Вы находитесь на странице: 1из 165

LAW638 White Collar Crime

WEEK 1 INTRODUCTION TO FEDERAL WHITE COLLAR CRIME


Federal White Collar Crime p 1 52 A. DEFINITION Elements of significant white-collar crime cases: White collar violationsinvolve the use of a violators position of significant power, influence, or trust in the legitimateorder for the purpose of illegal gain, or to commit an illegal act for personal or organisational gain B. WHITE COLLAR TRIAL PROCESS Complaint There is an incredible fraud going on against the State of Illinois! They got all these money because of political connection! Evidence gathering FBI agents out in the field interviewing people and getting documentary evidence. Tell your clients to tell the truth an omission can even be a lie. If you have a target, there is no reason for him to talk to the FBI . You can always talk to them later but with the lawyer present. Parallel investigation to what the government is doing you are building your file just as they are building their file You have to tell your client what they are being charged for, give them an overview of the processes, plea bargaining, fees Grand jury convenes the witnesses who refused to talk to the FBI get called to the grand jury. They are told by the prosecutors that they are not the targets. If you are to testify to the grand jury, tell the 100% truth or else they would use perjury charges o Sword and a shield! Proceedings are kept secret o Disadvantage to D: Defendants office not entitled to pre-indictment information Joint Defence and Common Interest Agreement attorney-client privilege would be preserved Detention hearing confined to the district, not allowed to have any weapons. Even though there is this presumption of innocence, there isnt really such a presumption! Because of this indictment and the courts power to release/detain you he is not released as a full member of the society! The only way the court would let someone out of custody would be to place a bracelet on him! Violating one of these conditions is a separate federal offence. Discovery in Federal Court is not exactly that way required disclosure is limited. You do have to disclose physical evidence, admission or confession, a list of witnessesbut you are not required to turnover the statements of the witnesses who are going to testify in trial, until they have testified! Surprise in trial! Fortunately, most prosecutors recognise that as a problem. The judge in a way to control this is to grant a recess. But you can imagine what will happen to the length of trial time delay, etc. Discovery request which required the prosecution to disclose any at all, coconspirator statements. US v San Diego not only must the prosecution disclose the co-conspirator statements, but must establish probable cause and the co-

LAW638 White Collar Crime

conspirator statements were made in furtherance of the conspiracy. It became so routine that it became part of the local rules. That would put an agent on the stand and testify it and the defence would get to cross-examine the defence on it Pre-trial motions rulings made by the court to dismiss the indictment because of lack of elements (i.e. mens rea, lack of fraud, etc) Motions to suppress suppressed evidence that were taken out of seizures You can get governmental witnesses to testify and know more about the case, by having hearings on the motions. Power to have subpoena as a defence lawyer significant! You can use that case to subpoena documents that may be favourable to you! Motion to eliminate Pre-trial ruling on the evidence before the judge Jury instruction the lawyers prepare those instructions early. If you can set up a pre-trial hearing where you can get a defence witness under oath, you should do that. You should try to anticipate the prosecution / defence theories The judge would want to know how long is the trial find out how the judge handles jury instruction. In state courts, the counsels participate in jury selection. In federal courts, really rare. Final trial preparation stage the first thing you should do is to prepare your closing arguments. That trial ought to be about getting evidence to address the themes of the trial, and the closing arguments. We already ought to know the truth! You have to call witnesses you need to meet those witnesses in person. But note that no matter how much you prepare the witnesses, everything goes out of the head. Prepare Opening Statements There is no such thing as one-person case. You need someone to help you to take notes, remember things. Opening Statements + go through governmental witnesses (Show time). If you have done your homework, and the prosecution did not do their proper work you can get the case dismissed (though it is really rare) Into the defendants case same routine just that the role is reversed. There is an opportunity for rebuttal but there is also an opportunity for sur-rebuttal. But it is very rare that those situations happen but it could. Closing arguments can take up an entire day. Thereafter, the jury is instructed and goes back to do their deliberation Post-trial motion Most of the time in trial is spent on sentencing! Notice of Appeal State law and federal law overlap more often than not! The investigator may more often than not choose to go to the federal court if he has a strong case RECURRING THEMES

C.

(1) Criminalisation (i.e. where should the line be drawn between criminal and tortious (or simply immoral) conduct?) (2) Federalisation (i.e. if one is satisfied that the conduct at issue should be pursued criminally, what principles should control the allocation of cases between federal and state enforcement authorities?) (3) Judicial role (i.e. where the content of the criminal prohibition at issue is

LAW638 White Collar Crime

uncertain, how should courts respond?) (4) Prosecutorial discretion (i.e. what is the value of prosecutorial discretion and how should it be exercised or, where necessary, constrained?) (1) Criminalisation Notwithstanding modern blurring of civil and criminal law, criminal law retains certain distinguishing core features: o Sanctions: Criminal laws uniqueness derives from its invocation of societys harshest sanctions, including the loss of liberty that results from incarceration, death, and the moral stigma associated with a criminal conviction o Justification: Virtually all of criminal laws distinguishing features derive from the need to identify the circumstances that justify the use of criminal sanctions entailing both carefully defining the human behaviour warranting the sanction, as well as attaching procedural safeguards to the criminal proceeding to ensure a fair and accurate adjudication of culpability o Moral stigma: The moral stigma of the criminal sanction will attach in the long term only if the public is persuaded both of the moral culpability of the proscribed conduct and of the reliability of the adjudication of the defendants guilt. One of the features that makes criminal law unique the moral stigma associated with a criminal conviction is not selfexecuting. It can be lost over time by overreaching o Moral culpability: The more culpable the state of mind, the harsher the corresponding punishment ought to be. Culpability in this context turns on Ds purpose, the extent of Ds knowledge of the circumstances surrounding her conduct, the conduct itself, its results, and the reasons for Ds behaviour o More exacting burden of proof on the government and otherwise provides D with significant additional procedural guarantees: The govt must establish Ds guilt beyond a reasonable doubt and not, as in civil enforcement actions, by a mere preponderance of the evidence. Moreover, there are a host of evidentiary and procedural rules applicable only to criminal proceedings that are intended to enhance the reliability of the evidence before the factfinder and to preclude consideration of unduly prejudicial information Overcriminalisation; Federalisation; Judicial Role; Prosecutorial Function Failure to have in place even a modestly coherent code makes a mockery of the United States much-vaunted commitments to justice, the rule of law, and human rights An effective and just system of penal laws should be: drafted by elected representatives to be as clear and explicit as possible so that citizens have fair notice of that which will subject them to criminal sanction; public; accessible; comprehensive; internally consistent; reasonably stable; rationally organised to avoid redundancy and ensure appropriate grading of offence seriousness; prospective only in application; and capable of uniform, nonarbitrary, and nondiscriminatory enforcement
3

(2)

LAW638 White Collar Crime

Saving grace: US Sentencing Guidelines. o Classify conduct and offences apply those characteristics to the nature of the case. We will end up with a lack of sentencing disparity. But it violated the separation of power as Congress was telling the courts what to do until fairly recently! o Provided sentencing formulas to be applied to the facts of offenders cases and required judges to sentence offenders within the narrow sentencing range (e.g. 15-21 months) dictated by those formulas absent extraordinary circumstances o Statutory maximums still operated to cap defendants sentencing exposure, but in most cases the maximums were sufficiently generous that they did not impose a significant limitation on Guidelines sentencing o In 2005, however, the Supreme Court held the mandatory Sentencing Guideline unconstitutional in Booker v US. It reasoned that augmentation of a defendants sentence by mandatory judicial determination of the real facts of the case at sentencing violated Ds jury trial rights. The Court ruled, however, that augmentation of sentences based on judicial findings in a discretionary system did not offend the Sixth Amendment o Once again, judges have enormous sentencing power because their discretion, though informed by the Guidelines, is limited only by the applicable statutory maximum(s). Chaotic mess of laws o A satisfactory administration of criminal justice must rest ultimately on a satisfactory criminal law. Without a system of offences, it is impossible to make a collection of random laws work together to serve the purpose of punishment identified by Congress: just deserts, crime control, and (where incarceration is not an option) rehabilitation o The lack of any system to the codes organisation is not only rife with the possibility of injustice but is also inarguably ineffective in combating crime The Federalisation and Overcriminalisation Phenomena Translate into Federal Overreaching into Areas of Traditional State Competence and the Trivialisation of the Criminal Sanction o Federalisation With legislation covering virtually any crime they might plausibly wish to prosecute, federal prosecutors pick their targets and marshal their resources, not in response to the limitations of the substantive law but according to their own priorities and agendas o Federal Overcriminalisation comprises a number of problems: Untenable offences Superfluous statutes Doctrines that overextend culpability Crimes without jurisdictional authority Grossly disproportionate punishments and Excessive or pretextual enforcement of petty violations o Overcriminalisation of essentially innocuous conduct has contributed materially to the trivialization of the concept of criminality a trivialisation that erode the respect for, and hence the deterrent impact of, the criminal law generally The Code is Redundantly Repetitive, Thereby Increasing the power of Prosecutors in Charging, Plea-Bargaining and Determining the Actual Scope of

LAW638 White Collar Crime

Federal Criminal Law o Prosecutors have the ability to pick and choose among a smorgasbord of statutes that might apply to given criminal conduct offering prosecutors important advantages over others in terms of such matters as venue, proof, evidentiary admissibility or sentencing impact o Often a prosecutor may choose a general statute over a statute that is more specifically tailored to a particular context by choosing mail fraud or the general conspiracy statute, for example, rather than another statute that has more complicated proof requirements o The effect of choice is to give prosecutors substantially greater bargaining power vis--vis the defence o Courts cannot second-guess such choices unless (as is virtually impossible to prove) they arise out of unconstitutional motives Much of the Code Consists of Vague, Overbroad or Internally Inconsistent Laws o Inherent tension between creating statutes sufficiently open-ended to address new ways of committing the offence and prevent Ds from evading liability by relying on technical loopholes in very specific prohibitions, and making criminal prohibitions sufficiently specific to provide citizens fair notice of that which is outlawed, avoid delegation of law-making power to judges, and constrain the charging discretion of prosecutors o Mens Rea: Congressional drafting has been most deficient in specifying the mental element The Penal laws of the US May Be Nominally public, But They Are Not Accessible, Do Not Provide Fair Notice and Invite Arbitrary or Discriminatory Enforcement o Lack of clarity in statutes fair notice and accessibility problem. Without reference to the often conflicting federal case law and sometimes, volume of federal regulations, one cannot know the law o A lack of precision in statutory drafting fails due process vagueness standards not only when the statutory provision at issue cannot be said to provide fair notice The Above Characteristics Have Fundamentally Changed the Traditional Understanding of the Appropriate Roles of Judges and Prosecutors o Judges Given the complete lack of definition in some important federal statutes, courts are in fact engaging in lawmaking in determining that such statutes in fact apply to varied fact situations when the statutes themselves do not in any intelligible terms speak to those situations. An excellent example is the rules that govern organisational criminal liability. There is no generally applicable statute in the federal criminal code that defines when corporations can be held liable for crimes Offends separation of power o Prosecutors Prosecutors make law by exercising their discretion to make enforcement decisions that functionally determine the real shape of the federal code and to formulate theories of prosecution that expand the accepted understandings of the reach of certain

LAW638 White Collar Crime

criminal statutes. In these respects, prosecutors are allied with judges in determining the true content of federal penal laws Number of crimes worthy of investigation outstrips the resources available to pursue them. Prosecutors flexibility in responding to these constraints is augmented by the availability of alternative civil and regulatory sanctions If prosecutors are given undue power to pressure Ds into pleading because of code irrationalities, the result may be disparate treatment of similarly situated Ds based on the idiosyncratic choice of prosecutors A fundamental concern is that prosecutors, in plea bargaining, can offer Ds such a stark choice between a lenient plea offer (say a five-year count) and a threat of harsh charges if the plea is rejected (the potential for a 20-year sentence after trial) that risk-averse but innocent Ds will be coerced into a guilty plea. o Defence Lawyer You have to be zealous and that means preparation in all respects. Most of the white collar criminals have money to hire attorneys. There is however some good to federalisation. Evils that the federal had legislated may some times be evils that the State courts would never prosecute! Congress tries to close the loopholes but the end result is the succession of more and more federal crimes that permit prosecutors to decide whether it is a crime

E. PRACTICE: SELECTING PROCEDURAL TOPICS RELEVANT TO WHITE-COLLAR CRIME Complexity, Scope and Magnitude: o Federal crimes were much more likely than cases involving federal common crime to spread across county, state and national boundaries, to involve large dollar losses, to target multiple victims, to involve five or more coconspirators, to demonstrate a pattern of offending, and to extend over a substantial period of time o The subject-matter of these wide-ranging investigations also often demand more business acumen than the typical street crime Investigation o Using investigative methods formerly reserved for street crime o White-collar cases generally will involve extensive pre-indictment use of grand jury subpoenas for the production of banking, credit, telephone, and travel records, computer-maintained information, business, tax, securities, and accounting documentation, and a variety of other materials Defence Counsel Role o It cannot be overemphasized that the battle in many white-collar cases is perceived to be lost or won at the indictment stage. o The defence attorney works to keep potential evidence out of government reach by controlling access to information the more information you control as a defence lawyer, the more effective you are, meaning that the only weapon you have as a defence lawyer is control of information o If despite counsels pre-charge efforts, the government determines to go forward to indictment, defence counsel is very likely to negotiate some sort of disposition. Such dispositions may involve a negotiated plea or

LAW638 White Collar Crime

some sort of cooperation or immunity deal Organisational Presence o Joint defences, which are viewed by some prosecutors as nothing more than organised obstruction of justice, are often critical to successful whitecollar defence practice for three reasons: The focus of much of white-collar defence advocacy is in the preindictment period During that period, subjects and targets of the investigation have no formal discovery rights. Thus, to perform their information gathering and control function effectively, defence counsel must often depend upon others potentially within the investigatory scope to assist them in determining the governments focus and the evidence it has (and has not) uncovered Such sharing obviously would be dangerous if it could be discovered by the grand jury o Federal Govt new policy is to dispose of big-business cases by using socalled Deferred Prosecution (DPAs) or Non-Prosecution Agreements (NPAs). These agreements generally provide that, in return for fulsome corporate cooperation in the investigation and prosecution of the individual wrongdoers within an organisation (and other consideration), the government will, after a probationary period, dismiss or forego criminal charges against the organisation Parallel Proceedings o A number of proceedings brought by state, local, or federal regulatory agencies, shareholders, qui tam relators, or alleged victims may therefore proceed at the same time as the federal criminal case, or before or after it o Such proceedings consume valuable time, constitute a serious distraction for the client and for counsel, and create difficult strategic issues, particularly where the imperatives of an effective criminal defence conflict with what may be the best strategy in the collateral cases Multiple Actors o In some cases particularly where the criminal conduct at issue concerns the failure of an entity to meet its regulatory responsibilities assigning criminal responsibility to a single actor or even a discrete group of actors may be difficult o In white collar cases, practitioners must wrestle with issues of causation, vicarious liability, and the applicability of traditional requirements of criminal mens rea and actus rea Centrality of Mens Rea o Many white-collar cases come down to one question: whether D possessed the requisite evil intent. Intent can be proved directly e.g. a co-conspirators testimony that D told the witness that he was attempting to evade his tax obligations o More often, however, it is proved inferentially, by asking the jury to conclude from the facts shown that D must have acted knowingly or with wrongful intent Number and Vagueness of Statutory Standards o At the very least, this indeterminacy in many of the most frequentlyinvoked white-collar statutory provisions means that this practice

LAW638 White Collar Crime

presents challenging legal and policy issues that may not be present in street crime cases Alternative Avenues for Redress o Rather than piling on and having more than one jurisdiction address the criminal conduct at issue, generally some allocation of responsibility will be made between federal and state actors o In many white-collar crime cases, it can be redressed by civil as well as criminal remedies. Thus, it is not always necessary for a criminal case to be made for alleged misconduct to be officially addressed Breadth of Prosecutorial Discretion o The extent of their powers necessitate that all federal prosecutors have a firm handle on, inter alia, their unique professional responsibilities and the ethical rules that bind them PROFESSIONAL RESPONSIBILITY Prosecutorial Role Federal Prosecutors Duty to Do Justice The US Attorney is the representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to govern impartially is as compelling as its obligation to govern at all; and whose interest, therefore, in a criminal prosecution is not that it shall win a case, but that justice shall be done Prosecutors must not commence a case unless they have a good faith belief that they have the evidence to prove D guilty and that prosecutors must ensure that the adversarial system works as it should that is, they must work towards procedural justice Applicable Ethical Standards McDade Amendment problematic, as an attorney for the Govt shall be subject to State laws and rules, and local Federal court rules, governing attorneys in each State where such attorney engages in that attorneys duties, to the same extent as other attorneys in that State A number of other state ethics rules might affect federal prosecutorial practices: o Limit prosecutorial authority to subpoena lawyers to give unprivileged information o Expand prosecutors obligation to disclose evidence to the defence, require prosecutors to expose exculpatory evidence to grand juries, require prosecutors to discourage public statements by law enforcement personnel, and limit the prosecutors (but not the defences) ability to discourage witnesses from cooperating with their adversaries o Several states have adopted ethics rules that forbid lawyers to compensate fact witnesses for their testimony[and] a reasonable argument can be made that plea bargaining inducements do constitute compensation under the state ethics rules o State bar organisations have recently begun to consider whether general prohibitions against misrepresentations by attorneys should be applied to prosecutors

F. (1) (A)

(B)

LAW638 White Collar Crime

(c)

Case Study David Luban, The Conscience of a Prosecutor

David Lemus and Olmedo Hidalgo were wrongly convicted for the Palladium murder as a result of mistaken identity. Around the same time the jury convicted Lemus and Hidalgo, NYC detective Robert Addoloorato was investigating a Bronx drug and extortion gang called C&C. One of his informants told him that the two C&C members named Joey Pillot and Thomas Spanky Morales not Lemus or Hidalgo were the real Palladium shooters Queen-for-a-day: Pillot told the investigators that he and Morales were indeed the real Palladium shooters. Furthermore, he provided details that matched the facts: he remembered that his own gun had jammed and that he ejected a cartridge-and police in fact found an ejected cartridge on the scene The two convicted men were represented by a lawyer named Steve Cohen. The Manhattan DAs Office continued to rebuff Cohen when he and Addolorato alerted them about Pillots confession Why had Lemus told Delores Spencer that he was involved? According to Lemus, it was simply a pathetic story of talking big to impress a woman Ethics and Prosecutor: o Bibb located truthful but adverse witnesses and persuaded them to testify, and even revealed cross-examination to them o He went beyond minimally complying with the Brady obligations pointing out connections between pieces of evidence to the opposing lawyers o At issue here is malpractice and ethics violations: violating the requirements of competency; the requirement that the client, not the lawyer, sets the goals of the representation; the requirement of diligence (also known as zeal); and the conflict of interest provision forbidding lawyers from taking cases where the lawyers representation of the client will be materially limited by a personal interest of the lawyer o Prosecutors, however, are not supposed to win at all costs. In a timehonoured formula, their job is to seek justice, not victory. o Bibbs tactics advanced the search for truth and the protection of rights Why Should Prosecutors Seek Justice, Not Victory? o Power differential between the state and the accused individual. State has tremendous resources (i.e. police, crime labs, charging power, etc) v accused has an overworked defender with little or no capacity to investigate. Because of the power imbalance, it is essential that prosecutors not take victory as their sole goal. The defence lawyers role is to be zealous in protecting the client that is not the role of the prosecution. GOVERN JUSTLY AND IMPARTIALLY! Pereira v US 347 US 1, 74 S. Ct. 358 (US 1954) Facts Pereira had persuaded Mrs Joyce to procure funds to enable him to complete an arrangement to purchase a Cadillac through a friend. She secured a check for $6956.55. The price of the car was $4750, but she instructed Pereira to return the balance of the proceeds of the check to her. Instead, he kept the change Pereira had convinced Mrs Joyce through an elaborate scheme by conning her into thinking that Pereira would be purchasing a hotel

LAW638 White Collar Crime

Issue

Defence

Prosecution

Holding By Chief Justice Warren

Holding by Justice Minton, with whom Mr Justice Black and Mr Justice Douglas join, concurring

in Greenville, Texas. They had even exhibited an option for its purchase for $78,000 through a supposed broker, E. J. Wilson. Pereira asked his then wife if she would join him in the hotel venture and advance $35,000 toward the purchase price of $78,000. She agreed Pereira picked up the check for $35,000 at the El Paso Bank, cashed it there and with Brading left with the money and the Cadillac Mail Fraud: The petitioners challenged their conviction on the ground that there was no evidence of any mailing or of transporting property interstate, the gist of the respective offences As prosecutors, we have to be creative in thinking about a mail that would relate to mail fraud. In this case, cheques were sent to banks. But now, cheques are mailed electronically it is wired fraud Functioning is cloudy, because of what has happened to her heart. She fumbles in answering questions. Poor memory Corroboration show her these documents and ask if it is true. Get these documents via subpoena use the grand jury (Gift from God). The most powerful tool any prosecutor can get Federal hook federal crimes are limited crimes. There must be some link to the operation of the United States federal government in order for us to use federal charges (i.e. federal mail) It is not necessary to show that the petitioners actually mailed or transported anything themselves; it is sufficient if they caused it to be done. Collecting the proceeds of the check was an essential part of that scheme. For this purpose, Pereira delivered the check drawn on a Los Angeles bank to the El Paso bank. There was substantial evidence to show that the check was mailed from Texas to California, in the ordinary course of business Elements of mail fraud: (1) scheme to defraud; (2) mailing of a letter. It is not necessary that the scheme contemplate the use of the mails as an essential element Here, the scheme to defraud is established, and the mailing of the check by the bank, incident to an essential part of the scheme, is established. There remains only the question whether Pereira caused the mailing Where one does an act with knowledge that the use of the mails will follow in the ordinary course of business, or where such use can reasonably be foreseen, even though not actually intended, then he causes the mails to be used To convict on the substantive counts, the petitioners must have actually used the mails to transport the check from El Paso to Los Angeles. The use may be proved by direct or circumstantial evidence, but it must be proved. To be guilty of the conspiracy, Brading had only to reasonably anticipate that Pereira might use the mails, and if he did subsequently use tem, then Brading is bound Concededly, Brading did not participate directly in the use of the mails to transport the thirty-five thousand dollar check from El Paso to Los Angeles. He can be convicted, if at all, only as an aider

10

LAW638 White Collar Crime

in part and dissenting in part

and abettor. There is no evidence to establish that he could reasonably have expected that the mails would be used in the carrying out the scheme It may well be reasonable to infer that one receiving a check drawn on an out-of-town bank would know that it would be mailed in the process of collection, but to that inference must be added the inference that Brading had reason to know that a check would be received and also that the check would be an out-of-town bank. This is piling inference upon inference, in the absence of direct proof Brading is clearly an aider and abettor of the scheme to defraud, which a State must punish but he is not an aider and abettor of the federal offences of using the mails to defraud and causing the fraudulent check to be carried across state lines

WEEK 2 MENS REA


Federal White Collar Crime p 67 119 1. Mens Rea 2. Strict Liability speeding (no mental state in speeding required); harm to the community; high risk; you want to get society to conform to that level of conduct; parking ticket. Ordinarily for high risk offences the greater the danger to the community, the more likely the court will uphold a strict liability offences (e.g. environmental offences) 3. Negligence breach of duty 4. Gross Negligence / Recklessness out of control reach of a known legal duty 5. Knowledge a general intent crime is a knowing crime. It is a mental state that the courts will impute the knowing mental state for there to be a crime 6. Intent more purposeful; more planned 7. Wilfulness violation of a known legal duty; many courts have described wilfulness as knowing you are acting bad, rather than knowing you are acting against a specific law 8. Defence of Good faith 9. Wilful Blindness Ambiguity with the terminology: Congress may impose one MR requirement upon certain elements and a different level of MR, or no MR at all, with respect to other elements The law at issue may not specify a MR requirement or, more commonly, is ambiguous as to which elements an express intent requirement modifies Ignorance or mistake of fact or law as a defence when it negatives the existence of a mental state essential to the crime chargedInstead of speaking of ignorance of mistake of fact or law as a defence, it would be just as easy to note simply that the D cannot be convicted when it is shown that he does not have the mental state required by law for commission of that particular offence The following materials focus in particular on two lines of cases: o Cases involving assertions that the offence at issue is a public welfare violation to which a very low level of MR should be applied (such that liability is founded on a species of strict liability and honest and reasonable mistakes as to the underlying facts or law may not prevent liability); and o Cases involving assertions that a very high level of MR should be applied

11

LAW638 White Collar Crime

Facts

Issue

Ruling

Notes

(such that ignorance that the conduct at issue was proscribed by law is a defence to prosecution) A. THE PUBLIC WELFARE DOCTRINE United States v International Minerals & Chemical Corp 402 US 558 (1971) The information charged that appellee shipped sulphuric acid and hydroflosilicic acid in interstate commerce and did knowingly fail to show on the shipping papers the required classification of said property, to wit, Corrosive Liquid, in violation of 49 CFR 173.427 Title 18 USC 834(a) gives the Interstate Commerce Commission power to formulate regulations for the safe transportation of corrosive liquids and 18 USC 834(f) states that whoever knowingly violates any such regulation shall be fined or imprisoned Knowledge of the shipment of the dangerous materials is required The sole and narrow question of whether knowledge of the regulation is also required. It is in that narrow zone that the issue of MR is raised; and appellee bears down hard on the provision in 18 USC 834(f) that whoever knowingly violates any such regulation shall be fined The principle that ignorance of the law is no defence applies whether the law be a statute or a duty promulgated and published regulationWe decline to attribute to Congress the inaccurate view that that Act requires proof of knowledge of the law, as well as the facts So far as possession of sulphuric acid is concerned, the requirement of MR has been made a requirement of the Act as evidenced by the use of the word knowingly. A person thinking in good faith that he was shipping distilled water when in fact he was shipping some dangerous acid would not be covered Here, where dangerous or deleterious devices or products or obnoxious waste materials are involved, the probability of regulation is so great that anyone who is aware that he is in possession of them or dealing with them must be presumed to be aware of the regulation What is the benefit of having the ICC, an agency, decide what is safe and unsafe, rather than Congress? o More expertise ability to determine what is safe or unsafe o Speed o Keep politics out of it o Problem: You have bureaucrats deciding laws! People in the industry who need to know it on a day-to-day basis would probably be familiar with itBut how would individuals know that it is a crime against federal regulations? Anti-Holmesian why ignorance of the law can be an excuse: o Legal moralism this principle asserts that law is suffused with morality and, as a result, cant ultimately be identified or applied without the making of moral judgments. It asserts, too, that individuals are appropriately judged by

12

LAW638 White Collar Crime

Facts

Issue

Holding

the law not only for the law-abiding quality of their actions but also for the moral quality of their values, motivations and emotions o Prudence of obfuscation Private knowledge of the law isnt unambiguously good. The more readily individuals can discover the laws content, the more readily theyll be able to discern, and exploit, the gaps between whats immoral and whats illegal When reading a statute that does not explicitly provide a mens rea or where the mens rea requirement is ambiguous, courts will impute to Congress the intent to impose a lower mens rea requirement (or strict liability) where dangerous or deleterious devices or products or obnoxious waste materials are involved o Where you have a statute that is ambiguous, you would need to construe it in favour of the defendant o Problem: everybody can simply say there are too many legislations, I cannot keep track of everything! Staples v United States 511 US 600 (1994) The petitioned alleged that ignorance of any automatic firing capability should have shielded him from criminal liability for failure to register the weapon He requested that the district Court to instruct the jury that the Government must prove beyond a reasonable doubt that D knew that the gun would fire fully automatically The language of the statute, the starting place in our inquiry, provides little explicit guidance in this case. Section 5861(d) is silent concerning the mens rea required for a violation. It states simply that it shall be unlawful for any person to receive or possess a firearm which is not registered to him in the National Firearms Registration and Transfer Record Silence on this point by itself does not necessarily suggest that Congress intended to dispense with a conventional MR element, which would require that D know the fact that make his conduct illegal. On the contrary, we must construe the statute in light of the background rules of the common law in which the requirement of some MR for a crime is firmly embedded The common law rule requiring MR has been followed in regard to statutory crimes even where the statutory definition did not in terms include it. Relying on the strength of the traditional rule, we have stated that offences that require no MR generally are disfavoured, and have suggested that some indication of congressional intent, express or implied, is required to dispense with MR as an element of a crime. If we were to accept as a general rule the Governments suggestion that dangerous and regulated items place their owners under an obligation to inquire at their peril into compliance with regulations, we would undoubtedly reach some untoward results. Automobiles, for example, might also be termed dangerous devices

13

LAW638 White Collar Crime

Comparison with Freed

Dissenting by Justice Stevens, with whom Justice Blackmun joins

Where dispensing with MR would require D to have knowledge only of traditionally lawful conduct, a severe penalty is a further factor tending to suggest that Congress did not intend to eliminate a MR requirement. In such a case, the usual presumption that D must know the facts that make his conduct illegal should apply Absent a clear statement from Congress that MR is not required, we should not apply the public welfare offence rationale to interpret any statute defining a felony offence as dispensing with MR In Freed, we decided only that 5861(d) does not require proof of knowledge that a firearm is unregistered. The question presented by a D who possesses a weapon that is a firearm for purposes of the Act, but who knows only that he has a firearm in the general sense of the term, was not raised or considered. And our determination that a D need not know that his weapon is unregistered suggests no conclusion concerning whether 5861(d) requires the D to know of the features that make his weapon a statutory firearm; different elements of the same offence can require different mental states. Our analysis in Freed likening the Act to the public welfare statute rested entirely on the assumption that D knew that he was dealing with hand grenades that is, that he knew he possessed a particularly dangerous type of weapon (one within statutory definition of a firearm), possession of which was not entirely innocent in and of itself. The predicate for that analysis is eliminated when, as in this case, the very question to be decided is whether the D must know of the particular characteristics that make his weapon a statutory firearm Public welfare statutes render criminal a type of conduct that a reasonable person should know is subject to stringent public regulation and may seriously threaten the communitys health or safety. The National Firearms Act unquestionably is a public welfare statute. Congress fashioned a legislative scheme to regulate the commerce and possession of certain types of dangerous devices, including specific kinds of weapons, to protect the health and welfare of the citizenry. To enforce this scheme, Congress created criminal penalties for certain acts and omissions. The text contains no knowledge requirement We thus have read a knowledge requirement into public welfare crimes, but not a requirement that D knows all the fact that makes his conduct illegal. Although the Court acknowledges this standard, it nevertheless concludes that a gun is not the type of dangerous device that would alert one to the possibility of regulation The court has reached the rather surprising conclusion that guns are more analogous to food stamps than to hand grenades. Even if one accepts that dubious proposition, the Court founds it upon a faulty premise: its mischaracterisation of the Governments submission as one contending that all gunsare dangerous devices that put gun owners on notice

14

LAW638 White Collar Crime

Notes

Even assuming that the Court is correct that the mere possession of an ordinarily rifle or pistol does not entail sufficient danger to alert one to the possibility of regulation, that conclusion does not resolve this case. Petitioner knowingly possessed a semiautomatic weapon that was readily convertible into a machinegun. The character and nature of such a weapon is sufficiently hazardous to place the possessor on notice of the possibility of regulation. No significant difference exists between imposing upon the possessor a duty to determine whether such a weapon is registered, and imposing a duty to determine whether that weapon has been converted into a machinegun Is it a public welfare offence? How is it possible for a person to be intimately familiar with all the regulations around every state? Once the court says that it is not a public welfare offence, you will have a higher mens rea The rule of lenity was applied in this gun case but it does not apply to the acid case United States v Weitzenhoff 35 F. 3d 1275 (9th Cir. 1993) Michael Weitzenhoff was the manager and Thomas Mariani the assistant manager of the East Honolulu Community Service Sewage Treatment Plant, located not far from Sandy Beach, a popular swimming and surfing beach on Oahu The plant was designed to treat some 4 million gallons of residential wastewater each day Evidence produced by the govt at trial showed that waste activated sludge (WAS) was discharged directly into the ocean from the plant on about 40 separate occasions, resulting in some 436,000 pounds of pollutant solids being discharged into the ocean, and that the discharge violated the plants 30-day average effluent limit under the permit for most of the months during which they occurred D was arguing that it was only 6% extra such a little difference? As with certain other criminal statutes that employ the term knowingly, it is not apparent from the face of the statute whether knowingly means a knowing violation of the law or simply knowing conduct that is violation of the law. The dumping of sewage and other pollutants into our nations waters is precisely the type of activity that puts the discharger on notice that his acts may pose a public danger. Like other public welfare offences that regulate the discharge of pollutants into the air, the disposal of hazardous wastes, the undocumented shipping of acids, and the use of pesticides on our food, the improper and excessive discharge of sewage causes cholera, hepatitis, and other serious illnesses, and can have serious repercussions for public health and welfare. The criminal provisions of the CWA are clearly designed to protect the public at large from the potentially dire consequences of water pollution, and as such fall within the category of public welfare legislation.
15

Facts

Issue

Ruling

LAW638 White Collar Crime

Dissenting

If negligent violation were a misdemeanour, why would Congress want to make it a felony to violate the permit without negligence and without even knowing that the discharge exceeded the permit limit? That does not make any sense. It would deter people from working in sewer plants, instead of deterring people from violating permits. All dischargers acting lawfully pursuant to a permit know that they are discharging pollutants Because construction of criminal statute must be guided by the need for fair warnings, it is rare that legislative history or statutory policies will support a construction of a statute broader than that clearly warranted by the text Notes You are free to do anything else except you cannot do this! What is at work here is that you cannot do anything unless I say you can do it! B. AWARENESS OF LEGAL REQUIREMENTS Ignorance of the law is no defence unless the law under which an accused is prosecuted makes knowledge of the law an element of the offence Bryan v United States 524 US 184 (1998) Facts For three categories of offences, the intent required is that the defendant acted knowingly; for the fourth category, which includes any other provision of this chapter, the required intent is that the defendant acted wilfully. The 922(a)(I)(A) offence at issue in this case is an other provision in the wilfully category (intentional violation of a known legal duty. One interpretation is that it is bad conduct! The second way is that you know the law (applies in tax and currency regulation cases. To be prosecuted for a tax crime, it has to be shown that you knew it was a crime to not tax whoever you are supposed to)) Evidence presented was unquestionably adequate to prove that petitioner was dealing in firearms and that he knew that his conduct was unlawful. o Used so-called straw purchasers in Ohio to acquire pistols that he could not have purchased himself o Made false statements when purchasing the guns o Assured the straw purchasers that he would file the serial numbers off the gun o Resold the guns on Brooklyn street corners known for drug dealings There was, however, no evidence that he was aware of the federal law that prohibits dealing in firearms without a federal licence Issue The question presented is whether the term wilfully in 18 USC 924(a)(1)(D) requires proof that D knew that his conduct was unlawful, or whether it also requires proof that he knew of the federal licensing requirement Holding by The word wilfully is sometimes said to be a word of many Justice meanings whose construction is often dependent on the context Stevens in which it appears. Most obviously, it differentiates between deliberate and unwitting conduct, but in the criminal law it also typically refers to a culpable state of mind

16

LAW638 White Collar Crime

In order to establish a wilful violation of a statute, the Government must prove that D acted with knowledge that his conduct was unlawful The term knowingly does not necessarily have any reference to a culpable state of mind or to knowledge of the law. As Justice Jackson correctly observed, the knowledge requisite to knowing violation of a statute is factual knowledge as distinguished from knowledge of the law merely requires proof of knowledge of the facts that constitute the offence There are, however, technical statutes that present the danger of ensnaring individuals engaged in apparently innocent conduct. Thus, these statutes carved out an exception to the traditional rule that ignorance of the law is no excuse and require that D have knowledge of the law. The danger of convicting individuals engaged in apparently innocent activity that motivated our decision in the tax cases and Ratzlaf is not present here because the jury found that this petitioner knew that his conduct was unlawful Holding by The Court offers no real justification for its implicit conclusion that Justice either (1) the statute unambiguously requires only general Scalia knowledge of illegality, or (2) ambiguously requiring only general Dissenting knowledge is enough. Instead, the Court curiously falls back on the traditional rule that ignorance of the law is no excuse to conclude that knowledge that the conduct is unlawful is all that is required. In my view, this case calls for the application of a different canon the familiar rule that, where there is ambiguity in a criminal statute, doubts are resolved in favour of the defendant It would be more reasonable to presume that, when Congress makes ignorance of the law a defence to a criminal prohibition, it ordinarily means ignorance of the unlawfulness of the specific conduct punished by that criminal prohibition Notes When are you going to decide when the rule of lenity is going to be applied? Sometimes it is going to be accepted, sometimes it is going to be not accepted C. OTHER DOCTRINES AND DEFENCES (1) SPECIFIC AND GENERAL INTENT MR means the particular mental state required to be proved by the statutory offence. This has been labelled the elemental meaning of MR and is the use of the term that has been explored in these materials General intent: the crime required a MR in the culpability sense of a blameworthy state of mind Specific intent: designation reserved for those offences that required proof of a particular, additional state of mind Specific intent offence is one in which the definition of the crime (1) includes an intent to do some future act, or achieve some future consequences (i.e. a specific motive for the conduct), beyond the conduct or result that constitutes the AR of the offence or (2) provides that the actor must be aware of a statutory attendant circumstance. An offence that does not contain either of these features is termed general intent

17

LAW638 White Collar Crime

(2)

GOOD FAITH DEFENCE Where the government bears the burden of proving a specific intent to defraud D will often defend by asserting that their actions or statements were made in good faith. You cannot have intent to defraud and a good faith belief that it is not criminal at the same time. They are direct opposite! Honestly held belief that your action is lawful GOOD FAITH RELIANCE ON COUNSEL DEFENCE Reliance on counsel defence applies to specific intent crimes Often discussed as a simple variant of the good faith defence in that if the requisites of the good faith reliance on counsel defence are satisfied, no finding of the requisite of the good faith reliance on counsel defence are satisfied, no finding of the requisite MR is possible Pitfall (1) you would need to make full disclosure; (2) you waived attorneyclient privilege. All your information would be disclosed

(3)

(4) WILLFUL BLINDNESS, CONSCIOUS AVOIDANCE OR OSTRICH INSTRUCTIONS The Instruction Courts often say that they are wary of giving a wilful blindness instruction, because of the danger they perceive in it allowing the jury to convict based on an ex post facto he should have even more careful theory or to convict on mere negligence. Many courts have therefore stated that wilful blindness instructions are appropriately given only in rare circumstances In cases where knowledge is the element, you will have a defendant who says I didnt know that. The government is permitted to argue, Should have known standards. The defendant cannot ignore what is obvious to him, cannot ignore asking questions Global-Tech Appliances, Inc. v SEB S.A. Holding Many criminal statutes require proof that a D acted knowingly or wilfully, and courts applying the doctrine of wilful blindness hold that Ds cannot escape the reach of these statutes by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances The traditional rationale for this doctrine is that Ds who behave in this manner are just as culpable as those who have actual knowledge. It is also said that persons who know enough to blind themselves to direct proof of critical facts in effect have actual knowledge of those facts While the COA articulate the doctrine of wilful blindness in slightly different ways, all appear to agree on two basic requirements: (1) D must subjectively believe that there is a high probability that a fact exists and (2) D must take deliberate actions to avoid learning of that fact Notes The court seems to bless wilful blindness cases, where D indicates that he has the subjective belief that the fact exists

18

LAW638 White Collar Crime

WEEK 3 US SENTENCING GUIDELINES


Federal White Collar Crime p 121 164 Previous law: Judges could, in extraordinary cases, depart from the Guidelines range, but the US Sentencing Commission had rules and polices to guide departures, and appellate courts were fairly vigorous in policing district courts discretionary departure judgments (mostly up to the prosecution to decide). Although denominated as guidelines, these rules were in fact mandatory and were expressly designed to promote uniformity and proportionality in sentencing by restricting the discretion of human actors in the sentencing process Complaints about the US Sentencing Commission: o The Guidelines were unduly complicated and inflexible o Shifted too much power over sentencing (and thus plea bargaining) to prosecutors o In reducing sentencing to mathematical formulas, they removed the humanity and individualisation that should be inherent in criminal sentencing In Jan 2005: US Supreme Court declared mandatory sentencing Guidelines violated the Sixth Amendment in United States v Booker: o The Court invalidated two statutory provisions that had the effect of making it mandatory: 18 USC s 3553(b)(I), which required sentencing courts to impose a sentence within the guidelines range absent grounds for departure, and 18 USC s 3742(e), which set forth the applicable standards for appellate review, including a de novos review standard for departure Post-Booker: the focus is explicitly on the factors laid out in s 3553(a): o Mandates that courts impose a criminal sentence sufficient, but not greater than necessary, to comply with the need for the sentence imposed to reflect the seriousness of the offence, to promote respect for the law, and to provide just punishment of the offence;to afford adequate deterrence to criminal conduct;to protect the public from further crimes of the defendant; andto provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner Indeterminate Sentencing: o If you committed a murder in New York, you can be served 25 years to life. You would need to serve one-third, before becoming eligible or parole o There is a parole board and you can apply for parole o Indeterminate part: You dont know when you are going out of prison! o You have to determine if it is concurrent or consecutive sentences Mandatory Minimum Sentence: o Legislature was not happy with how judges were treating sentencing o Original philosophy rehabilitation. Judges give first-time offenders probation o Mandatory minimum sentence serves as a deterrence: crime rates will go down because of the sentences in these cases Good Time o Statutory Good Time: If you are good in serving the sentence, 90 day less

19

LAW638 White Collar Crime

Day-to-Day Good Time: Every day you do your sentence, you get a good time o Federal Good Time: 15% of the sentence. You have to have more than a year in order to have a good time! o In Illinois, you must serve more than 85% of the sentence Determinate sentencing o The day you go into prison, you know what your out-date is and when you are coming out o REAL-VERSUS CHARGE-OFFENSE SENTENCING Statement of purposes: o Required that the Commission establish sentencing policies and practices designed to assure that the purposes of sentencing were met. Congress decreed that those purposes are retribution, deterrence and incapacitation (crime control) and in crafting non-incarceration sentences, rehabilitation o Required that the Commission promote reasonable uniformity and proportionality in sentencing by narrowing the wide disparity in sentences imposed for similar criminal offences committed by similar offenders while imposing appropriately different sentences for criminal conduct of differing severity Why: Genuine differences among defendants and that those differences that correlate to the purposes of punishment isolated by Congress should be considered in formulating appropriate sentences. Traditionally, these distinctions among Ds have been considered at sentencing through what is known as real offence sentencing In bald terms, the difference between a real-offence and a charge-offence sentencing system is simply the amount of information that may be considered in assessing the sentence to be imposed upon a criminal defendant after conviction. In a real offence system, the sentencing authority is permitted to consider all manner of facts not necessary to the defendants conviction on the offence actually tried. The judge can make a decision within the range o Extra-element facts may include: Circumstances leading up to and following the offence Nature of the criminal conduct Ds criminal history Ds personal characteristics Any other criminal violations committed by D, whether or not charged or tried o Drawbacks: Primarily real-offence system will succeed in promoting the purposes of sentencing and of sentencing reform only to the degree that the sentencing authority is successful in isolating and weighting those real elements that effectively further just deserts and crime control goals. This task is obviously an exceedingly difficult one from an empirical point of view Effective execution, that is, the isolation of each and every potentially relevant real factor, if it is possible, may be achieved

A.

20

LAW638 White Collar Crime

at the expense of practical administrability The greater the number of real factors to be considered in sentencing, the greater the likelihood of burdensome litigation and disuniform result Such proceedings have traditionally been conducted under procedures significantly more lax than those that apply in criminal or even civil trials In a pure charge-offence system, Ds sentence depends entirely upon the offence of conviction, that is, the criminal statutory provision that D is convicted of violating. The Federal Sentencing Guidelines move towards this framework rein in these judges and focus on the offences of the charge o Advantages: Obvious simplicity, ease of administration and procedural certainty. Similar conducts will have similar sentences o Disadvantages: High cost in terms of the substantive aims of sentencing, at lest given the existing federal criminal code Ignores any mitigation factors: serving in the military GUIDELINES STRUCTURE Past Position: o Before US v Booker was decided, except in unusual circumstances where a departure from the Guidelines was deemed appropriate, a judge was required to select a sentence from within the Guidelines range that lies at the intersection of the Offence Level (vertical axis) and the Criminal History Category (horizontal axis) applicable to a given D Present Position: o After Booker was decided, these Guidelines were deemed advisory only. o Judges must still consult the Guidelines, among other considerations, in arriving at a sentence consistent with 18 USC s 3553(a) o Criminal History Category: Rough effort to determine Ds disposition to criminality, as reflected in the number and nature of his prior contacts with the law o Offence Level: Designed to measure the seriousness of the present crime. In essence, the Offence Level is determined by reference to three factors: (1) the base offence level which is prescribed by the Category Two guideline applicable to the offence of conviction; (2) the specific offence characteristics which are again included in the applicable Chapter Two guidelines; (3) any adjustments from Chapter Three that are appropriately assessed given the circumstances of the offence Zone A: Eligible for probation (0-6 months) Zone B not eligible for probation, but you can do it in a county jail or a halfway house community confinement Zone C: You have to go to prison, but the judges have the discretion to have half of your time served in a local facility, and the other half in the bureau facility Zone D: Go to jail o Chapter Three Adjustments: Further customise treatment of the offence at issue, requiring courts to distinguish between offenders based upon

B.

21

LAW638 White Collar Crime

real extra-element facts relating to: the nature of the victim and Ds motivation in selecting that victim or committing the crime; Ds aggravating or mitigating role in the offence, abuse of a position of trust or a special skill, or use of a minor to commit an offence; and Ds obstruction of justice during the investigation, prosecution, or sentencing of the offence, or Ds reckless endangerment of others in fleeing from law enforcement Specific Offence Characteristics: The larger the loss based on the fraud, the more serious the offence. Upward adjustments Number of victims Fiduciary duty with someone elses money Abused that position Relevant conduct Obstruction of justice did you shred the documents Downward Adjustments: Acceptance of responsibility Early plea saving trial preparation Minimal role simply drove and delivered the drugs Note that the ceiling of the sentence may not exceed, regardless of the Guidelines calculus, set by the statutory maximum sentence prescribed for the offence of conviction by Congress Guideline introduce real-offence element primarily through five mechanisms, many of which may require the consideration of nonconviction offence conduct: Chapter Twos specific offence characteristics Chapter Threes adjustments to Ds offence level Chapter Ones relevant conduct provision, which instructs courts on what conduct may be considered in determining the applicable base offence level, specific offence characteristics and adjustments Chapter Threes grouping rules, which control the treatment of multi-count indictments Chapter Fours rules for computing Ds criminal history category Difficulty: Chapters Two and Three tell a court what factors should be considered in computing a sentence. Section 1B1.3s relevant conduct rules tell the court what conduct of D or his accomplices may be considered in applying these factors. The relevant conduct rules have three principal dimensions: the temporal dimension; the accomplice attribution dimension; and the third dimension Accomplice attribution: Dimension of relevant conduct provides that D is responsible not only for all acts and omission committed, aided, abetted, counseled, commanded, induced, procured or wilfully caused by D, but also in the case of a jointly undertaken criminal activity[for] all reasonably foreseeable acts and omission of others in furtherance of the jointly undertaken criminal activity that are within the temporal dimension described above. The accomplice attribution dimension permits the judge to consider, in sentencing D on the count of conviction, an uncharged conspiracy and any reasonably foreseeable uncharged criminal actions on the part of all co-conspirators in furtherance of the criminal activity D agreed to jointly undertake

22

LAW638 White Collar Crime

Third factor: defined by reference to the Guidelines grouping rules. In these rules, the Commission sought a way to distinguish between (1) situations in which multi-count indictments contained charges so closely intertwined in terms of harm caused, victims affected and temporal proximity that the Guidelines range should not be higher for the multiple counts that it would be for a single count; (2) situations in which the multiple counts concerned discrete harms that warranted additional punishments o Prosecutorial Discretion Decide what the charge was Decide whether there can be a move to departure Increased dramatically after the Guidelines o Commission drew a distinction between aggregable offences and nonaggregable offences Aggregable offences: those in which the harm caused by Ds conduct is based upon the amount of $ or quantity of substance involved, or which involve a repetitive or continuous course of conduct (e.g. fraud, drug offences, firearm violations, property crimes). Where multiple counts of conviction charge such aggregable crimes, the grouping rules total the fungible items (e.g. dollar amount or quantity of drugs) and punish the offender as if there were a single count involving the total amount Non-aggregable offence: by contrast, generally involve discrete harms attributable to single episodes of criminal behaviour, such as violent offences, robberies, burglaries, extortions and immigration offences. These offense are not grouped, and thus treated as one count, but through operation of the grouping rules, the same result is achieved. A punishment scale is assigned to these discrete offences which yields an offence level that is higher than, but not a multiple of, the offence levels applicable to the nonaggregable offences taken singly CONSTITUTIONAL ANALYSIS United States v Booker 54 US 220 (2005) Facts Booker was charged with possession with intent to distribute at least 50g of cocaine base (crack). Having heard evidence that he had 92.5g in his duffel bag, the jury found him guilty of violating 21 USC 841(a)(I) which prescribes a minimum sentence of 10 years in prison and a maximum sentence of life for that offence Based upon Bookers criminal history records + quantity of drug = Sentencing Guidelines required the District Court Judge to select a base sentence of not less than 210 nor more than 262 months in prison 566 additional grams of crack were found on him + guilty of obstructing justice = mandated that the judge selects a sentence between 360 months and life imprisonment Issue Whether an application of the Federal Sentencing Guidelines violated the Sixth Amendment Holding by The application of Washingtons sentencing scheme violated Ds Justice right to have the jury find the existence of any particular fact that

23

LAW638 White Collar Crime

Stevens concerning the issue of whether a judge or a jury is the party to find the fact relevant to sentencing. NB: Justice Stevens advocate for the position that he would retain the Sentencing Act (and the Guidelines) as written, but would engraft onto the existing system todays Sixth Amendment jury trial Issue

the law makes essential to his punishment. That right is implicated whenever a judge seeks to impose a sentence that is not solely based on facts reflected in the jury verdict or admitted by D Departures are unavailable in every case, and in fact are unavailable in most. In most cases, as a matter of law, the Commission will have adequately taken all relevant factors into account, and no departure will be legally permissible. In those instances, the judge is bound to impose a sentence within the Guidelines range. Commission v Legislature: The fact that the Guidelines were promulgated by the Sentencing Commission, rather than Congress, lacks constitutional significance Separation of Powers: Commissions authority to identify the facts relevant to sentencing decisions and to determine the impact of such facts on federal sentences is precisely the same whether one labels such facts sentencing factors or elements of crimes. We have thus always recognised the fact that the Commission is an independent agency that exercises policy-making authority delegated to it by Congress Any fact (other than a prior conviction) which is necessary to support a sentence exceeding the maximum authorised by the facts established by a plea of guilty or a jury verdict must be admitted by D or proved to a jury beyond a reasonable doubt

Holding by Justice Breyer

Whether or to what extent, as a matter of severability analysis, the Guidelines as a whole are inapplicablesuch that the sentencing court must exercise its discretion to sentence D within the max+min set by statute for the offence of conviction We do not believe we can interpret the statutes language to save its constitutionality because we believe that any such reinterpretation, even if limited to instances in which a Sixth Amendment problem arises, would be plainly contrary to the intent of Congress Congress basic statutory goal a system that diminishes sentencing disparity depends for its success upon judicial efforts to determine, and to base punishment upon, the real conduct that underlies the crime of conviction To engraft the Courts constitutional requirement onto the sentencing statutes, however, would destroy the system. It would prevent a judge from relying upon a presentence report for factual information, relevant to sentencing, uncovered after the trial. In doing so, it would, even compared to pre-Guidelines sentencing, weaken the tie between a sentence and an offenders real conduct. It would thereby undermine the sentencing statutes basic aim of ensuring similar sentences for those who have committed similar crimes in similar ways

24

LAW638 White Collar Crime

Notes

In significant part, it is the weakening of this realconduct/uniformity-in-sentencing relationship, and not any inexplicable concern for the manner of achieving uniform sentences, that leads us to conclude that Congress would have preferred the mandatory system to the system the dissenters envisage Under sentencing guidelines, facts are not proven to a jury. Power simply given to the judges needed to be proven beyond reasonable doubt! 18 USC 3553(a) sufficient but not greater than necessary would consider factors such as US Sentencing Guidelines, Ds rehabilitability factor, community facilities that can help D What then is a reasonable sentence? 70-85% are still serving within the guidelines Statute would always trump the guidelines End-result: A system that is predictable and unpredictable. But it becomes very difficult to argue a federal case AUSA Eugene Miller & Asst FD Lis Pollock Pre-Brooker: o Mandatory guideline system. Disagreement with the levels under the guideline who felt that the levels were too high. o There should be no justification for sentencing disparity between two parties in different places. o Improper factors such as races, genders and more may influence the judges decision. o Subconsciously, judges will give a lighter sentence to people who are similar to them. o Focuses everybody on factors that the Congress and Sentencing Commission have decided were relevant considerations (e.g. how much losses were resulted?) o No doubt by creating these guidelines, the result would be somewhat arbitrary. But there is still a range that overlap o The range can be fairly wide from 0 to 10 years Post-Brooker: o Ambiguous! (I see something in this guy); But it does require the court to provide reason for going beyond or under the guidelines o Now merely a starting point given its advisory nature o Defendant hardly makes objection to the pre-sentence report; instead of wasting a judges time over two points, but would argue the factors to depart from the advised sentence guidelines o The only way that a defendant can go below the mandatory minimum sentence is for him or her to cooperate Plea / C agreement Rule 11 parties can come to an agreement regarding the specific sentence (e.g. 5 years); or range (51-53 months); specific application of the sentencing guidelines (this is the amount of loss, this is the number of victims affected). Influenced by (1) sentencing guidelines; (2) what sort of sentencing the judge would have

25

LAW638 White Collar Crime

Waiver of appeal

26

LAW638 White Collar Crime

27

LAW638 White Collar Crime

WEEK 4 ENTITY LIABILITY


Federal White Collar Crime p 165 282 Corporate Criminal Liability Respondeat Superior MPC principles Intent to benefit Mens rea Both strict and vicarious liability allow the criminal sanction to be imposed on one not technically at fault, but there is an important difference between the two concepts: o Strict liability: There must be a showing that D personally engaged in the necessary acts or omissions; only the requirement of mental fault is dispensed with altogether o Vicarious liability: Need for a personal actus reus that is dispensed with, and there remains the need for mental fault on the part of the employee CRIMINALISING CORPORATE CONDUCT Harvey L. Pitt & Karl A. Groskaufmanis, Minimising Corporate Civil and Criminal Liability: A Second Look at Corporate Codes of Conduct 78 Geo. L.J. 1559, 1562-74 (1990) Corporate Tort Liability o Two justifications for recognising respondeat superior: Loss distribution is the most widely accepted justification Means to promote better supervision of employees o Vicarious tort liability is linked to the control a company exercises over its employees o Tort liability provides the means to ensure that the corporation bears the costs of its conduct o Legal standard: acts conducted within the scope of [their] employment Corporate Criminal Liability o Drawing liberally from civil tort principles, current standards of corporate criminal liability are premised on the notion that a corporation may, and should, be held liable for crimes committed by employees while acting in the scope of their employment with the intent to benefit the employer o In adopting this standard, courts have expressly imported tort principles into the criminal forum. Obvious tension. The primary objective of tort law and criminal law differ tort law distributes the loss of a harmful occurrence, but criminal law coerces the actual or potential wrongdoer to complicate with the set standards of society through the threat or application of sanctions o Rationale for extending principles of respondeat superior: belief that a broad standard is needed to combat organisational roots of white collar crime BP Oil Spill Crisis o Whats the basis for BPs civil liability: Respondeat superior. o A state could revoke or decharter the corporation (death penalty for corporations) It would be meaningless! They can start another corporation

28

LAW638 White Collar Crime

afresh o Possible sanction of debarment: State of being excluded from certain possessions, rights, privileges or practices and the act of prevention by legal means. No government contracts o Goal of these criminal prosecutions? Deterrence and retribution o Stigma: The stigma from the spill itself but why is it not enough? $4.5 billion is not much of a deterrent compared to what they are earning. Corporate entities are meant to insulate individuals from liabilities Brent Fisse, Reconstructing Corporate Criminal Law: Deterrence, Retribution, Fault and Sanctions 56 S. Cal. L. Rev. 1141, 1145-67 (1982) Need for both criminal and civil means of corporate regulation: o The traditional utilitarian aims of individual criminal law are deterrence, rehabilitation and incapacitation; of these aims, deterrence is the only one that is important in corporate criminal law o Deterrence plays a more significant role in corporate than in individual criminal law because corporate activity is normally undertaken in order to reap some economic benefit and corporate decisionmakers choose courses of action based on a calculation of potential costs and benefits o Successful deterrence of corporate crime requires the threat of a sufficiently high level of monetary deprivation, a requirement which implies recourse merely to civil monetary penalties as opposed to criminal fines. These propositions underestimate the role, both actual and potential, of corporate criminal liability in attaining utilitarian objectives o They take insufficient account of the deterrent value resulting from the stigma of criminal conviction and punishment o They neglect important nonfinancial values in corporate decisionmaking values which may render the use of only civil means of deterrence inadequate o They do not recognise the rehabilitation and incapacitation may be subgoals of corporate deterrence that cannot be realised by civil regulation alone Deterrent Value of Criminal Stigma o Purpose of imposing criminal stigma on individuals: Blameworthiness of the actor in causing the harm Unwantedness of the harm caused by the actor even if the victim is compensated Deterrent effect of the stigma resulting from conviction and punishment o May not necessarily apply to corporate entities: Corporations are not appropriate subjects of blame (no blameworthiness!) When people blame corporations, they are not merely channelling aggression against a deodand or some other symbolic object; they are condemning the fact that people within the organisation collectively failed to avoid the offence to which corporate blame attaches Corporate offences are not unwanted in the same way that crimes committed by individuals are unwanted

29

LAW638 White Collar Crime

In the past, corporate offences were often spoken of as morally neutral Today, a recent unpublished study of attitudes towards the seriousness of crimes reveal that a national sample of 8000 respondents had rated white-collar crimes causing injury to persons, such as lethal toxic waste pollution, as extremely serious Corporations cannot feel stigmatised by punishment Importance of good public image that business corporations usually attach to Because society views corporations as capable of committing unwanted or morally offensive acts, and because corporations can be held blameworthy and can be stigmatised as responsible agents, the stigma of criminal punishment warrants serious consideration as a device to deter corporations Corporations are more likely to react positively to criminal stigma by attempting to repair their images and regain public confidence Nonfinancial Values In Organisational Decisionmaking and Deterrent Punishment o Probationary orders requiring corporations to rectify defective standard operating procedures or to make other structural changes within the organisation may have a significant deterrent as well as rehabilitative effect because such intervention detracts from managerial autonomy o Media publicity + formal, court-order publicity sanctions increase stigma to the corporation Deterrence as a Catalyst for Rehabilitation and Incapacitation o When a corporate offender is punished or threatened with punishment, the message is catalytic as well as inhibitory. The message conveyed, for corporate offences of commission as well as for those of omission, is refrain from committing that offence and take such steps as are necessary organisationally to guard against repetition o Under a scheme of corporate deterrence, punishment or a threat of punishment requires corporations to do more than merely exercise inhibition and self-restraint; they are expected to institute effective crime prevention policies, discipline controls and changes in SOPs Crime Prevention Policies: Threats of punishment catalyse the adoption of sound policies of compliance Internal Disciplinary Controls: Punishment or the threat of punishment should also catalyse internal disciplinary controls Crime-Preventive SOPs Catalytic Deterrence and Punitive Injunctions Julie Rose O Sullivan, Professional Discipline for Law Firms? A Response to Professor Schneyers Proposal 16 Geo. J. Legal Ethics I (2002) The evidentiary difficulty of penetrating the corporate black box to locate the appropriate agent or agents to prosecute for a crime, proceeding against the enterprise is often less costly and more fruitful. This is so because, under at least the federal respondeat superior standard, a criminal conviction may be secured

30

LAW638 White Collar Crime

against an entity even when no one agent can be identified who both possessed the requisite guilty intent and performed the guilty act Juries are reluctant to criminally sanction individuals where the bulk of harmcausing corporate conduct does not typically have, at its root, a particular agent so clearly to blame that he or she merits sanction. Juries reluctant to scapegoat individuals may be willing to convict an impersonal entity such as a corporation, thus filling a gap in enforcement Giving entity liability will ease prosecutors burden in imposing sanctions on someone does not necessarily justify such liability o Not necessarily fair, effective and/or necessary to further the aims of criminal law because only then are these evidentiary or instrumental considerations relevant A corporation has no soul to be damned, and no body to be kicked There are two potentially overlapping but analytically distinct ways in which an entity may be deemed responsible in a causal sense for the agents misconduct: o An entity may fail to put in place organisational policies or practices sufficient to prevent certain types of misconduct o An entity may possess a bad culture or ethos, which may in some case explain the above management deficiencies, but which may also actually encourage employee wrongdoing Two additional objections to the imposition of corporate criminal liability should be considered: o Some argue that vicarious criminal liability is unfair because its penalties unjustly fall on the innocent rather than the guilty that is, the penalty is borne by stockholders and others having an interest in the corporation rather than by the guilty individual: affects innocent shareholders and other corporate constituencies who did not participate in or knowingly condone the misconduct, thereby creating a perception that the law is unjust and ultimately undermine compliance with that law o In order to minimise unfair flow-through effects, entity liability should only be imposed when it is clear that the entity is actually the culprit that is, that the entitys culture, policies or procedures caused, encouraged or condoned the misconduct at issue Major distinction between respondeat superior and MPC principles: o MPC states: We want that crime to be truly reflective of this corporation and its policies. For the corporation to be held liable in a MPC state, the agent has to be a high-ranking officers who speak for the authority of the corporation. o Incentive for corporations to hire someone just below high-ranking level o It does not make any difference by differentiating the levels of the agents! What protection does corporations have? o Burden of proof beyond a reasonable doubt PRINCIPLES OF LIABILITY Within The Scope of Employment Requirement New York Central & Hudson River R.R. Co. v United States 212 US 481 (1989) Facts The railroad company and Fred L Pomeroy, its assistant traffic manager, were convicted for the payment of rebates to the American Sugar Refining Company and others, upon shipments of sugar from the city of New York to the city of Detroit,

31

LAW638 White Collar Crime

Michigan. The indictment was returned against the company, its general traffic manager and assistant traffic manager The sugar companies were engaged in selling and shipping their products in Brooklyn and Jersey City and WH Edgar & Son were engaged in business in Detroit, Michigan, where they were dealers in sugar. By letters between Palmer, in charge of the traffic of the sugar refining companies and of procuring rates for the shipment of sugar, and the general and assistant traffic managers of the railroad company, it was agreed that Edgar & Son should receive a rate of 18c per 100 pounds from NY to Detroit. This concession was given to Edgar & Son to prevent them from resorting to transportation by the water route between NY & Detroit, thereby depriving the roads interested of the business, and to assist Edgar & Son in meeting the severe competition with other shippers and dealers. The shipments were made accordingly and claim of rebate made on the basis of a reduction of five cent a hundred pounds from the published rates Issue Constitutional validity of certain features of the Elkins Act Congress has no authority to impute to a corporation the commission of criminal offences, or to subject a corporation to a criminal prosecution by reason of the things charged. The argument is that to thus punish the corporation is in reality to punish the innocent stockholder, and to deprive them of their property without opportunity to be heard, consequently without due process of law Holding A corporation is held responsible for acts not within the agents corporate powers strictly construed, but which the agent has assumed to perform fro the corporation when employing the corporate powers actually authorised, and in such cases there need be no written authority under seal or vote of the corporation in order to constitute the agency or to authorise the act. This statute does not embrace things impossible to be done by a corporation; its objects are to prevent favouritism, and to secure equal rights to all in interstate transportation, and one legal rate, to be published and posted and accessible to all alike You cannot be a person for the purpose of the law and then engage in economic benefits; and at the same time say we are not really a person. Who can we get to change the corporate attitude and not permit this kind of conduct to deter others from doing it? The corporation! Intention To Benefit the Corporation Requirement Both the act and the intent of the corporate agent who committed the crime are imputed to the corporation under principles of respondeat superior What do you look for in the benefits? Show me the money does it lead to corporate funds? Problem: o Imputes to the corporation only the mens rea of the agent who committed the crimes, but ignores the mental states of other corporate agents o Fails to distinguish between offences committed with the participation or

32

LAW638 White Collar Crime

encouragement of upper management, pursuant to corporate policies or procedures, and those committed by rogue employees whose acts violated company policy or could not have been prevented by careful supervision o Overinclusiveness of respondeat superior United States v Sun-Diamond Growers of California 138 F.3d 961 (D.C.Cir. 1998), affd on other grounds, 526 US 398 (1999) Facts An independent counsel charged Sun-Diamond, a large agricultural cooperative (raisin farmers), with making illegal gifts to Espy, the former Secretary of Agriculture thereby committing wire fraud, and making illegal campaign contributions Central figure: Richard Douglas a lobbyist. Responsible for representing the interests of the corporation and its member cooperatives in Washington Richard Douglas and James Lake had helped to repay the debts of the failed congressional campaign of Mike Espys brother, Henry Douglas had to raise $5000 fast and needed Lakes help. If Lake would get five RLSM (the law firm that handles communication and PR matters for Sun-Diamond) to write a check for $1000 each, Douglas would find a way for Sun-Diamond to reimburse them all. Lake knew the scheme was illegal corporations are forbidden to make contributions in connection with any election and no one may make a campaign contribution in the name of another person but agreed to participate anyway Douglas use the Joint Center Dinner, an annual benefit for which RLSM and Lake had in the past routine bought tickets on sunDiamonds behalf, as a vehicle for reimbursement Issue Threshold question: Sun-Diamond argued that Richard Douglass campaign cannot be attributed to it, because Douglas was not acting with an intent to benefit the corporation. Douglass scheme was designed to and did in fact defraud his employer, not benefit it. In the circumstances, it strenuously argues, there can be no imputation Holdings Sun-Diamonds argument of how the imputation rules must be the same on both the perpetrator and victim sides is faulty. They need not be and indeed are not. The law imputes the wrongdoers conduct to the corporation in order to encourage monitoring, but it is not at all clear that imputation on the other side of the equation would be useful in eliciting additional caution on the part of would-be fraud victims You gave RSLM immunity so that Sun-Diamond and Douglas can be prosecuted. No benefits to Sun-Diamond, fails the respondeat superior test. James Lake is an agent for both RSLM (his law firm) and Sun-Diamond. James is violating his own fiduciary obligation to his own law firm (deprived the law firm of honest services)! Liability Where Criminal Action Is Contrary to Corporate Policy/Orders United States v Hilton Hotels Corp. 467 F.2d 1000 (9th Circ. 1972) Facts Operators of hotels, restaurants, hotel and restaurant supply companies, and other businesses in Portland, Oregon, organised

33

LAW638 White Collar Crime

an association to attract conventions to their city. To finance the association, members were asked to make contributions in predetermined amounts. Companies selling supplies to hotels were asked to contribute an amount equal to 1% of their sales to hotel members To aid collections, hotel members, including appellant, agreed to give preferential treatment to suppliers who paid their assessments, and to curtail purchases from those who did not Appellants president testified that it would be contrary to the policy of the corporation for the manager of one of its hotels to condition purchases upon payment of a contribution to a local association by the supplier. The purchasing agent confirmed the receipt of instructions by the appellant that he would not be paying the contribution, but admitted that despite them, he had threatened a supplier with loss of the hotels business unless the supplier paid the association assessment Holding The construction of the Sherman Act that best achieves its purpose is that a corporation is liable for acts of its agents within the scope of their authority even when done against company orders With important public interests at stake, it is reasonable to assume that Congress intended to impose liability upon business entities for the acts of those to whom they choose to delegate the conduct of their affairs, thus stimulating a maximum effort by owners and managers to assure adherence by such agents to the requirements of the Act. Identification of the particular agents responsible for a Sherman Act violation is especially difficult, and their conviction and punishment is peculiarly ineffective as a deterrent. At the same time, conviction and punishment of the business entity itself is likely to be both appropriate and effective. For these reasons, we conclude that as a general rule a corporation is liable under the Sherman Act for the acts of its agents in the scope of their employment, even though contrary to general corporate policy and express instructions to agent. Any corporation can show that they have bylaws rules to show the policies, but ultimately, the corporation is going to benefit from the misconduct. Amicus Brief for the Association of Corporate Counsel, Et Al. In United States v Ionia Management, S.A., 555 F. 3d (2d Cir. 2009) The Supreme Court has never addressed how vicarious liability should be determined for corporations in the absence of a statute that explicitly includes instructions for imputing the liability of an employee to the corporation The Kolstad Court reasoned that the scope of employment rule, even if limited to imputing conduct of managerial level agents, would create perverse incentives for a corporation to avoid taking remedial measures if such measures provide no defence and may expose the corporation to liability. The Court therefore felt compelled to modify these principles to assure that, in the

34

LAW638 White Collar Crime

punitive damages context, an employer may not be vicariously liable for the misconduct of managerial agents where the misconduct is contrary to the employers good faith efforts Where a company has undertaken all reasonable measures to determine and detect the employees criminal actions, the company has done all that can be expected, i.e. there is nothing that the criminal law is serving to deter or punish since there is no action by the corporation that it should have otherwise taken. If the corporation has taken all actions that can be expected, applying criminal liability would result in the same perverse incentives rejected by the Supreme Court in Kolstad Error of the The district courts instruction on vicarious liability was plainly District erroneous: the instruction made it easier to impute conduct and Court knowledge to a corporation in a criminal case than it would be in a civil case The purpose of the civil justice system typically make application of respondeat superior principles sensible, at least where the key objective is to afford redress to P. In contrast, the criminal justice system seeks to promote compliance with societys dictates as expressed in the criminal code. Vicarious liability principles with respect to corporate criminal liability should foster that objective; the district courts jury charge failed to do so This court added an additional element to criminal liability that requires the prosecution to prove that a corporation lacks effective policies and procedures to deter and detect criminal actions by their employees o Benefits: Encouraging effective self-policing Protecting corporations and shareholders from rogue employees who commit crimes despite a corporations diligence This alternative set of principles both encourage effective corporate compliance programs while mitigating the harsh effects of respondeat superior, which allows a corporation to be liable for the acts of one low-level individual employee acting against the corporations express instructions. The application of VL principles that allows corporations to present evidence of an effective compliance programs is far more consistent with Supreme Court precedent and the purpose of corporate criminal liability than an approach based on a minimal application of respondeat superior Difficulties Where Responsibility Is Defused Under respondeat superior principles, VL may only be imposed where there is a primary violator that is, where an agent of the corporation has committed a crime. This requirement would seem to imply that the corporation could not be convicted if the agent committing the AR lacked the requisite intent Difficulties would arise in applying these imputation principles in cases where it is not clear which individual within an organisation took the actions (or failed to take the actions) alleged to lead to corporate liability, or where the knowledge or intent necessary to prove the violations may be fragmented among many

35

LAW638 White Collar Crime

employees within a large corporate hierarchy. Thus, were the principle to be strictly applied, they would be underinclusive and overinclusive because there are situations in which corporate policies or procedures do cause a crime, yet the doctrine of respondeat superior is unable to find the corporation culpable because there is no individual culpability to impute. But the difficulties have been obviated! o Intent may be imputed to the corporation from a person distinct from the one who commits the AR, such as the supervisory official who realised the significance of the act o Some decisions have accepted a theory of collective knowledge, under which no single individual had the requisite knowledge to satisfy the intent requirement, but various individuals within the organisation possessed all the elements of such knowledge collectively. United States v Bank of New England, NA 821 F.2d 844 (1st Cir. 1987) Example of both toleration of inconsistent verdicts and use of aggregated MR in order to sustain corporate criminal liability that might not be sustained under a strict reading of respondeat superior principles. Facts Bank of New England was found guilty of having failed to file Currency Transaction Reports (CTR) on cash withdrawal made by James McDonough. It is undisputed that on 31 separate occasions between May 83 and July 84, McDonough withdrew from the Prudential Branch of the Bank more than $10,000 in cash by using multiple checks each one individually under $10,000 presented simultaneously to a single bank teller Before a grand jury, it was alleged that James McDonough, the Bank, Carol Orlandella and Patricia Murphy both of whom were former head tellers with the Banks Prudential Branch unlawfully conspired to conceal from the IRS thirty-six of McDonoughs currency transactions. Issue Criminal liability under 31 USC 5322 only attaches when a financial institution wilfully violates the CTR filing requirement. Holding A collective knowledge instruction is entirely appropriate in the context of corporate criminal liability. The acts of a corporation are, after all, simply the acts of all of its employees operating within the scope of their employment. The law on corporate criminal liability reflects this. Wilful blindness: Corporations compartmentalise knowledge, subdividing the elements of specific duties and operations into smaller components. The aggregate of those components constitutes the corporations knowledge of a particular operation. It is irrelevant whether employees administering one component of an operation know the specific activities of employees administering another aspect of the operation. Even if some Bank personnel mistakenly regarded McDonough as engaging in multiple transactions, there was convincing evidence that the Bank knew that his withdrawals were reportable. An internal memo was sent by project coordinator to all branch managers and head tellers stated that reportable transactions are

36

LAW638 White Collar Crime

expanded to include multiple transactions which aggregate more than $10,000 in any one day. This includes deposits or withdrawals by a customer to or from more than one account Collective Intent: The sum of its total parts = Total MR of its company General Rule: If we prove the mens rea of the agent, we can then impute it to the corporation Three concepts of MR: Notes Managerial MR: MR based on the mental state of a person acting on behalf of the organisation in a senior managerial capacity. This is not a concept of genuinely corporate fault and is usually very difficult to prove. Composite MR: MR pieced together from the knowledge of various individuals within an organisation. This mental state may be easier to prove but bears no necessary connection with corporate blameworthiness Strategic MR: MR based on express or implied organisational policy. This concept reflects genuinely corporate blameworthiness but only rarely can be prove. Department of Justice and Sec Charging Policies Charging policy for corporations and organisational defendants o Scrutinise the authenticity of a corporations cooperation o Great controversy: the memorandas discussion of requests for waivers of the attorney-client privilege and work product protection as evidence of corporate cooperation with the investigation was abused by line prosecutors Legislation entitled the Attorney-Client Privilege Protection Act was introduced that would bar federal prosecutors from, inter alia, asking organisations to disclose information protected by the attorney-client privilege or the work product doctrine as a condition for cooperation credit or declination of criminal charges The McNulty Memo altered the policies expressed in the Holder and Thompson Memoranda in two principal respects: o In response to the Stein ruling, it tightened the circumstances in which prosecutors can take into account whether a corporation is advancing attorneys fees to its employees or agents under investigation or indictment o Puts in place a more stringent internal approval and reporting regime for waiver request When this failed to meet approval, Deputy Attorney General Mark Filip issued another memorandum in Aug 2008. As of the writing of the textbook, it is not clear whether the DOJs actions will be successful in fending off congressional action on the waiver issue Principles of Federal Prosecution of Business Organisation General Considerations of Corporate Liability o Public benefits from corporations that take immediate remedial steps when one is indicted for criminal misconduct that is pervasive throughout a particular industry, and thus an indictment can provide a unique opportunity for deterrence on a broad scale o Corporate indictment may result in specific deterrence by changing the

37

LAW638 White Collar Crime

culture of the indicted corporation and the behaviour of its employees o Certain crimes that carry with them a substantial risk of great public harm e.g. environmental crimes or sweeping financial frauds may be committed by a business entity, and there may therefore be a substantial federal interest in indicting a corporation under such circumstances To hold a corporation liable for such actions, the government must establish that the corporate agents actions: o Were within the scope of his duties and o Were intended, at least in part, to benefit the corporation Factors to be Considered o Nature and seriousness of the offence, including the risk of harm to the public and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime o Pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management o The corporations history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it o Corporations timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents o The existence and effectiveness of the corporations pre-existing compliance program o Corporations remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, to pay restitution and to cooperate with the relevant government agencies o Collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees and others not proven personally culpable, as well as impact on the public arising from the prosecution o Adequacy of the prosecution of individuals responsible for the corporations malfeasance o Adequacy of remedies such as civil or regulatory enforcement actions Special Policy Concerns: o The nature and seriousness of the crime, including the risk of harm to the public from the criminal misconduct, are obviously primary factors in determining whether to charge a corporation. o Corporate conduct, particularly that of national and multi-national corporations, necessarily intersects with federal economic, tax and criminal law enforcement policies. o In applying these Principles, prosecutors must consider the practices and policies of the appropriate Division of the Dept, and must comply with those policies to the extent required by the facts presented. Pervasiveness of Wrongdoing Within the Corporation o Charging a corporation for even minor misconduct may be appropriate where the wrongdoing was pervasive and was undertaken by a large number of employees, or by all the employees in a particular role within the corporation, or was condoned by upper management o May not be appropriate to impose liability upon a corporation, particularly one with a robust compliance program in place, under a strict

38

LAW638 White Collar Crime

respondeat superior theory for the single isolated act of a rogue employee The Corporations Past History o Prosecutors may consider a corporations history of similar conduct, including prior criminal, civil and regulatory enforcement actions against it, in determining whether to bring criminal charges and how best to resolve cases The Value of Cooperation o In determining whether to charge a corporation and how to resolve corporate criminal cases, the corporations timely and voluntary disclosure of wrongdoing and its cooperation with the governments investigation may be relevant factors Attorney-Client and Work Product Protections o Allowing for a corporation to have full and comprehensive legal advice is particularly important, where corporations often face complex and dynamic legal and regulatory obligations o Waiving the attorney-client and work product protections has never been a prerequisite under the Depts prosecution guidelines for a corporation to be viewed as cooperative Cooperation: Disclosing the Relevant Facts o The sort of cooperation that is most valuable to resolving allegations of misconduct by a corporation and its officers, directors, employees, or agents is disclosure of the relevant facts concerning such misconduct o So long as the corporation timely discloses relevant facts about the putative misconduct, the corporation may receive due credit for such cooperation, regardless of whether it chooses to waive privilege or work product protection in the process. Likewise, a corporation that does not disclose the relevant facts about the alleged misconduct for whatever reason typically should not be entitled to receive credit for cooperation Obstructing the Investigation o Examples: Directions not to be truthful or to conceal relevant facts Making representations or submissions that contain misleading assertions or material omissions Incomplete or delayed production of records Offering Cooperation: No Entitlement To Immunity o A corporations offer of cooperation itself does not automatically entitle it to immunity from prosecution Qualifying for Immunity, Amnesty, or Reduced Sanctions Through Voluntary Disclosures o Corporations to conduct internal investigations and to disclose the relevant facts to the appropriate authorities o Some agencies may have formal voluntary disclosure (e.g. Securities and Exchange Commission and the Environmental Protection Agency) o Even in the absence of a formal program prosecutors may consider a corporations timely and voluntary disclosure in evaluating the adequacy of the corporations compliance program and its managements commitment to the compliance program o Amnesty, immunity or reduced sanctions may not be appropriate where the corporations business is permeated with fraud or other crimes Oversight Concerning Demands for Waiver of Attorney-Client Privilege or

39

LAW638 White Collar Crime

Work Product Protection by Corporations Contrary to This Policy o Counsel for corporations who believe that prosecutors are violating such guidelines are encouraged to raise their concerns with supervisors, including the appropriate United States Attorney or Assistant Attorney General Corporate Compliance Programs o Compliance programs are established by corporate management to prevent and detect misconduct and to ensure that corporate activities are conducted in accordance with applicable criminal and civil laws, regulations, and rules. The existence of a compliance program is not sufficient, in and of itself, to justify not charging a corporation for criminal misconduct undertaken by its officers, directors, employees or agents o Is it a paper program or is it designed, implemented, reviewed and revised in an effective manner? Restitution and Remediation o Although neither a corporation nor an individual target may avoid prosecution merely by paying a sum of money, a prosecutor may consider the corporations willingness to make restitution and steps already taken to do so. A prosecutor may also consider other remedial actions, such as improving an existing compliance program or disciplining wrongdoers, in determining whether to charge the corporation and how to resolve corporate criminal cases Collateral Consequences o Prosecutors may consider the collateral consequences of a corporate criminal conviction or indictment in determining whether to charge the corporation with a criminal offence and how to resolve corporate criminal cases Other Civil or Regulatory Alternatives o In evaluating the adequacy of non-criminal alternatives to prosecution e.g. civil or regulatory enforcement actions the prosecutor may consider all relevant factors, including: Sanctions available under the alternative means of disposition The likelihood that an effective sanction will be imposed and The effect of non-criminal disposition on federal law enforcement interests o Depends on whether they can meet the goals o criminal law (deterrence, punishment and rehabilitation) Selecting Charges o Once a prosecutor has decided to charge a corporation, the prosecutor at least presumptively should charge, or should recommend that the grand jury charge, the most serious offence that is consistent with the nature of Ds misconduct and that is likely to result in a sustainable conviction. Plea Agreements with Corporations o In negotiating plea agreements with corporations, as with individuals, prosecutors should generally seek a plea to the most serious, readily provable offence charged o The plea agreement should contain appropriate provisions to ensure punishment, deterrnence, rehabilitation, and compliance with the plea agreement in the corporate context. John Hansas, Ethics and the Problem of White Collar Crime

40

LAW638 White Collar Crime

54 Am. U. L. Rev. 579, 632-637 (2005) Stockholder Theory: Views corporate officers as agents of the organisations owners (the stockholders) who have a fiduciary obligation to pursue their principals interests, usually characterised as the maximisation of profits, in preference to those of all other parties Stakeholder and Social Contract Theories: View corporate officers as having ethical obligations to not merely the organisations owners, but, in the case of the stakeholder theory, to all parties whose interests are significantly affected by the organisations activities, such as employees, customers, suppliers, and the local community or even society as a whole What principles govern the treatment of employees who are suspected of criminal wrongdoing by federal authorities: o Reciprocity: Obligation to honour ones commitment to a mutually beneficial relationship when the other party has met his or her commitment to you o Presumption of innocence: Because of employees limited resources and dependence on the employer, and because it is so difficult to prove a negative, justice requires that organisations not assume that their employees have behaved improperly in the absence of adequate evidence o Due process: One be judged by fair processes, which include an opportunity to speak in ones own defence If the organisation knows the employee is innocent, the Guidelines place it in an impossible situation. To gain [cooperation credit towards a declination or a sentencing break], the organisation must help the government try to convict an innocent person. o The organisation must breach reciprocity by eschewing aid to a loyal employee, act in contravention of the presumption of innocence by taking action against the employee despite the lack of evidence of wrongdoing, and violate due process by either denying the employee a fair hearing or acting in derogation of what such a hearing would establish. Yet if the organisations managers do not act in this way, they expose the organisation to criminal indictment and potentially massive financial penalties The same holds true in those cases in which the organisation does not know whether the employee is guilty or innocent! Securities and Exchange Commission Securities Exchange Act of 1934 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions Leon-Meredith o Former controller of the public companys subsidiary o Meredith caused the parent companys books and records to be inaccurate and its periodic reports misstated, and then covered up facts Parent Company o No action taken against it o Companys internal auditors had conducted a preliminary review and had advised company management who, in turn, advised the Boards adutir committee, that Meredith had caused the companys books and records to be inaccurate and its financial reports to be misstated o Four days later, Meredith was dismissed as were two other employees

41

LAW638 White Collar Crime

who had inadequately supervised Meredeith o Company had also disclosed publicly and to the Securities Commission that its financial statement would be restated o Produced details of its internal investigation, including notes and transcripts of interviews of Meredith and others; and did not invoke the attorney-client privilege, work product protection or other privileges or protections with respect to any facts uncovered in the investigation Caveats o What best protects investors in every enforcement judgment: There may be circumstances where conduct is so egregious, and harm so great, that no amount of cooperation or other mitigating conduct can justify a decision not to bring any enforcement action at all. No set of criteria can be strictly applied in every situation to which they may be applied o We are not adopting any rule or making any commitment or promise about any specific case seek to only convey an understanding of the factors that may influence decisions o Not an exhaustive list of criteria List of criteria to consider and determine whether, and how much, to credit selfpolicing, self-reporting, remediation and cooperation and what sort of sanction to give: o What is the nature of the misconduct involved? o How did the misconduct arise? o Where in the organisation did the misconduct occur? o How long did the misconduct last? o How much harm has the misconduct inflicted upon investors and other corporate constituencies? o How was the misconduct detected and who uncovered it? o How long after discovery of the misconduct did it take to implement an effective response? o What steps did the company take upon learning of the misconduct? o What processes did the company follow to resolve many of these issues and ferret out necessary information? o Did the company commit to learn the truth, fully and expeditiously? o Did the company promptly make available to our staff the rsults of its review and provide sufficient documentation reflecting its response to the situation? o What assurances are there that the conduct is unlikely to recur? o Is the company the same company in which the misconduct occurred, or has it changed through a merger or bankruptcy organisation? US Sentencing Guidelines: Organisational Sentencing Post-Booker, the Guidelines applied to organisations are merely advisory judges will not be required to follow them In developing its set of guidelines, the Commission considered and rejected a law and economics based optimal penalties approach o Centered upon a formula designed to achieve fines perfectly calibrated to bring about perfectly efficient crime-avoiding responses by corporations o Fines were to be set according to this formula: optimal fine = monetised harm (i.e. loss) [divided by] probability of conviction The centrepiece of the Sentencing Guidelines was its fine range which seeks to

42

LAW638 White Collar Crime

achieve two philosophical objectives: punishment for the offence and deterrence. This carrot and stick approach grew out of the Commissions acceptance of three propositions: o The Commission recognised that the respondeat superior principles of liability studied within did not adequately respond to gradations in corporate culpability o The Commission came to believe that corporations could hold out the promise of fewer violations in the first instance and greater detection and remediation of offences when they occur through internal discipline, reformation of standard operating procedures, auditing standards, and the corporate culture, and institution of corporate compliance programs o Create incentives for responsible corporate actors to foster crime control by he creation of a mandatory guidelines penalty structure that rewarded responsible corporate behaviour and ensured certain and harsh sanctions for truly culpable corporations Two components to look at: o Seriousness of the offence o Culpability of the corporation KEY FEATURES: Part B Remedying the Harm from Criminal Conduct Restitution o Intended to be remedial, not punitive o Regardless of the perceived culpability of an organisation, the Commission determined that all convicted organisations should be required to remedy any harm caused by the offence. This will generally take the form of an order of restitution for the full amount of the victims loss o While it may not be punitive in nature, it can be so onerous as to feel like punishment! o Not appropriate when: Full restitution has been made Number of identifiable victims is so large as to make restitution impracticable When determining complex issues of fact related to the cause or amount of the victims 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 Part C Fines o If an organisation operated primarily for a criminal purpose or primarily by criminal means, the sentencing judge may set the fine at an amount (subject to the statutory maximum) sufficient to divest the organisation of all its net assets o The balance of the fine provisions of Part C does not apply to all organisational sentencing. While Parts B and D apply to all federal felony or Class A misdemeanour convictions, counsel must convict 8C2.1 to determine whether the offence is one that is covered by the Part C fine guidelines o Important categories of cases, such as environmental offences, and food and drug, RICO and export control violations, are not presently covered by the fine guidelines

43

LAW638 White Collar Crime

Where it is readily ascertainable that the organisation cannot and is not likely to become able (even on an instalment schedule) to pay restitution, no guidelines fine calculation need be done because restitution obligations trump any fine imposed o The statutory maximum (or where applicable, minimum) sentence always trump. Thus, even if, after applying the fine guidelines, the court arrives at a fine range that exceeds the maximum set by statute, the court may not exceed the statutory maximum Part D Organisational Probation o A term of organisational probation is required in many circumstances two of the most common being (1) where immediate payment is excused, if probation is necessary to ensure that restitutionary or remedial obligations are met or that the fine is paid or (2) if, at the time of sentencing, an organisation having 50 or more employees does not have an effective compliance program in place Effective Compliance Program: The Caremark Decision o In 1995, Caremark International Inc pleaded guilty to a mail fraud charge for illegally paying physicians for patient referrals and then falsely billing the government o Caremark agreed to reimburse various private and public parties, ultimately paying $250 million in criminal and civil fines o The important decision for the wider corporate community, however, came a year later when the Delaware Chancery Court was asked to approve the settlement of a shareholder derivative case alleging that the Caremark directors had breached their duty of care by failing to supervise the conduct of Caremarks employees. o The court approved the settlement, finding that there was a very low probability that it would be determining that the directors of Caremark breached any duty to appropriately monitor and supervise the enterprise. It went on, however, to underscore the importance of compliance efforts o Issue: What is the boards responsibility with respect to the organisation and monitoring of the enterprise to assure that the corporation functions within the law to achieve its purposes? o The Chancery Court stated that modernly this question has been given special attention by an increasing tendency, especially under federal law, to employ the criminal law to assure corporate compliance with external legal requirements and by the Organisational Guidelines, which impact importantly on the prospective effect these criminal sanctions might have on business corporations o The Guidelines offer powerful incentives for corporations today to have in place compliance programs to detect violations of law, promptly to report violations to appropriate public officials when discovered, and to take prompt, voluntary remedial efforts o The court concluded that a directors obligation includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists, and that failure to do so under some circumstances may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards o

44

LAW638 White Collar Crime

Corporate Internal Investigations Upjohn Co v United States o Permitted the corporation to resist government efforts to secure the work product of its corporate counsel generated in the course of counsels investigation into questionable payments (i.e. bribes) that the company had made to foreign government officials o In some instances, federal investigators will ask the corporations to waive the privilege protections that shield the results of (and documentation underlying) such investigations o Federal law does not recognise a selective waiver if a corporation should elect to turn over its attorney-client privileged material or corporate counsels work product to the government in an effort to seek credit for full cooperation (and thus a declination), it may well have to turn over the same, often inculpatory information to private litigants who seek to impose civil liability on the company Julie R. OSullivan, Does DOJs Privilege Waiver Policy Threaten the Rationales Underlying the Attorney-Client Privilege and the Work Product Doctrine? A Preliminary No 45 Am. Crim. L. Rev. 1237, 1280-85, 1258-63 (2008) A company that conducts an internal investigation on its own gains the advantage of knowing what the facts are, and, if there is no legal requirement that such investigation be disclosed, can then take appropriate internal action and then decide whether or not to bring such results to the governments attention Advantages of investigation: o Such investigations may be required by statute (e.g. Anti-Kickback Enforcement Act of 1986, Medicare Fraud Reporting Act and federal banking regulations) o Ensure that whatever wrongdoing has gone on has ceased o Even if the conduct itself has ceased, the organisation must recognise that, unless it takes prompt remedial action, the wrongdoing may morph into other legal problems (e.g. Upjohn: IRS was investigating in part to determine whether Upjohn improperly treated the questionable payments as deductible business expense) o Public corporations find themselves increasingly relying on internal investigations as both a way to ferret out potential wrongdoing and to insulate themselves and their directors and officers from liability Increasingly, large-scale or particularly sensitive investigations are conducted by outside counsel from a law firm expert. Two varieties of circumstances are identified as relevant: o Lacks a Fifth Amendment privilege thus, a corporation can protect the results of its investigation at least until it chooses how it will act on the report only by using lawyers who can shield their work under the attorney-client privilege and work product doctrine. Thus, the investigation must be pursued for the purpose of securing legal advice (attorney-client) or done in anticipation of litigation (work product) o At least when the investigation is announced publicly, as it often is, the company is hoping to reassure a number of constituencies beyond criminal prosecutors regarding the corporations remediation of the problem

45

LAW638 White Collar Crime

Managerial Liability: Responsible Corporate Officer Doctrine Three theories under which corporate officers or agents may be held liable for criminal violations that occur during the course of their employment: o An agent who actually performs the criminal act may be liable even though he committed the act in his official or representative capacity o Corporate agents may be liable as aiders and abettors o Premised upon an employees or agents failure to control the misconduct of others. The harm sought to be avoided in the applicable statute or regulation results not from a supervisors actions in actively committing or aiding and abetting, but rather from the supervisors failure to discover or to correct a problem that lies within his managerial mandate a responsible corporate officer may be criminally sanctioned even though he did not personally participate in the wrongdoing and even though he had no personal knowledge of the misconduct perpetrated by his subordinates United States v Park 421 US 658 (1975) Facts Acme Markets, Inc, is national retail food chain with 36,000 employees, 874 retail outlets, 12 general warehouses and four special warehouses The Government charged Acme and its respondent, Park (CEO of the corporation), with violations of the Federal Food, Drug and Cosmetic Act Each count of the information alleged that D had received food that had been shipped in interstate commerce and that, while the food was being held for sale in Acmes Baltimore warehouse following shipment in interstate commerce, they caused it to be held in a building accessible to rodents and to be exposed to contamination by rodents Acme pleaded guilty respondent pleaded not guilty Evidence at trial demonstrated that the respondent had been informed by the FDA of the insanitary conditions at the Philadelphia and Baltimore warehouses He testified that, although all of Acmes employees were in a sense under his general direction, the company had an organisational structure for responsibilities for certain functions according to which different phases of its operation were assigned to individuals who, in turn, have staff and departments under them Issue Standard of liability of corporate officers under the federal Food, Drug and Cosmetic Act as construed in United States v Dotterweich and because of the importance of the question to the Governments enforcement program Whether the manager of a corporation, as well as the corporation itself, may be prosecuted under the Federal Food, Drug and Cosmetic Act of 1938 for the introduction of misbranded and adulterated articles into interstate commerce Holdings Cases under the Federal Food and Drugs Act of 1996 reflected the view both that knowledge or intent were not required to be proved in prosecutions under its criminal provisions, and that

46

LAW638 White Collar Crime

Dissenting

Facts

Issue

Holding

responsible corporate agents could be subjected to the liability thereby imposed The principle had been applied whether or not the crime required consciousness of wrongdoing, and it had been applied not only to those corporate agents who themselves committed the criminal act, but also to those who by virtue of their managerial positions or other similar relation to the actor could be deemed responsible for its commission Actus Reus: Where the statute under which they were prosecuted dispensed with consciousness of wrongdoing, an omission or failure to act was deemed a sufficient basis for a responsible corporate agents liability The requirements of foresight and vigilance imposed on responsible corporate agents are beyond question demanding, and perhaps onerous, but they are no more stringent than the public has a right to expect of those who voluntarily assume positions of authority in business enterprises whose services and products affect the health and well-being of the public that supports them Before a person can be convicted of a criminal violation of this Act, a jury must find and must be clearly instructed that it must find evidence beyond a reasonable doubt that he engaged in wrongful conduct amounting at least to common law negligence. There were no such instructions, and clearly, therefore, no such finding in this case. United States v Brittain 931 F.2d 1413 (10th Cir. 1991) D, as public utilities director for the city of Enid, Oklahoma, had general supervisory authority over the operations of the Enid wastewater treatment plant and was responsible for filing the plants discharge monitoring reports. D directed the plant supervisory to falsify eighteen monthly discharge monitoring reports and the supporting laboratory records by recording 25 to 30 milligrams per liter of effluent for two specific pollutants regardless of the actual measurements at the point of discharge The original NPDES permit provided for two discharge point sources, outfalls 001 and 002; whereas the new permit allowed for only one discharge point source, outfall 001. Discharge from outfall 002, although expressly prohibited by the renewed NPDES permit, continued during times of heavy rain. The discharge resulted from a 36-inch bypass pipe which would divert raw sewage through outfall 002 when heavy rain caused excess water to flow through the sewage point D contended that an individual is only subjected to s 1319(c)s criminal sanctions for NPDES permit violations only if he is the permittee. In addition, he relied on s 1319(c)(3)s addition of responsible corporate officers is meaningless if s 1362(5) already makes persons of individuals who merely are related to discharging permittees. Under this interpretation, a responsible corporate officer, to be

47

LAW638 White Collar Crime

Facts

Issue

Holding

held criminally liable, would not have to wilfully or negligently cause a permit violation. Instead, the wilfulness or negligence of the actor would be imputed to him by virtue of his position of responsibility. This in no way limits other persons, as defined by s 1362(5), to permittees. The statute plainly states that any person, permittee or nonpermittee who causes a permit violation through wilful or negligent conduct, is subject to criminal sanctions. We hold that D, as an individual, is a person subject to criminal liability under the Act United States v MacDonald & Watson Waste Oil Co. 933 F.2d 35 (1st Cir. 1991) MacDonald & Watson Oil Co and Eugene K. DAllesandro (President) were convicted of knowingly transporting and causing the transportation of hazardous waste, namely toluene and soil contaminated with toluene, to a facility which did not have permit They were responsible for the excavation, transportation and disposal of toluene-contaminated soil as a result of a hole in a tank by Master Chemical Company MacDonald & Watson operated a disposal facility on land in Providence, Rhode Island, known as the Poe Street Lot, leased from appellant NIC. MacDonald & Watson operated the Poe Street Lot under NICs Rhode Island RCRA permit, which authorised the disposal at the lot of liquid hazardous wastes and soils contaminated with non-hazardous wastes such as petroleum products. Neither NIC nor MacDonald & Watson held a RCRA permit authorising them to dispose of solid hazardous wastes such as toluene-contaminated soil at the lot. DAllensandro contended that the district court incorrectly charged the jury regarding the element of knowledge in the case of a corporate officer Section 3008(d)(I) penalises Any person who(I) knowingly transports or causes to be transported any hazardous waste identified or listed under this subchapterto a facility which does not have a permit. In his closing, the prosecutor conceded that the government had no direct evidence that Eugene DAllesnandro actually knew that the Master Chemical shipments were coming in, i.e. were being transported to the Pot Street Lot under contract with his company The Government argued that DAllesandro was guilty of violating s 3008(d)(I) because, as the responsible corporate officer, he was in a position to ensure compliance with RCRA and had failed to do so even after being warned by a consultant on two earlier occasions that other shipments of toluene-contaminated soil and been received from other customers, and that such material violated NICs permit DAllesandro challenged the jurys instruction which read that the third requirement is that the officer must have known or believed that the illegal activity of the type alleged occurred. He contended that the use of the responsible corporate officer doctrine is improper under s 3008(d)(I) which expressly calls for

48

LAW638 White Collar Crime

proof of knowledge, i.e. requires scienter. We agree with D Allesandro that the jury instructions improperly allowed the jury to find him guilty without finding he had actual knowledge of the alleged transportation of hazardous waste on July 30 and 31 1986, from Master Chemical Company, Boston, Massachusetts, to NICs site, knowledge being an element the statute requires. We must therefore vacate his conviction Proving circumstantial evidence: By instructing the jury to point out that knowledge could be established by circumstantial evidence, it would have sufficed (and even elaborate on the extent to which DAlessandros responsibilities and duties might lead to a a reasonable inference that he knew of the Master Chemical transaction) Instead, the district court charged, in effect, that proof of that DAllesandro was a responsible corporate officer would conclusively prove the element of his knowledge of the Master Chemical shipments. In a crime having knowledge as an express element, a mere showing of official responsibility under Dotterwich and Park is not an adequate substitute for direct or circumstantial proof of knowledge

49

LAW638 White Collar Crime

50

LAW638 White Collar Crime

WEEK 5 PERJURY, FALSE STATEMENTS AND FALSE CLAIMS


Perjury 18 USC 1621 18 USC 1623 Two witness rule Recantation defence False Statements o Judicial Function o Legislative Function o False reculpatory number False Claims Qui tan Federal White Collar Crime p 283 360 PERJURY o Judicial contempt sanction where there is some evidence that the perjury obstructed the court in the performance of its duty o Federal sentencing guidelines provide for an enhancement of Ds sentence who is convicted of the crime originally charged and whose perjurious testimony at trial constituted a wilful attempt to obstruct justice o For the purpose of sentencing guidelines, you can get two more points Elements/Principles of Liability o Under either 18 USC 1621 or 1623, Govt bears the burden of showing four essential elements: That the testimony was given (or under s 1623, the described record or document was used) while D was under oath The testimony (or the record or document used) was false D knew when he made the statement (or gave or used the document or record) to the tribunal that it was false The matters about which D testified falsely (or the false documents or records used) were material o Whether the truthful/false answer was capable of influencing the proceedings Agency account/oath administered (18 USC 1621) Similarities: 1623 Court or ancillary proceedings (deposition in Bill Clintons case). Non-court places are covered by 18 USC 1621 (which also include 18 USC 1623) Differences: 1621 has the two-witness rule (you cannot just have one witness testifying to the falsehood; you need either one witness + corroborating evidence, or two witnesses). If I can bring it under 1623, why would I bring it under 1621? Inconsistent Statement Rule (1623): Two statements presented in the same suit as contradictory can be

51

LAW638 White Collar Crime

presented as falsity Recantation Defence (1623): Rarely used. If the witness recants before the proceedings have been substantially affected. But it would not work if there are intervening events before the witness reports it The two sections differ in: Scope S 1623 applies only to false declarations in any proceedings before or ancillary to any court or grand jury of the United States which includes pre-trial civil depositions but excludes at least one important area congressional investigations in which perjury may be committed S 1621 covers congressional investigations broader. But it is more limited in scope because s 1621 case must rest upon false statements while s 1623 cases may lie where a witness makes or uses false information or false materials, including false exhibits, documents, records or other evidence that contains a false material declaration Evidentiary Considerations S 1623 was enacted in response to perceived evidentiary problems in demonstrating perjury under the existing federals statute, 18 USC 1621 strict common law requirements for establishing falsity o Proof of falsity: Under 1621, govt must always prove that Ds statement was actually false. In 1623, Congress authorised the govt to meet its burden of proving the falsity of declaration at issue by proof that D while under oath made irreconcilably contradictory declarations material to the point in question in any proceeding before or ancillary to any court or grand jury. By relieving Govt of burden of proving which of two or more inconsistent declarations was false, Congress sought to afford greater assurance that testimony obtained in grand jury and court proceedings will aid the cause of truth o Two-Witness Rule: Under the two-witness rule, the uncorroborated oath of one witness is not enough to establish the falsity of the testimony of the accused. This rule does not require that two witnesses demonstrate the falsity of Ds statements; rather, what actually is needed is one witness plus some independent corroboration (that is, the uncorroborated oath of one prosecution witness is still insufficient) and [m]ost courts appear to subscribe to the view that circumstantial evidence will do for the corroboration. S 1621 retains the two-witness rule but Congress eliminated that requirement in s 1623 cases

52

LAW638 White Collar Crime

Mens rea: Both statutes require proof that D made the statement or declaration, or used the information, knowing that it was false. In addition, however, s 1621 requires that the perjury be wilful while s 1623 does not

Facts

Issue

Defences Recantation Not available under s 1621 perjury the crime is deemed complete the moment that the false statement is uttered S 1623 express recantation defence. In this respect, Congress gave Ds one evidentiary advantage in s 1623 that they do not have under s 1621 the possibility of avoiding prosecution by recanting their perjurious testimony (note: demanding requirements!) o Requirements: D must recant in the same continuous court or grand jury proceeding in which the false declaration was made Declaration must not have substantially affected the proceeding and Cannot have become manifest that such falsity has been or will be exposed Literal Truth and Ambiguity It is sometimes suggested that proof that D told the literal truth, while, perhaps, hoping to mislead, is a defence to a perjury charge under 18 USC sections 1621 and 1623, and under 18 USC section 1001However, it is important to remember that the burden of proving falsity remains with the prosecution Although not technically a defence in that the govt bears the burden of proving actual falsity beyond a reasonable doubt, the literal truth rule permits D to put the govt to its burden and occasionally to defeat a perjury, false declarations or false statement prosecution Bronston v United States 409 US 352 (1973) The statement at question here is Have you ever [had any bank accounts in Swiss banks]?. The petitioner replied, The company had an account there for about six months, in Zurich The Govts prosecution for perjury went forward on the theory that in order to mislead his questioner But the following facts are true: o Petitioner did not at the time of questioning have a Swiss bank account o Bronston Productions, Inc., did have the account in Zurich described by petitioner o Neither at the time of questioning nor before did petitioner have nominees who had Swiss accounts Whether a witness may be convicted of perjury for an answer, under oath, that is literally true but not responsive to the question

53

LAW638 White Collar Crime

asked and arguably misleading by negative implication. Holdings The statute (18 USC 1621) does not make it a criminal at for a witness to wilfully state any material matter that implies any material matter that he does not believe to be true. Under the pressure and tensions of interrogation, it is not uncommon for the most earnest witnesses to give answers that are not entirely responsive. Notes Encourage people who are not used to the gamesmanship that lawyers bring to advocacy, and to protect them. Witnesses may not be paying particular attention to the questions. Erred on the side of protecting witnesses, and puts the burden of careful examination on counsel A related defence to a prosecution under s 1621 and 1623 is alluded to but not addressed in Bronston: the contention that the question to which D falsely responded was too ambiguous to serve as the basis for a perjury or false declarations count. Generally speaking, courts will defer to the jurys determination of the meaning of the question and the truthfulness of Ds answer Where a question is fundamentally ambiguous, however, reviewing courts have overturned convictions in order to (1) preclude convictions grounded on surmise or conjecture; (2) prevent witnesses from unfairly bearing the risk of inadequate examination; and (3) encourage witnesses to testify (or at least not discourage them from doing so) Another popular defence theory in perjury or false declarations prosecutions is to move to bar the prosecution on the ground that the government improperly created a perjury trap into which D fell, usually in the course of grand jury proceedings. A perjury tap is created when the govt calls a witness before the grand jury for the primary purpose of obtaining testimony from him in order to prosecute him later for perjury FALSE STATEMENTS 18 USC 1001 is the most commonly invoked section for false statements: o May be used instead of, or in conjunction with, statutes covering a broad spectrum of criminal activity, including such matters as fraud, perjury, obstruction of justice and false claims (e.g. punishes false statements but does not require that the object of the statement be to defraud the government out of money or property) o May be used to avoid some of the evidentiary strictures of s 1621; The two-witness rule applied in s 1621 cases does not control in s 1001 cases and prosecutors may avoid proving the offending statement actually false, as required in perjury cases, by charging that D misled through concealment under s 1001 (S 1001 may have a more limited role in supplanting s 1623 because that section applies only where the perjury is ancillary to a court or grand jury proceeding and s 1001s applicability at least to false statements made by parties or their counsel in judicial proceedings is limited by the terms of the statute) o The false statements statute is often applied to simple and relatively easy to prove false statements made during a larger criminal case, or during

54

LAW638 White Collar Crime

the course of the investigation of a criminal matter. As such, it opens up the possibility that the government may secure a conviction (or plea) on a false statement count even when it does not have the proof to make its case on the underlying criminal case under investigation ELEMENTS/PRINCIPLES OF LIABILITY 1. Uttering falsehood or concealing facts (duty to disclose) by trick: D either made or used a false or fraudulent statement, representation or writing; or falsified, or affirmatively concealed or covered up by trick, scheme, or device, a fact that D had a legal duty to disclose Best way to mitigate against this is to advise client to keep quiet till he has counselled lawyers 2. Material: False statement or information concealed was material All the prosecution need show is that the statement is capable of influencing or affecting a federal agency The test is the intrinsic capabilities of the false statement itself, rather than the possibility of the actual attainment of its end as measured by collateral consequences Possible element of gamesmanship used as a tool to scare the defendant, and hopefully, to get the scared defendant to say something he otherwise would not say 3. Jurisdiction Department of US: Subject-matter involved was within the jurisdiction United States v Rodgers: The most natural, nontechnical reading of the statutory language is that it covers all matters confined to the authority of an agency or department 4. Of the executive, legislative or judicial branches of the Govt of the US Morgan v United States: The statute does apply to the type of action with which appellant was charged, action which essentially involved the administrative or housekeeping functions, not the judicial machinery of the court Issues relating to the identity of a person before a criminal court were usually deemed administrative, along with false statements or nondisclosure on standard court forms. Such matters could be pursued under s 1001 In contrast, falsely denying to a bankruptcy judge that one had forged a bankruptcy document, fictitious letter of recommendation for consideration by a sentencing judge, and statements at bail hearings, were all deemed matters that fell within the judicial function exception and thus could not be prosecuted under s 1001 The 1996 amendment was made to respond to Hubbard, and now expressly includes false statements and fraudulent concealments made in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Govt of the US. Quare: What is intended by this limitation did Congress through legislation revive and reinstate the case law regarding a judicial function exception? 5. Knowingly and wilfully: D acted knowingly and wilfully To commit an act knowingly is to do so with knowledge or awareness of the facts or situation, and not because of mistake, accident or some other
55

LAW638 White Collar Crime

innocent reason The statement must have been made with an intent to deceive, a design to induce belief in the falsity or to mislead, but s 1001 does not require an intent to defraud that is, the intent to deprive someone of something by means of deceit Although the Court in Yermian held that proof of actual knowledge of federal agency jurisdiction is not a necessary element of a s 1001 conviction, the Court left open the issue of whether some lesser standard of culpability must be read in the statute. The majority of courts to address this issue since Yermian have held that no mental state is required

Judicial Function o o Judicial function should not be confused with the administrative function of false statements Example: A lawyer pleaded not guilty on behalf of the client, even though the lawyer knew that he was indeed guilty. False statements do not apply to lawyers in normal judicial proceedings Intention to promote advocacy Eliminates the fear of the defence lawyer being possibly arrested Distinction between s 1623 and 1001 OATH

Legislative Function Exception Submittals to Congress are a form of advocacy we want to encourage, not a chilling effect, on Congress United States v Herring 916 F.2d 1543 (11th Cir. 1990) Facts Herring filed for unemployment insurance benefits for lack of work and was unemployed for the week prior to Jan 14. However, he actually began working for an Ohio construction company on Jan 12 He made requests and received unemployment compensation from the Georgia Department of Labour while he was gainfully employed. He was paid a total of $870 Issue Jurisdiction and materiality are at issue in this case Holdings Jurisdiction: o Herring argued that although the Georgia Dept of Labour receives federal funds from US Dept of Labour for administrative purposes, his false statements did not affect an authorised function of the US Dept of Labour o False statements need not be presented to an agency of the US and that federal funds need not actually be used to pay a claimant for federal agency jurisdiction to exist under s 1001: US v Suggs Materiality: o Test for determining materiality under s 1001: Whether the false statement has the capability of affecting or influencing the exercise of a government function. Materiality is satisfied even if the federal government was not actually influenced by the false statements. The false statements

56

LAW638 White Collar Crime

need not be made directly to the federal agency to sustain a s 1001 conviction as long as federal funds are involved o In this case, payment of fraudulent claims frustrates the function of the Georgia unemployment law because such claims are outside the proper and efficient administration of the law Notes Should there be a direct relationship between the falsehood and concealment? o Circuit split between 9 and 11 Circuit o Circuits that worry about this would be concerned with the nexus between the falsehood and concealment, and the functioning of federal agents DEFENCES Brogan v United States 322 US 398 (1998) Facts The federal agents from the Department of Labour and the Internal Revenue Service asked the petitioner if he would answer some questions one of which was whether he had received any cash or gifts from JRD when he was a union officer. The response was no. At that point, the agents disclosed that a search of JRD headquarters had produced company records showing the contrary. They told the petitioner that lying to federal agents in the course of an investigation was a crime Issue Whether there is an exception to criminal liability under 18 USC 1001 for a false statement that consists of the mere denial of wrongdoing, the so-called exculpatory no Holdings We cannot imagine how it could be true that falsely denying guilt in a Government investigation does not pervert a governmental function. Certainly the investigation of wrongdoing is a proper governmental function; and since it is the very purpose of an investigation to uncover the truth, any falsehood relating to the subject of the investigation perverts that function Regarding the exculpatory no doctrine: Whether or not the predicament of the wrongdoer run to ground tugs at the heartstrings, neither the text nor the spirit of the Fifth Amendment confers a privilege to lie: Proper invocation of the Fifth Amendment privilege against compulsory self-incrimination allows a witness to remain silent, but not to swear falsely Because the plain language of s 1001 admits of no exception for an exculpatory no, we affirm the judgment of the COAs Notes Congress intent did reflect such an intention today they are not afraid to act. If members of Congress did not like the false reculpatory no doctrine, they could have acted to exclude it The US Attorney Manual still has this particular doctrine in its handbook false reculpatory no doctrine is still recognised FALSE CLAIMS 18 USC 287 is frequently cited and used to criminally pursue false statements to the government There is also a civil equivalent statute False Claims Act, 31 USC s 3729-3733 The FCA encourages private citizens, known as relators, to file suit on behalf of

57

LAW638 White Collar Crime

the government in order to recover civil damages from other private citizens for their frauds against the government. The relators who file such actions known as qui tam suits are statutorily entitled to a healthy percentage of the potentially large damages and penalties that may be recovered (with attorneys fees) in such FCA litigation Criminal False Claims: o Elements: Claim to US: D presented a claim against the US or any agency or department of the United States False, Fictitious, Fraudulent: The claim was false, fictitious or fraudulent Knowingly: D knew that the claim was false, fictitious or fraudulent

Differences between Criminal False Claims and False Statements: Specific Intent (wilfully) What defence is available for intent? Good faith acted in good faith; custom in the industry No materiality critieria o Primary distinction between s 287 and s 1001 is that the former requires that a false claim be made and may not rest, as may the latter, on the simple provision of any false statement (or, in appropriate cases, concealment) Civil False Claims (Qui Tam Litigation): o Private attorney statute: A private citizen can bring as a relator, in the name of the USA, against the organisation or individual defrauding against the country. They must notify the government. If the government wants to, they can intervene and take over the claim. If they do not want to, they can still proceed. If you win, you can get treble damages, fees, etc 30% of the recovery. If the government intervenes, you get 25% o FCA allowed private citizens, known as relators, to bring what are known as qui tam suits in the name of the government, based on the individuals knowledge of fraud against the government, and to secure for their trouble a portion of the funds recovered in the suit Riley v St Lukes Episcopal Hospital 252 F.3d 749 (5th Cir. 2001) Issue Consider whether the qui tam provisions of the False Claims Act, which permits private citizens, or relators, to pursue actions for fraudulent claims in the name of the federal government, violate the constitutional separation of powers doctrine. Holdings A private citizen may pursue qui tam litigation under the FCA, whether the government chooses to intervene or does not choose, does not interfere with the Presidents constitutionally assigned functions. Although the Clause states that the Executive must take Care that the Laws be faithfully executed, it does not require Congress to prescribe litigation by the Executive as the exclusive means of enforcing federal law. The powers of a qui tam relator to interfere in the Executives o

58

LAW638 White Collar Crime

overarching power to prosecute and to control litigation are seen to be slim indeed when the qui tam provisions of the FCA are examined in the broad scheme of the American judicial system Any intrusion by the qui tam relator in the Executives Article II power is comparatively modest, especially given the control mechanisms inherent in the FCA to mitigate such an intrusion and the civil context in which qui tam suits are pursued Dissenting The Attorney General loses all control over the decision whether to initiate the suit. Even if the Attorney General determines that there are no reasonable grounds for the fraud action, the relator may override that judgment and initiate a lawsuit. The action goes forward in the governments name, under total control of the selfinterested and publicly unaccountable relator, even if the Attorney General has concluded that proceeding with a lawsuit is not merited or is otherwise not in the USs interests. CHARGING CONSIDERATIONS: DOUBLE JEPOARDY Double Jeopardy no one should be charged for the same offence twice Look for one fact that must be proved that will differentiate the two offences Applicable legal rules depend upon whether D is challenging: o Prosecutors decision to proceed in a single proceeding again st D on a number of charges which D contends would, upon conviction, subject him to multiple punishments for the same offences OR o After conviction or acquittal on some charges in one criminal case, a prosecutors decision to bring in another proceeding criminal charges that D alleges subject him to double jeopardy for the same offence already adjudicated The Double Jeopardy Clause applies in both multiple punishment and successive prosecution cases, but the interests it seeks to protect and thus the rules that control differ depending upon which type of case is at issue United States v Woodward Holding Congress intent to allow punishment under both 18 USC 1001 and 31 USC 1058 is shown by the fact that the statutes are directed to separate evils. The currency reporting statute was enacted to develop records that would have a high degree of usefulness in criminal, tax or regulatory investigations. The false statement statute, on the other hand, was designed to protect the authorised functions of governmental departments and agencies from the perversion which might result from the deceptive practices described

59

LAW638 White Collar Crime

60

LAW638 White Collar Crime

WEEK 6 OBSTRUCTION OF JUSTICE


Obstruction of Justice Omnibus Clause 18 USC 1503, 1505, 1512 Endeavour Nexus Corruptly

Federal White Collar Crime p 361 417 Omnibus Clause of 18 USC 1503 s 1503: specifically targets conduct that interferes with the duties of a juror or court officer The omnibus clause is the portion of the statute with which we are principally concerned and it states that [w]hoevercorruptly or by threats or force, or by any threatening letter or communication, influences, obstructs or impedes, or endeavours to influence, obstruct, or impede, the due administration of justice, shall be punished. This clause is essentially a catch-all provision which generally prohibits conduct that interferes with the due administration of justice United States v Aguilar 515 US 593 (1995) Facts A motion was assigned to Judge Stanley Weigel. Tham, seeking to enhance the odds that his petition would be granted, asked Edward Solomon and Abe Chapman, to assist him by capitalising on their respective acquaintances with another judge in the Northern District of California, respondent Augilar. Respondent knew Chapman as a distant relation by marriage and knew Solomon from law school. Solomon and Chapman met with respondent to discuss Thams case; respondent spoke with Judge Weigel about the matter Five months after Aguilar learned that Chapman had been named in a wiretap authorisation, he noticed a man observing his home during a visit by Chapman. He alerted his nephew to this fact and conveyed the msg (with an intent that his nephew relay the info to Chapman) that Chapmans phone was being wiretapped Issues A grand jury began to investigate an alleged conspiracy to influence the outcome of Thams habeas case. Two FBI agents questioned respondent. During the interview, respondent lied about his participation in the Tham case and his knowledge of the wiretap. The grand jury returned an indictment; a jury convicted Augilar of one count of disclosing a wiretap (he knew of the wiretap, but he was not authorised to inform about it. If the attorney is directly involved with the crime fraud, arguably there would not be an attorneyclient privilege) and one count of endeavouring to obstruct the due administration of justice Because the respondent knew of the pending proceeding, the Govt therefore contends that Augilars statements are analogous to those made directly to the grand jury itself Holding Nexus Requirement: The action taken by the accused must be with an intent to influence judicial or grand jury proceedings; it is not
61

LAW638 White Collar Crime

Dissenting by Justice Scalia

Notes

enough that there be an intent to influence some ancillary proceeding, such as an investigation independent of the courts or grand jurys authority. Some courts have phrased this showing as a nexus requirement that the act must have a relationship in time, causation, or logic with the judicial proceedings. In other words, the endeavour must have the natural and probable effect of interfering with the due administration of justice. That is not to say that Ds action need be successful; an endeavour suffices We think the transcript citation relied upon by the Government would not enable a rational trier of fact to conclude that respondent knew that his false statement would be provided to the grand jury, and that the evidence goes no further than showing that respondent testified falsely to an investigation agent. Such conduct, we believe, falls on the other side of the statutory line from that of one who delivers false documents or testimony to the grand jury itself. Conduct of the latter sort all but assures that the grand jury will consider the material in its deliberations Instead of reaffirming that natural and probable consequence is one way of establishing intent, it substitutes natural and probable effect for intent, requiring that factor even when intent to obstruct justice is otherwise clear. But while it is quite proper to derive an intent requirement from s 1503s use of the word endeavour, it is quite impossible to derive a natural and probable consequence requirement. The 18 USC 1503 is a catch-all provision: Vague provision not adequately put on notice that your behaviour is criminal If he was not being truthful to an FBI agent, why was he not being charged under 18 USC 1001? o This was a false exculpatory no, and it was decided before Brogan, because the court recognises false exculpatory no! Elements of the Nexus Requirements relationship in time, cause or logic with the judicial proceedings. Is this judicial legislation, by putting words in the statute that Congress did not intend? o Knowing that a judicial proceeding was pending o Corruptly o Endeavoured o To influence, obstruct, or impede the due administration of justice The Court indicates that an intent to obstruct is a requisite is this a separate element to be charged and proved, or is it implicit in the above list of elements? To show an obstruction based on false testimony, then, the government generally must show that the statements had the natural and probable effect of impending justice So long as there is proof that a D knows of the pending proceeding, however, the law is clear that neither a subpoena nor a court order directing the production of documents must be issued or served as a prerequisite to a s 1503 prosecution, and that the concealment and destruction of documents likely to be sought by subpoena is actionable under the statute

62

LAW638 White Collar Crime

Facts

Issue

Holding

Holding

United States v Cueto 151 F.3d 620 (7th Cir. 1998) Thomas Venezia owned B & H Vending/Ace Music Corporation, a vending and amusement business, and operated an illegal video gambling business through a pattern of racketeering activities and illegal gambling payouts, in violation of state and federal antigambling and racketeering laws. He hired Amiel Cueto, an attorney, to represent him as well as to defend the tavern owners associated with B&H in the event of any arrests and/or criminal charges for their participation in the illegal gambling operation. In Mar 1995, Venezia and B&H were indicted on federal racketeering charges, in addition to other related charges including illegal gambling. Throughout the investigation and prior to Venezias indictment, Cueto served as Venezias lawyer and advisor. Cueto was not Venezias attorney of record during the trial; nonetheless, the record indicates that Venezia continued to rely on Cuetos advice Venezia is now allowed to rent space in Cuetos building, even though Cueto was representing him as a counsel (landlord-tenant relationship). Together, Venezia and Cueto participated in various business transactions, in which millions of dollars exchanged hands to finance the purchases of various real estate interests and construction costs relating to various development projects, including certain gambling operations The indictment alleged that Cueto corruptly endeavoured to use his office as an attorney to influence, obstruct, and impair the due administration of justice in various court proceedings in connection with the prosecution of Venezia, is illegal gambling operation and the racketeering enterprise It is not the means employed by D that are specifically prohibited by the statute; instead, it is Ds corrupt endeavour which motivated the action. It is undisputed that an attorney may use any lawful means to defend his client, and there is no risk of criminal liability if those means employed by the attorney in his endeavours to represent his client remain within the scope of lawful conduct. However, it is the corrupt endeavour to protect the illegal gambling operation and to safeguard his own financial interest which motivated Cuetos otherwise legal conduct that separates his conduct from that which is legal. Cuetos repeated filings were motivated by his attempt to protect his client from prosecution and to safeguard his financial interest. Cuetos actions may qualify as traditional litigation-related conduct in form, but not in substance, and the evidence presented at trial demonstrates that Cueto clearly intended and corruptly endeavoured to obstruct the due administration of justice. Amiel was too aggressive, he filed too many motions. He could have asked for another lawyer to represent him Corrupt is vague at this point of time o When we talk about corruptly it means wrongful purpose.

63

LAW638 White Collar Crime

It has to be something more than the natural and probable consequences of my act o There was a wrongful purpose that Amiel had the purpose here is for him to earn his own profits Obstruction of Proceedings Before Congress and Federal Agencies Under 18 USC 1505 Elements: D knowing that there is a proceeding pending before a department or agency of the US or an inquiry or investigation being before either House, any committee of either House, or a joint committee of the Congress Corruptly o If it is a part of the due administration of justice element, the nexus requirement may not apply o If the nexus requirement inheres in the corruptly element, however, it may well apply Endeavours To influence, obstruct, or impede the due and proper administration of the law under which the pending agency proceeding is being had, or the due and proper exercise of the power of the congressional inquiry Witness Tampering Under 18 USC 1512 Under 1512, only one of the proscribed activities persuasion requires proof of a corrupt motive. Instead of s 1503s broad prohibition on any type of activity that obstructs the due administration of justice, s 1512 focuses more narrowly on specific types of conduct through which physical evidence can be compromised or witnesses tampered with. In short, s 1512 is said to change the focus from corrupt motives to presumptively corrupt methods raising concerns among the defence bar that s 1512 may pose an even greater threat to legitimate defence functioning that s 1503 Arthur Andersen LLP v United States 544 US 696 (2005) Facts Significance of the Document Retention Policy (Documents are destroyed after a certain period of time) Holding Essence of the charge: s 1512. Destruction of Documents It is one thing to say that a proceeding need not be pending or about to be instituted at the time of the offence, and quite another to say a proceeding need not even be foreseen. A knowinglycorrupt persuader cannot be someone who persuades others to shred documents under a document retention policy when he does not have in contemplation any particular official proceeding Notes Alternative provisions: o s 1503 o s 1505 must relate to Congressional hearing. Due administration clause SEC governs publicly held companies SEC is likely to investigate o S 1512 Witness tampering statute o Was there any difference in potential penalties in the employment of different provisions?

64

LAW638 White Collar Crime

Prosecuting a corporation of partnerships Looking for ease of corporation the best way to get conviction An important distinction between s 1503 and s 1512 concerns the type of proceedings to which the alleged obstructive activity must relate o Section 1512(b)(I), (b)(2)(A)-(D) and (c)(I)-(2) all require that the proscribed conduct occur in the context of an official proceeding (including those conducted before bankruptcy judges) and before a federal grand jury o Section 1512s application to myriad official proceedings makes it much more broadly applicable than s 1503, which may be invoked only when the due administration of justice in judicial proceeding (such as grand jury or court proceedings) is threatened After Andersen, is there a need for awareness of pending proceedings? o Yes o But 18 USC 1512(g)(1) does not require such an awareness! How do you reconcile 18 USC 1512(g)(1) with Nexus and Materiality? You cannot! o Corruptly acting with an improper purpose After Andersen, is there a o Nexus Requirement in 1503? It must be proved that the official proceeding was foreseeable (prof not too sure what it means) o Materiality Requirement in 1503? The documents must be material in some way for this set of proceedings We now have 18 USC 1519 but this was implemented after Andersen o Make it easier for Government to prove o No corruptly, no official proceeding o Has not really been used much o Part of Sarbane-Oxleys response to Enron Sarbanes-Oxley Act of 2002 Prohibition of Destruction of Records and Whistleblower Section 1519 is restricted to circumstances in which the destruction or alteration of physical evidence takes place in connection with any matter within the jurisdiction of any department or agency of the United States or a bankruptcy case under title 11, which applies to obstructive activity pertinent to an official proceeding Aimed at obstructive activity that affects the investigation, or proper administration, of any matter within the jurisdiction of the executive branch or the independent agencies. This limitation is consistent with the context in which the statue was enacted: Congress was, at least in part, concerned with the obstructive activity of Arthur Andersen that was aid to impede the investigation of Enrons financials by the SEC

65

LAW638 White Collar Crime

18 USC 1503 (Omnibus Provision: Obstruction in Judicial Proceedings) Knowing that a judicial proceeding is pending and corruptly (probably includes Aguilar nexus requirement)

Endeavours to influence, obstruct, or impede the due administration of justice

18 USC 1505 (Obstruction in Federal Agency Proceedings and Congressional Investigation) Knowing that there is a pending proceeding before a department or agency of the United States or an inquiry or investigation being had in Congress, corruptly Endeavours to influence, obstruct or impede the due and proper administration of the law under which the pending proceeding is being had before any department or agency of the United States or the due and proper exercise of the power of congressional inquiry.

18 USC 1512(b) (Non-coercive Witness Tampering) Knowingly

18 USC 1512(c) (Tampering with Physical Evidence & Omnibus Provision) Corruptly

Uses intimidation, threatens, corruptly persuades, or engages in misleading conduct toward another person (or attempts to do so)

(2) otherwise obstructs, influences or impedes any official proceeding (or attempts to do so)

With a specific intent to obstruct

With intent to (1) influence, delay or prevent the testimony of any person in an official proceeding; (2) cause or induce any person to (a) withhold testimony or an object from an official proceeding; (b) alter, destroy or conceal an object with intent to impair the objects integrity or availability for use in an official proceeding, (c) evade legal process summoning that person to appear or to produce an object in an official proceeding; or (d) be absent from an official proceeding despite service of legal process; or 93) hinder, delay or prevent the communication to a law enforcement officer or US judge of information relating to the commission or possible commission of

(1) alters, destroys, mutilates, or conceals an object (or attempts to do so) with the intent to impair the objects integrity or availability for use in an official proceeding

66

LAW638 White Collar Crime

a Federal offence

67

LAW638 White Collar Crime

WEEK 6 MAIL AND WIRE FRAUD


Mail Fraud / Wire Fraud Elements Mailing / Wire Innocent mailing Variance Materiality Scheme to Defraud Intent to Defraud Money or Property Honest Services Intangible Rights Conflict of interest Bribes and kickbacks Federal White Collar Crime p 419 - 502 Why are mail and wire fraud statutes so popular? o Inchoate offences these statutes apply to fraudulent schemes that have not necessarily come to fruition or caused any loss o Simple offences proscribe use of the mails or wires (including faxes, telephone calls, e-mails, etc) to further fraudulent activity o Tool against public corruption o Use of the mail fraud statutes against high-ranking public officials Mail Fraud Elements o Scheme to defraud o Mailing of a letter, etc, for the purpose of executing the scheme Wire Fraud Elements o Scheme to defraud o Use of interstate wire communications in furtherance of the scheme Class Discussion: Submitting reports to the federal commission knowing that it is not true. Used credit cards totalling $582,000 caused interstate wired communication to occur. Client violated the election laws, by taking money donated for election campaign and spending it on anything but it: o Scheme: Money for false pretenses repetition o Mail interstate common carrier / interstate wire communication (telephone; they amended the statutes such that wireless phones are wired) / mail o Knowingly o Intent to Defraud Significant element. Done as a matter of business, pursuant to counsels advice or govts instruction could negate this intent to defraud o Materiality o Why charge under mail fraud? Easiest for imprisonment! o Rule 11 C Agreement the Government and D enter an agreement that he is going to plea guilty. The judge will bind himself to the upper range of the agreement Innocent Mailing:
68

LAW638 White Collar Crime

Stole someones credit card, and every night he would stop at the hotel and use the credit card. The hotel would take his credit card invoice and mail it to the bank and pay him. Not a mail fraud o School board members use credit cards to buy gas and would pay for the gas by paying the credit card statements o Elements: Mailing Required by Law (e.g. income tax returns) Scheme is complete I have got my goods Note that the odds of succeeding on this defence are very slim 18 USC 1341 Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation occurs in relation to, or involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with, a presidentially declared major disaster or emergency (as those terms are defined in section 102 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122)), or affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. 7th Circuit Instruction: 18 USC 1341 & 1343 Mail/Wire/Carrier Fraud Elements [The indictment charges the defendant[s] with; Count[s] __ of the indictment charge[s] the defendant[s] with] [mail] [wire] [carrier] fraud. In order for you to find [a; the] defendant guilty of this charge, the government must prove each of the [four] following elements beyond a reasonable doubt: o 1. That the defendant knowingly [devised] [or] [participated in] a scheme [to defraud], as described in Count[s] ___; (are all the words there wheres knowingly?) and 2. That the defendant did so with the intent to defraud; and 3. The scheme to defraud involved a materially false or fraudulent pretense, representation, or promise; (the word material isnt there) and 4. That for the purpose of carrying out the scheme or attempting to do so, the defendant [used [or caused the use of]] [the United States Mails] [a private or commercial interstate carrier] [caused interstate wire communications to take place] in the manner charged in the particular count.

69

LAW638 White Collar Crime

If you find from your consideration of all the evidence that the government has proved each of these elements beyond a reasonable doubt [as to the charge you are considering], then you should find the defendant guilty [of that charge]. If, on the other hand, you find from your consideration of all the evidence that the government has failed to prove any one of these elements beyond a reasonable doubt [as to the charge you are considering], then you should find the defendant not guilty [of that charge]. The Mailing or Wiring in Furtherance Element Schmuck v United States 489 US 705 (1989) Facts Schmuck was charged with devising and executing a scheme to defraud Wisconsin retail automobile customers who based their decisions to purchase certain automobiles at least in part on the lowmileage readings provided by the tampered odometers Had employed a man known only as Fred to turn back the odometers on about 150 different cars. Marketed these cars to a number of dealers, several of whom he dealt with on a consistent basis over a period of about 15 years (There was an ongoing fraudulent venture!) Mail fraud: To complete the resale of each automobile, the dealer who purchased it from Schmuck would submit a title-application form to the Wisconsin Department of Transportation on behalf of his retail customer. The receipt of a Wisconsin title was a prerequisite for completing the resale; without it, the dealer could not transfer title to the customer and the customer could not obtain Wisconsin tags Holding Although the registration-form mailings may not have contributed directly to the duping of either the retail dealers or the customers, they were necessary to the passage of title, which in turn was essential to the perpetuation of Schmucks scheme. A mailing that is incident to an essential part of the scheme satisfies the mailing element of the mail fraud offence Dissenting For though the Government chose to charge a defrauding of retail customers (to whom the innocent dealers resold the cars), it is obvious that regardless of who the ultimate victim of the fraud may have been, the fraud was complete with respect to each car when petitioner pocketed the dealers money. As far as each particular transaction was concerned, it was as inconsequential to him whether the dealer resold the car as it was inconsequential to D in Maze whether the defrauded merchant ever forwarded the charges to the credit company. Notes You can show that it is a mail fraud if you can prove that it is an ongoing scheme, or alternatively, use the lulling theory (i.e. lull the victims into a false sense of security, postpone their ultimate complaint to the authorities, and therefore make the apprehension of the defendants less likely than if no mailings had taken place) The mailing only needs to be foreseeable natural, probable chain of events, that would otherwise further the scheme Problem: Mail fraud not mail and fraud!

70

LAW638 White Collar Crime

In MSI

Facts

Holding

Notes

Holding

16 counts 16 invoices were paid. The defendant caused to be mailed to the State of Illinois these 16 invoices The defendants wanted the money so bad, they walked over to the Comptrollers Office to hand deliver the invoice. Variance: The indictment alleged X acts and the proof showed hand delivered! o Fatal Variance: D cannot possibly be prepared for trial, cannot possibly have mounted the defence because it was such a complete surprise Prosecution: We didnt have to prove that was the only mailing. The proof was that the defendant mailed the cheques for the invoices. Thus, being able to show constructive mailing is fine Scheme to Defraud Element (i) Materiality and Reliance Neder v United States 527 US 1 (1999) Neder argued that one of the elements materiality is not met If there were statutes that touch and concern the same topic, the definitions must be in material (i.e. mail fraud, bank fraud, securities fraud) Under the rule that Congress intends to incorporate the well-settled meaning of the common-law terms it uses, we cannot infer from the absence of an express reference to materiality that Congress intended to drop that element from the fraud statutes. On the contrary, we must presume that Congress intended to incorporate materiality unless the statute otherwise dictates The Government is correct that the fraud statutes did not incorporate all the elements of common-law fraud. The commonlaw requirements of justifiable reliance and damages plainly have no place in the federal fraud statutes. By prohibiting the scheme to defraud, rather than the completed fraud, the elements of reliance and damages would clearly be inconsistent with the statutes Congress enacted. But while the language of the fraud statutes is incompatible with these requirements, the Government has failed to show that this language is inconsistent with a materiality requirement Reflection of the complete mess that the mail fraud statute is in! The issue of materiality could be directed towards Ds intent, rather than the act. He could be a brilliant criminal, but still a criminal! Bridge v Phoenix Bond & Indemnity Co. 553 US 639 (2008) Petitioners were accused of fraudulently obtaining a disproportionate share of liens by violating the Single, Simultaneous Bidder Rule (I cant have 10 bidders at the sale and bid for the same thing, and was assigned the same property!) at the auctions held from 2002 to 2005. According to respondents, petitioner Sabre Group LLC and its principal Barrett Rochman arranged for related firms to bid on Sabre Groups behalf and directed them to file false attestations that they complied with the Single, Simultaneous Bidder Rule.

71

LAW638 White Collar Crime

Holding

Notes

Facts Issue

Holding

Notes

Issue

Having thus fraudulently obtained the opportunity to participate in the auction, the related firm collusively bid on the same properties at a 0% rate. As a result, when the county allocated liens on a rotating basis, it treated the related firms as independent entities, allowing them collectively to acquire a greater number of liens than would have been granted to a single bidder acting alone. The related firms then purchased the liens and transferred the certificates of purchase to Sabre Group. In this way, respondents allege, petitioners deprived them and other bidders of their fair shares of liens and the attendant financial benefits If petitioners proposed requirement of first-party reliance seems to come out of nowhere, there is a reason: Nothing on the face of the relevant statutory provisions imposes such a requirement. Using the mail to execute or attempt to execute a scheme to defraud is indictable as mail fraud, and hence a predicate act of racketeering under RICO, even if no one relied on any misrepresentation Q: It is a RICO case, a patent of mail fraud, which is the definition of mail fraud. Should the interpretation rule be the same for both criminal and civil cases? What if the RICO statute says that it should be construed in reference to the remedies? A: Possibly they were able to use the rule of remedy, but the case would still come out the same way it had resulted. To the extent the RICO statute requires some form of reliance, it may be indirect reliance, and clearly reliance is not an element of mail fraud. (ii) Intent to Defraud: Intent to Injure? United States v Regent Office Supply Co. 421 F.2d 1174 (2d Cir. 1970) The client called all the secretaries of these major firms, informing that they had leftover stationeries and needed to be disposed of. Does solicitation of a purchase by means of false representations not directed to the quality, adequacy or price of goods to be sold, or otherwise to the nature of the bargain, constitute a scheme to defraud or obtaining money by false pretenses within the prohibition of 18 USC 1341? While the prosecution must show that some harm or injury was contemplated by the scheme, it need not show that direct, tangible economic loss resulted to the schemes intended victims Isnt this a materiality case, in sheeps clothings? Isnt it the little white lie to get the foot into the door? United States v Siegel 717 F.2d 9 (2d Cir. 1983) The fraudulent scheme underlying Ds convictions involved unrecorded cash sales of Mego merchandise which had either been closed out and marked down for clearance or returned because of damage or defect. Abrams conducted some cash transactions himself. Siegel also dealt in cash transactions, supervising cash sales through a retail store of imported shirts worth over $30,000. Other cash transactions were conducted with the aid of William Stuckey, who was manager of

72

LAW638 White Collar Crime

Megos Long Island warehouse and who became a principal witness for govt. At the direction of Abraham and Siegel, Stuckey sold Mego merchandise to various street peddlers and merchants for cash. The off the books sales together generated in excess of $10,000 in cash Even though the cash sales were not recorded on Megos books, Siegel and Abrams told Megos auditors that there were no unrecorded assets. In addition, no information about the cash sales were divulged to Megos stockholders Notes Fraud alleged here was non-disclosure of a fiduciary breach by one under a duty to disclose Holding In affirming defendants convictions on the wife fraud counts, we in no way wish to encourage the type of indictment prosecuted here. Twenty counts were brought against five defendants, all but two of whom were acquitted of all charges. Siegel and Abrams, although convicted of the wire fraud charges (which might more properly have been redressed in a shareholders derivative suit or in a state criminal prosecution), were acquitted on several other countsWhile we applaud the governments concentration on unrecorded cash sales, a particularly common form of criminal activity, we nevertheless urge the government to think carefully before instituting other massive prosecutions having such slender foundations as this one. Dissenting What the majority does is infinitely worse, for it holds that the wire fraud statute creates a federal law of fiduciary obligations. There is no pretense that the source of the fiduciary duty at issue in this case was anything but federal law. There is no reference in the majority opinion to state law or even to Megos state of incorporation. The jury simply was told that it was up to it to decide whether, as part of the obligation to act in the best interest of the corporation, the defendants were under a duty to disclose the off-book transactions to shareholders. The material information not disclosed to shareholders in the instant case is a series of transactions of roughly $11,000 annually over nine years, a wholly trivial sum in light of Megos sales. In holding that these transactions would be important to a Mego shareholder, the majority simply closes its eyes to investment realities, for there is not a shred of evidence that such a sum would affect share price in the slightest. Notes This is a corporation. Whether executives of a corporation own some duty to the shareholders, this is an issue concerning state law, not a federal crime! Permissible Objects of a Scheme to Defraud Mail and wire fraud prosecutions may be founded upon a defendants fraudulent attempts to deprive others of: o Intangible property (such as confidential business information or a businesss right to control its assets) o Intangible non-property rights, such a right to honest services Elements of these crimes are: o A scheme or artifice to defraud; and o A mailing or interstate wiring in furtherance of the scheme

73

LAW638 White Collar Crime

In public corruption cases, the government did not have to prove that the governmental entity or citizenry victimised by this concealment lost money or property it was sufficient that the defendant deprived his victims of their right to his honest services through his concealment of breaches of his duty (i) Property McNally v United States 483 US 350 (1987) Facts The Wombwell Insurance Company agreed with Hunt that in exchange for a continued agency relationship it would share any resulting commissions in excess of $50,000 a year with other insurance agencies specified by him From 1975 to 1979, Wombwell funnelled $851,000 in commissions to 21 separate insurance agencies designated by Hunt. Among the recipients of these payments were Seton Investments Inc, a company controlled by Hunt and petitioner Gray and nominally owned and operated by petitioner McNally Gray and Hunt established Seton for the sole purpose of sharing in the commissions distributed by Wombwell Mail fraud count was based on the mailing of a commission check to Wombwell by the insurance company from which it had secured coverage for the State Principal theory: Petitioners participation in a self-dealing patronage scheme defrauded the citizens and govt of Kentucky of certain intangible rights, such as the right to have the Commonwealths affairs conducted honestly Issue Whether the jury charge permitted a conviction for conduct not within the scope of the mail fraud statute Holding After 1909, therefore, the mail fraud statute criminalised schemes or artifices to defraud or for obtaining money or property by means of false or fraudulent pretenses, representations or promises. Because the two phrases identifying the proscribed schemes appear in the disjunctive, it is arguable that they are to be construed independently and that the money-or-property requirement of the latter phrase does not limit schemes to defraud to those aimed causing deprivation of money or property. This is the approach that has been taken by each of the Courts of Appeals that has addressed the issue: schemes to defraud include those designed to deprive individuals, the people, or the government of intangible rights, such as the right to have public officials perform their duties honestly. It was not charged that in the absence of the alleged scheme the Commonwealth would have paid a lower premium or secured better insurance. Hunt and Gray received part of the commissions but those commissions were not the Commonwealths money. Nor was the jury charged that to convict it must find that the Commonwealth was deprived of control over how its money was spent Notes How can the court ignore 50 years of holding? The ballot box! Not the criminal courts. Congress should address this not the courts Conflict of interests? The falsehood is the lack of transparency involved within the whole scheme. In honest services, these men

74

LAW638 White Collar Crime

Facts

Holding

Notes

Charge

Holding

should have disclosed what was going on (conflict of interests). In what way does the failure to disclose conflict of interests be material (an important element that is capable of influencing the decision to be made)? The other decision-makers would want to know. The failure to disclose deprives them of the full facts (ii) Intangible Property Carpenter v United States 484 US 19 (1987) The official policy and practice at the Wall Street Journal was that prior to the publication of the daily column, Heard on the Street, the contents of the column were the Journals confidential info In spite of this rule, with which Winans (a reporter) was familiar, he entered into a scheme with Peter Brant and petitioner Felis, both connected with the Kidder Peabody brokerage firm in NYC, to give them advance info as to the timing and contents of the scheme This permitted Brant and Felis and another conspirator, David Clark, a client of Brant, to buy or sell based on the probable impact of the column on the market. Profits were to be shared. The conspirators agreed that the scheme would not affect the journalistic purity of the Heard column Property held protected by the mail fraud statute in McNally was not confined to tangible property such as cash or securities. Here, the object of the scheme was to take the Journals confidential business information the publication schedule and contents of the Heard column and its intangible nature does not make it any less property protected by the mail and wire fraud statutes. McNally did not limit the scope of s 1341 to tangible as distinguished from intangible property rights The confidential information was generated from the business, and the business had a right to decide how to use it prior to disclosing it to the public Confidential information has been held as a specie of properties in many states (iii) Honest Services: Section 1346 Skilling v United States US 130 S. Ct. 2896 (2010) Conspiracy o Deprive money or property o Securities o Honest services They are presumed constitutionalbut 1346 is enacted to what they said in McNally In view of this history, there is no doubt that Congress intended s 1346 to reach at least bribes and kickbacks. Reaching the statute to proscribe a wider range of offensive conduct, we acknowledge, would raise the due process concerns underlying the vagueness doctrine. To preserve the statute without transgressing constitutional limitations, we now hold that s 1346 criminalises only the bribe-and-kickback core of the pre-McNally case law (What is the logic here? We held in McNally that breach of fiduciary duties were

75

LAW638 White Collar Crime

Notes

Facts

not covered by the mail fraud statute. What Congress was saying that they want the courts to extend to breach of fiduciary duty that involved a conflict of interests) Void-for-vagueness doctrine addresses concerns about (1) fair notice and 92) arbitrary and discriminatory prosecutions. A prohibition on fraudulently depriving another of ones honest services by accepting bribes or kickbacks does not present a problem on either score All nine members of the Court concerted that s 1346 is vague; they disagree on the appropriate remedy whether to restrict the scope of the statute or to strike it as unconstitutional Once Congress responded with s 1346, it waited another 22 years to resolve the many circuit splits surrounding that statute, only to find that the many people convicted of honest services fraud not based on bribery or kickbacks were also legally innocent The Court took the Skilling, Black and Weyhrauch cases to decide three issues, although it ultimately failed to address them: o Whether the govt must prove that it was reasonably foreseeable that the honest services scheme could cause some economic or pecuniary harm to victims in private sector cases o Whether the duty to disclose, the violation of which constitutes the fraud, must arise under state law in a public sector case o Whether D must intend to obtain private gain from the victim to whom honest services are owed United States v Blackmon 839 F.2d 900 (2d Cir. 1988) Indictment alleged an elaborate scheme to defraud 6 victims in NYC. Scheme is a variation of a street confidence game known as the pigeon drop game involved persuading wealthy old women that they had found cash earmarked for Iran or the PLO, and then convincing the women to withdraw their own money from banks in an amount equivalent to their share of the found cash, convert them to foreign currency, give it to the appellants for high-return foreign investment

76

LAW638 White Collar Crime

77

LAW638 White Collar Crime

WEEK 7 PUBLIC CORRUPTION


Public corruption Bribery Gratuities Quid Pro Quo Hobs Act Extortion Property Colour of Official Right Federal White Collar Crime p 503 563 Statute expressly criminalising federal public corruption: 18 USC 201: o 201(b) criminalises bribery, which is punishable by up to 15 years imprisonment, a fine of up to three times the monetary equivalent of the bribe, and disqualification from any federal office o 201(c) prohibits the payment and receipt of official gratuities, which is punishable by up to 2 years imprisonment and a fine Difference bribery requires proof of a quid pro quo specific intent to give or receive something of value in return for an official act and a gratuity offence does not Elements to secure a conviction for bribery under 201(b)(I), which targets the briber, the govt must prove that D: o Corruptly o Directly or indirectly, gave, offered, or promised to any public official or person who has been selected to be a public official or offered or promised any public official or person who has been selected to be a public official to give to any other person or entity o Anything of value o With intentto influence any official act (under 201(b)(I)(A)) or to induce such public official...to do or omit to do any act in violation of the lawful duty of such official or person (under 201(b)(I)(C))

How do you distinguish bribery from illegal gratuity? Govt official look at the reporting requirement. See how it was delivered How the person who receive the money spends the money! To secure a conviction for bribery under 201(b)(2) of the person bribed, the govt must prove that: o A public official or a person who has been selected to be a public official o Corruptly o Directly or indirectly, demanded, sought, received, accepted or agreed to receive or accept personally or for any other person or entity o Anything of value o In return forbeing influenced in the performance of any official act (under 201(b)(2)(A)) or being induced to do or omit to do any act in violation of the official duty of such official or person (under 201(b)(2)(C))

78

LAW638 White Collar Crime

To secure a conviction for gratuities conviction under 201(c)(I)(A), which targets the person making the illegal payment, the govt must prove that: o D knowingly and willfully o Directly or indirectly, gave, offered or promised o anything of value o to any public official, former public official, or person selected to be a public official o For or because of any official act performed or to be performed by such public official, former public official, or person selected to be a public official To secure a conviction for gratuities conviction under 201(c)(I)(B), to whom the gratuity was offered, the govt must prove that: o A public official, former public official or person selected to be a public official o Knowingly and willfully o Otherwise than as provided by law for the proper discharge of official duty, directly or indirectly demanded, sought, received, accepted or agreed to receive o Anything of value o personally or for or because of any official act performed or to be performed by such official or person Public official not only members of Congress and federal government officers or employees, but also person[s] acting for or on behalf of the US, or any department, agency or branch of Govt thereofin any official function, under or by authority of any such dept, agency or branch of Govt o Dixson v United States, 465 US 482 (1984): Officers of a private, nonprofit corporation administering and expending federal community development block grants were public officials for purposes of the federal bribery statute Thing of Value o Broad definition, encompassing anything that has subjective value to the recipient o Includes items that, although worthless, were elieved by the recipient to have commercial value Official Acts and Violations of Official Duties o Not limited to duties set forth in a written job description but may include as well those duties customarily associated with a particular job o Valdes v United States, 475 G.3d 1319 (D.C. Cir. 2007) Misuse of govt property and position to search govt database did not constitute a decision on action on any question, matter, cause, suit, proceeding or controversy brought or pending before any public official, in such officials official capacity o Difference between 201(c)(I)(C) and 201(c)(I)(A)&(B): Bribery may be proved where D corruptly gives a public official something of value to induce such public officialto do or omit to do any act in violation of the

79

LAW638 White Collar Crime

lawful duty of such official or person Bribery v Gratuities Differences o Unlike most of 201s anti-bribery provisions, the anti-gratuity provision has no requirement that the payment actually influence the performance of an official act o The bribery statute contemplates that the thing of value may be given to the public official or to any other person or entity with the intent to influence an official act o More critical distinctions: Nexus the degree of the nexus that must be shown to exist between the thing of value offered and the official act Sun-Diamond: In order to establish a violation of 18 USC 201(c)(I)(A), the Govt must prove a link between a thing of value conferred upon a public official and a specific official act for or because of which it was given United States v Schaffer, 183 F.3d 833, 840 (D.C.Cir 1999): o Bribery requires a quid pro quo, and accordingly can be seen as having a two-way nexus o Bribery typically involves an intent to affect the future actions of a public official through giving something of value, and receipt of that thing of value then motivates the official act o A gratuity, by contrast, requires only a one-way nexus: the gratuity guideline presumes a situation in which the offender gives the gift without attaching any strings Applicable mens rea element(s) of the two crimes Federal Bribery and Gratuities Under 201 United States v Sun-Diamond Growers of California 526 US 398 (1999) Facts Petitioner United States sought review of the court of appeal's decision reversing respondent trade association's conviction for illegally bestowing gifts on a former secretary of agriculture. The court held that, in order to establish a violation of the "illegal gratuity statute," 18 U.S.C.S. 201(c)(1)(A), petitioner was required to prove a link between a thing of value conferred upon a public official, plus a specific "official act" as defined in 18 U.S.C.S. 201(a)(3) for or because of which the gift was given. To hold otherwise would criminalize token gifts made to public officials by special interest groups without proof that a political favor was expected in return. The court found that the district court's jury instructions on the nature of illegal gratuities were not harmless error. The court affirmed the judgment and remanded the case to the district court for retrial. Ruling The court affirmed the judgment of the court of appeals which held that petitioner federal government was required to prove more than the mere fact that respondent made a gift to a public official in order to convict respondent of a violation of the illegal gratuity statute. Petitioner was required to show that respondent expected a

80

LAW638 White Collar Crime

Holding

Notes

Facts

Ruling Holding

Dissenting

favorable act in return. For bribery, there must be a quid pro quo a specific intent to give or receive something of value in exchange for an official act (Show in isolation that the payor is paying the money for that, and that is a specific thing). An illegal gratuity, on the other hand, may constitute merely a reward for some future act that the public official will take (and may already have determined to take), or for a past act that he has already taken [quid pro quo v for or because of] Official act: The insistence upon an official act, carefully defined, seems pregnant with the requirement that some particular official act be identified and proved The government must prove a link between a thing of value conferred upon a public official and a specific official act for or because of which it was given Because of the payment to the crop-growers, and without the because, it could not be a gratuity sounds close to the quid pro quo United States v Alfisi 308 F.3d 144 (2d Cir. 2002) D, a representative of a produce broker, was caught in a sting operation paying funds to a United States Department of Agriculture produce inspector to regulate downgrade the assessment of the grade level of the produce lot, so that the wholsalers can renegotiate the price of the lot downward. In the initial jury charge, the district court confused the distinction, but when the jury requested clarification, the court properly instructed it on the specific intent of corruption and quid pro quo element the court described bribery as the giving of money to a public official for or because of an official act [and] with a corrupt intention specifically to influence the outcome of the official act. Therefore, since the error had been fully cured, a majority of the court upheld the convictions as properly obtained. Majority of the panel affirmed conviction. Bribery requires that the payor intend to influence an official act corruptly while the payment of an unlawful gratuity requires only that the payment be for or because of an official act The corrupt intent necessary to a bribery conviction is in the nature of a quid pro quo requirement; that is, there must be a specific intent to givesomething of value in exchange for an official act. Putting it only slightly differently, bribery involves the giving of value to procure a specific official action from a public official. The element of a quid pro quo or a direct exchange is absent from the offence of paying an unlawful gratuity Disagrees that there is a quid pro quo element to the word corruptly. A fundamental concept of a corrupt act is a breach of some official duty owed to the govt or the public at large. Argued that the quid pro quo element arises not from the term corruptly, but rather from the term to influence Our cases thus provide that a payment made in the course of a shakedown where the public official demands payment as a quid pro quo for proper execution of his duty is not a bribe

81

LAW638 White Collar Crime

Notes

To act corruptly and therefore to commit bribery, a person must do more than merely seek to secure some benefit or quid pro quo. Rather, a person must do more than merely seek to secure some benefit or quid pro quo. Rather, the benefit sought must entail a breach of duty or trust. The court may have meld the two requirements of corrupt and quid pro quo

Extortion Under Colour of Official Right Under 1951 (The Hobbs Act) Obtaining the property of another with threat of force, actual force or colourable official right in interstate congress. Evans v United States 504 US 255 (1992) Facts D was convicted of extortion in violation of the Hobbs Act, 18 U.S.C.S. 1951, as a result of bribes taken from an undercover agent. The conviction was affirmed by the appellate court, which held that petitioner need not take any specific action to induce the offering of the benefit. An FBI agent posed as a real estate developer talked to him on the phone and met him on a number of occasions. Most were recorded on tape or video Petitioner filed a petition for certiorari, which was accepted by the court. The court affirmed the decision of the appellate court because the government needed only to show that petitioner obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts. The court found that there was nothing in either the statutory text or the legislative history of 1951 that was a contrary direction by Congress to the common-law meaning of extortion. The wrongful acceptance of a bribe established all the inducement that the statute required. The court found that the jury instruction was proper because the quid pro quo requirement was satisfied. The offense was completed at the time petitioner received the payment in return for his agreement to perform specific official acts. The fulfillment of the quid pro quo was not an element of the offense. Ruling Rejected the inducement element in colour of official right cases The Government need only show that a public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts No need for quid pro quo Why the court disagreed and rejected courts that applied the common law definition which interpreted the word induced as requiring a wrongful use of official power that begins with the public official, not with the gratuitous actions of another: We think the word induced is a part of the definition of the offence by the private individual, but not the offence by the public official. In the case of the private individual, the victims consent must be induced by wrongful use of actual or threatened

Mens rea of bribe = D acted corruptly Mens rea of gratuity = D acted knowingly and willingly

Holding

82

LAW638 White Collar Crime

force, violence or fear. In the case of the public official, however, there is no such requirement. The statute merely requires of the public official that he obtain property from another, with his consent,under colour of official right. The use of the word or before under colour of official right supports this reading Even if the statute were parsed so that the word induced applied to the public official, we do not believe that the word induced necessarily indicates that the transaction must be initiated by the recipient of the bribe. Many of the cases applying the majority rule have concluded that the wrongful acceptance of a bribe establishes all the inducement that the statute requires The Government need only show that a public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts Need for quid pro quo: Justice Kennedy, Rule of lenity should apply: With regard to the question whether concurring the word induced in the statutory definition of extortion applies in part and to the phrase under colour of official right, I find myself in concurring substantial agreement with the dissent. Scrutiny of the placement of in commas will not, in the final analysis, yield a convincing judgment answerUnder these circumstances, I agree with the dissent that the rule of lenity requites that we avoid the harsher one. Presence of quid pro quo: Something beyond the mere acceptance of property from another is required, however, or else the word induced would be superfluous. That something, I submit, is the quid pro quo. o This essential element is derived from the statutory requirement that the official receive payment under colour of official right, as well as the inducement requirement A public official who labours under the good-faith but erroneous belief that he is entitled to payment for an official act does not violate the statute (though that circumstance is not presented here) Dissenting: Extortion under colour of office, at common law: required that the Justice money or property was obtained under the pretense that the Thomas, officer was entitled thereto by virtue of his office Chief The more natural construction is that the verb induced applies to Justice and both types of extortion described in the statute. Thus, the unstated Justice either belongs after induced: The term extortion means the Scalia obtaining of property from another, with his consent, induced either [1] by wrongful use of actual or threatened force, violence or fear, or [2] under colour of official rightGiven the text of the statute and the rule of lenity, I believed that inducement is an element of official extortion under the Hobbs Act. A particular public official, to be sure, may wield his power in such a way as to coerce unlawful payments, even in the absence of any explicit demand or threat. But it ignores the reality to assert that every public official, in every context, automatically exerts coercive influence on others by virtue of his office. Notes No need for explicit agreement between the payor and payee quid pro quo in this instance refers to the degree to which the payor

83

LAW638 White Collar Crime

and payee were aware of its terms, regardless of whether those terms were articulated Type of Property that must be obtained through extortion in order to meet the requirements of the statute United States v Gotti 459 F.3d 296 (2d Cir. 2006) Facts Earlier court held that Scheidler II did not invalidate the challenged extortion counts in this case, because Scheidler II -- far from holding that a Hobbs Act extortion could not be premised on the extortion of intangible property rights -- simply clarified that for Hobbs Act liability to attach, there had to be a showing that the defendant did not merely seek to deprive the victim of the property right in question, but also sought to obtain that right for himself. That standard, which could be satisfied regardless of whether the property right at issue was tangible or intangible, was met by each of the Hobbs Act counts in this case. Ruling The court affirmed all of the convictions. However, in light of the Supreme Court's decision in Booker and certain of the court's own decisions, the court remanded for resentencing of three of the defendants. Expansive Definitions in Tropiano Holding Property: Any valuable right considered as a source or element of wealth and does not depend upon a direct benefit being conferred on the person who obtains the property Obtaining of Property: Whether D is (1) alleged to have carried out (or, in the case of attempted extortion, attempted to carry out) the deprivation of a property right from another, with (2) the intent to exercise, sell, transfer, or take some other analogous action with respect to that right. Scheidler Narrow Interpretation Struck down the expansive interpretation In its anti-abortion case, the protesters had neither pursued nor received something of value from respondents that they could exercise, transfer or sell. To conclude that such actions constituted extortion would effectively discard the statutory requirement that property must be obtained from another, replacing it instead with the notion that merely interfering with or depriving someone of property is sufficient to constitute extortion This case - Gotti This court felt that Scheidler II was only tightening the obtaining requirement of the Hobbs Act, and that in this regard, an important inquiry was whether the defendants had pursued [or] received something of value from [victims] that they could exercise, transfer, or sell. In the case of the anti-abortion protestors who sought only to shut down abortion clinics, they had not Generally speaking, intangible property rights such as for instance, non-competition or exclusivity agreements are certainly things of value that are capable of being exercised, transferred or

84

LAW638 White Collar Crime

sold Obtaining: Had the protesters sought to take further action after having deprived the clinics of their right to conduct their business as they wished (e.g. forcing the clinic staff to provide different types of services, forcing the clinic to turn its operations over to the protestors, or selling the clinic or its property to a third party) we believe that they would have satisfied the Schediler II Courts definition Similar to the distinction between honest services and customer list / news item (you could put a value on it. State law would recognise it as a species of the property) Federal Program Bribery, Theft And Fraud Under 666 (a) Whoever, if the circumstance described in subsection (b) of this section exists- (1) being an agent of an organization, or of a State, local, or Indian tribal government, or any agency thereof-o (A) embezzles, steals, obtains by fraud, or otherwise without authority knowingly converts to the use of any person other than the rightful owner or intentionally misapplies, property that- (i) is valued at $ 5,000 or more, and (ii) is owned by, or is under the care, custody, or control of such organization, government, or agency; or o (B) corruptly solicits or demands for the benefit of any person, or accepts or agrees to accept, anything of value from any person, intending to be influenced or rewarded in connection with any business, transaction, or series of transactions of such organization, government, or agency involving any thing of value of $ 5,000 or more; or (2) corruptly gives, offers, or agrees to give anything of value to any person, with intent to influence or reward an agent of an organization or of a State, local or Indian tribal government, or any agency thereof, in connection with any business, transaction, or series of transactions of such organization, government, or agency involving anything of value of $ 5,000 or more; shall be fined under this title, imprisoned not more than 10 years, or both. Fischer v United States 529 US 667 (2000) Facts Petitioner was convicted of defrauding a hospital which received benefits in excess of $ 10,000 per year from Medicare. Petitioner argued that: 1. Medicare payments to the hospital did not constitute benefits, within the meaning of 18 U.S.C.S. 666(b). He argued Medicare provided benefits only to the elderly and disabled. 2. Medicare payments to providers, such as the hospital at issue, were for the limited purposes of compensating those providers or reimbursing them for ordinary expenditures. Ruling Court disagreed; The funds health care organizations receive for participating in Medicare program were held to constitute benefits within the meaning of the federal bribery statute because those providers were found to have derived significant advantages through satisfaction of the Medicare participation standards imposed by the government. Holding The payments in question have attributes and purposes well beyond

85

LAW638 White Collar Crime

those described in subsection (c). These attributes and purposes are consistent with the definition of benefit. While the payments might have similarities to payments an insurer would remit to a hospital quite without regard to the Medicare program, the Govt does not make the payment unless the hospital complies with its intricate regulatory scheme. The payments are made not simply to reimburse for treatment of qualifying patients but to assist the hospital in making available and maintaining a certain level and quality of medical care, all in the interest of both the hospital and the greater community. Dissenting, The only persons who receive benefits under Medicare are the by Justice individual elderly and disabled Medicare patients, not the medical Thomas providers who serve them. Payments made by the Federal Government and Justice to a Medicare health care provider to reimburse the provider for the Scalia costs of services rendered, rather than to provide financial aid to the hospital, are not benefits Medicare aims to ensure that the beneficiaries of the program patients are able to receive the programs intended benefits. It does not establish that Medicare exists to put hospitals on the dole. Sabri v United States 541 US 600 (2004) Basim Omar Sabri was not confident in his ability to adapt to the lawful administration of licensing and zoning laws, and offered three separate bribes to a city councilman, Brian Herron, who was a member of the Board of Commissioners of the Minneapolis Community Development Agency, a public body created by the city council to fund housing and economic development within the city. Whether 18 USC 666(a)(2), proscribing bribery of state, local, and tribal officials of entities that receive at least $10,000 in federal funds, is a valid exercise of congressional authority under Art I of the Constitution. We hold that it is. The United States Supreme Court affirmed and remanded the judgment of the court of appeals. To qualify as a valid exercise of Art I power, the statute must require proof of connection with federal money as an element of the offence: While not every bribe or kickback offered or paid to agents of governments would be traceably skimmed from specific federal payments, that possibility portended no enforcement beyond the

Facts

Issue

Ruling Holding

scope of federal interest because corruption did not have to be that limited to affect the federal interest.
It was enough that the statute conditioned the offense on a threshold amount of federal dollars defining the federal interest and on a bribe that went well beyond liquor and cigars. Congress's decision to enact it only after other legislation had failed to protect federal interests was further indication that it was acting within the ambit of the Necessary and Proper Clause Cant be prosecuted under 201, he is not a public official. This isnt federalization, it is over-federalisation No nexus required this case has nothing to do with the federal

Notes

86

LAW638 White Collar Crime

money at all! In the name of prosecuting public corruption, we cannot have statutes that have bright line that it is okay to prosecute senators, congressional representatives, state senators, state representatives, mayors, city council members Federal govt is no longer a govt of limited power in this context

87

LAW638 White Collar Crime

88

LAW638 White Collar Crime

WEEK 7 SECURITIES FRAUD


Securities Fraud Insider Trading o Traditional Theory o Misappropriation Tipper/Tippee Liability Cady Robers Rule Wilfulness Get out of jail!

Federal White Collar Crime p 597 664 Rationale for Insider Trading Prohibition Donald C. Langevoort, Insider Trading: Regulation, Enforcement and Prevention 1:2 to 1:6, at 1-8 to 1-17 (West 2002) No economic harm done suppose that the friend buys 1000 shares at $7 as a result of a tip, thus being able to make a quick $5000 profit, when unknown to the public, the acquiring company is prepared to pay $12 per share in a friendly merger Were insiders permitted to profit from trading, they would have an incentive to delay disclosure of information until their personal profit from the information has been captured Unfair exploitation of information that properly belongs to somebody else Traditional Theory They have a duty to the shareholders of the company. (i) Principal Liability Chiarella v United States 455 US 222 (1980) Facts Petitioner was hired by the Tender Company. He did not have any shares of the Tender Company but he would buy stocks of the Target Company. He owes no duty to the Target Company While working for a financial printer, petitioner handled announcements of corporate takeover bids. While these documents were delivered to the printer, the identities of the acquiring and target corporations were concealed by blank spaces or false names. The true names were sent to the printer on the night of the final printing. The petitioner, however, was able to deduce the name of the target companies before the final printing from other information contained in the documents. Without disclosing his knowledge, petitioner purchased the targeted companies stock, selling the shares immediately after the takeover attempts were made public. Ruling The Court held that petitioner had not violated the duty to disclose material information where no relationship of trust or confidence existed between petitioner and the shareholders. While noting that silence in connection with the purchase or sale of securities could have been fraud under 10(b), the Court held that petitioner had not violated 10(b) where he was under no affirmative duty to disclose the information before trading. Because petitioner was not an agent or fiduciary of the sellers, the
89

LAW638 White Collar Crime

Holding

Dissenting by Chief Justice Burger

Court found that he had no duty to the sellers. The obligation to disclose or abstain derives from: o Existence of a relationship affording access to insider information intended to be available only for a corporate purpose, and o Unfairness of allowing a corporate insider to take advantage of that information by trading without disclosure Silence in connection with the purchase or sale of securities may operate as a fraud actionable under 10(b) despite the absence of statutory language or legislative history specifically addressing the legality of nondisclosure. But such liability is premised upon a duty to disclose arising from a relationship of trust and confidence between parties to a transaction The petitioner was convicted of violating 10(b) although he was not a corporate insider and he received no confidential information from the target company. The market information upon which he relied did not concern the earning power or operations of the target company, but only the plans of the acquiring company. Petitioners use of that information was not a fraud unless he was subject to an affirmative duty to disclose it before trading. Neither party to an arms length business transaction has an obligation to disclose information to the other unless the parties stand in some confidential or fiduciary relation. Any time information is acquired by an illegal act it would seem that there should be a duty to disclose that information. CJ read 10(b) and Rule 10b-5 to encompass and build on this principle: to mean that a person who has misappropriated nonpublic information has an absolute duty to disclose that information or to refrain from trading

Notes

Cady Roberts Rule: If you have inside information and you are trading on the market, you have the responsibility to disclose that information or abstain from trading.
Petitioner owns a duty to the printer, which then owns a duty to tender company A. It is possible to catch him by misappropriation A variance! Could someone, after a variance has been proved, can be liable. Court however held that there was such a variance between the traditional and misappropriation that he could not be held liable (ii) Tipper/Tippee Liability Dirks v SEC 463 US 646 (1983) EFA
Seacrist (Insider)

Facts
Client Client Client

Dirks (Tippee)

Petitioner was an officer of a broker-dealer firm and specialized in investment analysis of insurance company securities to investors. Petitioner received information that a corporation, Equity Funding,
90

LAW638 White Collar Crime

Issue Holding

had vastly overstated assets. Secrist (insider) gave the tip to Driks Petitioner discussed this information with clients, and some of those clients sold holdings in the corporation. When respondent learned of petitioner's actions, respondent found that petitioner aided and abetted violations of 17(a) of the Securities Act of 1933, and 10(b) of the Securities Exchange Act of 1934, by repeating the allegations to members of the investment community. Dirks himself did not trade In a divided opinion, the appellate court found against petitioner and he sought the Court's review. The U.S. Supreme Court held there was no actionable insider-trading violation by petitioner where petitioner was a stranger to the corporation, had no fiduciary duty to corporation's shareholders, did not try to gain corporate shareholder's confidence, and did not illegally obtain the information about the corporation. Therefore, petitioner had no duty to abstain from the use of the inside information, and the lower court's judgment was reversed. Whether a tippee is required to disclose the information or refrain from trading

Unlike insiders who have independent fiduciary duties to both the corporation and its shareholders, the typical tippee has no such relationships. In view of this absence, it has been
unclear how a tippee acquires the Cady, Roberts duty to refrain from trading on insider information A duty to disclose arises from the relationship between parties, and not merely from ones ability to acquire information because of his position in the market Imposing a duty to disclose or abstain solely because a person knowingly receives material nonpublic information from an insider and trades on it could have an inhibiting influence on the role of market analysts, which the SEC itself recognises is necessary to the preservation of a healthy market However, some tippees must assume an insiders duty to the shareholders not because they receive inside information, but rather because it has been made available to them improperly A tippee assumes a fiduciary duty to the shareholders of a corporation not to trade on material nonpublic information only when the insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach Whether disclosure [by the tipper] is a breach of dutydepends in large part on the purpose of the disclosure (i.e. whether the insider personally will benefit, directly or indirectly, from his disclosure) Footnote 14: The Court carves out very important category of persons potentially subject to insider trading sanctions: quasi- or temporary insiders. Certain persons who are formally outsiders lawyers, accountants or bankers not employed by an entity but performing services for it may be deemed temporary or quasiinsiders when they have entered into a special confidential
91

LAW638 White Collar Crime

relationship in the conduct of the business of the enterprise and are given access to information solely for corporate purposes (iii) Misappropriation Theory United States v OHagan 521 US 642 (1997) Facts GM Dorsey
OHagan

Pilsbury

Issue

Ruling Holding

Respondent was a partner in a law firm which represented a company regarding a potential tender offer for the common stock of another company. During the representation, respondent purchased call options for the other company's stock and sold them for a significant profit. After the SEC initiated an investigation into respondent's transactions, a jury convicted respondent of securities fraud. On writ of certiorari, the Court held that criminal liability under 10(b) of the Securities Exchange Act of 1934 may be predicated on the misappropriation theory. Is a person who trades in securities for personal profit, using confidential information misappropriated in breach of a fiduciary duty to the soruce of the information, guilty of violating 10(b) and Rule 10b5? Yes Misappropriation theory: holds that a person commits fraud in connection with a securities transaction, and thereby violates 10(b) and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information Willfulness: intentional violation of a known act. If OHagan subjectively believed that he was not in violation of the law in doing such a trading, he can present it as a defence and not go to jail Under this theory, a fiduciarys undisclosed, self-serving use of a principals information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information. In lieu of premising liability on a fiduciary relationship between company insider and purchaser or seller of the companys stock, the misappropriation theory premises liability on a fiduciary-turned-traders deception of those who entrusted him with access to confidential information The misappropriation theory outlaws trading on the basis of nonpublic information by a corporate outsider in breach of a duty owed not to a trading party, but to the source of the information

92

LAW638 White Collar Crime

In connection with the purchase or sale of [a] security: Satisfied because the fiduciarys fraud is consummated, not when the fiduciary gains the confidential information, but when, without disclosure to his principal, he uses the information to purchase or sell securities Emphasizes the need to interpret 10(b)s requirement that a deceptive device be used or employed, in connection with the purchase or sale of any security: Undisclosed misappropriation of confidential information would meet such a criteria Dissenting Unlike the majority, however, I cannot accept the Commissions interpretation of when a deceptive device is used in connection with a securities transaction. If the relevant test under the in connection with language is whether the fraudulent at is necessarily tied to a securities transaction, then the misappropriation of confidential information used to trade no more violates 10(b)than does the misappropriation of funds used to trade. As the Commission concedes that the latter is not covered under its theory, I am at loss to see how the same theory can coherently be applied to the former SECURITIES FRAUD UNDER 18 USC 1348 Whoever knowingly executes, or attempts to execute, a scheme or artifice-o (1) to defraud any person in connection with any commodity for future delivery, or any option on a commodity for future delivery, or any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)); or o (2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any commodity for future delivery, or any option on a commodity for future delivery, or any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)); shall be fined under this title, or imprisoned not more than 25 years, or both. ACCOUNTING FRAUD Revenue Recognition o Incomplete transactions: Sellers rights to collect what is owed, or an obligation to refund what already has been paid, or that the seller still has substantial performance obligations before that seller can truly say it has substantially accomplished what it msut do to be entitled to the benefits represented by the revenues o Round Trippers: Takes place where Companies A and B agree to buy each others products or services (usually in approximately equal amounts) to boost the revenues and sometimes reported profits of each o Barter Transactions: Barter, or non-monetary transactions are special version of round trippers where the transaction involves little or no exchange of cash o Channel Stuffing: Occurs where a manufacturer that sells through distributors makes forecast by unusually large sales to those distributors. These transactions often take place at or near quarter end

93

LAW638 White Collar Crime

and result in the distributors carrying an unusually large inventory of the manufacturers goods. The distribution channel is thus stuffed in the same sense as the aggressive eater at Thanksgiving. The process may be aided by one time offers of special pricing or other incentives to the customers o Keeping the Books Open: Keep the books open at quarter end long enough to report results in line with forecasts. This is almost always done with legitimate sales; they are simply recorded in an earlier quarter than otherwise would be the case Cost Deferrals o Inventory: Simply invent some inventory o Property, Plant and Equipment: Costs of PPE, including costs incurred to prepare the assets for its intended use, are deferred and amortised over the assets estimated life. There is an incentive to recharacterise ordinary expenses as part of PPE Cookie Jar o Cookie jar reserves can be created in a variety of ways using both routine and not-so-routine accrual (liability) and allowance (contra asset) accounts, including: Bad debt allowances Accrual for sales returns and warranties Litigation accruals Inventory lower of cost or market (LOCOM) reserves Deferred revenue accounts General (unspecified) reserves United States v Ebbers 458 F.3d 110 (2d Cir. 2006) Facts D engineered a scheme to disguise a publicly traded company's declining operating performance by falsifying its financial reports. On appeal, defendant principally contended that the district court erred in permitting the government to introduce testimony by immunized witnesses while denying immunity to potential defense witnesses who were rendered unavailable to defendant by their invocation of the Fifth Amendment privilege against selfincrimination. He also asserted error in jury instructions and claimed that, as to securities fraud charges under 15 U.S.C.S. 78ff and 78j(b), the government should have been required to allege and prove violations of Generally Accepted Accounting Principles (GAAP). Affirming, the court rejected each of defendant's arguments. Holding Adopting an abuse of discretion standard regarding the immunity issues, the court noted that the immunity decisions were consistent with legitimate law enforcement concerns. There was no evidence of overreaching or manipulation of immunity expressly for tactical reasons. Given the policy decisions of Congress on sentences for fraud, the court concluded that defendant's 25-year sentence was harsh but not unreasonable.

94

LAW638 White Collar Crime

WEEK 8 CONSPIRACY
Federal White Collar Crime p 665 - 700 Notes 18 USC 371: Existence of an agreement to achieve an unlawful objective Ds knowing and voluntary participation in the conspiracy Commission of an overt act in furtherance of the conspiracy Practical Consequences of a Conspiracy Charge Fed R. Evid. 801(D)(2)(E) o Lower evidential burden for hearsay: A statement is not hearsay if it is offered against a party and is a statement by a co-conspirator of a party during the course and in furtherance of the conspiracy o Coconspirators statements, if believed, can be very damaging to the defence because they often constitute the only direct evidence regarding such central issues as Ds knowledge or intent o Low hurdles or govt to surmount: To get a coconspirators statement admitted against D, the govt must establish that a conspiracy existed and that the D against whom it is sought to be admitted and the declarant were parties to that conspiracy o The existence of a conspiracy is a question for determination, under a preponderance of evidence standard, by the trial court o Statement must be made during the course and in furtherance of the conspiracy Joinder o Rule 8(b): Joinder of Ds in one trial may be substantially eased by inclusion of a conspiracy charge, particularly where the activities at issue involved disparate crimes by many Ds Venue o Govt bears the burden of proving by a preponderance of the evidence that venue is proper o Problem: Many white-collar crimes are often continuing offences can be committed jointly by multiple parties all over the place! A conspiracy under 371 is deemed committed not only where the agreement is formed, but also where the overt acts occurred Statutes of Limitations o Limitations period commences upon the occurrence of the last overt act committed in furtherance of the conspiracy. Even if the agreement, most of the overt acts and even crimes that were the object of the conspiracy would be time-barred if pursued independently, a criminal conspiracy prosecution based on the same evidence is still viable if one overt act occurred within the statutory period Conspiracy to Defraud Clause Case What Does the Govt need to show? D entered into an agreement To obstruct a lawful function of the govt By deceitful or dishonest means At least one overt act in furtherance of the conspiracy Elements/Principles of Liability

95

LAW638 White Collar Crime

Facts

Holding

Facts

Holding

Defraud and Offence Clauses United States v Arch Trading Co. 987 F.2d 1087 (4th Cir. 1993) Nov 1988: Arch Trading entered into a $1.9 million contract with Agricultural Supplies Company, a quasi-governmental body owned by the government of Iraq to ship to Iraq and install there laboratory equipment, including a virology fermenter and a bacteriology machine Aug 2 1990: When Iraq invaded Kuwait, President Bush issued executive order prohibiting United States persons from, among other things, exporting goods, technology or services to Iraq; performing any contract in support of an industrial, commercial or governmental project in Iraq; and engaging in any transaction relating to travel to Iraq by United States persons Notwithstanding the prohibitions of the first executive order, two executives of Arch Trading immediately attempted to enter Iraq to install the laboratory equipment that had already been delivered To conspire to defraud the United States means primarily to cheat the Government out of property or money, but it also means to interfere with or to obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest While it may be that executive orders cannot alone establish crimes, when such orders are duly authorised by an act of Congress and Congress specifies a criminal sanction for their violation, the consequence is different. In this case, the IEEPA authorised the President to issue executive orders proscribing conduct, and 50 USC 1705(b) makes criminal the disobedience of an order issued under the Act. There is no question that violation of a federal criminal statute may properly be charged under the offence clause. We therefore hold that when Congress provides criminal sanctions for violations of executive orders that it empowers the President to issue, such violation constitutes an offence for the purposes of 18 USC 371 Agreement (a) Plurality United States v Stevens 909 F.2d 431 (11th Cir. 1990) Steven was the sole shareholder of four corporations formed for the purpose of performing government contract work. Stevens misrepresented that certain work had been performed in several requests for progress payments. A sole stockholder who completely controls a corporation and is the sole actor in performance of corporate activities, cannot be guilty of a criminal conspiracy with that corporation in the absence of another human actor. The argument that a single human actor can be convicted of conspiracy under 371 under the circumstances of this case flies in the face of the traditional justification for criminal conspiracies. Conspiracy is a crime separate from the substantive criminal

96

LAW638 White Collar Crime

Holding

Issue

Ruling Holding

offence which is the purpose of the conspiracy. This separate punishment is targeted not at the substantive offences themselves, but at the danger posed to society by combinations of individuals acting in concert. The threat posed to society by these combinations arise from the creative interaction of two autonomous minds. It is for this reason that the essence of a conspiracy is an agreement. The societal threat is of a different quality when one human simply uses the corporate mechanism to carry out his crime. The danger from agreement does not arise. (b) Intent, Imposibility and Withdrawal United States v Reico 537 US 270 (2003) A conspiracy does not automatically terminate simply because the Government, unbeknownst to some of the conspirators, has defeated the conspiracys object A conspiracy may end where the defendant abandoned, withdrew from, or disavowed the conspiracy or defeated its purpose Affirmative acts of withdrawal: Notifying each member of the conspiracy that the former coconspirator will no longer participate or disclosure of the illegal scheme to law enforcement authorities (c) Defining the Essential Nature of the Agreement United States v Stavroulakis 952 F.2d 686 (2d Cir. 1992) Whether a conspiracy to violate 18 USC 1956(a)(3) requires that the co-conspirators believe that the money to be laundered is derived from the same specified unlawful activity. To be more specific, is there a conspiracy to launder money when one of the conspirators believes the cash stems from narcotic transactions while the other believes the money came from illegal gambling? Yes A conspiracy involves an agreement by at least two parties to achieve a particular illegal end. While the conspirators need not

agree on every detail of their venture, there must be proof beyond a reasonable doubt that they agreed on the essential nature of the plan.
The policies underlying conspiratorial liability could easily be thwarted by the careful compartmentalization of information, and conspirators would go free by their very own ingenuity, if it were required that they agree on all details of the scheme. Where, as here, the indictment charges a conspiracy under the offence clause of the conspiracy statute, the conspirators must have agreed to commit the same offence to satisfy the rule that they have agreed on the essential nature of the plan. So long as the unlawful source is proven to be one of the illegal activities enumerated in 1956(c)(7), it is not essential that the conspirators agree on the same illegal activity. Scope of the Conspiracy Issue that frequently is litigated is whether the government has appropriately charged the scope of the conspiracy that is, whether D is a conspirator with
97

LAW638 White Collar Crime

each of the persons alleged in a large, single conspiracy or whether the criminal activity at issue involve several small conspiracies United States v Gatling 96 F.3d 1511 (D.C.Cir 1996) Facts Appellant Cheryl Walker began working at the District of Columbias Department of Public and Assisted Housing in 1989 as Chief of the Section 8 Division, which helped to disburse subsidies to qualified applicants in the form of vouchers or certificates to help them cover their rent. Appellant Jennifer Gatling was a Housing Specialist of the Section 8 Division. Both Walker and Gatling were suspended from their positions at DPAH in 1993 They had conspired to accept bribes in return for section 8 subsidies. Walker and Gatling were charged with several counts of accepting bribes, mail fraud and making false statements. In exchange for bribes, they gave subsidies to individuals who were not eligible to receive them because they were not DC residents and were not on the wait list, or if they were on the wait list, not next in line in the appropriate need category Indictment charged Walker and Gatling with engaging in a single conspiracy to commit bribes which covered the issuance of subsidies to ineligible residents in both Chicago and DC Issue Walker contends that the evidence at trial established at most the existence of two conspiracies, one involving Chicago residents and the other involving DC residents. If Walkers claim were correct, then there would have been a variance between the indictment and the evidence offered at trial. Such a variance can be grounds for reversal if it substantially prejudices the defendant if the jury were substantially likely to transfer evidence from one conspiracy to a defendant involved in another Holding In determining whether the evidence supports a finding of a single conspiracy or instead only demonstrates multiple conspiracies, we look at whether Ds shared a common goal, any

interdependence between the alleged participants and any overlap among alleged participants, such as the presence of core participants linked to all Ds
Both the Chicago and DC schemes shared a common purpose, namely obtaining money in exchange for s 8 subsidies. The difference between the two schemes that Bufford contacted the appellants by phone to see if he could procure subsidies for two Chicago residents and sent the appellants $1000 for each subsidy, whereas Jackson brought numerous DC residents to DPAH where they gave Gatling $500 in an envelope in exchange for their subsidies are simply differences in their modus operandi and

not differences in their underlying objectives


There were also significant overlaps between the timing and participants in both the Chicago and DC schemes Note: The variance argument does not work. The defendant can claim surprise, but the prosecutor/judge would argue that it is hogwash no fatal variance. You knew all these people

98

LAW638 White Collar Crime

involved, and how they may be involved in another conspiracy


Overt Acts Proof of an overt act is an element of 371 prosecution. The statute essentially fixes the point of legal intervention at agreement to commit a crimecoupled with an overt act The overt act may be a mailing, a meeting, a telephone call or other facially innocent acts done in furtherance of the conspiracy Pinkerton Liability Pinkerton liability o 1937 Dan Walter Moonshine paid no taxes o 1940 Dan went to jail o 1942 Walter Moonshine paid no taxes o Walter was Daniels conspirator agent. That is Pinkerton liability the conspiracy did not end even though Dan went to jail! o NB: You can have Pinkerton liability even though there was no formal charge of conspiracy. The jury still needs to find that they were members of the conspiracy, and the crimes were committed in furtherance of the conspiracy o Even though A did not lift a finger, A will be liable for all of Bs acts so long as there were substantive crimes o C cannot be held responsible for the bank fraud, unless in some way it is committed in furtherance of the conspiracy United States v Tilton 610 F.2d 302 (5th Cir 1980) Facts While each invoice was not overstated by exactly $20 to Tilton, all of the invoices for the chassis taken together were inflated to produce the bribe for him! While each invoice was not false, testimony revealed that at least one invoice in every group mailed on specified dates was false Holding To sustain a conviction for conspiracy to commit mail fraud, the

evidence must merely show a scheme or artifice to defraud, use of the mails caused by someone associated with the scheme, and use of the mails in executing the fraud
Pinkerton rule: Because the evidence is sufficient to demonstrate that Tilton was a member of a conspiracy to commit mail fraud, he can also be convicted of the substantive offence based upon acts committed by a co-conspirator in furtherance of the conspiracy as long as the acts fall within the scope of the conspiracy and could reasonably be foreseen as a necessary or natural consequence of the unlawful agreement The mailing of the inflated invoices furthered the conspiracy and was a natural consequence of the unlawful agreement since the bribe money would have to be generated from some source

99

LAW638 White Collar Crime

100

LAW638 White Collar Crime

WEEK 10 THE RACEKETEER INFLUENCED AND CORRUPT ORGANISATIONS ACT (RICO)


RICO Enterprise Pattern open/closed ended Operation+Management Test Racketeering-predicate Acts

Federal White Collar Crime p 701 - 752 Notes Organised Crime Structure: Boss (Capo d. tuth capi boss of the bosses) more often than not, the bosses would be insulated from the acts of the lower structure Underboss does his biding Consigliore Capos lower level bosses Made members (soldiers who committed themselves to the family) Associates people who want to be soldiers, willing to do the dirty work Hangers on people who like to be known to be affiliated to the family in some way Intention: Designed to seek the eradication of organised crime in the United States byestablishing new penal prohibitions and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organised crime. If you can eliminate this family, you can eliminate organised crime The organisation would make a lot of money! The enterprise must affect interstate commerce It is both criminal and civil liable for punishments of both sides Racketeering activity defined very broadly (i.e. mail fraud, murder, etc) Substantive provisions: 1962(a) Use or invest 1962(b) acquire control particularly labour unions 1962(c) participation can get any of these characters who would take part in the organised crime activity 1962(d) RICO Conspiracy a conspiracy to violate any of the three above mentioned provisions Issues: Prosecutors have however used the RICO even outside the organised crime context, because of the enhanced sanctions and new remedies made available: o Treble civil damages o Awards of costs and attorneys fees o Divestiture, corporate dissolution and reorganisation Wide definition of racketeering activity Capable of reviving the dead: even where the predicate racketeering activity would be time-barred, prosecutors may proceed with a RICO case built upon

101

LAW638 White Collar Crime

those crimes assuming the requisites of the RICO statute are satisfied Anytime the RICO statute is ambiguous, Congress has legislated the rule of remedy to cure any ambiguity very liberal definition! ELEMENTS/PRINCIPLES OF LIABILITY (i) Enterprise United States v Turkette 452 US 576 (1981) Facts Indictment describe the enterprise as a group of individuals associated in fact for the purpose of illegally trafficking in narcotics and other dangerous drugs, committing arsons, utilizing the US mails to defraud insurance companies, bribing and attempting to bribe local police officers, and corruptly influencing and attempting to corruptly influence the outcome of state court proceedings Respondent argued that RICO was intended solely to protect legitimate business enterprises from infiltration by racketeers and that RICO does not make criminal the participation in an association which performs only illegal acts and which has not infiltrated or attempted to infiltrate a legitimate enterprise Issue Whether the term enterprise as used in RICO encompasses both legitimate and illegitimate enterprises, or is limited to the former Holding The term enterprise is defined as including any individual, partnership, corporation, association, or other legal entity. There is no restriction upon the associations embraced by the definition: an enterprise includes any union or group of individuals associated in fact.

On its face, the definition appears to include both legitimate and illegitimate enterprises within its scope; it no more excludes criminal enterprises than it does legitimate ones.
Had Congress not intended to reach criminal associations, it could easily have narrowed the sweep of the definition by inserting a single word, legitimate. But it did nothing to indicate that an enterprise consisting of a group of individuals was not covered by RICO if the purpose of the enterprise was exclusively criminal. In order to secure a conviction under RICO, the Government must prove both the existence of an enterprise and the connected pattern of racketeering activity. The enterprise is an entity, for present purposes a group of persons associated together for a common purpose of engaging in a course of conduct. The pattern of racketeering activity is, on the other hand, a series of criminal acts as defined by the statute. A group of persons associated in fact to pursue entirely illegitimate purposes can constitute a RICO enterprise Later in Boyle v United States, the court did away with the need for a hierarchical structure such a group need not have a hierarchical structure or a chain of command; decision may be made on an ad hoc basis and by any number of methods by majority vote, consensus, a show of strength. Professor felt that the federal government is overstepping where does the line draw? Cedric Kushner Promotions, Ltd v King 533 US 158 (2001)

Notes

102

LAW638 White Collar Crime

Issue

Holding

Facts

Issue Holding

The plaintiff claims that the president has conducted the corporations affairs through the forbidden pattern, though for present purposes it is conceded that, in doing so, he acted within the scope of his authority as the corporations employee. In these circumstances, are these two entities, a person and a separate enterprise? To establish liability under 1962(c), one must allege and prove the existence of two distinct entities: (i) a person; and (ii) an enterprise that is not simply the same person referred to by a different name. Employee and the corporation for which the employee works are different persons, even where the employee is the corporations sole owner. Corporate employee who conducts the organisations affairs through an unlawful Racketeer Influenced and Corrupt Organisations Act (RICO) pattern of activity uses the corporation as a vehicle, whether he is, or is not, its sole owner. (ii) Pattern of Racketeering Activity HJ Inc v Morthwestern Bell Tel. Co. 492 US 229 (1989) Petitioner (customer of Northwestern Bell) alleged that Northwestern Bell Telephone Co sought to influence members of the MPUC (Minnesota Public Utilities Commission) in the performance of their duties and in fact caused them to approve rates for the company in excess of a fair and reasonable amount by making cash payments to commissioners, negotiating with them regarding future employment, and paying for parties and meals, for tickets to sporting events and the like, and for airline tickets In violation of 1962(a), Northwestern Bell derived income from a pattern of racketeering activity involving predicate acts of bribery and used this income from a pattern of racketeering activity involving predicate acts of bribery and used this income to engage in its business as an interstate enterprise Claimed a violation of 1962(b), in that, through this same pattern of racketeering activity, respondents acquired an interest in or control of the MPUC, which was also an interstate enterprise Petitioner asserted that respondents participated in conduct and affairs of the MPUC through this pattern of racketeering activity What conduct meets RICOs pattern requirement. The term pattern itself requires the showing of a relationship between the predicates and of the threat of continuing activity. It is this factor of continuity [A number of crimes that occurred within a period of time, and can happen again] plus relationship which combines to produce a pattern. RICOs legislative history reveals Congress intent that to prove a pattern of racketeering activity a plaintiff or prosecutor must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity. The threat of continuity may be established by showing that the predicate acts or offences are part of an ongoing entitys regular

103

LAW638 White Collar Crime

Notes

Facts

Issue Holding

Facts

way of doing business. Thus, the threat of continuity is sufficient established where the predicates can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes. Such associations include, but extend well beyond, those traditionally grouped under the phrase organised crime. The continuity requirement is likewise satisfied where it is shown that the predicates are a regular way of conducting Ds ongoing legitimate business (in the sense that it is not a business that exists for criminal purposes), or of conducting or participating in an ongoing and legitimate RICO enterprise Open-ended scheme: o Larger number of crimes over a longer period of time, with some proof of planning of crimes into the future Close-ended scheme: o Just a brief relationship where they commit a crime and go their separate ways Predicate acts that occur within one year may be insufficient to establish a close-ended scheme. If you have two years, the court may accept it (iii) Conduct of Enterprises Affairs Reves v Ernst & Young 507 YS 170 (1993) Enterprise the co-opt of farmers Pattern of racketeering activity Improper financial statements. Lying to the Board of Directors [Minority opinion felt that the very facts satisfy the operation and management test!] Meaning of the phrase to conduct or participate, directly or indirectly, in the course of such enterprises affairs Conduct requires an element of direction. Used as both a noun and a verb but this is ambiguous! How are we going to determine what it means? The rule of lenity should have kicked in to absolve the accountants of any responsibility Participate Congress has taken a middle ground, suggesting to take part in In order to participate, directly or indirectly, in the conduct of such enterprises affairs, one must have some part in directing those affairs. Of course, the word participate makes clear that RICO liability is not limited to those with primary responsibility for the enterprises affairs, just as the phrase directly or indirectly makes clear that RICO liability is not limited to those with a formal position in the enterprise, but some part in directing the enterprises affairs is required. The operation or management test expresses this requirement in a formulation that is easy to apply. (iv) RICO Conspiracy United States v Elliott 571 F.2d 880 (5th Cir 1978) Party A dealt with counterfeit titles for stolen cars Party B dealt with murders Party C dealt with arranging the purchase, concealment and distribution of such commodities as meat, diary, etc

104

LAW638 White Collar Crime

Arguably there is a variance here! But if there is common interest

in the acts, you can possibly show that there is an enterprise.


Nevertheless, you would still need a pattern of racketeering activity. Assuming prove of enterprise, you may agree to two or more acts related to the stolen cars, and you may not agree to the murder, courts can nevertheless lump all of these together [reminds me of Pinkerton liability even though I played no part in the substantive crime, I can be found liable for simply being a member of the conspiracy] Through RICO, Congress intended to authorise the single prosecution of a multi-faceted, diversified conspiracy by replacing the inadequate wheel and chain rationales with a new statutory concept: the enterprise The object of a RICO conspiracy is to violate a substantive RICO provision here, to conduct or participate in the affairs of an enterprise through a pattern of racketeering activity and not merely to commit each of the predicate crimes necessary to demonstrate a pattern of racketeering activity The gravamen of the conspiracy charge in this case is not that each defendant agreed to commit arson, to steal goods from interstate commerce, to obstruct justice, and to sell narcotics; rather, it is that each agreed to participate, directly and indirectly, in the affairs of the enterprise by committing two or more predicate crimes. Under the conspiracy provision, remote associates of an enterprise may be convicted as conspirators on the basis of purely circumstantial evidence To be convicted as a member of an enterprise conspiracy, an individual, by his words or actions, must have objectively manifested an agreement to participate, directly or indirectly, in the affairs of an enterprise through the commission of two or more

Holding

predicate crimes
Issue Salinas v United States 522 US 52 (1997) Does the conspiracy prohibition contained in the RICO Act apply only when the conspirator agrees to commit two of the predicate acts RICO forbids? He gets the pick-up truck, and he agrees to the other act he may be liable for RICO conspiracy A conspiracy may exist even if a conspirator does not agree to commit or facilitate each and every part of the substantive offence. The partners in the criminal plan must agree to pursue the same criminal objective and may divide up the work, yet each is responsible for the acts of each other The RICO conspiracy statute, 1962(d), broadened conspiracy coverage by omitting the requirement of an overt act; it did not, at the same time, work the radical change of requiring the Govt to prove each conspirator agreed that he would be the one to commit two predicate acts One can be a conspirator by agreeing to facilitate only some of the acts leading to the substantive offence

Holding

105

LAW638 White Collar Crime

Prosecutorial Powers and Policies Charging and Evidentiary Considerations Advantageous for the prosecutors! o Because the RICO offence is a separate crime, the statute of limitations runs only from its completion; thus, every additional racketeering offence committed in furtherance of the enterprises affairs within ten years of a previous one extends the statute of limitations for another five years for prosecution of the entire pattern o If a murder/narcotic case could be indicted and tried under RICO, all of the evidence regarding Ds activities could easily be presented in the same trial. Since the govt would have to allege and prove a pattern of racketeering activity, the murder and narcotics offence could be alleged as elements of the same crime, violation of s 1962(c) o Jurisdictional and venue problems would also disappear as well Criminal Forfeiture Section 1962 dictates that Ds who violate 1962 shall forfeit any interest in the RICO enterprise, including a legitimate business, and any property constituting or derived form the racketeering activity, including proceeds, direct or indirect, which were generated by or connected to the racketeering activity Even assets that are not tainted by use in connection with the racketeering activity may be subject to forfeiture DOJ Approval Requirements and Charging Directions In recognition of RICOs power and potential for abuse, DOJ requires approval by the Departments Criminal Division prior to the initiation of any RICO criminal information or indictment, or the filing of any civil complaint

106

LAW638 White Collar Crime

WEEK 11 MONEY LAUNDERING


Federal White Collar Crime pp 753-842 Notes Money Laundering Various Concepts: o Process by which one conceals the existence, illegal source, or illegal application of income, and disguises that income to make it appear legitimate. Conceal the source, location or ownership of criminally tainted money o Using tainted and sometimes untainted funds to facilitate or promote criminal activity o Use of proceeds of criminal activity when one knows of the criminal origins of those funds. This type of laundering is essentially a tainted money-spending prohibition, not an effort to prevent the concealment of past crimes or the promotion of future ones Relevant Provisions 1956 (a)(1) Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity-(A)(i) with the intent to promote the carrying on of specified unlawful activity; or (ii) with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or (B) knowing that the transaction is designed in whole or in part-(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or (ii) to avoid a transaction reporting requirement under State or Federal law, shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both. For purposes of this paragraph, a financial transaction shall be considered to be one involving the proceeds of specified unlawful activity if it is part of a set of parallel or dependent transactions, any one of which involves the proceeds of specified unlawful activity, and all of which are part of a single plan or arrangement. (2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States-(A) with the intent to promote the carrying on of specified unlawful activity; or (B) knowing that the monetary instrument or funds involved in the transportation,

107

LAW638 White Collar Crime

transmission, or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission, or transfer is designed in whole or in part-(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or (ii) to avoid a transaction reporting requirement under State or Federal law, shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer whichever is greater, or imprisonment for not more than twenty years, or both. For the purpose of the offense described in subparagraph (B), the defendants knowledge may be established by proof that a law enforcement officer represented the matter specified in subparagraph (B) as true, and the defendants subsequent statements or actions indicate that the defendant believed such representations to be true. (3) Whoever, with the intent-(A) to promote the carrying on of specified unlawful activity; (B) to conceal or disguise the nature, location, source, ownership, or control of property believed to be the proceeds of specified unlawful activity; or (C) to avoid a transaction reporting requirement under State or Federal law, conducts or attempts to conduct a financial transaction involving property represented to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity, shall be fined under this title or imprisoned for not more than 20 years, or both. For purposes of this paragraph and paragraph (2), the term represented means any representation made by a law enforcement officer or by another person at the direction of, or with the approval of, a Federal official authorized to investigate or prosecute violations of this section. A. TRANSACTION OFFENCES UNDER 1956(a)(I) AND 1957 (I) Concealment Offence Under 1956(a)(1)(B)(i) United States v Campbell 977 F. 2d 854 (4th Cir 1992) Facts Lawing (drug dealer) decided to buy a house on Lake Norman. He obtained Campbell (real estate agent)s business card and arranged an appointment to look at houses. He represented to her as the owner of a legitimate business Lawing eventually settled upon a house listed for $191,000 and owned by Edward & Nancy Guy Fortier. Lawing was unable to secure a loan and decided to ask the Fortiers to accept $60,000 under the table in cash and to lower the contract price to $122,500. Lawing contacted Campbell and informed her of the proposal. Campbell relayed the proposal to Fox, who forwarded the offer to Fortiers, Fortiers agreed. Issue Whether there was sufficient evidence for the jury to find that

108

LAW638 White Collar Crime

Holding

Campbell possessed the knowledge that (1) Lawings funds were the proceeds of illegal activity, and (2) the transaction was designed to disguise the nature of those proceeds. Statute requires actual subjective knowledge Govt need not prove that D had the purpose of concealing the proceeds of illegal activity. Instead, as the plain language of the statute suggests, the Govt must only show that D possessed the

knowledge that the transaction was designed to conceal illegal proceeds


Under the terms of the statute, the relevant question is not Campbells purpose, but rather her knowledge of Lawings

purpose
Campbell had stated prior to the sale to Sara Fox (listing broker) that the funds may have been drug money. Campbell had deliberately closed her eyes to what would otherwise have been obvious to her NOTES To prove a transaction money laundering offence under 1956(a)(I), Govt must show beyond a reasonable doubt that D: o Conducted or attempted to conduct a financial transaction o Knowing that the property involved in the transaction represented the proceeds of unlawful activity o Transaction in fact involved the proceeds of specified unlawful activity o D acted with the requisite knowledge or purpose In a concealment prosecution under either the transaction or the transportation prongs, the govt must prove an intent to conceal that is, that the animating purpose of the transaction or transportation was to conceal the nature, source, or location of illicit funds Actual nature of the proceeds; Issues that arise would include: o Degree to which the govt may rely on circumstantial evidence to demonstrate this fact o Whether tracing is required when the transaction involves dollars from an account where proceeds of specified unlawful activity have been commingled with legitimate funds Campbell was also charged under 1957 which carries lesser penalties, and is much less frequently invoked, than 1956(a)(I). To secure the conviction, the govt must prove beyond a reasonable doubt that D: o Knowingly engaged or attempted to engage; o In a monetary transaction; - unlike 1956, this definition requires that the transaction involve a financial institution o In criminally derived property with a value of more than $10,000; o Knowing that the property was derived from unlawful activity; and o The property was, in fact, derived from specified unlawful activity Scope under 1957: The section does not require the government to show that D actually laundered the funds or intended to promote or conceal unlawful activity. It does not require that D even know that others are engaging in the transaction to promote or conceal unlawful activity B. TRANSPORTATION OFFENCES UNDER 1956(a)(2)
109

LAW638 White Collar Crime

Facts

Ruling Holding

(I) Promotion Offence under 1956(a)(2)(A) United States v Piervinanzi 23 F.3d 670 (2d Cir. 1994) Defendants were convicted in the United States District Court of conspiracy, wire fraud, attempted bank fraud, money laundering, and attempted money laundering. Defendants appealed. The Court of Appeals held that: (1) defendant was not guilty of money laundering under statute governing engaging in monetary transactions in property derived from specified unlawful activity; (2) defendants' unauthorized attempted overseas transmissions of funds in bank wire transfers did not merge with underlying bank fraud so as to preclude independent liability of defendants under statute governing foreign money laundering; and (3) district court's refusal to apply diminished capacity sentencing guideline to defendant was proper. Affirmed in part, vacated in part, and remanded for resentencing. 1957 Piervinanzi argues that the language of the statute only encompasses transactions in which D first obtains criminally derived property, and then engages in a monetary transaction with that property. Because the funds transferred from Morgan Guaranty were not yet property derived from the wire fraud and bank fraud scheme, Piervinanzi contends, his actions did not come within the purview of 1957. The govt does not dispute this reading of the statute, and joins Piervinanzis request to vacate his conviction on this count. The use of the language obtained and property demonstrates a congressional intent that the proceeds of a crime be in Ds possession before he can attempt to transfer those proceeds in violation of 1957 Congress intended the provision to separately punish D for monetary transactions that follow in time the underlying specified unlawful activity that generated the criminally derived property in the first place 1956(a)(2) The statutory language at issue requires that there be a transmission of funds with the intent to promote the carrying on of specified unlawful activity. As previously noted, specified unlawful activity includes bank fraud Piervinanzi contends that in this case, the overseas transmission of funds merges with the underlying bank fraud, precluding independent liability under 1956(a)(2). In our view, however, the conduct at issue in this case falls within the prohibition of the statute If the transportation, transmission or transfer was conducted with the intent to promote the carrying on of specific unlawful activity, the prosecutor need not show that the funds or monetary instruments were actually derived from any criminal activity. The act of attempting to fraudulently transfer funds out of the banks was analytically distinct from the attempted transmission of those funds overseas, and was itself independently illegal

110

LAW638 White Collar Crime

The fact that Congress uses different language in defining violations in a statute indicates that Congress intentionally sought to create distinct offences NOTES Elements of a 1956(a)(2) transportation money laundering offence D must have: o Transported, transmitted, or transferred (or attempted to do so); o Monetary instruments or funds; o Across the border of the United States (the transborder element requires that the funds or monetary instruments cross a US border either originating or terminating in the United States); and o Acted with the requisite knowledge or purpose

Difference between transaction promotion case and transaction promotion case Difference 1: 1956(a)(2)(A) contains no requirement that proceeds first be generated by unlawful activity, followed by a financial transaction with those proceeds Difference 2: 1956(a)(2)(B)(i) does not expressly require that the property involved in fact represents the proceeds of specific unlawful activity. It only state that D must know that the monetary instrument or funds involved in the transportation represent the proceeds of some form of unlawful activity. Transportation concealment cases: Subsection 1956(a)(2)(B)(i) obviously does require that proceeds be laundered, providing as it does that the govt must prove that D knew both that the transfer represents the proceeds of some form of unlawful activity and that the transfer is designed in whole or in part to conceal or disguise the nature, location, source or ownership of the proceeds of specified unlawful activity.

111

LAW638 White Collar Crime

112

LAW638 White Collar Crime

WEEK 12 FIFTH AMENDMENT: TESTIMONY AND IMMUNITY


18 USC 6002-3 Transactional immunity Use immunity Derivative use Kastigar hearings Proffer letter/Proffer Escape Valve / Rule 35

Federal White Collar Crime pp 887 - 929 Notes Fifth Amendment privilege: protects individuals from being compelled by the government to make statements that would furnish a link in the chain of evidence needed to criminally prosecute them absent a grant of immunity coextensive with the scope of the privilege Transaction Immunity: A bar from prosecution relating to any offence that may concerned the compelled testimony o Illinois is a transactional immunity state Use Immunity: Prosecutors cannot use their testimony to prosecute the person o Assuming that Connor was charged for arson, in the case-in-chief, prosecution cannot use Connors testimony at all. But if Connor gets up and testify and said I did not do it, you can use the testimony in rebuttal! Letter Immunity: o Advantage: Can tailor it to the needs of the crime Derivative Use: In my testimony, I identified witnesses A+B+C. You now go out and interview A+B+C, and they give damning testimony that I am guilty. Before I gave the testimony, you did not know about A+B+C. Therefore, you may use of my information to prosecute me! o The statute says YOU CANT DO THAT o Difference: Use immunity focuses on just one person. Derivative use would involve several people Prosecution has the burden to show that they did not violate the order we have the immunity! Our court should protect our client. We were forced to give up our Fifth Amendment rights therefore, they should have the onus that this is consistent with our Fifth Amendment rights o Create a Kastigar file about everything you knew before the testimony when the Judge says Kastigar, you had already anticipated it and knew about witnesses A+B+C before the testimony! o Congress testimony: You may say that you dont read anything about it, dont talk to anyone about it, etc. Not realistic. Using the testimony to refresh recollection is considered as a derivative use! Formal Immunity Pursuant to 18 USC 6002-05 (I) Constitutional Standards Kastigar v United States 406 US 441 (1972) Facts Petitioners were subpoenaed before the Grand Jury. Govt believed

113

LAW638 White Collar Crime

Issue

Holding

that they were likely to assert their Fifth Amendment privilege, and therefore applied to the District Court for an order directing petitioners to answer questions and produce evidence before the grand jury under a grant of immunity. Petitioner opposed issuance of the order, contending primarily that the scope of the immunity provided by the statute was not coextensive with the scope of the privilege against self-incrimination, and therefore was not sufficient to supplant the privilege and compel their testimony. District Court had rejected this argument, and ordered petitioners to appear before the grand jury and answer its questions under the grant of immunity Whether testimony may be compelled by granting immunity from the use of compelled testimony and evidence derived therefrom (use and derivative use immunity), or whether it is necessary to grant immunity from prosecution for offences to which compelled testimony relates (transactional immunity) Though grant of immunity must afford protection commensurate with that afforded by privilege against compulsory selfincrimination, it need not be broader, and immunity from use and derivative use is coextensive with scope of privilege and is sufficient to compel testimony over claim of privilege; transactional immunity is not required. In subsequent criminal prosecution of person who has been compelled to testify under grant of immunity, prosecution has burden of proving affirmatively that evidence proposed to be used is derived from legitimate source wholly independent of compelled testimony. Petitioners argument: Fifth Amendments privilege against compulsory self-incrimination deprives Congress of power to enact laws that compel self-incrimination, even if complete immunity from prosecution is granted prior to the compulsion of the incriminatory testimony o Court found that there was no merit to this contention Petitioners argument: The scope of immunity provided by the federal witness immunity statute is not coextensive with the scope of the Fifth Amendment privilege against compulsory selfincrimination, and therefore is not sufficient to supplant the privilege and compel testimony over a claim of the privilege o Statutes explicit proscription of the use in any criminal case of testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony or other information) is consonant with the Fifth Amendment standards. We hold that such immunity from use and derivative use is coextensive with the scope of the privilege against self-incrimination, and therefore is sufficient to compel testimony over a claim of the privilege o Transactional immunity: accords full immunity from prosecution for the offence to which the compelled testimony relates, affords the witness considerably broader protection than does the Fifth Amendment privilege.

114

LAW638 White Collar Crime

Immunity from the use of compelled testimony, as well as evidence derived directly and indirectly therefrom, affords protection prohibiting prosecutorial authorities from using the compelled testimony in any respect, and it therefore insures that the testimony cannot lead to the infliction of criminal penalties on the witness o Total prohibition on use provides a comprehensive safeguard, barring the use of compelled testimony as an investigatory lead, and also barring the use of any evidence obtained by focusing investigation on a witness as a result of his compelled disclosures o The burden of proof on the prosecution imposes on them the affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony. This is a very substantial protection Notes The fact that the statute provides only use and derivative use immunity does not bar the government from granting a defendant transactional immunity in a negotiated agreement. When the government proceeds to prosecute a previously immunized witness, it has the heavy burden of proving that all of the evidence it proposes to use was derived from legitimate independent sources If the tainted evidence was presented to the grand jury, the indictment will be dismissed; when tainted evidence is introduced at trial, the defendant is entitled to a new trial Caselaw discusses two types of contested potential uses of immunized testimony: indirect evidentiary use and nonevidentiary use o Indirect evidentiary use use of immunized testimony by witnesses to refresh their memories, or otherwise to focus their thoughts. It was held that this is a clear instance of using immunized testimony, and prosecution must make a two-part showing to meet its Kastigar burden: (1) independent source for the matters that the witness testifies; (2) prosecutor must prove that any witness exposed to the compelled statement has not shaped or altered her testimony in any way, either directly or indirectly, as a result of that exposure o Nonevidentiary use said to include use of immunized testimony for assistance in focusing the investigation, deciding to initiate prosecution, refusing to plea bargain, interpreting evidence, planning cross-examination and otherwise generally planning trial strategy. At issue here is whether the government must merely show an independent basis for all its evidence, or whether it must go further and demonstrate that government agents thought processes were unaffected this may be an impossible standard! Hon. Stephen S. Trott, Words of Warning for Prosecutors Using Criminals as Witnesses

115

LAW638 White Collar Crime

47 Hastings LJ 1381 (1996) Neither helpful to a prosecutors case nor very comforting personally to have the defence persuasively arguing to the court and jury, for example, that you, as a colossal idiot, have given immunity to the real killer in order to prosecute an innocent man Criminals are likely to say and do almost anything to get what they want, especially when what they want is to get out of trouble with the law Ordinary decent people are predisposed to dislike, distrust and frequently despise criminals who sell out and become prosecution witnesses. Jurors suspect their motives from the moment they hear about them in a case, and they frequently disregard their testimony altogether as highly untrustworthy and unreliable, openly expressing disgust with the prosecution for making deals with such scum Note that in the hands of a skilful defence tactician, all the liabilities and the unseverable baggage that such a witness brings to your case, along with the confession or the identification, become the elements of reasonable doubt the defence is looking for and the brush with which the rest of the case is tarred (II) Defence Witness Immunity Under existing case law, the defence has no right to compel witness immunity on the basis of the Sixth Amendment right to compulsory process Traditionally, the Sixth Amendments Compulsory Process Clause gives D the right to bring his witness to court and have the witnesss non-privileged testimony heard, but does not carry with it the additional right to displace a proper claim of privilege, including the privilege against self-incrimination Co-defendants could secure use immunity for each other, and each immunised witness could exonerate his co-defendant at a separate trial by falsely accepting sole responsibility for the crime, secure in the knowledge that his admission could not e used at his own trial for the substantive offence United States v Straub: For a defendant to compel use immunity the defendant must show that: o D witnesss testimony was relevant; and o Either: The prosecution intentionally caused the defence witness to invoke the Fifth Amendment right against self-incrimination with the purpose of distorting the fact-finding process or The prosecution granted immunity to a govt witness in order to obtain that witnesss testimony, but denied immunity to a defence witness whose testimony would have directly contradicted that of the govt witness, with the effect of so distorting the fact-finding process that D was denied his due process right ot a fundamental fair trial Proffers Proof + Offer = Proffer! I give you Mr Big, you give me just 24 months! But which comes first? You do it in writing! What are the options: o If he gave you Mr Big, you can dismiss the charges and put him in the witness protection program o If he did not give you Mr Big, but gave you someone who leads to Mr Big, you can be more lenient. This is the Escape Valve (18 USC 35(e)) if an

116

LAW638 White Collar Crime

offence has a mandatory minimum, in the absence of the escape valve, a judge cannot issue a sentence below the Escape Valve. A prosecutor can make a downward departure to a lower level, communicating to the judge the value of the proffer. The judge is not required to permit the escape but the judge has the authority! o Rule 35 the case is over! The prosecution makes a motion pursuant to Rule 35 modify the order o Prosecution may not make the Escape Valve motion that seems unfair as they did not think that the information you provided was useful (I) Rationale To evaluate both the value of the prospective immunised witnesss testimony and his worth as a witness, most prosecutors will insist upon an offer of proof, oftentimes called a proffer, prior to concluding a deal At the outset of negotiations, counsel may make preliminary proffers on behalf of D, attempting to persuade the govt of his clients worth to the prosecution of others (hypothetical proffer) and to provide the government with sufficient specific information and to attest to the clients value and veracity as a witness (subject matter proffer) Stages of proffer sessions: o Prosecutor wants to know Ds version of his or her own role in the crime. This will be measured against the information already available to the investigators in an effort to determine whether the prospective witness will tell the truth (or at least what the prosecutor then believes to be the truth) about his or her own conduct o Prosecutor will then ask about the conduct of the others involved the crime o Prosecutor will also determine what baggage a witness will bring to the witness stand at trial Typical proffer agreement provided only limited protection to the prospective witness if no plea agreement results from the sessions, and does not prohibit the derivative use of Ds statements to pursue further investigation (II) Fed. R. Crim. P. II(e)(6) and Fed R.Evid. 410 Fed.R.Crim.P. II(e)(6) and Fed.R.Evid.410 state that the content of Ds statements during such proffer session is inadmissible for most purposes against D United States v Velez 354 F.3d 190 (2d Cir. 2004) Facts At the first proffer session, he claimed that he did not possess the gun found on the ground where he had been standing. He signed a waiver clause at the second proffer session The Government may use statements made by D at the meeting to rebut any evidence or arguments offered by or on behalf of D (including arguments made or issues raised sua sponte by the District Court) at any stage of the criminal prosecution (including bail, all phases of trial, and sentencing) in any prosecution brought against D Accordingly, by signing the proffer agreement that included this waiver provision, D authorised the Govt to introduce Ds proffer statements at trial if D introduced evidence or arguments that were inconsistent with his proffer statements In the second proffer session, D recanted his claims of innocence at the initial session and admitted facts pertaining to one element of

117

LAW638 White Collar Crime

the charged offence namely, that he owned and possessed the firearm that the officers found on the ground near him At sentencing, in the context of offering mitigation to warrant a sentence at the low end of the range, D stated that he had been trapped into making his admissions at the second proffer session Holding Challenge to the Waiver Provision in the Proffer Agreement Ordinarily, statements made by D during plea negotiations, including proffer sessions, are inadmissible at trial. However, D can waive the protection afforded by Rule 410 as long as there is no affirmative indication that the agreement [to waive] was entered into unknowingly or involuntarily Here, we face a more expansive waiver of Rule 410 because, in the proffer agreement at issue, D waived his exclusionary privilege in all circumstances in which the defence presents contradictory testimony, evidence or arguments whether or not D himself testifies. We agree with the District Courts implicit decision that the agreement is enforceable Gomez If the proffer agreement is not enforced, a defendant will have less incentive to be truthful, for he will know that his proffer statements cannot be used against him at trial as long as he does not testify, even if he presents inconsistent evidence or arguments Invaliding a waiver provision like the one before us would clearly interfere with plea bargaining and cooperation efforts in direct contravention of the criminal justice systems legitimate goal of encouraging plea bargaining in appropriate circumstances A defendant remains free to present evidence inconsistent with his proffer statements, with the fair consequence that, if he does, the Government is then permitted to present Ds own words in rebuttal. With this avenue open to him, a D who has consented to a waiver provision like the one at issue here has not forfeited his constitutional right to present a defence, to the effective assistance of his counsel, or to a fair trial Informal Immunity Agreements Informal Agreements: Provide for conditional use and derivative use immunity or for what is essentially conditional transactional immunity as to specified crimes, or for some combination of the two Informal immunity agreements provide both parties flexibility in furthering the goal of securing Ds cooperation in the investigation or prosecution of the others, and may even secure both the govt and D significant advantages Disadvantages: o Unlike formal statutory grant of immunity, where the Fifth Amendment is necessarily implicated, informal immunity agreements are bargained for immunity agreements in which the State agrees to limit its rights in prosecuting the defendant in return for the defendants cooperation or testimony o In contrast to statutory immunity, these informal agreements are contractual in nature and do not as a general proposition, bind prosecutorial authorities who are not a party to the agreement Note: When a defendant rejects an offer of immunity on the ground that he is unaware of any wrongdoing about which he could testify, his action is probative

118

LAW638 White Collar Crime

of a state of mind devoid of guilty knowledge: United States v Biaggi, 909 F.2d 662 (2d Cir. 1990) Among the terms that should be considered carefully in drafting these agreements are: o The scope of the agreement (i.e. does the agreement bar the govt from providing the information obtained through cooperation to other state or federal actors) o Conditions that constitute a breach and the consequences that flow from that breach (e.g. is the commission of any future crime a breach; does the witnesss lack of candor on any issue constitute a breach; what are the crimes for which the defendant may be prosecuted in the event of a breach; can any and all information and statements provided by the immunised witness be used in the event of a breach) Entering into non-Prosecution Agreements in Return for Cooperation Stages: If time permits, the person may be charged, tried and convicted before his/her cooperation is sought in the investigation or prosecution of others. Having already been convicted himself/herself, the person ordinarily will no longer have a valid privilege to refuse to testify and will have a strong incentive to reveal the truth in order to induce the sentencing judge to impose a lesser sentence than that which otherwise might be found appropriate. The person may be willing to cooperate if the charges or potential charge against him/her are reduced in number or degree in return for his/her cooperation and his/her entry of a guilty plea to the remaining charges. The third method for securing the cooperation of a potential defendant is by means of a court order. Under the so-called use immunity provisions of those statutes, the court may order the person to testify or provide other information, but neither his/her testimony nor the information he/she provides may be used against him/her, directly or indirectly, in any criminal case except a prosecution for perjury or other failure to comply with the order. Considerations to be Weighed for Entering into Non-Prosecution Agreements in Return for Cooperation Relative factors in determining public interest: The importance of the investigation or prosecution to an effective program of law enforcement The value of the persons cooperation to the investigation or prosecution; and The persons relative culpability in connection with the offence or offences being investigated or prosecuted and his/her history with respect to criminal activity Entering into Non-Prosecution Agreements in Return for Cooperation Limiting the Scope of Commitment In entering into a non-prosecution agreement, the attorney for the government should, if practicable, explicitly limit the scope of the governments commitment to: Non-prosecution based directly or indirectly on the testimony or other information provided; or Non-prosecution within his/her district with respect to a pending charge or to a specific offence then known to have been committed by the person

119

LAW638 White Collar Crime

120

LAW638 White Collar Crime

WEEK 12 FIFTH AMENDMENT: DOCUMENTS & TANGIBLE OBJECTS


Document production Collective entity rule Constructive production immunity 5th Amendment Self-Incrimination Privilege

Federal White Collar Crime pp 931 968 Notes Not normal for companies to have their documents subpoenaed by grand juries o Letting those documents leave the company premises would affect business operations o Court had consistently held that it is too bad! o In todays 21st century world, it is less onerous as most documents are stored in electronic forms o Even social networking media of the employees are subjected to grand juries The Fifth Amendment privilege against self-incrimination protects: o Natural persons (sole proprietorships) from being o Compelled o To make a testimonial communication (and when the testimonial communication is a fact implicitly communicated by an act of production, that fact is not a foregone conclusion) that o Is incriminating o Absent a grant of governmental immunity (A) Natural Persons (And Sole Proprietorships) Hale v Henkel: Custodian of a company was assured of immunity from criminal prosecution. He tried to assert Fifth Amendment rights of a third-party, i.e. the corporation but the court refused. The court reasoned that the amendment is limited to a person who shall be compelled in any criminal case to be a witness against himself; and if he cannot set up the privilege of a third person, he certainly cannot set up the privilege of a corporation (B) What constitutes compulsion Boyd v United States The Fourth Amendment applies to court orders in the nature of subpoenas duces tecum in the same manner that it applies to search warrants; both are subject to the requirement that seizures (whether effected by physical seizure or by subpoena) must be reasonable o Still good law Fisher v United States 425 US 391 (1976) In the context of looking at the character of the document to look if it is invading into my privacy. Facts Internal Revenue agent visited the taxpayer or taxpayers and interviewed them in connection with possible civil or criminal liability. Shortly after the interviews, taxpayers obtained from their respective accountants certain documents relating to the preparation by the accountants of their tax returns

121

LAW638 White Collar Crime

Issue

Ruling

Holding

Taxpayers then transferred the documents to their lawyers. Lawyers declined to comply with the summons directing production of the documents, and enforcement actions were commenced by the Govt Whether a summons directing an attorney to produce documents delivered to him by his client in connection with the attorney-client relationship is enforceable over claims that the documents were constitutionally immune from summons in the hands of the client and retained that immunity in the hands of the attorney. Taxpayers privilege under this Amendment is not violated by enforcement of the summonses involved in these cases because enforcement against a taxpayers lawyer would not compel the taxpayer to do anything and certainly would not compel him to be a witness against himself Taxpayers Fifth Amendment privilege is not violated by enforcement of the summonses directed towards their attorneys.

o Personal compulsion against the accused is lacking


The fact that the attorneys are agents of the taxpayers does not change this result The Amendment is limited to a person who shall be compelled in any criminal case to be a witness against himself Personal Privacy: It is true that the Court has often stated that one of the several purposes served by the constitutional privilege against compelled testimonial self-incrimination is that of protecting personal privacy. But the Court has never suggested that every invasion of privacy violates the privilege. Within the limits imposed by the language of Fifth Amendment, the privilege truly serves privacy interests; but the Court has never on any ground, personal privacy included, applied the Fifth Amendment to prevent the otherwise proper acquisition or use of evidence which, in the Courts view, did not involve compelled testimonial self-incrimination of some sort o Framers of the Constitution had already struck the balance such that when the States reason to believe o

incriminating evidence will be found becomes sufficiently great, the invasion of privacy becomes justified and a warrant to search and seize will issue.
They did not seek in still another Amendment Fifth to achieve a greater protection of privacy but to deal with the more specific issue of compelled self-incrimination Attorney-Client Privilege: Taxpayers have erroneously relied on the Fifth Amendment without urging the attorney-client privilege in so many words. They have nevertheless invoked the relevant law and policies that govern the attorney-client privilege o Purpose of privilege: Encourage clients to make full disclosure to their attorneys o Pre-existing documents which could have been obtained by court process from the client when he was in possession may also be obtained from the attorney by similar process following transfer by the client in order to obtain more
122

LAW638 White Collar Crime

informed legal advice o Pre-existing documents obtainable from the client are not appreciably easier to obtain from the attorney after transfer to him. Thus, even absent the attorney-client privilege, clients will not be discouraged from disclosing the documents to the attorney, and their ability to obtain informed legal advice will remain unfettered. It is otherwise if the documents are not obtainable by subpoena duces tecum or summons while in the exclusive possession of the client, for the client will then be reluctant to transfer possession to the lawyer unless the documents are also privileged in the latters hands Fifth Amendment does not independently proscribe the compelled production of every sort of incriminating evidence but applies only when the accused is compelled to make a testimonial communication that is incriminating o A subpoena serve on a taxpayer requiring him to produce an accountants workpapers in his possession without doubt involves substantial compulsion. But it does not compel oral testimony; nor would it ordinarily compel the taxpayer to restate, repeat or affirm the truth of the contents of the documents sought o The Fifth Amendment would not be violated by the fact alone that the papers on their face might incriminate the taxpayer, for the privilege protects a person only against being incriminated by his own compelled testimonial communications. The accountants workpapers are not the taxpayers o It is doubtful that implicitly admitting the existence and possession of the papers rises to the level of testimony within the protection of the Fifth Amendment. The papers belong to the accountant, were prepared by him, and are the kind usually prepared by an accountant working on the tax returns of his client. Surely the Government is in no way relying on the truth-telling of the taxpayer to prove the existence of or his access to the documents Seemingly disagreeing that the tax papers are not private papers: Holding by Mr The Court pays lip service to the bedrock premise of privacy in the Justice statement that within the limits imposed by the language of the Brennan Fifth Amendment, which we necessarily observe, the privilege truly serves privacy interests. But this only makes explicit what elsewhere highlights the opinion, namely, the view that protection of personal privacy is merely a by product and not, as our precedents and history teach, a factor controlling in part the determination of the scope of the privilege History and principle teach that the privacy protected by the Fifth Amendment extends not just to the individuals immediate declarations, oral or written, but also to his testimonial materials in the form of books and papers Notes Fisher stands for the proposition that the contents of any pre-

123

LAW638 White Collar Crime

existing documents, that is, documents the government did not force one to write, are not compelled within the meaning of the Fifth Amendment and thus the contents of the
documents are not relevant to the Fifth Amendment analysis regardless of how testimonial or incriminating they may be Testimonial: Any link that provides! The government is not forcing one to record the contents of the records when it serves a subpoena, but it is compelling the subject to do something: it is forcing the subpoenas subject to make an act of production of the required documents or other physical evidence called for in the subpoena. But to be protected, that compelled act must be deemed testimonial (C) The Continuing Viability of the Collective Entity Doctrine After Fisher Search warrant o In the past, they would have done search warrant for a document in the company o Is it more ethical to use grand juries? Split in the circuits on the question of when a corporate employee leaves his job or is fired after a grand jury investigation has commenced and seeking to protect himself, takes with him corporate records that might incriminate him, may he be compelled to turn over the records under Braswell: o Second Circuit an ex-employee may assert his personal privilege in such circumstances because once the agency relationship terminates, the former employee is no longer an agent of the corporation and is not a custodian of the corporate records o Eleventh Circuit the immutable character of the records as corporate which requires their production and which dictates that they are held in a representative capacity Braswell analysis applies where a govt employee seeks to claim an act of production privilege for the production of govt records. DC Circuit has held that, in a grand jury investigation of federal officials, a former official could not assert his Fifth Amendment right against self-incrimination with respect to his act of production of govt records Contention that the records subpoenaed are personal, not business or govt records, and thus that an individual custodian cannot be required to produce them in her representative capacity. In In Re Sealed Case (Governmental Records), the District of Columbia Circuit held that the district court was required to review documents about which the parties had a dispute regarding the appropriate characterisation of the documents: o In determining whether a document belongs in the corporate or the personal category, courts employ a functional test o Mixed document may qualify as a corporate record o To determine whether a document is a govt record, inquiry into the nature, purpose, and use of the document is in order, and the precedent set in the context of corporate records should analogously apply o It transcends the compelled communication when the government says give it to me! Braswell v United States 487 US 99 (1988)

124

LAW638 White Collar Crime

Facts

A federal grand jury issued a subpoena duces tecum to petitioner Braswell as the president of two corporations, Worldwide Machinery Inc and Worldwide Purchasing. While both corporations had three directors, petitioner, his wife and his mother, only

petitioner had authority over the business affairs of the corporations


Petitioner moved to quash the subpoena, arguing that the act of producing the documents has independent testimonial significance, which would incriminate him individually, and that the Fifth Amendment prohibits Government compulsion of that act. Whether the custodian of corporate records may resist a subpoena for such records on the ground that the act of production would incriminate him in violation of the Fifth Amendment. He may not. United States v Doe: Context of a claim by a sole proprietor. By producing the records, respondent would admit that the records existed, were in his possession and were authentic. On the facts, had petitioner conducted his business as a sole proprietorship, Doe would require that he be provided the opportunity to show that his act of production would entail testimonial self-incrimination. But petitioner has operated his business through the corporate form, and we have long recognised that, for purposes of Fifth Amendment, corporations and other collective entities are treated differently from individuals. This doctrine known as the collective entity rule has a lengthy and distinguished pedigree. Hale v Henkel: The corporation is a creature of the State, with powers limited by the State. As such, the State may, in the exercise of its right to oversee the corporation, demand the production of corporate records Petitioners argument: The collective entity decisions were concerned with the contents of the documents subpoenaed, however, and not with the act of production. In Fisher and Doe, the Court moved away from the privacy-based collective entity rule, replacing it with a compelled-testimony standard under which the contents of business documents are never privileged but the act of producing the documents may be. Under this new regime, the act of production privilege is available without regard to the entity whose records are being sought. Court rejected the argument. The agency rationale undergirding the collective entity decisions, in which custodians asserted that production of entity records would incriminate them personally, survives The Court has consistently recognised that the custodian of corporate or entity records holds those documents in a representative rather than a personal capacity. Artificial entities such as corporations may act only through their agents, and a custodians assumption of his representative capacity leads to certain obligations, including the duty to produce corporate records on proper demand by the Government

Issue

Ruling Holding

125

LAW638 White Collar Crime

CONSTRUCTIVE PRODUCTION IMMUNITY Because the custodian acts as a representative, the act is

deemed one of the corporation and not the individual.


Therefore, the Government concedes, as it must, that it may make no evidentiary use of the individual act against the individual. o But the Government has the right to use the corporations act of production against the custodian. The Govt may offer testimony for example, from the process server who delivered the subpoena and from the individual who received the records establishing that the corporation produced the records subpoenaed. The jury may then draw form the corporations act of production the conclusion that the records in question are authentic corporate records, which the corporation possessed, and which it produced in response to the subpoena Constructive Use Immunity: Agents acts are still protected. What are we trying to prove: Existence, possession, authenticity, responsiveness and apparently after Hubbell, location of the records requested (D) What Constitutes a Testimonial Communication Doe v United States 487 US 201 (1988) John Doe appeared before the federal grand jury pursuant to a subpoena that directed him to produce records of transactions in accounts at three named banks in the Cayman Islands and Bermuda. Doe produced some bank records and testified that no additional records were in his possession or control When questioned about the existence or location of additional records, Doe invoked the Fifth Amendment privilege against selfincrimination. Banks were also served with subpoenas commanding them to produce Does records of accounts. Banks refused citing bank-secrecy laws. At issue here is a proposed consent directive form purporting to consent to the disclosure of specified bank records. The form purported to apply to any and all accounts over which Doe had a right of withdrawal, without acknowledging the existence of any such account. The execution of the consent directive at issue in this case obviously would be compelled, and we may assume that its execution would have an incriminating effect. The question on which this case turns is whether the act of executing the form is a testimonial communication Whether a court order compelling a target of a grand jury investigation to authorise foreign banks to disclose records of his accounts, without identifying those documents or acknowledging their existence, violates the targets Fifth Amendment privilege against self-incrimination THE CONSENT DIRECTIVE IS NOT TESTIMONIAL IN NATURE: Court agreed with the Govts view that a compelled statement is

Notes

Facts

Issue

Holding

126

LAW638 White Collar Crime

not testimonial for purposes of the privilege, unless it implicitly or explicitly relates to a factual assertion or otherwise conveys information to the Govt. It argues that, under this view, the consent directive is not testimonial because neither the directive nor Does execution of the form discloses or communicates factors or information o The act of production could constitute protected testimonial communication because it might entail implicit statements of fact: by producing documents in compliance with a subpoena, the witness would admit that the papers existed, were in his possession or control, and were authentic. Thus, the Court made clear that the Fifth Amendment privilege against self-incrimination applies to acts that imply assertions of fact o In order to be testimonial, an accuseds communication must itself, explicitly or implicitly, relate a factual assertion or disclose information. Only then is a person compelled to be a witness against himself Privilege is not implicated in these cases, because the suspect was not required to disclose any knowledge he might have, or to speak his guilt. It is the extortion of information from the accused, the attempt to force him to disclose the contents of his own mind, that implicates the Self-Incrimination Clause o Furnishing a blood sample o Providing a handwriting exemplar or voice exemplar o Stand in a line-up o Wear particular clothings On the facts: o Consent form carefully drafted not to make reference to a specific account, but only to speak in the hypothetical o Although the executed form allows the Govt access to a potential source of evidence, the directive itself does not point the Govt towards hidden accounts or otherwise provide information that will assist the prosecution in uncovering evidence. The Govt must still locate that evidence by the independent labour of its officers o Doe makes no statement, explicit or implicit, regarding the existence of a foreign bank account or his control over any such account. His execution of the form does not admit the authenticity of the records produced by the bank o The form does direct the bank to disclose account information and release any record that may exist and for which Doe may be a relevant principal. But directing the

recipient of a communication to do something is not an assertion of fact or a disclosure of information. In its


testimonial significance, the execution of such a directive is analogous to the production of a handwriting sample or voice exemplar: it is a nontestimonial act. A DEFENDANT CANNOT BE COMPELLED TO USE HIS MIND TO ASSIST THE PROSECUTION IN CONVICTING HIM OF A

Dissent

127

LAW638 White Collar Crime

Facts

Holding

Note

Facts

CRIME The directive itself may not betray any knowledge petitioner may have about the circumstances of the offences being investigated by the grand jury, but it nevertheless purports to evidence a reasoned decision by Doe to authorise action by others (E) How Incriminating Must the Communication Be? Hoffman v United States 341 US 479 (1951) Samuel Hoffman was convicted in the United States District Court for the Eastern District of Pennsylvania, of criminal contempt for refusing to obey a federal court order requiring him to answer certain questions asked in a grand jury investigation [regarding suspects that cannot be found], and defendant appealed. NOTE: Is he a SUBJECT, WITNESS OR TARGET? Privilege afforded by the Fifth Amendment not only extends to answers that would in themselves support a conviction under a federal criminal statute but likewise embraces those which would furnish a link in the chain of evidence needed to prosecute the claimant for a federal crime It is for the court to say whether his silence is justified and to require him to answer if it clearly appears to the court that he is mistaken o File a motion for a camera in review by judges to make a finding of the documents! All of the questions asked could easily have required answers that would forge links in a chain of facts imperiling petitioner with conviction of a federal crime. If answered affirmatively, it would establish contacts between petitioner and Weisberg during the crucial period when the latter was eluding the grand jury; and in the context of these inquiries the last question might well have called for disclosure that Weisberg was hiding away on petitioners premises or with his assistance. Petitioner could reasonably have sensed the peril of prosecution for federal offences ranging from obstruction to conspiracy. o Prosecution can try to argue that the questions were innocuous This privilege is a form of use immunity The federal government does not believe in transactional immunity (F) Act of Production Immunity United States v Hubbell 530 US 27 (2000) Respondent had promised in the plea agreement to provide the Independent Counsel with full, complete, accurate and truthful information about matters relating to the Whitewater investigation (Conditional guilty Still can be guilty but reserve the right to appeal). While respondent was incarcerated, the Independent Counsel served him with a subpoena duces tecum calling for the production of 11 categories of documents before a grand jury sitting in Little Rock, Arkansas. Respondent appeared before the grand jury to invoke his Fifth Amendment Privilege against SelfIncrimination

128

LAW638 White Collar Crime

Issues

Holding

Justice Thomas, with whom Justice Scalia joins, concurring

Prosecution then produced an order, directing him to respond to the subpoena and granting him immunity to the extent allowed by law. Respondent then produced 13,120 pages of documents and records and responded to a series of questions that established that those were all of the documents in his custody or control that were responsive to the commands in the subpoena, with the exception of a few documents he claimed were shielded by the attorney-client and attorney work-product privileges. The content gave the Independent Counsel these information, and led to this prosecution Whether the Fifth Amendment privilege protects a witness from being compelled to disclose the existence of incriminating documents that the Government is unable to describe with reasonable particularity The compelled testimony that is relevant in this case is not to be found in the contents of the documents produced in response to this subpoena. It is, rather, the testimony inherent in the act of producing those documents. The disagreement between the parties focuses entirely on the significance of that testimonial aspect. The question is not whether the response to the subpoena may be introduced into evidence at his criminal trial. That would surely be a prohibited use of the immunized act of production. But the fact that the Government intends no such use of the act of production leaves open the separate question whether it has already made derivative use of the testimonial aspect of that act in obtaining the indictment against respondent and in preparing its case for trial. It clearly has. Entirely apart from the contents of the 13,120 pages of materials that respondent produced in this case, it is undeniable that providing a catalog of existing documents fitting within any of the 11 broadly worded subpoena categories could provide a prosecutor with a lead to incriminating evidence, or a link in the chain of evidence needed to prosecute Kastigar: Court held that it is possibly valid, if the Government can prove that the evidence it used in obtaining the indictment and proposed to use at trial was derived from legitimate sources wholly independent of the testimonial aspect of respondents immunized conduct in assembling and producing the documents described in the subpoena Application of the act-of-production doctrine provides that persons compelled to turn over incriminating papers or other physical evidence pursuant to a subpoena duces tecum or a summons may invoke the Fifth Amendment privilege against selfincrimination as a bar to production only where the act of producing the evidence would contain testimonial features Disagreed with the scope of the doctrine with the Self-Incrimination Clause a substantial body of evidence suggests that the Fifth Amendment privilege protects against the compelled production not just of incriminating testimony, but of any incriminating evidence Notes

129

LAW638 White Collar Crime

If the act of production is not sufficiently testimonial because the facts of existence, possession, authenticity or responsiveness are foregone conclusions due to the governments knowledge of those facts, there is no valid claim of privilege Reasonable particularity standard to test the foregone conclusion doctrine: To establish the existence of the documents sought and Does possession of them with reasonable particularity before the existence and possession of the documents could be considered a foregone conclusion and production therefore would not be testimonial

130

LAW638 White Collar Crime

WEEK 13 ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT


Attorney-Client Privilege Work product Doctrine Waiver o Implied o Partial o Selective o Compelled Crime/Fraud Exception Government Action + AC/WP Federal White Collar Crime pp 969 1032

Notes
Attorney-client privilege applies only if: o The asserted holder of the privilege is or sought to become a member; o The person to whom the communication was made Is a member of the bar of a court, or his subordinate and In connection with this communication is acting as a lawyer o The communication relates to a fact of which the attorney was informed By his client Without the presence of strangers For the purpose of securing primarily either An opinion on law or Legal services or Assistance in some legal proceeding, and not For the purpose of committing a crime or tort o The privilege has been Claimed and Not waived by the client. o There is no attorney-client privilege when a prosecutor talks to an individual being investigated for a crime o As long as he is a potential client, that is enough! He does not actually need to have paid you for the attorney-client privilege to be exerted Note, there may be overlap with the work product doctrine the latter is distinct from and broader than the attorney-client privilege: o Not restricted to communications between client and counsel o Encompassing material obtained or prepared by an adversarys counsel in the course of his legal work o Provide that the work was done with an eye towards litigation o Not automatically waived by any disclosure to a third party o Only the client may assert the attorney-client privilege while both the attorney and the client may invoke the work product doctrine o If prosecutors can access their materials, it will be a potential roadmap for liabilities! We want to protect their good works

A. QUALIFYING FOR PROTECTION

131

LAW638 White Collar Crime

Facts

Upjohn Co. v United States 449 US 383 (1981) Independent auditors found that one of Upjohn Co (a manufacturer and seller of pharmaceuticals)s foreign subsidiaries made payments to or for the benefit of foreign govt officials in order to secure govt business Accountants so informed petitioner, Gerard Thomas, Upjohns VP, Secretary and General Counsel. Thomas then decided that the company would conduct an internal investigation of what were termed questionable payments Attorneys prepared a letter containing questionnaire which was sent to All Foreign General and Area Managers over the Chairmans signature. Managers were instructed to treat it as highly confidential, and not to discuss it with anyone responses were sent to merely Thomas o What should have been done? Have the President to write the
memo, and that memo is going to go to all officers and employees. We are going to have an internal investigation regarding the ACME line of explosives, as we have been accused of xxx. General Counsel Thomas is going to contact you, you are only to speak to him, your communications with him are to be full and truthful, and maintain confidentiality. The purpose of this investigation is to anticipate potential lawsuits that may arise Upjohn Warning: Apply Upjohn warning when conducting interviews with people. His client is the company but not the individual employee, and the company has the ability to waive any privilege between the companys witnesses and its employees

Holding

Company then voluntarily submitted a preliminary report to SEC and Internal Revenue Service disclosing questionable payments. IRS then issued a summon for the records of the written questionnaires sent to the managers of its affiliates, and memorandums/notes of the interviews conducted in the US and abroad with officers and employees of the Upjohn Company and its subsidiaries District Court found waiver of the attorney-client privilege, thus privilege does not apply and applied the control group test for AC; found that work product doctrine does not apply. COA rejected this argument, but found that the privilege does apply arguing that the claim for a broader application of the privilege would encourage upper-echelon management to ignore unpleasant facts and create too broad a zone of silence Who is the CLIENT? COA found that the client was the senior management, guiding and integrating the several operations, can be said to possess an identity analogous to the corporation as a whole; applied the control group test: If the employee making the communication, of whatever rank he may be, is in a position to control or even to take a substantial part in a decision about any action which the corporation may take upon the advice of the attorney, then, in effect, he is (or personifies) the corporation when he makes his disclosure to the lawyer and the privilege would apply

132

LAW638 White Collar Crime

Supreme Court REJECTED this argument. Such a view overlooks the fact that the privilege exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice. o In a corporate context, officers and agents responsible for directing the companys actions in response to legal advice will be the ones who possess the information needed by the corporations lawyers! Information, not necessarily available from upper-echelon management, was needed to supply a basis for legal advice concerning compliance with securities and tax law, foreign laws, currency regulations, duties to shareholders & potential litigation o Control group test frustrates the purpose of the privilege by discouraging the communication of relevant information by employees of the client to attorneys seeking to render legal advice to the client corporation. Makes it more difficult to convey full & frank legal advice to the employees who will put into effect the client corporations policy o A lawyer would want the control group to be large and be able to protect as many people and gather as much information as possible

Notes

Work Product Doctrine Summons had gone further for Thomass notes and memoranda of interview, which had gone beyond recording responses to his questions Hickman v Taylor: Court noted that it is essential that a lawyer works with a certain degree of privacy and reasoned that if discovery of the material sought were permitted, much of what is now put down in writing would remain unwritten. o BUT, where relevant and nonprivileged facts remain hidden in an attorneys file and were production of those facts is essential to the preparation of ones case, production may be justified where the witnesses are no longer available or can be reached only with difficulty Forcing an attorney to disclose notes and memoranda of witnesses oral statements is particularly disfavoured because it tends to reveal the attorneys mental processes Rule 26 accords such protection permitting disclosure of docs and tangible things constituting attorney work product upon a showing of substantial need and inability to obtain the equivalent without undue hardship The Magistrate had applied the substantial need and without undue hardship standard articulated in Rule 26(b)(3). The notes and memoranda sought are work product based on oral statements. If they reveal communications, they are protected by the attorneyclient privilege. To the extent that they do not reveal communications, they reveal the attorneys mental processes in evaluating the communications. What happens if shareholders of a corporation sue the
133

LAW638 White Collar Crime

corporation and seek attorney-client privileged materials? Who is the client? o Garner v Wolfinbarger: Protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in a particular instance What showing, if any, will be sufficient to force disclosure of opinion work product that is, the mental impressions, conclusions, opinions or legal theoriesof [a party or its representative] concerning the litigation? o CIRCUITS SPLIT. Invocation of the attorney-client privilege and work product doctrine must be founded on the provision of legal services o In In Re Grand Jury Subpoenas Date Mar 9 2001, the court held that lawyers representing Marc Rich in connection with his presidential pardon application could not rely on the work product doctrine or attorney-client privilege to withhold testimony or documentary evidence. Once Rich and Green decided to seek presidential pardons, the lawyers had ceased providing legal services in an adversarial context When in doubt, have an in camera review by the judge to determine whether a document is indeed protected To be protected by the attorney-client privilege and work product doctrine, internal corporate investigations of the type employed in Upjohn must be pursued for the purpose of securing legal advice (attorney-client) or done in anticipation of litigation (work product) o Materials obtained in the ordinary course of business or for other non-litigation purposes do not qualify for work product protection o Prospect of litigation must be REAL AND SPECIFIC,

RATHER THAN SPECULATIVE


Problem arises when legal and business considerations mix and become inextricably intertwined! o Does it extend to counsels consultations with expert third parties, such as accountants or investment bankers, in the course of an internal corporate investigation of past wrongdoing or as part of counsels evaluation of proposed business activities or transactions? Yes, if it is necessary to make an informed advice Kovels Privilege: What is vital to the privilege is that the communication be made in confidence for the purpose of obtaining legal advice from the lawyer. If what is sought is not legal advice, but only accounting service or if the advice sought is the accountants, rather than the lawyers, no privilege exists o A communication between an attorney and a 3P does not become shielded by the attorney-client privilege solely because the communication proves impt to the attorneys ability to represent the client. It is only protected if counsel can demonstrate that 3P expert assistance was needed to permit counsel to communicate effectively wither client o
134

LAW638 White Collar Crime

What happens if attorney seeks outsiders help? Have they waived the privilege? NO. That would frustrate the intent of the privilege By interpreting the data, you are in a way preparing for litigation this is cobbling! Seeking outsiders help for purposes of internal investigation. But if it were for a business decision, there would not be protection. Work product doctrine may protect the product of communications with 3P even when assertions of attorney-client privilege fail o Adlman II (Second Circuit) court rejected the standard adopted by some courts that requires that litigation had to be the primary motivating purpose behind the creation of the doc. Under this standard, the document generally must be prepared to AID in litigation to warrant work product protection o Adlman II adopted instead what appears to be the majority rule, which asks whether the documents were prepared BECAUSE OF existing or expected litigation. Thus, it does not lose protection under this formulation because it is created in order to assist with a biz decisionbut it does not necessarily protect documents that are prepared in the ordinary coruse of biz or that would have been created in essentially similar form irrespective of the litigation o

B. LOSING THE PRIVILEGE: WAIVER


NCAA Investigation NCAA assumes that the coaches have violated the NCAA rules, and corporate counsel tells the university presidents to kick the students out and fire the coaches. Corporate counsel has become an arm of the prosecution! Why would you offer the defendant diversion (i.e. its okay, lets not indict the firm, or just fine) and turn over all the documents to just waive the attorney-client privilege and give the internal memo? o This is predictable US attorneys under DOJ policies would go to corporations and say that we are going to compel you to waive the A-C and Work Product Doctrines, or else we are going to prosecute you to the full extent of the law. This is a downside for the companies but corporate interests are different from personal interests Cases concerning asserted inadvertent waivers, in which unintended or mistaken disclosures were made of privileged communications or work product and the privilege-holders sought either to reclaim the privileged materials or to restrict the scope of any implied waiver; o An opposing counsel that gave you something that was in confidence Case concerning asserted partial waivers, in which the privilege-holders contended that they waived only a portion of privileged communications or work product by intentionally using or disclosing the portion and that the balance of the communication or work product should be protected; and Cases concerning asserted selective waivers, in which the privilege-holders asserted that they could intentionally disclose the privileged communications or work product to some persons but not to others

(I) Who May Waive?


Solvent Companies: Corporations management and is Commodity Futures

135

LAW638 White Collar Crime

normally exercised by its officers and directors New Management: Authority to assert and waive the corporations attorney-client privilege passes as well. Displaced managers may not assert the privilege over the wishes of current managers, even as to statements that the former might have made to counsel concerning matters within the scope of their corporate duties What Constitutes Implied Waiver? Doe court: use a fairness approach to determine whether the disclosure of privileged communications by a corporate actor should be imputed to the corporations as an implied waiver o Information used in post-petition hearing would be an implied waiver A party cannot partially disclose privileged communications or affirmatively rely on privileged communications to support its claim or defence and then shield the underlying communications from scrutiny by the opposing party. The quintessential example is D who asserts an advice-of-counsel defence and is thereby deemed to have waived his privilege with respect to the advice that he received o In Bilzerian, D who intended to testify as to his good faith reliance on legal advice could not prevent the govt from cross-examining him on advice received from counsel! o US v White: Mere denial of MR through an averment that lawyers have looked into a matter does not imply an intent to reveal the substance of the lawyers advice Scope of waiver has been limited where the disclosure occurred early in the proceedings, was made to opposing counsel rather than to the court, and was not demonstrably prejudicial to the other party Clearly, when the corporation as an entity makes the strategic decision to disclose some privileged information, the courts may find implied waiver, as they do in cases involving individuals In Does case, the court considered the following: o A corporation that has not deliberately disclosed any privileged material to the govt or to other parties, but whose officer, in contravention of the corporations instructions, has arguably waived the privilege in his grand jury testimony o Corporate agent was subpoenaed individually o Second Circuit thought it significant that the corporate officer was compelled to appear and to testify before the grand jury. Because the corporation does not enjoy the protection of the Fifth Amendment, Witness could not assert the

Trading Commission v Weintraub 471 US 343 (1985) US Supreme Court

In re Grand Jury Proceedings (United States v Doe)

136

LAW638 White Collar Crime

Fifth Amendment on its behalf

(II) Federal Rule of Evidence 502


Rule 502 was introduced to respond to the widespread complaint that litigation costs necessary to protect against waivers have been come prohibitive due to the concern that any disclosure (however innocent or minimal) will operate as a subject matter waiver of all protected communication or information The rule governs only credit waivers by disclosure. Other common-law waiver doctrines may result in a finding of waiver even where there is no disclosure of privileged information o work product Federalism Issues: o Subdivision (c) Difficult problems arise when: A disclosure of a communication or information protected by the attorney-client privilege or as work product is made in a state proceeding The communication or information is offered in a subsequent federal proceeding on the ground that the disclosure waived the privilege or protection The state and federal laws are in conflict on the question of waiver Proper solution: Choose the law that is more protective of privilege and work product can be either state or federal! o Subdivision (f) The protection against waiver provided by Rule 502 must be applicable when protected communications or information disclosed in federal proceedings are subsequently offered in state proceedings

(III) Inadvertent Waiver


When waiver occurs as a result of inadvertent document disclosure, courts have limited the scope of that waiver based on the circumstances involved and overall fairness Should the prosecutor be able to keep the other attorneys confidential memo? o It is a challenge between your duty as zealous advocacy on behalf of your client
to the best interest, and your duty to recognise when something is a mistake. Do not take advantage of what was obvious an inadvertent waiver it is a tough call

Rule 502 Subsection (b) The rule opts for a middle ground: inadvertent disclosure of protected communications or information in connection with a federal proceeding or to a federal office or agency does not constitute a waiver if the holder took reasonable steps to prevent disclosure and also promptly took reasonable steps to rectify the error

(IV) Partial Waiver


Corporations may wish to disclose some or all of the results of internal investigation, and at times the underlying documentation, to selected govt officials in the hope that such disclosure will secure for the corporation a declination of official action or at least sentencing consideration. Corporations may also feel pressured to share the results of their internal investigation with 3P who, for business reasons, want to see them o Redact the memo o FRE 106: Completeness rule to fully understand the concept, you cannot just
pick a part of it, I have a right to ALL of it

137

LAW638 White Collar Crime

o Ultimate rule: what is fair In considering whether to disclose part or all of an internal investigation, corporations must consider the possibility of a waiver of otherwise applicable privileges. In particular, they must consider: o Whether disclosing selected parts of a report or its underlying documentation waives the privilege as to the entirety of the report and documentation or whether courts will accept an assertion of partial waiver; and o Whether courts will accept a selective waiver agreement that disclosure of the report to a govt agency, prosecutor or grand jury does not waive the privilege or work product doctrine when other parties (e.g. other govt entities or private plaintiffs) seek to secure the same materials Generally, the issue in partial waiver cases is not whether the protections attaching to the material actually disclosed have been waived that much is clear The important question in these cases is the scope of any additional waiver, that is, whether the privilege-holder may argue for a finding of a partial waiver of only the material disclosed Rule 502: A subject matter waiver (of either privilege or work product) is reserved for those unusual situations in which fairness requires a further disclosure of related, protected information, in order to prevent a selective and misleading presentation of evidence to the disadvantages of the adversary. Thus, subject matter waiver is limited to situations in which a party intentionally puts protected information into the litigation in a selective, misleading and unfair manner

(V) Selective Waiver


Issue: Whether the waiver found may be limited to the party to whom disclosure was made or whether the waiver as to one person waives the protection of the attorney-client privilege or work product doctrine as to all other persons o ATTORNEY-CLIENT PRIVILEGE Courts may employ a variety of analyses but the result is often the same: a refusal to permit a selective waiver All the Circuits (except the 8th) have rejected a selective waiver theory. They have ruled that where otherwise privileged materials are shown to 3P either in an attempt to head off regulatory or criminal action against the corporation, in the conduct of the corporations business, or in the conduct of litigation the protection of the attorney-client privilege are waived AS TO ANY OTHER PERSON WORK PRODUCT DOCTRINE Exposure of protected materials to 3P does not automatically waive the doctrines protection ADVERSE AND FRIENDLY: A party who discloses documents protected by the work-product doctrine may continue to assert the doctrines protection only when the disclosure furthers the doctrines underlying goals. Generally, this inquiry turns on whether the disclosure was made to one deemed an adversary, in which case work product protection is lost, or whether it is turned over to one with a common interest under circumstances that include a legitimate expectation of continued confidentiality,
138

LAW638 White Collar Crime

in which case the work product protection will be sustained Disclosure of work product to one adversary is sufficient to waive the doctrine as to all adversaries

(VI) Court Order and Confidentiality Agreements


Can I turn everything order and agree not to waive A-C/W-P privileges prior to even a lawsuit? o Pre-production protective order that reserves the right to A-C/W-P would promote greater efficiency, rather than having to create a log of whatever content there is Under Rule 502(d), a federal court may order that disclosure of privileged or protected information in connection with a federal proceeding does not result in waiver. But subdivision (d) does not allow the federal court to enter an order determining the waiver effects of a separate disclosure of the same information in other proceedings, state or federal o This subdivision does not provide a basis for a court to enable parties to agree to a selective waiver of the privilege, such as to a federal agency conducting an investigation, while preserving the privilege as against other parties seeking the information o This subdivision is designed to enable a court to enter an order, whether on motion of one or more parties or on its own motion, that will allow the parties to conduct and respond to discovery expeditiously, without the need for exhaustive pre-production privilege reviews, while still preserving each partys right to assert the privilege to preclude use in litigation of information disclosed in such discovery Subdivision (e) codifies the well-established proposition that parties can enter an agreement to limit the effect of waiver by disclosure between or among them o This subdivision simply makes clear that while parties to a case may agree among themselves regarding the effect of disclosure between each other in a federal proceeding, it is not binding on others unless it is incorporated into a court order A state court finding no waiver in connection with a disclosure made in a state court proceeding is enforceable under existing law in subsequent federal proceedings

(VII) Individuals Attempts to Claim the Corporate Privilege


Recognising that entities can act only through agents, courts have held that any privilege that attaches to communications on corporate matters between corporate employees and corporate counsel belongs to the corporation, not to the individual employee, and that employees generally may not prevent a corporation from waiving the attorney-client privilege arising from such communications To ensure that the individual is able to assert a personal privilege: The employee must show they approached counsel for the purpose of seeking legal advice They must demonstrate that when they approached counsel they made it clear that they were seeking legal advice in their individual rather than in their representative capacities United States v International brotherhood of Teamsters 119 F.3d 210 (2d Cir. 1997)

The Matter of Bevill 805 F.2d at 123

139

LAW638 White Collar Crime

They must demonstrate that the counsel saw fit to communicate with them in their individual capacities, knowing that a possible conflict could arise They must prove that their conversations with counsel were confidential They must show that the substance of their conversations with counsel did not concern matters within the company or the general affairs of the company

(VIII) Upjohn Warning


Widespread belief among white-collar practitioners that corporate counsel, before interviewing corporate employees, must give what is commonly referred to as an Upjohn Warning: 1. Counsel represents the company not the employee and is interviewing the employee to gather information in order to provide legal advice to the company 2. The interview is confidential and covered by the attorney-client privilege 3. The privilege belongs to and is controlled by the company 4. Because the company not the employee owns the privilege, the company, but not the employee, may elect in future to waive any privilege and provide information derived form the interview to 3P, including prosecutors or regulators Given to preclude an employee from claiming to have believed that the attorney represented the employee during the interview, so as to claim control of the attorneyclient privilege and prevent the company from disclosing the employees statements to others.

C. DOJS COMPELLED-VOLUNTARY WAIVER POLICY


Holder/Thompson policy: Allows prosecutors to weigh in assessing the adequacy of a corporations cooperation via the completeness of its disclosure including, if necessary, a waiver of the attorney-client and work product protections, both with respect to its internal investigation and with respect to communications between specific officers, directors, employees and counsel.
o On its face it does not require privilege waivers as a condition for cooperation credit. The defence bar asserts, however, that prosecutors have used the language of the standard to request waivers in virtually every corporate investigation. They object that a policy that requires, in essence, regular waivers will thwart the rationales underlying the attorney-client privilege and work product doctrine, resulting in fewer internal investigations into corporate wrong-doing, less able investigations in cases where some inquiry is undertaken, and a likelihood that corporate employees will be less willing to share what they know with investigators

Philip Memo: o Privilege waivers are not (and assertedly have never been) a prerequisite for cooperation credit or for declination of criminal charges o A corporation may freely waive its privileges if it wishes o BUT that waiver may not be considered when a prosecutor decides whether to give a corporation credit for tis cooperation in charging o Rather, the critical determinant is whether the entity has provided prosecutors with the facts necessary for them to investigate the matter fairly and responsibly Sullivans Last Straw Article collective entities, such as corporations, cannot claim the Fifth Amendment right against self-incrimination. The attorney-client

140

LAW638 White Collar Crime

privilege and the work product doctrine are critical, not because they encourage self-correction or candid communication between corporate client and counsel, but rather because they serve as a substitute for the Fifth Amendment in criminal investigation Corporations regularly threaten to fire employees if they refuse to cooperate with the govt investigation that is, if they assert their Fifth Amendment Rights thus threatening the corporations chances of a declination from the govt

D. LOSING THE PRIVILEGE: CRIME/FRAUD EXCEPTION


Facts In Re Sealed Case 107 F.3d 46 (D.C.Cir 1997) Company refused to produce two subpoenaed documents, for which it was held in contempt. One of the documents is a memorandum from a Company VP to the P, with a copy to the Companys general counsel. District Court examined both documents below in camera, but did not decide whether they were covered by the privilege or the work product doctrine The memorandum reflects a conversation between the P and the Companys general counsel about campaign finance laws. The Company withheld it on the basis of the attorney-client privilege.
o Background: Companys political action committee had contributed the maximum amount permitted by law to a former candidate for federal office who was seeking to retire his campaign debt. VP wrote his memorandum, had discussion with general counsel. Later in the same month, VP called two people who did biz with the coy, asked them to contribute to former candidate. They did. After several weeks had passed, VP authorised checks to be drawn from his depts budget to reimburse these individuals not only for the amount of their contributions, but also to make up for the additional taxes they would incur from reporting the reimbursement as income. VPs solicitation may have been permissible, but according to govt, the use of the corporate funds was illegal In grand jury, VP invoked attorney-client privilege on behalf of the Company. District court ruled that the crime-fraud exception applied and ordered him to testify about the late Aug 1994 meeting

The other document is a memorandum written by the general counsel, apparently at the request of outside counsel. The Company with held it on the basis of the attorney-client privilege o A year later, the internal counsel wrote a memo at the request of
outside counsel regarding the incident

Holding

Attorney-Client privilege is subject to crime-fraud exception. Two conditions must be met: o Client must have made or received the otherwise privileged communication with the intent to further an unlawful or fraudulent act. o Client must have carried out the crime or fraud
The privilege is the clients, and it is the clients fraudulent or criminal intent that matters. A 3Ps bad intent cannot remove the protection of the privilege The person asserting the privilege must prove the privilege

141

LAW638 White Collar Crime

Memorandum reflecting a conversation between P and the Companys General Counsel: Burden on Govt to prove its case: o Level of proof: Is it a prima facie (accepted in the Second Circuit),
preponderance of the evidence, clear and convincing evidence, or something else? The answer lies in In re Sealed Case, the government satisfies its burden of proof if it offers evidence that if believed by the trier of fact (jury) would establish the elements of an ongoing or imminent crime or fraud . If the jury believes, their verdict would be supported. Critical consideration: the govts presentation had to be aimed at the INTENT AND ACTION OF THE CLIENT. It was not enough for the govt to show that the VP committed a crime after he wrote his memo and attended the late Aug meeting with Company counsel. The holder of the privilege is the CLIENT and, in this case, the client was the COMPANY, NOT THE VP. Unless the govt made some showing that the Company intended to further and did commit a crime, the govt could not invoke the crime-fraud exception to the privilege.

Late August Meeting Govt evidence reveals that participants discussed campaign finance laws. That is not enough! One cannot reasonably infer from the meeting that the Company was consulting its general counsel with the intention of committing a crime, or even that the VP was then doing so True enough, within weeks of the meeting about campaign finance law, the VP violated the law. But the govt had to demonstrate that the Company sought the legal advice with the intent to further its illegal conduct. Showing temporal proximity between the communication and a crime is not enough No way to find out if the VP was on a frolic of its own, against the advice of Company counsel, when he reimbursed the donors with corporate funds There are circumstances under which corporations are responsible for the crimes of their agents. But neither in this court nor in this district court did the govt offer anything in terms of evidence or law to support the idea that the Company bore criminal responsibility for the act of this officer. The govt thus did not sustain its burden Memorandum by the Companys general counsel, written to the file and relating to matters that occurred one year after the VPs illegal action: This document is covered by work product immunity rather than the attorney-client privilege. The protection for attorney work product is broader than the attorney-client privilege, but less absolute Work product immunity covers not only confidential communications between the attorney and client. It also attaches to other materials prepared by attorneys (and their agents) in anticipation of litigation. Like the attorney-client privilege, work

142

LAW638 White Collar Crime

Note

product immunity promotes the rendering of effective legal services Crime-fraud exception calls for a somewhat different inquiry here: Focus is not on the clients intent regarding a particular communication, but on the clients intent in consulting the lawyer or in using the materials the lawyer prepared. The question is: Did the client consult the lawyer or use the material for the purpose of committing a crime or fraud? As in apparent from the nature of the inquiry, the crime-fraud exception for work product immunity cannot apply if the attorney prepared the material after his clients wrongdoing ended Split opinion: Regarding the first prong of the crime-fraud exception, the Second Circuit rejected the need for it to actually take place, stating that it need only have been the objective of the clients communication. The client need not have succeeded in his criminal or fraudulent scheme for the exception to apply. If a fraudulent plan were ineffective, the clients communications would not thereby be protected from disclosure Split opinion: Regarding the second prong, courts vary in how they express the degree of relatedness required between the criminal or fraudulent intent of the client and the communications sought to be revealed o Can be reasonably relate, close relationship, potential relationship o Why require a demonstrated nexus between the intended crime and the communications at issue? Seal of secrecy between lawyer and client does not extend to communications from the lawyer to the client made by the lawyer for the purpose of giving advice for the communication of a fraud or crime. The seal is broken when the lawyers communication is meant to facilitate future wrongdoing by the client. Where the client commits a fraud or crime for reasons completely independent of legitimate advice committed by the lawyer, the seal is not broken, for the advice is, logicians explain, non causa pro causa In Re Grand Jury Investigation 399 F.3d 527 (2d Cir. 2005) Federal grand jury subpoenaed the testimony of Anne George, former chief legal counsel to the Office of the Governor of Connecticut. US Attorney Office was investigating whether Governor Rowland and members of his staff had received gifts in return for public favours, including the favourable negotiation and awarding of state contracts. Anne George declined to submit herself to voluntary interview, as she believed that the info was protected by attorney-client privilege Eventually, she testified before the grand jury that all conversations were in confidence and conducted for the purpose of providing legal advice. Governor Office was of the view that they were protected by the A-C privilege, which it declined to waive The district court sought to distinguish between govt attorney-

E. PRIVILEGES OF GOVERNMENTAL ACTORS


Facts

143

LAW638 White Collar Crime

Holding

client privilege from private attorney-client privilege, explaining that unlike a private lawyers duty of loyalty to an individual client, a government lawyers duty does not lie solely with his or her client agency, but also with the public PUBLIC INTEREST: We cannot accept the Govts unequivocal assumption as to where the public interest lies. To be sure, it is in the public interest for the grand jury to collect all the relevant evidence it can. However, it is also in the public interest for high state officials to receive and act upon the best possible legal advice. It is crucial that govt officials, who are expected to uphold and execute the law and who may face criminal prosecution for failing to do so, be encouraged to seek out and receive fully informed legal advice. Upholding the privilege furthers a culture in which consultation with govt lawyers is accepted as a normal, desirable and even indispensable part of conducting public business

144

LAW638 White Collar Crime

WEEK 13 REPRESENTATION ISSUES


Representation 6th Amendment Right to Counsel o Counsel of choice o Conflict free o Ineffective assistance Thompson Memo / Stein attorney fees Joint Defence Agreement Federal White Collar Crime pp 1033 1086

Notes
What Gideon tells us is that a person who can go to jail based on a charge has the right to have an attorney. o Sixth Amendment also tells us that he has a right to retain a counsel of his choice. o The government cannot prevent that unless they have a very good reason. o At trial, that counsel must not be ineffective. The attorney must do or must not do what a reasonable attorney would do or would not do! Something must be different as a result of that act or inaction At the inception of the investigation, one lawyers or firms representation of the corporation AND the individuals involved (usually termed multiple or joint representation) may have many advantages: o Counsel can maintain greater control over the matter o Track the investigation more efficiently and inexpensively o Present a common, united defence to possible prosecution This type of multiple representation may as the investigation progresses or after indictment and at trial raise a number of ethical, legal and practical difficulties Subject or targets of a white-collar investigation often hire separate counsel, but form what is known as a JOINT DEFENCE. o Pursuant to a joint defence agreement, counsel for each client may work together and pool information without fear that such sharing will expose their communications or work product to examination by 3P, such as the grand jury or litigants in collateral civil cases. Strickland: 1. Performance (reasonable) 2. Prejudice (prejudice is presumed if counsel has an actual conflict of interests)

ETHICAL RULES
Ethics: Counsel has a duty of loyalty. He has a duty to be a zealous advocate. If there appears to be a conflict of interest, it undermines the integrity of justice. We should avoid such appearances. No constitutional duty placed on judges to ensure that there are no conflict cases and inquire about it o Federal Court R 44 if a judge sees a lawyer with two defendants, he will ask him o Situation typically arises when a prosecutor makes a motion to disqualify the defence counsel. I-dont-want-to-travel-this-road-twice! If I let this court
145

LAW638 White Collar Crime

goes forward when I see a conflict of interests, it is very likely that at some time, when this case is going to come back to me and I have to do it anything o Prosecutors are in a better position to assess whether there is a conflict of interests: They have a broader view of the case and have access to various materials and evidence. A particularly good lawyer, if I can get him off the case that would be great! Most important provisions ABA Model Rules of Professional Conduct Rules 1.7, 1.13(e) and 1.8: o 1.7 A lawyer shall not represent a client if the representation of the client will be directly adverse to another client The potential for conflict of interest in representing multiple Ds in a criminal case is so grave that ordinarily a lawyer should decline to represent more than one co-defendant o 1.13(e) a lawyer representing an organisation may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7 o 1.8(g) A lawyer who represents two or more clients shall not participate in a criminal case an aggregated agreement as to guilty or nolo contendere pleas, unless each client consents after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement

MULTIPLE OR JOINT REPRESENTATION


(I) Constitutional Issues Holloway v Arkansas: Appointing one lawyer to represent at trial three codefendants was unconstitutional in a case where counsel had informed the trial court of a conflict among his clients but the court failed to take adequate steps to ascertain whether the risk of conflict was likely or remote. Recognises that effective assistance of counsel guaranteed by the Sixth Amendment includes a right to conflict-free counsel Wheat v United States 486 US 153 (1988) Facts Mark Wheat, with numerous codefendants, was charged with participating in a complex drug distribution scheme. Also charged in the conspiracy were Juvenal Gomez-Barajas and Javier Bravo, who were represented by attorney, Eugene Iredale Gomez-Barajas was tried first and acquitted on drug charges overlapping with those lodged against Wheat. To avoid a second trial on other charges, however, Gomez-Barajas offered to plead to certain counts. As of the commencement of petitioners trial, District Court had not accepted Gomez-Barajass plea. Bravo, a lesser player, pleaded guilty to one count of transporting marijuana Govt objected to Wheats request to allow Iredale to represent him. The govt felt that it would create a serious conflict of interest arising from: o If the District Court rejected Gomez-Barajass proposed plea and Gomez-Barajas then elected to proceed to trial, petitioner was in the govt views likely to be called as a witness for the govt AND o The govt had asked that Bravo be made available as a

146

LAW638 White Collar Crime

Issue

Holding

Dissenting by Justice Marshall and Justice Brennan

witness to testify against petitioner in exchange for sentencing considerations. Extent to which a criminal defendants right under the Sixth Amendment to his chosen attorney is qualified by the fact that the attorney has represented other defendants charged in the same criminal conspiracy. Can he waive his right to a conflict-free counsel in favour of a counsel of choice? Petitioner insists that the provision of waivers by all affected defendants cures any problems created by the multiple representation. But no such flat rule can be deduced from the Sixth Amendment presumption in favour of counsel of choice. Federal courts have an independent interest in ensuring that criminal trials are conducted within the ethical standards of the profession and that legal proceedings appear fair to all who observe them. If a district court agrees to the multiple representation, and the advocacy of counsel is thereafter impaired as a result, D may well claim that he did not receive effective assistance. A waiver by D does not necessarily solve the problem! District court must be allowed substantial latitude in refusing waivers of conflicts of interest not only in those rare cases where an actual conflict may be demonstrated before trial, but in the more common cases where a potential for conflict exists which may or may not burgeon into an actual conflict as the trial progresses Iredale and Bravo: The Govt intended to call Bravo as a witness for the prosecution at petitioners trial. The Govt might readily have tied certain deliveries of marijuana by Bravo to petitioner, necessitating vigorous cross-examination of Bravo by petitioners counsel. Ireland, because of his prior representation of Bravo, would have been unable ethically to provide the cross-examination Ireland and Gomez-Barajas: District Court had not yet accepted the plea agreement. If the agreement were rejected, petitioners probable testimony at the resulting trial of Gomez-Barajas would create an ethical dilemma for Ireland form which one or the other of his clients would likely suffer The potential for a conflict of interest in this case did not overcome the petitioners right to choose his own counsel The propriety of the District Courts order thus depends on whether the Govt showed that the particular facts and circumstances of the multiple representation proposed in this case were such as to overcome the presumption in favour of petitioners choice of counsel. I believe it is clear that the Govt failed to make this showing. Neither Eugene Iredales representation of Juvenal Gomez-Barajas nor Iredales representation of Javier Bravo posed any threat of causing a conflict of interest Gomez-Barajas: He was not scheduled to appear as a witness at petitioners trial; thus, Iredales conduct of that trial would not require him to question his former client. The only possible conflict this Court can divine from Iredales representation of both petitioner and Gomez-Barajas rests on the premise that the trial court would reject the negotiated plea agreement and that Gomez-

147

LAW638 White Collar Crime

Notes

Barajas then would decide to go to trialbut the Court offered no reason why the plea agreement would be rejected! And even if Gomez-Barajas had gone to trial, petitioner probably would not have testified as there was no indication that petitioner had any involvement or information about crimes for which Gomez-Barajas might yet have stood trial Bravo: Contrary to the Courts inference, Bravo could not have testified about petitioners involvement in the alleged marijuana distribution scheme. As all parties were aware at the time, Bravo did not know and could not identify petitioner; indeed, prior to the commencement of legal proceedings, the two men never had heard of each other. Even if it necessitated vigorous cross-examination, petitioners motion requested that Iredale either be substituted for petitioners current counsel or be added to petitioners defence team. Had the District Court allowed the addition of Iredale and then ordered that he take no part in the cross-examination of Bravo, any possibility of conflict of interests would have been removed This was a pretext to get rid of the bad lawyer! Look at the facts! Ineffective Assistance of Counsel Claim; D must meet two-part burden: o Demonstrate counsels ineffective (i.e. that counsels representation fell below an objective standard of reasonableness under prevailing professional norms) o D must establish prejudice, defined to mean a reasonable probability that, but for counsels unprofessional errors, the result of the proceeding would have been difficult But in Strickland v Washington, the court noted that the
usual showing is not required when the ineffective assistance of counsel claim is grounded in an actual conflict of interest Where counsel was burdened by an actual conflict of interest, a defendant, to prevail on an ineffective assistance of counsel claim, need only show that the conflict adversely affected his lawyers performance, not that but for counsels unprofessional errors, the result of the proceeding would have been different

(II) Multiple Representation Decisions in the Corporate Context If those summoned in the investigation work for an entity, the entity may retain counsel to represent itself and its employees and officers. If the investigation comes to naught this works out well; if the investigation culminates in indictment of some of those jointly represented, hindsight often perhaps almost invariably indicates that separate representation from the outset would have been advisable How does an entity and those associated with it avoid the heartbreak of hindsight? Three principal factors must be carefully weighed: ethical rules, tactical considerations and prosecutorial responses Ethical Rules: o At the outset there may be no apparent differing interests between company and employees, their alignments can easily become adverse as the investigation progresses. In that case, by representing employees whose interests have become adverse to the corporation i.e. an actual

148

LAW638 White Collar Crime

conflict of interest the company counsel risks disqualification of its outside counsel in the event of an indictment and trial, if not earlier. The result is that the company may find itself without knowledgeable counsel just when it needs him or her the most and incurs the additional cost of hiring and educating new counsel o If the companys inside counsel had done his risk management properly and decided that joint representation is okay, he should make certain that both company and other employees fully understand the risks of multiple representation and obtain their consent in writing. The minimum elements of the written waiver include: An explanation of the existence and focus of the grand jury investigation An expression that neither party is aware of any wrongdoing by the employee AND A warning that if additional facts come to light suggesting that the employee was involved in wrongdoing, the employee will have to retain separate counsel and will not object to continued representation by joint counsel of the company Prosecutorial Response: o Prosecutors do not like multiple representations at the grand jury stage any better than at trial and typically threaten disqualification when presented with such representations. In their view, multiple representation raises obstruction-of-justice concerns and reduces the likelihood of obtaining cooperation of the company employees o Prosecutors raise potential conflict of interest by suggesting that, absent multiple representation, the employee would be under consideration for immunity. Once such a suggestion is made, however, the company counsel will have to reconsider whether the employee should have his own counsel even if the employee continues to insist that he has no information damaging to the company Tactical Consideration When Considering Multiple Representation: o Coordinated strategy in pooling information to the benefit of all witnesses, which likely will be more complete (and certainly more efficient) than exchanges of information among multiple defence counsel pursuant to joint defence agreements o Maintenance of morale of lower-level company employees, whoa re less likely to believe that they are being abandoned by their company o At the senior level, a clear signal to the prosecutors that the company does not believe that its senior executives have engaged in wrongdoing o Cost savings

PRE-INDICTMENT SIXTH AMENDMENT PROTECTION? UNITED STATES V STEIN


Few cases have addressed the scope of any right to counsel in pre-charge proceedings. A couple of courts have recognised a grand jury witnesss a right to consult with an attorney outside the grand jury room and has a general due process right to legal assistance. And some courts have been willing to entertain govt disqualification motions based upon a lawyers potential conflict of interest in representing a number of persons, including investigatory targets, at the grand jury stage, but those motions are not generally successful in absence of some evidence of a strong potential or an actual conflict of interest.

149

LAW638 White Collar Crime

Facts

United States v Stein 541 F.3d 130 (2d Cir. 2008) Judge Kaplan (US District Court for the Southern District of NY) found that, absent pressure from the govt, KPMG would have paid Ds legal fees and expenses without regard to cost. Based on this and other findings of fact, Judge Kaplan ruled that the govt deprived D of their right to counsel under the Sixth Amendment by causing KPMG to impose conditions on the advancement of legal fees to Ds, to cap the fees and ultimately to end payment o Capped at $40,000 per employee; o Conditioned on the employees cooperation with the govt; o Terminated when an employee was indicted Judge Kaplan ruled that the govt deprived D of their right to substantive due process under the Fifth Amendment [to fairness in
the criminal process, including the ability to get and deploy in defence all resources lawfully available to him or her, free of knowing or reckless govt interference and that the govts reasons for infringing that right in this case could not withstand strict scrutiny]. This court ultimately held

Holding

that the govt unjustifiably interfered with Ds relationship with counsel and their ability to mount a defence, in violation of the Sixth Amendment, and that the govt did not cure the violation. Private action v ambit of the Sixth Amendment: Actions of a private entity are attributable to the State if there is a sufficiently close nexus between the State and the challenged action of the entity so that the action of the latter may be fairly treated as that of the State itself Such responsibility is normally found when the State has exercised coercive power or has provided such significant encouragement, either overt or covert, that the choice must in law be deemed to be that of the State A nexus of state action exists between a private entity and the state when the state exercises coercive power, is entwined in the management or control of the private actor, or provides the private actor with SIGNIFICANT ENCOURAGEMENT, either overt or covert, or when the private actor operates as a WILLFUL PARTICIPANT IN JOINT ACTIVITY with the State or its agents, is controlled by an agency of the State, has been delegated a public function by the state, or is ENTWINED WITH GOVT POLICY KPMG operated as a willful participant in joint activity with the govt, and because the USAO significantly encouraged KPMG to withhold legal fees from Ds upon indictment Since D counsels objective in a criminal investigation will virtually always be to protect the client, KPMGs risk was that fees for defence counsel would be advanced to someone the govt considered culpable. So the only safe course was to allow the govt to become (in effect) paymaster

Pre-Indictment: The Supreme Court has pegged commencement [of the Sixth

150

LAW638 White Collar Crime

Amendment right] of a prosecution to the initiation of adversary judicial criminal proceedings whether by way of formal charge, preliminary hearing, indictment, information or arraignment. The rule is when the govt has committed itself to prosecute When the govt acts prior to indictment so as to impair the suspects relationship with counsel post-indictment, the preindictment actions ripen into cognizable Sixth Amendment deprivations upon indictment If, as alleged, the govt coerced the employer into halting fee advances on Ds behalf and the govt did so for the purpose of undermining Ds relationship with counsel once the indictment issued, the govt violated Ds right to expend their own resources towards counsel once the right attached

Notes

What the Sixth Amendment right guarantees The Sixth Amendment imposes on the State an affirmative obligation to respect and preserve the accuseds choice to seek the assistance of counsel The govt violates the Sixth Amendment when it intrudes on the attorney-client relationship, preventing defence counsel from participating fully and fairly in the adversary fact-finding process Govt argues: D has no Sixth Amendment right to spend another persons money for services rendered by an attorney, even if those funds are the only way that D will be able to retain the attorney of his own choice Court rejects this: It is easy to distinguish the case of an employee who reasonably expects to receive attorneys fees as a benefit or prerequisite of employment, whether or not the expectation arises from a legal entitlement. As has been found here as a matter of fact, these Ds would have received fees from KPMG but for the govts interference. Although there is no Sixth Amendment right for D to obtain counsel using tainted funds, D still possesses a qualified Sixth Amendment right to use WHOLLY LEGITIMATE FUNDS to hire the attorney of his choice The govt are using the Thompson Memo to coerce KPMG to deprive people of their choice of counsel and effective assistance of counsel Can the govt consistent with the Sixth Amendment right see that the defendants had money, and that they could use that money to hire their monies, but we have this strategy that is going to forfeit the money? We are afraid, that at the end of the case, the money would be good. As a collateral effect of that action, the defendants had no money to hire attorneys. Prosecutors would then claim that it is a good tactic, as we are fighting crimes.

JOINT DEFENCES
Subjects/targets/Ds may each hire individual counsel and form a joint defence Pursuant to a joint defence, subjects/targets/Ds may share information which: o May permit each to better evaluate his position and to craft an individual defence; o May allow the group more effectively to track the direction and status of

151

LAW638 White Collar Crime

the govts investigative efforts; o May make possible the formulation of a common, coherent defence theory and strategy; o Facilitate the division and efficient allocation of investigative or trial preparation responsibilities; o Govt and other potential adversaries may not access the share materials, which are treated by the courts as maintaining their attorney-client privilege or work product status despite being shared among joint defence participants; o Avoid conflict of interest and other problems Join defence arrangements have two significant problems: o Allow its members to shape testimony and perhaps even coordinate perjury o Effectively keep innocent or less culpable subordinates in line with a stonewall defence Most often govt challenges are lodged when one member of the joint defence turns government witness, creating a real possibility that counsel for the remaining members of the joint defence will be required to cross-examine the cooperating witness. In such circumstances, the govt argues that trial counsel who is possession of privileged joint defence communications from prospective witness must be disqualified If, as many courts appear to believe, the joint defence privilege is an extension of the attorney-client privilege pursuant to which an implied attorney-client relationship develops between all the participants and all the lawyers in the joint defence, the govts efforts may yield fruit. Conceptualised in this way, the same considerations that would potentially disqualify counsel in multiple representation situation may apply in the joint defence context as well

Joint Defence Doctrine Not necessary for actual litigation to be pending for the doctrine to apply Protects both communications between attorneys for joint defence participants and communications between a participant and attorneys for other participants Although the doctrine protects communications made in the course of an ongoing common enterprise and intended to further the enterprise, the participants interests must only be common, not identical A written agreement is not legally necessary to assert the privilege and, at common law, the privilege could be waived to permit disclosure of joint defence communications only with the unanimous consent of all the parties Difference between joint defence and attorney-client privilege: A-C privilege founded on the principle that protecting the confidentiality of discussions between a client and an attorney is essential to insuring free and candid disclosure of information. By contrast, the J-D doctrine is not intended to promote the free flow of information between client and attorney, but to further the efficient representation of a client by allowing similarly situated persons typically represented by different lawyers or proceeding pro se to exchange information without running the risk that the information will be revealed to the parties of adverse interest Note that potential conflict of interest may arise in United States v Anderson, it was held that an attorney who acquires information from a potential witness pursuant to a joint defence agreement is in no different position than would be an

152

LAW638 White Collar Crime

attorney who acquires such information from a prior or jointly represented client Implication of the Anderson court: A J-D agreement creates an A-C relationship between every attorney and every participant in the joint defence. An attorneys obligation to zealously defend the attorneys original client by impeaching a cooperating witness conflicts with the lawyers Canon 4 obligations to preserve the confidences of a former client and to avoid taking an adverse position to a former client in a substantially related matter Given several ethical issues involved, a prudent practitioner embarking on a joint defence should create a written joint defence agreement and insure that all participants and their counsel signed The Committee had believed that it is not unethical or inappropriate for participants expressly to agree in advance that: o No new attorney-client relationships are created by the J-D o No conflict of interest exists merely because an attorney may not be able to use certain info obtained in the JD in the future o A participant will not seek disqualification of any attorney in the J-D based on that attorneys cross-examination or attempted impeachment of the participants The Committee also does not believe it is unethical for lawyers to enter into a J-D agreement in which participants agree in advance that confidential communications can be used to cross-examine or impeach a withdrawn participant In Re Grand Jury Subpoena et al. 274 F.3d 563 (1st Cir. 2001) Facts Under the plea agreements terms, Oldco pled guilty to charges of conspiracy to defraud the Internal Revenue Service and agreed to cooperate with the govts ongoing investigation of certain present and former officers, employees and customers. As part of this cooperation, Oldco expressly waived applicable attorney-client and work product privileges. Soon after, a federal grand jury issued a subpoena duces tecum to Oldcos parent corporation, Newparent Inc, demanding the production of documents relating to its rebate program a program under which, according to the govt, Oldco would charge certain complicit customers more than the going rate for its products, but would then refund the difference by payments made directly to principals of these customers During the earlier period prior to Oldcos acquisition, Oldco was owned by a number of members of a single family; one family member (Richard) served as its board member & CEO, and another (Morris) served on the board and as executive VP for sales and marketing. Nameless Lawyer served as its principal outside counsel. These three individuals filed a motion to quash the subpoena Lawyer claimed to have represented Oldco, Roe and Moe in various individual matters. He claims to have conducted this simultaneous representation of corporate and individual clients under a longstanding J-D agreement. According to Lawyer, this agreement, although never committed to writing, provided that communications

153

LAW638 White Collar Crime

Ruling

Holding

among the three clients were jointly privileged and could not be released without unanimous consent. Despite the absence of any reference to this agreement in the corporate records there was no resolution or other vote of the board of directors authorising Oldco to participate in such an agreement the intervenors assert that Roe, as CEO, had the authority to commit the corporation to it Lawyer further claimed that he represented Oldco and its officers in connection with the grand jury investigation from and after Oct 97. He says that the oral joint defence agreement applies to the multiple-party representation and that he told the govt that he represented Oldco and all of its executives An individual privilege may exist in these circumstances only to the extent that communications made in a corporate officers personal capacity are separable from those made in his corporate capacity. Because the intervenors do not allege that any of the subpoenaed documents are solely privileged to them but rest instead on the theory that all the documents are jointly privileged, their claim, as a matter of law, does not survive the subsidiarys waiver. The joint defence agreement does not demand a different result: privileges are created, and their contours defined, by operation of law, and private agreements cannot enlarge their scope. Moreover, this particular JD agreement is unenforceable Privilege Claims Attorney-client privilege, in the context of a grand jury, applies only to the extent necessary to achieve its underlying goal of ensuring effective representation through open communication between lawyer and client Roe & Moe can mount a claim of attorney-client privilege only if, and to the extent that, Lawyer represented them individually. If the only attorney-client privilege at stake is that of their corporate employer, then Oldcos waiver defeats the claim of privilege. After all, the law is settled that a corporations attorney-client privilege may be waived by current management To determine when the presumption burst (of when an employee seeks a counsel in his personal capacity), most courts adopt the test explicated in In re Bevill, Bresler & Schulman Asset Mgmt. Corp. The test enumerates five benchmarks that corporate employees seeking to assert a personal claim of A-C privilege must meet: 1. They must show that they approach counsel for the purpose of seeking legal advice 2. They must demonstrate that when they approached counsel they made it CLEAR that they were seeking legal advice in their individual rather than in their representative capacities 3. They must demonstrate that the counsel saw fit to communicate with them in their individual capacities, knowing that a possible conflict could arise 4. They must prove that their conversations with counsel were confidential 5. They must show that the substance of their conversations with counsel did not concern matters within the company or the

154

LAW638 White Collar Crime

general affairs of the company o Govt contended that all of Roes and Moes communications were within the orbit of Oldcos general affairs, and therefore could not be individually privileged. In govts view, Bevill precludes a finding of individual representation with respect to matters such as the grand jury investigation into the rebate program that involve the corporation. Court rejected this argument o The fifth prong, properly interpreted, only precludes an officer from asserting an individual attorney client privilege when the communication concerns the corporations rights and responsibilities. However, if the communication between a corporate officer and corporate counsel specifically focuses upon the individual officers personal rights and liabilities, then the fifth prong can be satisfied even though the general subject matter of the conversation pertains to matters within the general affairs of the company o Theoretically, Lawyer could have represented Roe & Moe individually with respect to the grand jury investigation. Still, this would only extend to those communications which involved Roes and Moes individual rights and responsibilities arising out of their actions as officers of the corporation. Corporations Right to Waive the A-C privilege o Major difficulty: Individuals allegedly protected communications with Lawyer do not appear to be distinguishable from discussions between the same parties in their capacities as corporate officers and corporate counsel, respectively, anent matters of corporate concern o Joint communications with a single attorney are privileged with respect to the outside world because clients must be entitled to the full benefit of joint representation undiluted by fear of waiving the attorney-client privilege. Nevertheless, the privilege does not apply in subsequent litigation between the joint clients, in that sort of situation, one clients interest in the privilege is counterbalanced by the others interest in being able to waive it o A corporation may unilaterally waive the attorney-client privilege with respect to any communications made by a corporate officer in his corporate capacity, notwithstanding the existence of an individual attorney-client relationship between him and the corporations counsel o In this regard, we think it significant that the fifth prong of the Bevill test is stated in the negative: communications may be individually privileged only when they do not concern matters within the company or the general affairs of the company, rather than when they do concern an individuals rights o Here, neither Roe or Moe have even attempted to make any showing of segregability
155

LAW638 White Collar Crime

Work Product Privilege o At issue here is at least two categories of files contemplated by the subpoena: Lawyers interviews of employees during Oldcos internal investigation into the rebate program, and his notes and mental impressions of the investigation o Roe, Moe, Lawyer may invoke the work product privilege as to work done exclusively for Roe and Moe as individuals. But because they effectively conceded that the work was performed, at least in part, for the corporation, Oldcos waiver of all privileges negates their potential claim of privilege o Joint defence agreement: Although a valid defence agreement may protect work product, one party to such an agreement may not preclude disclosure of work product by another party won whose behalf the work originally was performed. Nor can the parties, by agreement, broaden the scope of the privilege that the law allows. Such an agreement would contravene public policy (and hence would be unenforceable). In any case, on the facts, it would be invalid. Lawyer claimed that they entered into an oral joint defence agreement in 1990, at which time there was no particular litigation or investigation in prospect!

Fed.R.Civ.P 45(d)(2) The rule had consistently held that a party resisting disclosure must produce a document index or privilege log. Although most of the reported cases arise in the context of a claim of A-C privilege, the specify or waive rule applies equally in the context of claims of work product privilege Intervenors suggested that they were hampered in their ability to present such list by the district courts refusal to hold an evidentiary hearing. This suggestion does not withstand scrutiny. After all, the intervenors were not without knowledge of the communications to which the subpoena pertained. Lawyer originally had possession of them and turned them over to Smith & Jones only when Newparent decided to change counsel. Despite this knowledge, the intervenors made no effort to prepare a privilege log. That omissions is fatal

156

LAW638 White Collar Crime

WEEK 14 PLEA BARGAINING AND COOPERATION AGREEMENTS


x Federal White Collar Crime pp 1087 1156

Notes
Various forms of pleas available: Alford plea:
o Where evidence of actual guilt provided a strong factual basis for the plea, court did not err in accepting representing Ds guilty plea despite Ds claim of innocence A judgment of conviction but cannot be used against D as an admission in subsequent criminal or civil cases. Only entered with the consent of the court after the court has considered the views of the parties and the public interest

Plea of nolo contendere:


o o

Conditional plea of guilty or nolo contendere: o Normally a D entered a guilty plea waives all nonjurisdictional objections to the
prosecution. Thus, D who loses potentially dispositive pre-trial motions such as motions to suppress may go to trial solely to preserve these pre-trial issues for appellate review. To avoid drain on prosecutorial and judicial resources, the federal rules permit D, with the consent of the govt and the court to enter a conditional plea, reserving the right to appeal the adverse pre-trial ruling and, if successful on appeal, to withdraw the guilty or nolo-contendere plea

Fed R. Crim. P. II: Parties may bargain in a number of currencies in addition to cooperation, including particular charges, sentences or sentencing ranges, or the application of guidelines policies, factors, or provisions

PLEA BARGAINING: CONSTITUTIONAL STANDARDS


Wired or package deal plea: Several confederates plead together and the govt gives them a volume discount a better deal than each could have gotten separately o Problem: Additional risk of coercion. Pose greater danger of inducing a false guilty plea by skewing the assessment of the risks a D must consider CIRCUIT SPLIT: regarding whether the govt must first establish Ds breach of an agreement by a preponderance of the evidence before repudiating its own promises under a plea agreement, or whether D seeking enforcement of a plea agreement bears the burden of first establishing by a preponderance of evidence that he had fulfilled his obligations under the agreement CONTROVERSIES: Which clause to enforce in the plea agreement: o Ricketts: Court enforced against D a provision that was found equivalent to an agreement waiving a double jeopardy clause o Brady waiver: discovery may not have been completed in this case, and that
there may be additional discovery to which he would have access if he elected to proceed to trial. D agrees to waive his right to receive additional discovery which may include, among other things, evidence tending to impeach the credibility of potential witnesses Sentencing appeal waivers: The government appears to provide some

157

LAW638 White Collar Crime

sentencing concessions more frequently to defendants who sign waivers than to defendants who do not, including agreement to C pleas (binding sentencing terms), downward departures, safety-valve credits, and a variety of stipulation Some 11 circuits accept that waivers of appeal are generally permissible and enforceable Others have held that it will undermine the error correcting function of the courts of appeals in sentencing; it will create a sentencing regime where court of appeals will never have the opportunity to review an illegal or unconstitutional sentence, or a sentence that has no basis in fact

Some circuits have indicated that certain challenges to sentencing decisions other than ineffective assistance claims will be entertained despite an otherwise valid waiver, and the list of permissible challenges seem to be getting longer:
o o o o o Sentence was imposed in excess of max penalty provided by law Sentence was based on a constitutionally impermissible factor such as race Where the sentence violates a material term of the plea agreement A sentence was predicated on subsequently overruled circuit law Some circuits have opted for a more general miscarriage of justice standard. Among the factors to be considered clarity of error, gravity, character (whether it concerns a fact issue, sentencing guideline or stat max), impact of error on D, impact of correcting the error on govt & extent to which D acquiesced

Some plea agreements define the cooperation required by the agreement as including Ds agreement not only affirmatively to aid the govt in its efforts to prosecute others, but also to refrain from certain activity and waive certain rights (e.g. attorney-client privilege) Benefits Detriments
System would be overwhelmed with trials and all would suffer as the justice system grounds to a halt Even if the practice were overtly banned, it would through necessity be resurrected in clanedestine dealing Provides parties flexibility not otherwise available were the case to go to trial, and obviates putting victims and others through the burdens of litigation Coerces D into waiving fundamental rights or permits sentencing courts to penalise those who exercise their rights by going to trial Prosecutors may offer D such stark choices between a lenient plea offer and a threat of harsh charges if he plea offer is rejected that risk adverse but innocent Ds will be coerced into a guilty plea Short circuits formal fact-finding and adjudication mechanisms; in some cases, it may be that the negotiated result does not comport with the actual facts that would be found had trial-type procedural safeguards been employed Undermines the goals of criminal punishment because it permits sentences that are unduly lenient given the conduct at issue Bargained-for and presumptively lenient sentences undermine public confidence in the criminal justice system To the extent that some Ds are receiving charges or sentencing breaks while others are not, plea bargaining increases irrational disparities and discrimination

Facts

Brady v United States 397 US 742 (1970) Upon learning that his codefendant would plead guilty and testify

158

LAW638 White Collar Crime

Issue

Holding

Facts

Holding

against him, petitioner suddenly changed from not guilty to guilty. Brady now claims that it was not voluntarily given because the charge operated to coerce him (if he did not plea guilty, he would face death penalty instead of life imprisonment) Waiver of constitutional rights not only must be voluntary but must be knowing, intelligent acts done with sufficient awareness of the relevant circumstances and likely consequences. On neither score was Bradys plea of guilty invalid. We decline to hold that a guilty plea is compelled and invalid under the Fifth Amendment whenever motivated by Ds desire to accept the certainty or probability of a lesser penalty rather than face a wider range of possibilities extending from acquittal to conviction and a higher penalty authorised by law for the crime charged. Standard as to voluntariness of guilty plea: A plea of guilty entered by one fully aware of the direct consequences, including the actual value of any commitments made to him by the court, prosecutor, or his own counsel, must stand unless induced by threats (or promises to discontinue improper harassment), misrepresentation (including unfulfilled or unfulfillable promises), or perhaps by promises that are by their nature improper as having no proper relationship to the prosecutors business (e.g. bribes) [none of these were found here] Borkdenkircher v Hayes 434 US 357 (1978) Hayes & his retained counsel met with the prosecutor who offered to recommend a sentence of 5 yrs if he would plead guilty. If he doesnt, prosecutor would seek an indictment under the Kentucky Habitual Criminal Act, which would subject Hayes to a mandatory sentence of life imprisonment by reason of his two prior felony convictions. He chose not to plead guilty, prosecutor chose to obtain such a conviction Kentucky COA rejected the constitutional objection; COA for Sixth Circuit reversed on the ground that prosecutors conduct violated the principles of Blackledge v Perry, which protects D from the vindictive exercise of prosecutors discretion To punish a person because he has done what the law plainly allows him to do is a due process violation of the most basic sort, and for an agent of the State to pursue a course of action whose objective is to penalize a persons reliance on his legal rights is patently unconstitutional. But in the give-and-take of plea bargaining, there is no such element of punishment or retaliation so long as the accused is free to accept or reject the prosecutions offer. Plea bargaining flows from the mutuality of advantage to defendants and prosecutors Constitutional limits alluded to in Bordenkircher: o Due process prohibitions against prosecutorial vindictiveness o Equal protection safeguards against selectivity in enforcement on the basis of an unjustified standard such as race, religion or other arbitrary classification

159

LAW638 White Collar Crime

Test enunciated in United States v Armstrong: In order to dispel the presumption that a prosecutor had not violated equal protection, a criminal D must present clear evidence to the contrary C must demonstrate that the federal prosecutorial policy had a discriminatory effect and that it was motivated by discriminatory purpose. To establish a discriminatory effect in a race case, C must show that similarly situated individual of a different race was not prosecuted

Facts

Holding

Ricketts v Adamson 483 US I (1987) Both parties bargained for and received substantial benefits. State obtained respondents guilty plea and his promise to testify against his accomplices in exchange for an incarceration time of 20 yrs 2 mths. The terms of the agreement: in the event of respondents breach occasioned by a refusal to testify, the parties would be returned to the status quo ante, in which case respondent would have no double jeopardy defence to waive. He did testify against the others. But upon reversal of those convictions and remand, D refused to testify again on the ground that his obligation had terminated. Adamson was then charged with first-degree murder and sentenced to death Approach taken by COA would render the agreement meaningless: first-degree murder charges could not be reinstated against respondent if he categorically refused to testify after sentencing even if the agreement specifically provided that he would so testify, because he never waived his double jeopardy protection Respondent knew that if he breached the agreement he could be retried, and it is incredible to believe that he did not anticipate that the extent of his obligation would be decided by a court.

FED. R. CRIM. P. II AND GUIDELINE BARGAINING


(I) Fed. R. Crim. P. II Should D elect to plead guilty, the district court will hold a plea hearing (Rule II proceeding) Details the requisites for a valid plea. Judge will normally enquire of D:
o o Whether circumstances exist that may undermine the knowing character of the plea (e.g. drugs or intoxication) Inform D of, and determine that D understands, the constitutional rights he is giving up by pleading (e.g. right to jury trial, to be represented by counsel at trial, to confront and cross-examine witnesses, to call witnesses in his own behalf and the like) Make sure that D understands the charge to which he is pleading, including max/min sentences and other potentially applicable penalties or obligations Entitled to rely on counsels representation that he or she has advised D of the nature of the charges and the elements of the crime to which he is pleading guilty

o o

If D does not object and seeks a reversal of his conviction on the ground that the district court committed plain error under Rule II in connection with advice or warnings omitted, D must show a reasonable probability that he would not have pleaded guilty but for the error During the course of a plea allocution under Rule II(b)(3), the court must determine that there is a factual basis for the plea. This may entail D personally acknowledging guilt. Court may choose to put D under oath, and must warn D
160

LAW638 White Collar Crime

of the govts right to use against D any statement he makes in a prosecution for perjury or false statements If govt agrees to give D some consideration in return for a plea, this should be reflected in a written plea agreement. Rule II provides the basic parameters: o II(c)(I)(A): A charge bargain o II(c)(I)(B): A recommended sentence bargain o II(c)(I)(C): A specific sentence bargain o If a judge rejects the plea agreement for the charge bargain or specific sentence bargain, the defendant can elect to withdraw his plea under Fed. R. Crim. P. II(c)(5)(B). But D may not withdraw a plea entered pursuant to a
recommended sentence bargain even if the court ultimately rejects the sentencing recommendation or request; accordingly, the court must advise D of this fact at the get-go

A judge may be concerned that the bargain constrains her sentencing discretion in ways she suspect she will not like once the Probation Department has done an investigation and come up with the Pre-Sentence Report. Then, the judge may accept the guilty plea but defer acceptance until after the PSR US v Hyde: Where D has entered into guilty plea and the court has decided to reserve its decision on whether to accept the plea agreement pending preparation of the PSR, D may not change his mind and as of right withdraw his plea at any time prior to the judges decision on the plea agreement o Federal Rule of Criminal Procedure 32(e): D may only withdraw his guilty plea pending judicial acceptance of the plea bargain if D shows any fair and just reason (II) Guidelines Bargaining Booker may introduce some degree of uncertainty into sentencing: o Parties can no longer be confident that the judge will follow the Guidelines and accordingly will be bargaining in the face of greater uncertainty regarding the sentencing result that would follow after any trial o Judges sentencing choices will no longer be as transparent as they were under the Guidelines. That is, it may be difficult to know just what factors the judge will consider important and what quantum of evidence the judge will rely upon in finding those factors in imposing sentencing in a case o Gall v US; Kimbrough v US: reasonableness standard of appellate review truly meant abuse of discretion, and that the Court contemplates substantial appellate deference to district courts exercises of sentencing discretion These circumstances may dampen plea rates over time as Ds decide that there is insufficient certainty regarding whether they will in fact receive bargained-for sentencing dispensations. One could also argue, that judges ability to be more flexible in sentencing may benefit Ds who plead guilty (A) Acceptance of Responsibility Guidelines provide an incentive to plead guilty, but state that the incentive should be the same for all Ds: the approximately 35% reduction in sentence that can be achieved through the combination of a two-level credit for acceptance of responsibility and the imposition of a sentence at the lowest portion of the resultant Guidelines range Guilty plea rate appeared to be roughly constant from the pre-Guidelines

161

LAW638 White Collar Crime

practice through the mandatory Guidelines era and now to the post-Booker era. If one accepts that prosecutors were manipulating the mandatory Guidelines to provide additional discount in only a minority of cases, this statistic indicates that the mandatory Guidelines plea discount was normally sufficient to allow prosecutors to secure a satisfactory conviction rate, allocate resources rationally given local needs and pursue independent goals (i.e. induce cooperation) Through substitution of a uniform concession for bargaining, the mandatory Guidelines removed a potential source of disuniformity but apparently not at an undue cost, in the usual case, to executive prerogatives (B) Charge Bargaining: Fed. R. Crim. P. II(C)(I)(A) Where the choice of charge could affect sentence under the mandatory Guidelines, prosecutors sometimes sought to bargain away counts either forgoing them (pre-indictment) or agreeing to drop them (post-indictment) in return for a plea or an agreement to cooperate If the Commission had embraced a pure real-offence system, presumably chargebargaining would have been fairly useless. However, the mandatory Guidelines continued to contain charge elements and thus charge bargaining was still possible Mandatory min/max manipulation: Because the statutory max/min trump the Guidelines, a prosecutor who, given the evidence, could bring a count containing a mandatory min sentence could bargain away that count if D was willing to plead to a lesser count that did not carry a mandatory min Manipulation of charging with respect to nonaggregable offences: Nonaggregable offences are not subject to the Guidelines relevant conduct provisions. Thus, a prosecutor could induce pleas by agreeing to forgo or drop certain nonaggregable counts Manipulation where Guidelines results differ depending upon the statute charged: In certain cases, one statutory charge could yield a large sentence than another under the mandatory Guidelines (e.g. a D who was charged with money laundering often was, under the mandatory Guidelines, subject to greater offences than generated the money laundered. Thus, a prosecutor could bargain away a money laundering count in return, for example, for pleas to the wire fraud that gave rise to the tainted cash). Booker has made statutory maxima the most important constraint on sentences; accordingly, Booker makes prosecutorial charging choices and charge bargaining exceedingly important Disposition of a case by negotiated plea: o DOJ requires prosecutors to charge the most serious, readily provable offence or offences consistent with Ds conduct o DOJ still defines the most serious offence as generally that which yields the highest range under the sentencing guidelines o In considering whether to agree to a disposition of a case by negotiated plea, the prosecutor must assess not only sentencing-related factors, but also such criteria as Ds willingness to cooperate against others, Ds criminal record, the nature and seriousness of the offence, Ds remorse or contrition, the desirability of a prompt and certain disposition of the case, the likelihood of obtaining a conviction at trial, the probable effect on witnesses, the public interest in having a trial as opposed to a plea, the expense of trial and appeal, the need to avoid delay in the disposition of other pending cases, and the effect on the victims right to restitution o Limited exceptions to the basic policy that charges are not to be

162

LAW638 White Collar Crime

bargained away or dropped, unless the prosecutor has a good faith doubt as to the govts ability to readily prove a charge for legal or evidentiary reasons Dropping the charges will not affect the sentencing calculus; or Upon the approval of the US attorney or a designated supervisor where extraordinary considerations exist e.g. the US Attorneys Office is particularly over-burdened, the case would be timeconsuming to try, and proceeding to trial would significantly reduce the total number of cases disposed of by the office (C) Guidelines Fact or Factor Bargaining In those cases in which the real circumstances of the offence drive sentence, prosecutors in some cases sought to bargain away aggravating real facts or Guideline factors in order to induce a plea. This is commonly known as Guidelines fact or factor bargaining and is still reflected in Fed R Crim P II(c)(I)(B) and (C) o Under the mandatory Guidelines, prosecutors might agree that a certain amount of the loss potentially chargeable should not be used (fact bargaining) or they might stipulate that an otherwise appropriate Chapter Three adjustment should not be assessed in a given case (factor bargaining) Note that prosecutors are constrained in fact or factor bargaining a prosecutor who misrepresents the true scope of Ds relevant conduct or the factual or legal applicability of other aggravating factors in order to affect the applicable Guidelines range or departure analysis risks professional and ethical censure. To get around this, prosecutors would label the bargained-away facts or factors as not readily provable an assertion that is not susceptible to ready second-guessing by the probation dept, courts or the Sentencing Commission (D) Sentencing Bargaining Fed R Crim P II(c)(I)(B) and (C) permit the parties to agree to a recommended or specific sentence. DOJ note that specific or recommended sentence bargains come in two basic types: those in which prosecutors bargain for a sentence that is within the Guidelines range, and those in which prosecutors bargain in departures from the applicable Guidelines range. The latter type of bargain involves a prosecutor agreeing to stipulate to, or at least not to oppose, a given departure Under the mandatory Guidelines, the ultimate decision to make a departure, and if a departure was made, the extent of the departure, were matters within the district judges sole discretion. Accordingly, as a practical matter the parties in the pre-Booker period generally found it to be a less appealing bargaining tool than those noted above because it did not involve a certain and calculable sentencing concession. Parties sometimes attempted to ensure that the departure was done deal by hiding in a charge bargain or a stipulation to facts that were not true. DOJ was unusually emphatic in forbidding this practice! (E) Enforcement Where both parties agree to a bargain that contravenes Guidelines principles or DOJ policy, how can such subversion of uniformity goals be prevented: o Probation Dept is charged with independently investigating the facts of the offence in preparing its pre-sentence report. If the prosecutor stipulates to a lesser amount of loss than the facts would support, the

163

LAW638 White Collar Crime

probation dept in theory will bring this to the sentencing judges attention Courts are supposed to police the parties attempts to subvert the Guidelines through their power under Fed. R. Crim. P. II and Guidelines Chapter Six to approve plea agreements

COOPERATION AGREEMENT
D agrees to plead guilty to specified charges and to cooperate with the govt. In return, the govt often undertakes to dismiss or forgo other possible counts and/or to ask a judge to consider Ds cooperation in sentencing (I) Policy Discussion: United States v Singleton US v Singleton: Created a frontal assault on the practice of bargained-for testimony, as the panel held that the testimony of a co-defendant should have been suppressed because the prosecuting attorney violated the federal gratuities statute, 18 USC 201(c)(2), in offering the co-defendant leniency (something of value) in return for his truthful testimony. This decision was quickly reversed by the Tenth Circuit sitting en banc ( Singleton II) holding that s 201(c)(2) does not apply to the US or an Assistant US Attorney functioning within the official scope of the office Focus was on whoever within the meaning of the gratuities statute: Most courts decided to rely on Nardone v US, which held that a statute should not be read to apply to the govt when doing so would (1) deprive the sovereign of a recognised or established prerogative, or (2) lead to absurd results o Seventh Circuit took a different path, holding that a promise not to prosecute a witness (or to secure a lower sentence for the witness) is not a thing of value under 201(c)(2) o Doubted Singleton II, holding that if whoever does not include federal prosecutors, it would permit prosecutors to pay cash for favourable testimony, a practice that lacks the statutory and historical support of immunity and sentence reduction Since Singleton II, a number of Ds have argued that the admission of coconspirators testimony induced through govt promises of leniency violates their due process rights because s 201(c)(2) precludes them from similarly making enticing offers in exchange for testimony, thus generating an unfair procedural imbalance whereby the prosecutors may obtain and present testimony in a manner unavailable to D. Thus far, courts have rejected such claims, relying on the myriad procedural safeguards to which a defendant is entitled when the govt plans to introduce testimony obtained through offers of value and the fact that the role of assessing witness credibility belongs to the jury (II) USSG 5KI.I Prior to Booker, prosecutors contemplating entering into a cooperation agreement would offer D the potential for a motion made pursuant to Federal Sentencing Guidelines 5KI.I which provides that upon motion of the govt stating that D has provided substantial assistance in the investigation or prosecution of another person who has committed an offence, the court may depart from the guidelines Section 5KI.I significantly increased the incentives for cooperation. For D against whom the govt had a strong case, a 5KI.I constituted their only chance to substantially reduce or eliminate the possibility of jail time. Section 5KI.I was controversial for two reasons: o Dramatically increase the risk of perjury that always exists whenever the govt rewards witnesses for testimony o Sentencing departures for cooperation could only be triggered by govt

164

LAW638 White Collar Crime

motion. Courts generally held that they could not, in the absence of a govt motion, base a downward departure for a Ds substantial assistance to federal prosecutors on other provisions of the Guidelines, including the general departure provision, s 5K2.0. Judicial review of the govts refusal to file a 5KI.I motion was extremely limited o Booker has done what Congress did not do because the Guidelines are now advisory, it appears that the govt motion requirement no longer binds courts seeking to reward Ds over govt opposition for cooperation with govt investigators (IV) Corporate Cooperation & Pleas: DP Agreements Filip Memo had introduced the possibility that corporate cases may be resolved through deferred prosecution (DPA) and non-prosecution agreements (NPA) rather than through indictment or outright declination Deferred Prosecution Agreements: o Allows prosecutors and companies to work together in creative and flexible ways to remedy past problems and set the corporation on the road of good corporate citizenship o With their broad range of reform tools, permit remedies beyond the scope of what a court could achieve after a criminal conviction (e.g. courtimposed fines or restitution) o Importance of an independent monitor: Wide authority to oversee compliance with the deferred prosecution agreement and strengthen its ongoing remediation efforts Difference between DPA and NPA: o Whether a charging instrument was ever filed. In a DPA, the DOJ files a criminal complaint but defers prosecution of the case by contract with D; if D fulfils the terms of the DPA, the govt will dismiss the complaint o With an NPA, no charging instrument is filed; the investigation remains open pending Ds satisfaction of the terms of the NAP

165