legitimately. This provision recognizes that a defendant’s legitimate status as a disaster victim may be a mitigating factor warranting a downward departure in certain cases involving relatively small amounts of loss.

Fourth, the amendment deletes certain commentary relating to the definition of loss that was promulgated in the emergency amendment. Specifically, the emergency amendment added subdivision (IV) to Application Note 3(A)(v) of §2B1.1 providing that in disaster fraud cases, "reasonably foreseeable pecuniary harm includes the administrative costs to any federal, state, or local government entity or any commercial or not-for-profit entity of recovering the benefit from any recipient thereof who obtained the benefit through fraud or was otherwise ineligible for the benefit that were reasonably foreseeable." The amendment deletes this provision because of concerns that administrative costs might be difficult to determine or in some instances could over-represent the harm caused by the offense.

Finally, the amendment makes conforming changes to the guideline and the commentary.

Effective Date: The effective date of this amendment is November 1, 2008.