White Collar Crime Outline Spring 2004 - Podgor Page 1 of 56 I. Background Information A.

. Some definitions have included an organizational or business requirement component. B. Other definitions have focused more on the type of crime involved. C. Legal arena has focused on type of crime involved. D. Corporate crime predates white-collar crime. E. Podgors Definition 1. Non-violent crimes for financial or personal gain, typically committed by means of deception in the course and under color of legitimate economic activity. F. Why is the definition so important? 1. Budget/money concerns. Because everything is tied to budgetary or monetary concerns, it is important to define what constitutes white collar crime. G. DoJ priorities tend to change as public sentiment changes. H. What should be the limit of federal government prosecution and what should be the province of the states. I. Most WCC is constitutionally based in 1. Commere clause 2. Postal powers 3. Tax powers J. Prosecutorial Discretion 1. Prosecutors have to decide who to prosecute and which offenses are prosecuted. 2. Have great discretion as long as there has not been discrimination. 3. Who should prosecute when there are both federal and state offenses. i. No constitutional problem with both sovereigns (dual sovereignty rule) prosecuting same offense. ii. Factors a. Resources b. Experience iii. Federal government uses a rule called the Petite Policy a. If the state prosecutes, then the federal government does not prosecute. b. There are some exceptions, particularly civil rights cases or local corruption cases. c. This is just a guideline, it is not a requirement. Federal Influence in International Prosecutions A. United States v. Castle 1. Castle was a Canadian official who was bribed by US citizens in return for favorable treatment of a bid. 2. Issue is whether the government can prosecute foreign citizens under the general conspiracy statute ( 371) for conspiring to violate the FCPA. i. 371 applies if there is a conspiracy to violate any offense against the United States. Also, a conspiracy to defraud the US government can be prosecuted under 371.

II.

B.

C.

D.

E.

White Collar Crime Outline Spring 2004 - Podgor Page 2 of 56 3. Could not charge the FCPA against foreign citizens because the intent was not to reach them. 4. FCPA was written to allow government to prosecute US citizens or US companies. 5. When FCPA was originally passed, companies were furious because foreign competitors could still bribe while the US law put them at a disadvantage. i. Amended to allow grease payments or if it was legal to bribe in country, it was OK to bribe. 6. Court holds that government CANNOT prosecute for conspiracy. 7. Court points to Supreme Court decision under Mann Act that held that Congress intended to punish only one party. 8. The FCPA was very clear in only applying to US citizens and companies. United States v. Nippon Paper Industries Co., Ltd. 1. NPI and other companies in Japan agreed to fix prices on paper for North American markets. 2. Federal Grand Jury indicted and district court dismissed after NPI argued that all conduct took place in Japan. 3. Early cases clearly indicated that civil cases could be brought against foreign corporations for anti-trust when the conduct was in another country but there were intended and substantial effects in the US. 4. Court extends this to criminal cases. 5. Sherman Act allows civil and criminal charges. 6. Essentially, government can prosecute criminal charges under Sherman Act when the conduct is foreign and there are intended and substantial effects on the US. 7. Rule of Lenity resolves ambiguity in statutory language in favor of defendant. United States v. Tarkoff 1. Medicare fraud involving Tarkoffs client. 2. Tarkoff traveled to Israel to move proceeds of Medicare fraud from Israeli bank to Tarkoffs Israeli bank. 3. Tarkoff alleges that since none of the transactions took place in US, he was not violating the money laundering statute and of conspiracy to violate the statute. Categories of International Jurisdiction 1. Jurisdiction to Prescribe 2. Jurisdiction to Adjudicate 3. Jurisdiction to Enforce Uniqueness of Criminal Law 1. United States v. Bowman (1922) i. Held that if it is criminal, then you prosecute the conduct where the act occurs. This is called territorial jurisdiction. ii. Noted that criminal law has presumption of territorial jurisdiction but carved out exception in some cases.

White Collar Crime Outline Spring 2004 - Podgor Page 3 of 56 iii. Distinguished between crimes against private persons/property which affect peace of community which must be prosecuted by local jurisdiction AND criminal statutes not logically dependent upon local jurisdiction but are to defend against obstruction or fraud especially if committed by non-local citizens. iv. Essentially, this means that personal crimes = territorial jurisdiction and fraud against government = extra-territorial jurisdiction. 2. Post-Bowman Decisions i. Lower court decisions have extended extra-territorial jurisdiction even further. 3. Ways of Obtaining Extra-Territorial Jurisdiction i. Statutes focused on international conduct a. FCPA is example b. Export Administration Act is another example ii. Statutes with extra-territorial provisions a. Tarkoff case had an extra-territorial jurisdiction b. Patriot Act has extra-territorial jurisdiction provisions iii. Judicial interpretation a. Nippon case no provision in Antitrust statute that include extra-territorial provisions. b. Courts must 1). Determine intent of Congress 2). Look at international principles to try to determine whether statute should be applied extra-territorially. i). International Principles a). Territorial Principle Objective Territoriality = if it is something that affects US, the US has jurisdiction. b). Nationality nationality of person committing crime determines which jurisdiction. Space law uses nationality jurisdiction. Maritime law also. c). Passive Personality nationality of the victim determines jurisdiction. d). Protective Principle determined by national security. Is this a situation where we have to prosecute conduct outside of jurisdiction to protect people in jurisdiction. e). Universality used when there is violation of human rights and is based on physical custody of the offender.

White Collar Crime Outline Spring 2004 - Podgor Page 4 of 56 4. Limitations on Jurisdiction i. Restatement ii. Comity iii. Treaties Corporate and Individual Responsibility A. Stages of Development of Corporate Criminal Liability 1. Stage One No corporate criminal liability in that a corporation has no mind, no body, and cannot be imprisoned. 2. Stage Two Corporate criminal liability permitted for regulatory offenses that are acts of omission (failure to do something one is legally obligated to do). Since intent is not necessary for these offenses and there are only fines being given, corporate criminal liability is allowed. 3. Stage Three Corporate criminal liability is extended beyond acts of omission, but limited still to strict liability offenses. Courts find that there is no basis for distinguishing between passive and active acts, as long as the crimes are limited to fines, corporations can be held criminally liable. 4. Stage Four New York Central extends corporate criminal liability to non strict liability offenses. B. Corporate Liability Overview 1. New York & Hudson River Railroad Company v. United States i. Agents of the railroad allegedly violated provisions of the Elkins Act requiring the filing and publishing of freight rates. ii. Corporation was charged with the crime, even though it was employees who actually committed the acts. iii. Court uses respondeat superior liability of corporation for the acts of agents during the course of their duties for the corporation. iv. This case is different because it added a mens rea component. v. Corporation argued a. No authority to impute criminal offenses to corporation b. Punishes shareholders and deprives them of due process lacks opportunity to be heard and the presumption of evidence. In essence, it is unconstitutional. vi. Reasons court gives for holding corporation responsible. a. To give corporations immunity would have taken away an effective means of controlling corporations. vii. Sometimes officers and directors have insurance policies that cover civil or criminal acts. viii. Theoretically, corporations could raise prices but long-term, the market will adjust the price back down. ix. Will corporate criminal liability serve as a deterrent? a. Other corporations might be deterred in committing criminal acts if the corporation has liability. b. Individuals associated with criminal acts, as well as corporations might be harmed.

III.

White Collar Crime Outline Spring 2004 - Podgor Page 5 of 56 c. In some instances, corporations convicted of wrongdoing may be prevented from dealing with the government in the future. C. For the Benefit of the Corporation 1. Standard Oil Company of Texas v. United States i. Standard Oil Companys employees falsified documents to make it look like oil was coming from wells that were unable to meet quota but was actually coming from higher-producing wells. ii. Violated Hot Oil Act iii. Employees themselves were acting for themselves they got paid for falsifying documents. iv. Basic issue is whether Congress intended to subject corporations to criminal liability. v. Two tests the court uses to impute knowledge a. A purpose to benefit the corporation b. An act by an agent in line of his duties vi. In this case, there is no benefit and the court reversed the convictions. vii. Rule Corporations do not acquire knowledge through activities of unfaithful servants whose conduct was undertaken to advance interest of parties other than the corporation. 2. United States v. Hilton Hotels Corp. i. Association was formed to attract conventions in Portland, Oregon. ii. Suppliers made contributions of 1% of sales to hotel members. iii. Hotels gave preferential treatment to contributing suppliers. iv. Hotel management testified that this was not allowed and the purchasing manager. v. 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 the agent. vi. The Sherman Act has no mens rea it is a strict liability offense. D. Restricting Corporate Criminal Liability 1. Respondeat Superior Majority approach i. As above 2. Model Penal Code Minority approach i. Adds that the act must be done by a high managerial agent rather than by a lowly agent in order for their to be criminal liability. E. New Directions in Corporate Criminal Liability 1. United States v. Bank of New England i. Bank of New England was convicted of violating the Transaction Reporting Act ii. Act requires banks to file reports within 15 days of customer transactions exceeding $10,000. iii. Willful failure to file reports is a felony.

White Collar Crime Outline Spring 2004 - Podgor Page 6 of 56 iv. McDonough withdrew >$10,000 on 31 different occasions by using multiple checks each written for less than $10,000 but aggregating over $10,000. v. Indictment alleged bank willfully failed to file reports. vi. Liability only occurs when the banks conduct in not filing report is willful and is usually established by circumstantial evidence. vii. Court indicates that Banks knowledge is the sum of the knowledge of all employees. viii. Rule A Corporation is considered to have acquired the collective knowledge of its employees and is held responsible for their failure to act accordingly. ix. Court indicates that Supreme Court has endorsed defining willfulness as a disregard for the governing statute and an indifference to its requirements. x. Computers have greatly increased criminal liability because of their ability to look at aggregate data. xi. Collective Knowledge theory is relatively new theory. xii. Supreme Court has not affirmed Collective Knowledge theory. 2. Corporate Ethos Theory i. Whole concept of changing culture within corporation. ii. Corporations have guidelines that indicate what they should do to avoid criminal liability. 3. Corporate Self-Identity i. Theory is that a large organization is not only a collection of people who shape it and activate it, but also a set of attributes and positions, which influence, constrain, and at times even define the modes of thinking and behavior of the people who populate it. F. Different Ways Government Has Settled White-Collar Crime 1. Drexel i. $350 million restitution fund 2. Salomon i. Threat of criminal charges ii. $290 million in sanctions 3. PSI i. Government agreed to defer prosecution for three years and drop if corporation performed. ii. $330 million restitution fund 4. ADM i. ADM agreed to plead guilty to criminal conspiracy ii. Paid $100 million in fines 5. Andersen i. Charged with obstruction ii. Pled not guilty but found guilty and fined $500,000 6. E.F. Hutton i. Pled guilty to 2000 counts ii. $2,000,000 in fines and $750,000 in investigative costs

White Collar Crime Outline Spring 2004 - Podgor Page 7 of 56 7. Not really any instances when the corporation wins. 8. Most often resolved through some sort of deal. 9. Most often requires corporations to cooperate fully. G. Federal Prosecution of Corporations 1. Corporations should not be treated leniently because of their artificial nature nor should they be subject to harsher treatment. 2. Factors to consider in determining whether to charge corporations i. In addition to sufficiency of the evidence, the likelihood of success at trial, probable deterrent, rehabilitative, and other consequences of conviction, and the adequacy of non-criminal approaches: a. Nature and seriousness of the offense, and applicable policies and priorities governing the prosecution of corporations for particular categories of crime. b. The pervasiveness of wrongdoing within the corporation. c. The corporations history of similar conduct. d. The corporations timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents. e. The existence and adequacy of the corporations compliance program. f. The corporations remedial actions. g. Collateral consequences, including disproportionate harm to shareholders and employees not proven personally culpable. h. The adequacy of the prosecution of individuals responsible for the corporations malfeasance. i. The adequacy of remedies such as civil or regulatory enforcement actions. H. Individual Responsibility 1. United States v. Park i. Acme is a national retail food chain headquartered in Philadelphia and Park is CEO. ii. Rodent infestation in warehouse in Baltimore iii. Acme and Park were charged with violating FDA regulations. iv. Acme pled guilty. v. Park found guilty at trial. vi. Acmes lawyer is chief witness against Park and testified to Parks responsibilities. vii. Park argued that he was not personally responsible because he had spoken with others as to fixing the problem. viii. Court is looking at the jury instruction in terms of responsible share. ix. Supreme Court held that corporate employees who have a responsible share in the furtherance of the transaction which the statute outlaws are subject to the criminal provisions of the Act.

IV.

White Collar Crime Outline Spring 2004 - Podgor Page 8 of 56 x. Possible defense is powerlessness to correct a situation. a. Defendant has burden of presenting evidence of powerlessness. xi. Dissent argues that instruction does not match the Courts decision. The Courts decision basically is a negligence standard. xii. Why did Park take this all the way to the Supreme Court when it was only a $250 fine. a. Possible civil liability stemming from criminal conviction. b. His job became much harder to do if he was convicted. 2. Verdict Consistency Between Individual and Corporation i. There are several arguments when there is inconsistency between individual and corporate criminal liability. 3. A corporations directors now have an obligation to adopt compliance programs that meet the standards of the Organizational Sentencing Guidelines. 4. Problem Two i. Reasons for going against A, Inc. a. Benefit went to company. b. Company would have more money for restitution. c. Compliance program would be best implemented by company. d. Should have had a compliance program. ii. Reasons for proceeding against CEO Pat a. CEO assumed the risk of implementing the incentive program. b. Pat had the means to monitor and correct Angels conduct. iii. Reasons for proceeding against Manager Angel a. Criminal activity was for his own personal benefit. iv. There is significant tensions as to prosecuting. v. MPC would require a high managerial agent to prosecute. Lower level managers and employees are typically not high managerial agents. Principles of Statutory Interpretation A. White collar crime covers so much material that it is imperative that practitioners be able to dissect the statutes and be able to apply them. B. Mens rea, more so than any other element tends to separate white collar crime from street crime. 1. Many times, there are claims that person who committed act did not know act was actually criminal. C. In other cases, terminology used in the statute is very important. D. The Mens Rea Element 1. Ratzlaf v. United States i. Ratzlaf owed a casino $160K for blackjack debts. ii. Showed up on due date with $100K in cash. iii. Casino told Ratzlaf that any transaction in cash of over $10K had to be reported.

White Collar Crime Outline Spring 2004 - Podgor Page 9 of 56 iv. Went to several banks getting cashiers checks for just less than $10K in order to avoid reporting. v. Ratzlaf was charged with structuring transactions under 31 U.S.C. 5322 and 5324. vi. The trial court indicated that the government did not have to prove that the structuring conduct was unlawful. vii. Ratzlaf was convicted, fined, and sentenced to prison. viii. Statute required the willful violation of the statute. ix. Ratzlaf argued that willful required that he know that the structuring activity was illegal. x. Supreme Court held that the government must prove that the defendant must act with knowledge that the conduct was unlawful in order to be held to have willfully violated the statute. xi. If jury had gotten the Supreme Courts version of the instruction as to willfulness, it is likely they still would have convicted. xii. Complexity of statute and whether the same activity might be the viewed differently under different circumstances play into the decision. xiii. Majority decision does not seem to make it impossible to prove structuring. xiv. Congress amended the statute by taking out the word willfully. a. Does not matter to this case, but other statutes have willful requirement. b. The point is that willfulness is an important argument. xv. Dissent argues that willfully requires only the voluntary, intentional violation of a known legal duty. xvi. This is the second of two cases that have willfully in the statute. a. Cheek v. United States 1). Airline pilot failed to file income tax returns because he didnt think wages were income. xvii. Good faith reliance on counsel is also sometimes raised as a defense. a. Factors on p. 99******* xviii.If retrying Ratzlaf, would request the following instruction a. In order to find the defendant guilty you must find that the defendant willfully violated the statute in the context of this case, willful violation means that the defendant must have actual knowledge that the conduct in which he was engaging was unlawful. xix. Can jury infer the intent of the defendant from the activities involved? a. Absolutely each particular action can be used to demonstrate what the defendant intended. 2. Reading in a Mens Rea Element

White Collar Crime Outline Spring 2004 - Podgor Page 10 of 56 i. United States v. United States Gypsum Company a. Legislative history can play a very important part in determining. b. Growing trend in using rule of lenity ambiguity is resolved in favor of the defendant 3. Level of Mens Rea in Other Cases i. Cases show a trend in requiring an actual mens rea. E. Ambiguity in Other Elements 1. Dowling v. United States i. In addition to copyright and mail fraud violations, government charged Dowling with violation of National Stolen Property Act a. Criminal for anyone to transport in interstate or foreign commerce, any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted, or taken by fraud. ii. Also charged with conspiracy to transport stolen property in violation of 18 U.S.C. 371 a. Includes 1). Offenses against the U.S. 2). Defrauding the U.S. b. Must have normal elements of conspiracy 1). Agreement 2). Intent i). To conspire ii). To commit unlawful act c. Must also have overt act iii. Dowling and others made bootleg copies of Elvis recordings (without paying royalties) for sale and transported them in interstate commerce. iv. Dowling claimed that intellectual property was not property for the purposes of the National Stolen Property Act. v. Court holds that bootleg recordings are NOT stolen property within the meaning of the statute. vi. Court justifies by indicating that statute was intended to fill gap because of difficulty in state prosecution of stolen property transported interstate. vii. Also, since copyright is federal, Congress would have power to make this type of activity criminal. 2. When is it appropriate to limit reach of statute to terms i. Only when it is unambiguous 3. When is it appropriate to add in to the reach of the statute i. When ambiguous ii. Would argue policy, legislative history, etc. 4. When there is a general statute covering illegal activity AND a specific statute covering the same conduct, the trend is to allow charging both crimes at the same time.

V.

White Collar Crime Outline Spring 2004 - Podgor Page 11 of 56 i. Current mandate is to charge all possible counts. 5. Electronic Espionage Act criminalizes some of the areas that the National Stolen Property Act does not specifically cover. F. Going Beyond the Statute 1. McCormick v. United States i. The line that makes something illegitimate is if there is a quid pro quo: If payments are made in return for an explicit promise or undertaking an explicit promise or undertaking by the official to perform or not perform an official act. 2. Evans v. United States i. Court accepts majority of circuit opinion, which says that no affirmative act is required. ii. Why does McCormick get conviction reversed and Evans doesnt? It is necessary to show quid pro quo. iii. Government needs to show that the public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts. iv. Inducement: can be a passive acceptance, as opposed to saying, give me the money and I will take care of your zoning petition; it can be enough that the individual takes the money and then has that quid pro quo and acts upon it. 3. United States v. Sun Diamond Growers of California i. Issue: does government have to prove that gratuities were given because of recipients official position? ii. To establish violation of federal gratuity statute, government must prove link between thing of value conferred upon public official and a specific "official act" for or because of which it was given. Mail and Wire Fraud A. Introduction 1. Mail Fraud prosecution requires the government to prove i. A scheme devised or intending to defraud or for obtaining money or property by fraudulent means ii. Use or cause the use of the mails (or private courier) in furtherance of the fraudulent scheme. 2. Originally codified in 1872 as recodification of the Postal Act 3. No legislative history or debate 4. Mail fraud had been the statute for prosecutors to use when there was not particularized legislation this would only be a stopgap. 5. Limitations to mail fraud i. Unethical conduct such as puffing, etc. does not rise to level of mail fraud. B. Scheme to Defraud 1. McNally v. United States i. Element at issue is scheme to defraud

White Collar Crime Outline Spring 2004 - Podgor Page 12 of 56 ii. Public official from Kentucky funneled insurance commissions to private individuals. iii. Officials basically did a kickback type of scheme. iv. Issue is whether conduct was within the scope of the mail fraud statute. v. The government claimed that citizens of Kentucky had intangible right to effective government and that this scheme deprived them of this right. vi. In 1909, Congress codified holding of another case, indicating that any scheme or artifice to defraud or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises. vii. Court concludes that intangible right to effective government was not property under the mail fraud statute. viii. Court reverses the convictions for mail fraud. ix. Court bases decision on a. Charge of obtaining money or property must be in indictment b. Jury charge must include instruction as to obtaining money or property x. Court uses rule of lenity in making its decision. xi. This decision was a bombshell to prosecutors. xii. Courts had to issue writs of coram nobis that allowed persons previously convicted of mail fraud to re-obtain the rights taken away by their felony conviction. xiii. Dissent a. Argues that or is disjunctive in statute and thus should not require obtaining money or property. b. Probably came from legislative history xiv. After McNally, prosecutors became very creative in finding something to be property. xv. Additionally, after McNally, Congress amended things so that term scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services. xvi. When can a prosecutor still be required to show money or property? a. When it is in the indictment. b. Very rarely will prosecutor charge based on deprivation of honest services. c. Most will charge for obtaining money or property. C. What Constitutes Property 1. Intangible Property i. Carpenter v. United States a. Winans was a reporter for the Wall Street Journal of a column called Heard on the Street b. The column was very well read and had effects on market.

c. d. e. f. g. h.

i. j.

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White Collar Crime Outline Spring 2004 - Podgor Page 13 of 56 Winans revealed information to brokers prior to publishing and the brokers would trade on this information. Carpenter was the runner who carried the information. Winans and Carpenter were indicted for mail fraud. Here, mail fraud is premised on obtaining property, not on deprivation of intangible rights. In this case, the property is the intangible confidential business information. Thus 1). Intangible rights = no mail fraud McNally decision 2). Intangible property = mail fraud Carpenter decision Case would have been more difficult, if not impossible, if the WSJ did not have the policy of confidential information. Could they have been charged with mail fraud if they actually lost money? 1). Loss or gain is irrelevant as to charging mail fraud. 2). Mail fraud requires a scheme to defraud, not a successful scheme to defraud. Intangible property 1). Confidential business information

2. Licenses i. Cleveland v. United States a. Cleveland was a lawyer who was charged with mail fraud for making false statements in applying to the Louisiana State Police for permission to operate video poker machines. b. Client owns truck stop and lawyer indicates on application that clients children own truck stop in order to pass good character requirements. c. At trial, defendant argued that there was no property taken because it was only a license. d. Supreme Court indicates that until license is issued, it is simply an intangible right and thus does not fall under mail fraud statute. e. Prosecution did not charge under amended law that allowed the intangible right of honest services because this was pretty vague and ambiguous. f. Why is the Court afraid to indicate licenses with property? 1). Typically, this is a state area and the Court offers a federalism argument. D. Intangible Right to Honest Services 1. Amendment added words intangible right of honest services i. Some have argued that this term is vague.

White Collar Crime Outline Spring 2004 - Podgor Page 14 of 56 ii. Rybicki v. United States, 354 F.3d 124 (2003) a. Prior to this decision, there was a pretty consistent thought that indicated that the statute was not unconstitutionally vague. b. En banc decision in 2nd Circuit was limited to question as to vagueness of intangible right of honest services term. iii. There is no definitive ruling that indicates how much of preMcNally decisions would now fit under the intangible right of honest services language. 2. Private Sector Frauds i. For a private sector defendant to have violated the victims right to honest services, it is not enough to prove the defendants breach of loyalty alone. ii. The breach of loyalty must contravene, by inherently harming, the purpose of the parties relationship. E. Intent 1. United States v. DAmato i. Armand DAmato was an attorney and the brother of Senator DAmato from New York. ii. DAmato was under contract with Unisys to lobby on their behalf. iii. DAmato was charged with mail fraud for structuring his billings to conceal the nature of his relationship with Unisys. iv. DAmato was also charged with mail fraud for failure to provide reports as he told Unisys. v. Under federal sentencing guidelines, all instances of mail fraud are combined and amount of loss is factored in. vi. Key point in this case is that there is a mens rea requirement for mail fraud. vii. Government has two theories for mail fraud charges a. Right to Control Theory 1). Two pronged test i). Whether corporate management has made an otherwise lawful decision that concealment or a failure to disclose is in the corporations best interests. ii). Whether management acted in good faith in making, and did not personally profit from, the decision. 2). If an outsider, must go through two-pronged test. 3). A person hired to perform services for a corporation cannot be found to intend to harm a corporation or its shareholders through otherwise lawful misleading conduct if he or she follows the instructions of an appropriate corporate agent who appears to be unconflicted and acting in good faith.

White Collar Crime Outline Spring 2004 - Podgor Page 15 of 56 b. False Pretenses Theory 1). Billed falsely and did not do the work. 2). Ramifications are that mail fraud would occur any time that there was some false billing. viii. Government has to show some harm or injury contemplated by the schemer or if there is no harm or injury contemplated, then they will have to have independent evidence of the alleged scheme to show the defendants fraudulent intent. F. Materiality 1. Neder v. United States i. Attorney and real estate developer. ii. Basically, he schemed to swindle banks out of loan proceeds by making false statements and misleading banks to lend him money. iii. Indicted for mail fraud, wire fraud, and filing false tax returns. iv. Neder argued that jury was not instructed that materiality of the statements was necessary and that failure to instruct was error. v. Supreme Court indicated that materiality of falsehood is an element of the federal mail fraud, wire fraud, and bank fraud statutes. vi. Rationale was that statute is presumed to include common law elements unless Congress indicates otherwise. a. In this case, materiality was included at common law. G. Mailing 1. Mail fraud requires a mailing. 2. Mailing includes or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier. 3. No longer limited to U.S. Postal Service. H. In Furtherance 1. Schmuck v. United States i. Used car distributor who rolled back odometers on cars he sold to other dealers. ii. Mailing in the case occurred when Schmuck would submit title application on behalf of the retail customers. iii. Jury convicted and 7th Circuit reversed. iv. Supreme Court affirmed the reversal, but indicated that mailings WERE made in furtherance of the scheme to defraud. v. Rationale a. Not incident to scheme to defraud, but was integral part of the overall scheme. b. Unless the mailing was done, Schmuck would lose dealers business and thus the mailing was a requirement. vi. Rule Relevant question at all times is whether the mailing is part of the execution of the scheme as conceived by the perpetrator at the time, regardless of whether the mailing later,

White Collar Crime Outline Spring 2004 - Podgor Page 16 of 56 through hindsight, may prove to have been counterproductive and return to haunt the perpetrator of the fraud. vii. Three previous decisions a. Maze Case 1). Scheme had reached fruition and the mailing was after the fact. viii. Causing to be mailed is enough to constitute mailing. a. Agents of defendant can qualify. b. If in ordinary course of business the items would be mailed, it will be held to have been mailed. ix. Limitations to In Furtherance Element a. Prior to Schmuck Case There Were Four types of Limitations 1). Mailings that conflicted with the scheme to defraud, that aided in detection, or that were diametrically opposed to the defendant acting with an evil mens rea. i). Schmuck expressly overruled this theory. 2). Mailings that were part of an imperative duty to the state were not considered to be in furtherance of the scheme to defraud. 3). Mailing that were prior to the commencement of the scheme to defraud were not in furtherance of the scheme. 4). Mailings after the fruition of the scheme to defraud were not considered to be in furtherance of the scheme. I. Wire Fraud and Other Frauds 1. United States v. Bryant i. Defendants appealed convictions for wire fraud. ii. Defendants alleged that government could not prove that defendants knew or could reasonably foresee that the telegrams involved were sent interstate. iii. Government argued that there is no requirement for knowledge or foreseeability. iv. Many courts have held that a scheme to defraud requires specific intent. v. Interstate element is jurisdictional and is strict liability. vi. This court indicates that knowledge or foreseeability of interstate transmission is not necessary under the statute. vii. Hypo a. Telephone lines running all over country. Does in-state call qualify as wire fraud because of telephone system. 1). Probably government would still have to prove that call was actually interstate. This might change as technology evolves.

White Collar Crime Outline Spring 2004 - Podgor Page 17 of 56 J. Bankruptcy Fraud 1. United States v. Gellene i. Attorney indicted for bankruptcy fraud because he left major creditor off of the declaration list. ii. Attorney claimed he had no fraudulent intent. iii. In some circuits, intent to deceive is not sufficient, there must be an intent to defraud. iv. In this case, the court indicates that intent to deceive and intent to defraud are synonymous. v. Key language for materiality is whether the communication influences a decision-making body. vi. Materiality will be determined by the jury it is not a legal decision. K. Computer Fraud 1. United States v. Czubinski i. Defendant was convicted of wire fraud and computer fraud. ii. Defendant worked for the IRS and browsed the tax returns of persons on his computer terminal. a. People on the David Duke presidential campaign b. District Attorney prosecuting his father c. Girlfriend iii. Defendant argued that he did not use the information. iv. Government based its case on two theories a. Defrauded IRS of their property b. Defrauded IRS and public of intangible right of his honest services. v. Court indicates that mere browsing is not sufficient for wire or computer fraud. vi. Violation of Workplace Rules can be a breach of fiduciary duty. vii. Precedent supports the conclusion that to deprive a person of their intangible property interest in confidential information, either some articulable harm must befall the holder of the information as a result of the defendants activities, or some gainful use must be intended by the person accessing the information, whether or not this use is profitable in the economic sense. viii. Court cautions that the wire fraud and mail fraud statutes are very broad and must be used carefully just because conduct is morally wrong, does not mean it is criminal. ix. Computer fraud does not mirror the other fraud statutes it is completely different a. Seven different types of conduct suffices for computer fraud 1). Knowingly accessed computer without authorization or exceeding authorization for espionage.

VI.

White Collar Crime Outline Spring 2004 - Podgor Page 18 of 56 2). Intentionally accessing computer without authorization or exceeding authorization 3). Intentionally accessing any nonpublic computer of a department or agency of the US. 4). Knowingly and with intent to defraud accesses a protected computer without authorization 5). Knowingly or intentionally accessing computers for computer viruses or other damage causing reasons. 6). Trafficking in passwords. 7). Intent to extort using a computer. L. Other Scheme to Defraud Statutes 1. Health Care Fraud 2. Bank Fraud 3. Travel Fraud M. Money Laundering 1. United States v. Powers i. Powers was employed by gas marketer, Oryx. ii. One of Powers customers was ISP. iii. Powers and person at ISP set up a third company, Long Valley. iv. Oryx would sell gas to Long Valley who would sell to Cowboy Pipeline who would then sell to ISP. v. Government charged Powers with money laundering. vi. Government must show that defendant desired to create the appearance of a legitimate wealth or otherwise to conceal the nature of funds so that the money could enter the economy as legitimate funds. vii. Powers argued that he was open and notorious with his actions and thus should not be charged with money laundering. viii. Previous case had held that transactions that are open and notorious would not support money laundering conviction. 2. Money laundering has become a significant tool used by prosecutors in white collar cases. Racketeer Influenced and Corrupt Organization Act (RICO) A. Introduction 1. Major Statutory Provisions i. 18 U.S.C. 1961 a. Definitions 1). Racketeering Activity 2). Enterprise 3). Pattern of Racketeering Activity ii. 18 U.S.C. 1962 a. Prohibited Activities 1). Elements differ depending upon the activity performed. b. Subsection (d) is the RICO conspiracy provision. iii. 18 U.S.C. 1963

White Collar Crime Outline Spring 2004 - Podgor Page 19 of 56 a. Criminal Penalties 1). Possibility of asset forfeiture is a big part of this section. iv. 18 U.S.C. 1964 a. Civil Remedies 1). Can use criminal statutes to proceed in civil actions involving RICO. B. Department of Justice Guidelines 1. Congressional intent was to construe the statute broadly. 2. RICO actions brought by the government require prior approval from the Criminal Division. 3. It is the policy of the DOJ that RICO be selectively and uniformly used. 4. Basic reason is to avoid misuse of the statute. 5. Civil RICO actions are not so constrained; however, Congress has put limitations on civil RICO actions. 6. Policy of DOJ is not controllable by courts. C. Elements 1. Prohibited Activities i. 1962 a. (a) using income from a pattern of racketeering activity to acquire an interest in an enterprise engaged in, or the activities of which affect interstate or foreign commerce b. (b) acquiring or maintaining through a pattern of racketeering activity an interest in an enterprise engaged c. (c) conducting or participating in the conduct, through a pattern of racketeering activity, of such affairs of an enterprise that affect interstate or foreign commerce d. (d) conspiring to further any of the activities listed in a, b, or c. 2. Enterprise i. Includes any a. 1. Individual, partnership, corporation, association, or other legal entity b. 2. And any union or group of individuals associated in fact although not a legal entity ii. United States v. Turkette a. Criminal case. b. This is brought under (d) and is a conspiracy to commit activities prohibited under other provisions of RICO. c. Turkette was convicted after a 6 week trial and was given 2 20-year concurrent sentences + a 2-year special parole on a drug count. d. Turkette argued that RICO statute was designed only to protect legitimate business enterprises from infiltration by racketeers and since his activity was purely illegal, it was not covered by RICO.

iii. iv. v.

vi.

White Collar Crime Outline Spring 2004 - Podgor Page 20 of 56 e. Court of Appeals reversed based on this argument. f. Supreme Court construed the RICO statute broadly. Courts have permitted state and local government offices to be the enterprise in a RICO case. Even husband and wife could be an enterprise under an association in fact theory. Association in Fact Enterprise a. General Agreement that this requires 1). Common purpose 2). Function as a continuing unit b. United States v. Bledsoe 1). Court of Appeals held that the enterprise has to be an ascertainable structure. c. United States v. Perholtz 1). Organization could coalese with the pattern of racketeering activity. d. United States v. Riccobene 1). Middle ground in that there must be an existence beyond that which is necessary merely to commit the predicate racketeering offenses. e. United States v. Console 1). Law firm and medical practice were an enterprise when they conspired to obtain money through personal injury cases. f. Chang v. Chen 1). Required the organization, formal or informal, to be an entity separate and apart from the pattern of racketeering activity in which it engages. g. Must Have Three Things 1). Defendant 2). Commission of Racketeering Activity 3). Enterprise h. Question is whether racketeering activity and enterprise have to be separate entities. Distinctiveness of the Enterprise and the Defendant a. Cedric Kushner Promotions, Ltd. v. King 1). RICO case 2). 1962(c) Conducting or participating in the conduct, through a pattern of racketeering activity, of such affairs of an enterprise that affect interstate or foreign commerce. 3). Question is whether you can participate or conduct enterprise when you are the enterprise. 4). Appeals Court held that person and corporation were not distinct entities and thus there was no person, distinct from the enterprise, who improperly

White Collar Crime Outline Spring 2004 - Podgor Page 21 of 56 conducted enterprises affairs and 1962(c) did not apply. 5). Person and corporation are two distinct entities. 6). Rule When a corporate employee unlawfully conducts the affairs of the corporation of which he is the sole owner whether he conducts those affairs within the scope, or beyond the scope of corporate authority, the need for two distinct entities is satisfied. vii. Hypos a. X Corp and Y Corp b. A works for X and B works for Y c. Bribery between A/B and other d. Possible Enterprises 1). A and B 2). X Corp 3). Y Corp 4). X Corp and Y Corp 5). X Corp and B 6). Y Corp and A 7). A 8). B 9). X Corp and A 10). Y Corp and B 11). X Corp and Y Corp And A and B 12). X Corp and Y Corp and B 13). A B and X Corp 14). A B and Y Corp e. Point is that there is a great deal of choice in which enterprise can be charged. f. Choice would depend on many factors 1). Venue/Jurisdiction/Burden of Proof/Evidence considerations. i). Sentencing would no longer be a factor because of uniformity under federal guidelines. 2). Forfeiture of enterprise is allowed in cases of illegal enterprises. g. The enterprise itself is not necessarily the illegal actor but it has negative connotations. viii. United States v. Noriega a. Difficult to ascertain the structure b. Activity coalescing with individuals to create the enterprise. ix. United States v. Tokars a. Illegitimate enterprise

White Collar Crime Outline Spring 2004 - Podgor Page 22 of 56 b. Made up of drug traffickers from all over the country. c. Has to be an association in fact because it is not a legal entity. x. Gold Club Case a. Association in fact b. Enterprise included members of Gambino crime family, Delta Airlines, owner of night club, etc. xi. Economic Motive a. National Organization for Women v. Scheidler 1). Issue is whether RICO requires an economic purpose for the racketeering enterprise or the predicate acts of racketeering. 2). Petitioners sued groups opposing abortion alleging violations of the Sherman Act and RICO. 3). Claims under RICO were brought under (a), (c), and (d). 4). District Court dismissed, indicating that there was an economic motive requirement. 5). Court of Appeals affirmed. 6). Supreme Court reversed, indicating that RICO does not have an economic motive requirement. 3. Engaged In, or the Activities of Which, Affect Commerce i. Pattern of Racketeering a. Prohibited Activities 1). 1962 i). (a) using income from a pattern of racketeering activity to acquire an interest in an enterprise engaged in, or the activities of which affect interstate or foreign commerce a). In this subsection, as a result of fraudulent activity, they obtain money to purchase an interest in an enterprise. b). Own dry cleaner but it is not a legitimate business it is a front. If I sell dry cleaners and use income to bribe public officials, it is subsection (a). c). Enterprise is the victim under this subsection. ii). (b) acquiring or maintaining through a pattern of racketeering activity an interest in an enterprise engaged in, or the activities of which affect interstate or foreign commerce

White Collar Crime Outline Spring 2004 - Podgor Page 23 of 56 a). Fraud is committed and money is obtained to obtain an interest in the enterprise. b). Enterprise is the victim. iii).(c) conducting or participating in the conduct, through a pattern of racketeering activity, of such affairs of an enterprise that affect interstate or foreign commerce a). You are a part of the enterprise and are conducting the racketeering activity. b). Enterprise in this instance is not necessarily the victim. iv). (d) conspiring to further any of the activities listed in a, b, or c. b. H.J. Inc. v. Northwestern Bell Telephone Company 1). Petitioners claimed that NW Bell bribed MPUC (governmental agency) to set prices. 2). Issue is what pattern of racketeering entails. 3). Court looks at statute and indicates that there is a precedent for interpreting the statute broadly. 4). Pattern of Racketeering Activity i). Requires at least two acts of racketeering activity. a). Statute of limitations is long 10 years. 5). Court notes that two acts might not be sufficient because it does not necessarily form a pattern. i). Sporadic activity is not sufficient for a pattern. 6). Court indicates that formula for determining pattern of racketeering activity is i). CONTINUITY + RELATIONSHIP 7). Relationship Definition i). Criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events. 8). Continuity Definition i). Continuity is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition.

White Collar Crime Outline Spring 2004 - Podgor Page 24 of 56 a). Closed i. Series of related predicates extending over a substantial period of time. b). Open i. Requires continuing threat. 9). Concurrence i). Concurrence indicates that there is a possible vagueness/ambiguity argument. c. Racketeering Activity 1). Must have i). At least two acts a). Predicate Acts b). Predicate Acts are listed in 1961(1) c). Includes state and federal offenses. d). Courts have held that what state calls the offense is irrelevant. ii). Continuity + Relationship as defined above. d. Hypo 1). Bone, Inc. 2). Attorney is doing outside work for Bone, Inc. 3). Attorney does a few things that cross the line. i). Bribes judge 3/15/01 ii). Bribes judge 3/15/02 iii).Commits mail fraud 3/15/03 4). Proving RICO i). Need two predicate acts a). 2 acts of bribery and mail fraud. ii). Continuity + Relationship a). Relationship i. Bone, Inc. gets benefit. b). Continuity i. Both open or closed because it covers a substantial period of time. The Nexus Requirement a. Reves v. Ernst & Young 1). Brought under 1962(c) 2). Issue is what does conduct and participate mean. 3). Court looks to dictionary meanings. 4). Court concludes that conduct requires an element of direction. i). Court indicates the operation or management test is used.

ii.

White Collar Crime Outline Spring 2004 - Podgor Page 25 of 56 5). Only time this is an issue is when case is brought under subsection (c). 6). Court indicates that i). To conduct or participate, directly or indirectly, in the conduct of such enterprises affairs, one must participate in the operation or management of the enterprise itself. 7). Court also indicates that an enterprise might be operated or managed by outsiders if bribery is involved. iii. Interstate Commerce Element a. United States v. Robertson 1). Robertson was charged with narcotics and RICO ( 1962(a)) for investing the proceeds of unlawful narcotic activities in a gold mine. 2). Robertson was convicted and Court of Appeals reversed, indicating that activity did not affect interstate commerce. 3). Predicate acts in this case were the drug deals. 4). Robertson then invested the proceeds to acquire an interest in an enterprise affecting interstate commerce. 5). Supreme Court indicates that interstate commerce in RICO statute is made up of two components i). Engaged in interstate commerce ii). Affecting interstate commerce 6). Court says that prosecutor can bring under either theory. 7). Court indicates that the mine was engaged in interstate commerce. i). Mine hired out of state workers. ii). Mine bought equipment out of state. iii).Gold was taken out of state. 8). Meeting the engaged in interstate commerce component is less stringent than the affecting interstate commerce. D. RICO Conspiracy 1. Different from general conspiracy statute (18 U.S.C. 371) i. General conspiracy statute requires an overt act in furtherance of conspiracy. ii. RICO does not require an overt act. a. If two or more people get together and decide to use income from pattern of racketeering activity to acquire interest in enterprise that engages in interstate commerce; however, they have not made any act in furtherance of it.

White Collar Crime Outline Spring 2004 - Podgor Page 26 of 56 1). This would be sufficient under RICO conspiracy provisions. b. Supreme Court found that since Congress did not explicitly state that an overt act was required, it was not required just like other federal conspiracy statutes that do not require overt act. 2. Covered in 1962(d) i. Two or more people involved in either 1962 (a), (b), or (c). E. RICO Forfeiture 1. Enormously powerful provision 2. 1963 3. Three categories for forfeiture i. Interests acquired or maintained through racketeering; ii. Interests in or providing a source of influence over the racketeering enterprise; iii. Proceeds from racketeering activity. 4. Relation-Back Doctrine i. Money can be related back to its original source. 5. Two Types of Forfeiture i. In personam a. Going after the person ii. In rem a. No criminal action b. Civil forfeiture action c. Much lower burden to prove civil 6. Supreme Court has held that an owners lack of knowledge of the fact that her home had been purchased with proceeds of illegal transactions i. Bona fide purchasers are protected. ii. The holding above indicates that there may even be protection beyond a bona fide purchaser. 7. Excessiveness i. Alexander v. United States a. Alexander owned stores and theatres dealing in sexually explicit materials. b. Convicted of obscenity and RICO violations. c. Sentenced to prison, fined, and order to forfeit certain assets. d. Alexander argued that this violated 1st and 8th Amendment. e. Supreme Court rejected free speech issue. f. Court agreed that case should be analyzed under excessive fines clause. g. Remanded to Court of Appeals to determine if there was excessive fines. ii. United States v. Bajakajian a. Supreme Court held that the forfeiture of the entire $357,144 that respondent failed to declare on a customs

White Collar Crime Outline Spring 2004 - Podgor Page 27 of 56 reporting form to be grossly disproportionate to the gravity of his offense. b. Court stated that this was a punitive forfeiture that violated excessive fines clause. VII. Regulatory Offenses A. Crimes involving a violation of government regulation. B. Sometimes, may involve public welfare offenses. However, this is not all of the crimes. C. Voluntary Disclosure 1. If you voluntarily disclose to government that you have violated regulation, the DOJ guidelines offer several factors to be considered in determining whether to proceed with criminal prosecution. i. Voluntary disclosure ii. Cooperation iii. Preventive measures and compliance programs iv. Pervasiveness of noncompliance v. Internal disciplinary action vi. Subsequent compliance efforts 2. This will often help mitigate the penalty imposed. D. Prosecutorial Discretion 1. There is a great deal of discretion in what prosecutor can bring. 2. If you are going after a corporation, however, there may be some limits. i. Thompson Memo a. Regulatory Offenses are often charged against corporation and not an official. b. Cooperation and Voluntary Disclosure are specifically mentioned as mitigating penalties. E. Mens Rea Element 1. Strict Liability i. United States v. White Fuel Corporation a. White Fuel operated a tank farm near a cove of Boston Harbor. b. Oil was leaking into the harbor and it was determined that the oil was leaking from White Fuels property. c. White Fuel was convicted under Refuse Act. d. White Fuel argued that government had to prove a mens rea element. e. Question is whether this is a strict liability crime. f. White Fuels Arguments 1). Not Covered under Refuse Act because they did not discharge, throw, or deposit oil. i). Court finds that statute does cover this type of seepage. 2). Mens Rea must be proven

White Collar Crime Outline Spring 2004 - Podgor Page 28 of 56 i). Court says that Refuse Act is termed a strict liability offense because it falls into the category of public welfare offenses. 3). Government must prove negligence. i). Court says that facts inferring negligence were there but Congress did not require negligence in the statute. g. There are defenses available 1). Someone else is responsible. 2). Acts of God 3). Independent contractors acting outside defendants control 2. Willfulness i. United States v. Dye Construction Company a. Workman died in a trench cave-in. b. Dye was charged with willfully failing to shoresides of trenches sufficient to protect employees. 1). Violation of OSHA. c. Tried by jury. d. Dye claimed that jury should have been instructed that willfulness instruction should have included an evil intent element. e. Question is how willfully is defined. f. Supreme Court has said that evil intent is necessary for moral turpitude offenses, but not for acts that are not in themselves wrong. g. Statute here does not require moral turpitude; thus, there is no evil intent requirement. h. Still have to know that what you are doing is wrong, however, there is no requirement that there is evil intent. ii. No Knowledge Proviso a. A violation of the Securities Exchange Act can become a felony offense when the defendant acts willfully. The Act specifically indicates that if there is no knowledge of the rule or regulation violated, the defendant cannot be imprisoned. iii. Mens Rea determined by Misdemeanor or Felony a. The mens rea for acts under the FDCA may depend on the level of the offense. b. Misdemeanor would not have conscious fraud. c. Felony would have conscious fraudulent activity. 3. Knowingly i. United States v. Bronx Reptiles, Inc. a. Issue is what must the extent of the defendants knowledge be to permit conviction when a criminal statute renders unlawful an act knowingly undertaken by the defendant.

White Collar Crime Outline Spring 2004 - Podgor Page 29 of 56 b. Bronx Reptiles was convicted of violating the Lacey Act making it a misdemeanor for any person to knowingly to causeany wild animalto be transportedto the U.S.under inhumane or unhealthful conditions c. Bronx Reptiles argued that the government did not prove that defendant knew conditions were inhumane or unhealthful. d. Court indicates that knowledge of conditions was required. e. Rationale 1). If knowingly did not apply to language about treatment, a vast range of behavior is criminalized. 2). Nothing in structure of statute that indicates knowingly does not apply to phrase of inhumane or unhealthful. 3). Criminal statutes are presumed to contain a mens rea element. If Congress had meant to impose strict liability, it could have said so. 4). Court also indicates that this is not a public welfare offense involving harmful or injurious items because frogs are not that type of article. f. Dissent argues that this is a public welfare statute and should be affirmed. 4. Willful Blindness i. United States v. Buckley a. Buckley was convicted of Clean Air and CERCLA violations when asbestos was released during a demolition project. b. Both statutes have specific requirement of knowledge. c. Buckley argued that the jury instructions as to the knowledge requirement made the offense strict liability. d. The instructions indicated that Buckley could be found to have knowledge by finding that he acted with a conscious purpose to avoid learning the truth about the presence of asbestos. e. Rule Government can establish knowledge by proving that defendant closed his eyes to obvious facts or failed to investigate when facts demanded investigation. 5. Negligently i. United States v. Hanousek a. Clean Water Act has different levels of intent includes both knowledge and negligence standards. b. Hanousek was a roadmaster with a railroad company that was also responsible for a quarry project. c. While working at the quarry, a contractor backhoe operator ruptured a pipeline and it resulted in discharge of 1-5,000 gallons of heating oil.

White Collar Crime Outline Spring 2004 - Podgor Page 30 of 56 d. Hanousek was convicted of CWA violations by negligently discharging a harmful quantity of oil into navigable waters. e. Hanousek appealed, arguing that the statute required criminal negligence as opposed to the ordinary negligence instruction given at trial. f. Court indicates that plain language of statute indicates that ordinary negligence is appropriate. g. Congress had ability to define the negligence at a higher level, but chose not to. h. Court also says that it is well established that a public welfare statute may subject a person to criminal liability for his or her ordinary negligence without violating due process. 6. Advice to give to legislature in drafting statutes is that you should clearly set out the mens rea requirements or the courts will set it for you. F. Individuals Liable 1. Persons in Charge i. Apex Oil Company v. United States a. Apex Oil transported and stored oil. b. The company was convicted of failing to notify government authorities of a known oil spill. c. Company argues that person in charge language of the statute should not be read in the same manner as person is defined in same statute. d. This case came down before the collective knowledge theory had been accepted in lower courts. ii. United States v. Carr a. Question becomes who has the responsibility of reporting environmental violations and who to report the violations to. 2. Responsible Corporate Officer i. United States v. MacDonald & Watson Waste Oil Company a. Appellants were convicted of violating RCRA and CERCLA. b. RCRA Cradle to grave Act dealing with waste disposal. 1). Very comprehensive statute. c. President of company contended that there was an erroneous jury instruction. d. Jury instructions indicated that knowledge that could be shown by responsible corporate officer doctrine. e. Three Criteria for Responsible Corporate Officer Doctrine 1). The person is an officer of the corporation, not merely an employee. 2). The officer had direct responsibility for the activities that are alleged to be illegal.

VIII.

White Collar Crime Outline Spring 2004 - Podgor Page 31 of 56 3). The officer must have known or believed that the illegal activity of the type alleged occurred. ii. United States v. Iverson a. Violations of CWA b. Act defines person, among other things, as a responsible corporate officer. c. Rule Under CWA, a person is a responsible corporate officer if the person has authority to exercise control over the corporations activity that is causing the discharges. No requirement that the officer in fact exercises such authority or that the corporation expressly vest a duty in the officer to oversee the activity. 3. Aiding and Abetting i. United States v. Doig Perjury, False Statements & Obstruction A. Lawyers must be very aware of potential perjury issues. B. Questions for lawyers to ask when client is called before grand jury. 1. Is my client a target? i. If a target, client will more than likely be indicted. ii. Must explain to client the repercussions of pleading the 5th Amendment. 2. Is my client a subject? 3. Is my client a witness? C. Perjury 1. United States v. Bronston i. Bronston was the owner of a company that produced movies in European countries. ii. Company filed Chapter 11 and during questioning, Bronston indicated that the company had bank accounts in Switzerland. iii. However, the question was whether he himself had accounts. iv. The answer was literally true. v. Perjury statutes a. 18 U.S.C. 1621 - Perjury b. 18 U.S.C. 1623 False Statements vi. Government alleged that Bronstons unresponsive statement was perjury. vii. From this case, a prosecutor should get that they should always get the answer do not let the witness be unresponsive to the question. viii. Court found that Bronston did not commit perjury because he did not make an untrue statement. ix. Rule The perjury statute is not to be loosely construed, nor the statute invoked simply because a wily witness succeeds in derailing the questioner so long as the witness speaks the literal truth. x. Elements of Perjury

White Collar Crime Outline Spring 2004 - Podgor Page 32 of 56 a. Having taken an oath before a competent tribunal, officer, or person; b. Willfully and contrary to such oath; c. States or subscribes any material mater; d. That he does not believe to be true. 2. Sufficiency of the evidence in a perjury charge requires two witnesses. i. Does not require specifically two witnesses. ii. Can be one witness and corroborating evidence. iii. Circuits are split as to what qualifies as corroborating evidence. 3. U.S. v. Shotts i. Shotts seems to take position very similar to Bronston case. 4. U.S. v. DeZarn i. DeZarn court allowed external evidence when questioner used the wrong date. ii. Court indicated that Bronston was distinguished because Bronston dealt with an unresponsive answer in this case, the answer is responsive. 5. 1623 is different from perjury i. No two-witness rule requirement ii. Retraction is permitted iii. Limited to judicial and grand jury proceedings. D. False Statements 1001 1. United States v. Hixon i. Hixon worked for TVA and was injured. ii. He filed for disability and on the forms, he indicated that he was not self-employed. iii. TVA investigated and found that Hixon was operating a corporation that provided, planned, and booked hunting and fishing trips. iv. Hixon was the sole stockholder, president, treasurer, and member of the board. v. Hixon told investigators that it was his wifes business but this was false. vi. Hixon was charged with making false statements. vii. False Statements a. Not under oath. b. Typically to an investigator. viii. Hixon argues that he did not make a false statement when he indicated that he was not self-employed because working for a corporation is not self-employment. ix. Court held that when one works for a corporation, a distinct entity, they are not self-employed. x. Court indicates that he was not charged with other false statements that Hixon could have been convicted of. 2. Exculpatory No Doctrine i. Used to apply to 1001 prosecutions

IX.

White Collar Crime Outline Spring 2004 - Podgor Page 33 of 56 ii. Doctrine was when a person denied criminal involvement. iii. Supreme Court rejected exculpatory no defense. E. Obstruction of Justice 1. United States v. Baum i. Baum was a criminal defense attorney charged with conspiracy, obstruction of justice, false statements, and perjury. ii. Baum devised a scheme to make money from client by having government file a Rule 35 motion on behalf of the client to reduce his sentence. iii. 18 U.S.C. 1503 is the main obstruction of justice statute. a. 1503 reaches any person who corruptly influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice. b. 1512 and 1513 were added in later amendments. iv. Baum alleged that obstruction required a pending proceeding and since the client was already convicted, there was no pending proceeding. v. Court refused to dismiss the obstruction charge, indicating that client was eligible for Rule 35 motion and thus, there was a pending proceeding. vi. Additionally, the court indicated that there were broader public policy considerations. 2. 1512 was added to prohibit the destruction, alteration, or concealment of records related to an official proceeding. i. Official proceeding need not be pending or about to be instituted at the time of the offense. 3. 1519 and 1520 were added by Sarbanes-Oxley Act and cover similar ground and relate to destruction or concealment of documents and involvement of auditors. Grand Jury Investigations A. In white collar crime cases, the police do not do all of the investigating FBI/US Attorney/Grand Jury also investigate. B. Grand Jury is the basic way to bring in evidence and evaluate it. C. Grand Jury is a way to get compulsory process to make individuals testify. 1. If they do not want to testify before grand jury, the witness can be granted immunity from prosecution then they must talk or they sit in jail on charges of contempt. D. Target: when they call that individual before grand jury 1. You can almost bet thats the person they want to indict 2. Rare for them to testify in front of the grand jury. 3. US Attorneys office has policy to give a target an advice of rights form like Miranda form telling them that anything they say can/will be used against them. 4. Only time they will is if theyve been granted immunity, theyre not a target anymore, and theyre switched to the witness category.

E.

F.

G.

H.

I.

White Collar Crime Outline Spring 2004 - Podgor Page 34 of 56 5. DOJ not required to give this form, but they do because Congress may figure something worse out. Although its not reversible error if they dont. Subject: government just not sure about this person yet not a target, but dont know which category to put them in. 1. Very rare that an attorney will have a subject testify unless its so clear cut that the person is just a witness. 2. In those cases attorney will ask for immunity. Witness: attorney will ask for immunity. 1. Never know what could be said or where something might go. 2. Usually government will grant it. 3. Perjury isnt covered by the immunity statute. Subpoenas 1. Types i. Duces tecum (asking for documents) ii. Ad testificandum (subpoena to get person there to testify) 2. 17(c) 3. Webster Hubbell - #2 person in Attorney Generals office under Clinton i. Subpoena they issued to him in the book ii. Very extensive iii. This led to Supreme Court case that reversed his conviction. 4. R. Enterprises 5. In re Carrato Brothers Case Problem #1 1. Advantages to using a grand jury: i. Dont need probable cause to get documents ii. Secrecy easier to get employees to testify iii. Can just be investigating matter dont have to be sure of results iv. Compulsory nature making people talk, getting documents in there v. No time constraints except outside SOL vi. Efficient and economical use of resources 2. Disadvantages of using grand jury: i. May reveal some of case to people who testify ii. Tip off subject of inquiry who might destroy evidence (could still get them on obstruction) iii. May be seen as political attack against company Problem #2 1. Defense arguments: i. Carroto standards: length of time unreasonable (note suggests anything over 10 years unreasonable) ii. Proprietary information in corporate records (R. Enterprise case suggests this may be grounds for an exception) iii. (c) is public record readily available to government; defendant shouldnt be burdened

X.

White Collar Crime Outline Spring 2004 - Podgor Page 35 of 56 iv. (d) and (e) no reasonable particularity overbroad and burdensome v. Irrelevance 2. Prosecution arguments: i. Corporate books unsure when/where noncompliance began and who needs to be charged need to figure that out ii. Names of employees terminated need to find out if theres whistleblower readily available iii. Tax returns what kind of capital expenditures. iv. Easy access v. Health records probably have access, would want to know if there are any medical problems with employees due to products there vi. Email communications easily accessible. Challenges to the Grand Jury Process A. Supervisory Power Over the Conduct of the Grand Jury 1. United States v. Williams i. Issue is whether prosecution has to offer exculpatory evidence to the grand jury. ii. Under Brady v. Maryland, prosecutors must disclose to defense counsel exculpatory evidence of the accused. iii. Rule Courts have no authority to prescribe that the prosecution offer exculpatory evidence in grand jury proceedings pursuant to their inherent supervisory authority over their own proceedings. iv. In grand jury proceedings, the prosecution has no obligation to present exculpatory evidence. v. Although it is not required, all it will do is increase your failure rate as a prosecutor if you do not present to grand jury under Brady, would have to give exculpatory evidence at trial. B. Challenges to the Use of the Grand Jury 1. United States v. Arthur Anderson, LLP i. Court found no abuse of grand jury process. ii. As a prosecutor, once you indict, you CANNOT use the grand jury any longer for the purpose of getting information for the case. iii. However, if you still have some defendants that you are investigating, you can use the grand jury process. C. Grand Jury Secrecy 1. Barry v. United States i. Former mayor of Washington, DC, Marion Barry filed a complaint arguing that there was unlawful disclosure of information related to the grand jury proceedings. ii. Rule of secrecy for grand jury is Rule 6(e) iii. Court came up with a two-step analysis to determine if a violation of Rule 6(e)(2).

XI.

White Collar Crime Outline Spring 2004 - Podgor Page 36 of 56 a. District Court must determine whether the plaintiff has established a prima facie case. 1). Assessment of news articles b. If the court determines that a prima facie case has been established, the burden shifts to the government to attempt to explain its actions in a show cause hearing. iv. Witnesses are not necessarily subject to secrecy rules. v. Officers of the court are bound to secrecy. 2. In re: Sealed Case No. 99-3091 i. Issue is what constitutes matters occurring before the grand jury in terms of secrecy requirements. ii. Where the general public is already aware of the information contained in the prosecutors statement, there is no additional harm in the prosecutor referring to such information. D. Attorneys Fees for the Governments Misconduct 1. United States v. Braunstein i. Defendant argued that government is required to pay his attorneys fees because the prosecution was vexatious, frivolous, or in bad faith under the Hyde Amendment. ii. Hyde Amendment and McDade Amendment subject government to ethics rules and sanctions for vexatious, frivolous, or in bad faith. iii. Test for deciding when you are entitled to attorneys fees is whether the governments prosecution was vexatious, frivolous, or in bad faith. iv. What you learn as a prosecutor is that caution must be exercised in bringing actions to grand jury and look at any exculpatory evidence offered by the defendant. v. What you learn as a defendant is that there is an incentive to give information to the government because if case is still brought and defendant is acquitted, attorneys fees might be obtained. Fourth Amendment A. Why would search warrant be preferable to subpoena? 1. Immediacy and prevention of possible destruction of documents. 2. Also, there might be other information in plain view. 3. Avoid any 5th Amendment privilege issues. 4. Surprise 5. Ability to question employees during the search. 6. Disruptive impact of a search. 7. Conveys to the public that prosecutors are adopting tough stance. 8. No secrecy requirements for search, as opposed to grand jury subpoenas. 9. People might speak more freely and there might not be attorneys present. 10. If warrant had good faith, there is an exception to exclusion if there is a defect in the warrant. B. Why subpoena instead of a warrant? 1. Time and cost considerations.

XII.

White Collar Crime Outline Spring 2004 - Podgor Page 37 of 56 2. No need for particularity of description and location and probable cause. 3. Must get judicial approval for search. 4. Lack of secrecy could tip off other perpetrators. 5. Possibility of evidence suppression if warrant is invalid. C. United States v. Gray 1. Issue is whether evidence of child pornography discovered during a search of defendants computer files authorized by an unrelated warrant must be suppressed as beyond the scope of the warrant. 2. Rule In searching computer files, government has the right to inspect files to determine if they contain information they are looking for under the search warrant. D. United States v. Abbell and United States v. Mittleman 1. Cases involved searches of law offices. 2. Government has issued guidelines for searches of law offices. i. Use what is referred to as taint teams. ii. Documents are taken under warrant and Court appoints team of disinterested persons to look through documents. iii. Only the things that would fall under search warrant are handed over to the government. iv. In some cases, the government uses people within the government on the taint team this issue is hotly contested. Parallel Proceedings A. Introduction 1. Where the civil or administrative proceedings and the criminal proceedings appear likely to produce an overlap, they are commonly described as parallel proceedings. B. Prosecution Discovery from Parallel Proceedings 1. Under Rule 26(c)(6) of the Federal Rules of Civil Procedure, the district court may issue an order that discovery material remain under seal where such an order would serve to secure the just, speedy, and inexpensive determination of the suit by encouraging full disclosure of all relevant evidence. 2. Some circuits have rejected this view, concluding that the grand jury subpoena always trumps a district courts protective order. 3. Undoubtedly the most restrictive provisions on the sharing of agency files with federal prosecutors are those contained in 6103 of the Internal Revenue Code. i. Section establishes a general prohibition against IRS disclosure of return information and taxpayer return information. ii. There are several exceptions allowing for disclosure to other governmental officials for specified purposes. a. Broadest exception allow for disclosure to the DOJ for the purposes of investigating or preparing a proceeding relating to the administration of the tax laws. C. Delaying the Parallel Civil or Administrative Proceeding

White Collar Crime Outline Spring 2004 - Podgor Page 38 of 56 1. Though recognizing that individuals who are the targets of parallel civil and criminal proceedings face certain perils when required to respond to the civil action in advance of the criminal proceeding, the Supreme Court has concluded that there is no Constitutional mandate that dual targets be relieved of those perils by the issuance of a stay of the discovery in the civil proceeding. 2. The Court held open the possibility that certain circumstances might produce a due process violation either in denying a stay or in allowing the government to use in a criminal case the fruits of its civil discovery. 3. Although a stay may not be Constitutionally mandated, the federal district court has discretion to grant a stay, as does an administrative agency. i. In determining whether to grant a stay, courts and agencies tend to apply a balancing test, weighing a. The harm that will be suffered by the moving party from the failure to grant the stay; b. The interest of the opposing party in proceeding expeditiously; c. The concerns of interested persons who are not a party to the litigation; d. The interests of the court in maximizing judicial efficiency. D. Asserting the Self-Incrimination Privilege 1. A person may claim the privilege against self-incrimination in a civil case or administrative proceeding if the persons testimony realistically could provide the government with a link in the chain of evidence needed to prosecute for a crime. 2. In the civil case, the privilege may be claimed not only as to questions posed at trial or in depositions, but also to interrogatories, requests for admissions, and subpoenas to produce documents. 3. The privilege is not available to entities. 4. Perhaps the most common response to the exercise of the privilege, in both civil and administrative proceedings, is to allow the finder of fact to draw an adverse inference as to the information not received. 5. Ordinarily, when a non-party witness invokes the privilege, no adverse inference may be drawn; however, where the witness is so closely connected to the party as to be within its control and has particular knowledge of its activities, an adverse inference may be drawn against that party. E. Grand Jury Matter 1. Insofar as information obtained by the prosecution during a criminal investigation is governed by the Rule 6(e)(2) provision on grand jury secrecy, the prosecution can only share that information with potential litigants in parallel proceedings where the conditions prescribed in Rule 6(e)(3) are met. 2. When the information is not governed by Rule 6(e)(2), the prosecution is ordinarily free to share the information if it deems sharing to be in the public interest.

White Collar Crime Outline Spring 2004 - Podgor Page 39 of 56 3. Rule 6(e)(2) applies to all matter occurring before the grand jury. i. Does not have to be literally before the grand jury but can be during the grand jurys investigation. F. The Preliminary To Requirement 1. Under Rule 6(e)(3), grand jury matter may be disclosed to others under six basic exceptions to grand jury secrecy. i. Four of the exceptions relate to disclosure to implement criminal law enforcement. ii. A fifth exception is limited to a criminal defendant seeking dismissal of an indictment against him. iii. The sixth exception provides for disclosure directed by a court preliminarily to or in connection with a judicial proceeding. a. Where the parallel proceeding is a civil action and is already underway, it will meet the in connection with standard. b. Where the civil action is readily anticipated, that is sufficient under the preliminary to standard. c. The major hurdle arises where the proceeding first anticipated is an administrative proceeding, since the Rule refers only to a judicial proceeding. G. Particularized Need 1. Disclosure under the grand jury secrecy exception also requires that the party seeking disclosure establish a particularized need establish that the need for disclosure is greater than the need for continued secrecy and that the request is structured to cover only material so needed. 2. A variety of factors will be weighed by the court to determine particularized need. i. Status of the investigation that produced the requested grand jury material. a. Once the grand jury is finished, the need for secrecy has declined. ii. Whether the third party seeks disclosure that might subject grand jury witnesses to retribution or social stigma. iii. Narrowness of the disclosure requested. iv. Where the request for disclosure comes from a governmental agency, many courts have required a somewhat lesser showing of particularized need. H. Collateral Estoppel 1. A defendant who goes to trial in a criminal case must consider the dual perils of disclosure and collateral estoppel as they relate to subsequent parallel civil and administrative actions. 2. Even if the parallel civil proceeding involves precisely the same issue and is brought by the government, that lower proof standard means the acquitted defendant cannot use the doctrine of collateral estoppel. 3. On the other hand, should the defendant be convicted by trial or by guilty plea, in the subsequent civil or administrative action, collateral estoppel

XIII.

White Collar Crime Outline Spring 2004 - Podgor Page 40 of 56 will treat that conviction as conclusive as to any issue determined by the criminal case. 4. A criminal conviction based on a plea of nolo contendere, however, is treated differently. i. A defendant who has pleaded nolo contendere is not estopped from denying in a subsequent civil proceeding the facts on which the criminal charge was based, and the conviction based on a nolo plea is not evidence that the defendant committed the crime. ii. For a criminal defendant more concerned about the consequences of anticipated parallel proceedings (often the case for an entity), the preferred strategy may be to enter a plea of nolo contendere rather than provide discovery and risk both a conviction and collateral estoppel by contesting guilt at trial. iii. The nolo contendere plea, however, can be entered only with the approval of the district court. a. The plea is more likely to be accepted where the government does not object, but that lack of objection may require negotiated concessions by the defendant relating to restitution and other remedial orders. Self-Incrimination Privilege Testimony A. The Privilege Against Self-Incrimination 1. Availability of the Privilege i. The 5th Amendment provides that no personshall be compelled in any criminal case to be a witness against himself. ii. Counselman v. Hitchcock indicated that privilege was available in grand jury proceedings because the 5th Amendment applies to a witness in any proceeding who is being compelled to give testimony that might be incriminating in a subsequent criminal prosecution. 2. Compelling the Target to Testify i. Federal courts have long held that the grand jury is not prohibited from calling to testify a person that it expects to indict and thereby forcing that person to exercise the privilege as to individual questions. 3. Inviting the Target to Testify i. Department of Justice policy is to advise a grand jury witness of his or her rights if such witness is a target or subject of grand jury investigation. a. If flight or destruction is likely, do not have to advise witness. ii. No requirement that target be able to present exculpatory evidence. 4. Advance Assertion of Intention to Exercise the Privilege i. Upon receipt of a subpoena, a witness may inform the prosecutor that he or she will exercise the privilege as to all questions posed by the grand jury.

White Collar Crime Outline Spring 2004 - Podgor Page 41 of 56 ii. Grand jury can still call witness, but DoJ guidelines indicate restraint should be exercised. 5. Self-Incrimination Warnings i. United States v. Mandujano a. Supreme Court hinted in dicta that it was not necessary to give self-incrimination warnings (like in Miranda) to grand jury witnesses. 6. Warnings to Grand Jury Targets and Subjects i. United States v. Washington a. Supreme Court indicated that self-incrimination warnings do not have to be given to grand jury witnesses. b. However, DoJ guidelines again err on side of caution and indicate that warning should be given to targets of an investigation. 7. Subsequent Impeachment i. Grunewald v. United States a. Supreme Court held that where defendant exercised his privilege during grand jury questioning and then testified at his trial, answering some of the same questions and offering explanations consistent with his innocence, the government should not have been allowed to bring out on cross-examination the fact that he had previously refused on the basis of the privilege to answer the same questions. B. Scope of the Privilege 1. Waiver i. Rogers v. United States a. Rogers testified before a grand jury in Colorado. b. She indicated that she was treasurer of the Communist Party of Denver. c. When asked to produce documents, she indicated that they were not in her possession and she refused to indicate to whom she had given the documents, invoking her privilege against self-incrimination. d. She was held in contempt by the trial court and the Court of Appeals affirmed. e. Rogers appealed to the Supreme Court. f. The Supreme Court held that since named defendant had testified before grand jury that she had been treasurer of Communist Party until stated date at which time she had turned over books and records of party to another person, she could not justify refusal to answer further inquiry as to identity of person to whom she had delivered the books on ground of privilege against self-incrimination, since answer to such inquiry would not further incriminate her. ii. As discussed in the Morganroth case, most federal courts take the position that giving testimony in one proceeding does not waive

iii.

White Collar Crime Outline Spring 2004 - Podgor Page 42 of 56 the claim in a later proceeding, even though the questioning relates to the same topic and the proceedings are related. Incrimination Under the Laws of Another Sovereign a. United States v. Balsys 1). Supreme Court held that concern with foreign prosecution is beyond the scope of the SelfIncrimination Clause.

C. Immunity 1. Scope of Immunity i. 18 U.S.C. 6002 a. Allows the prosecution to grant a witness immunity from prosecution and compels the witness to testify. b. The immunity under the statute is called use/fruits immunity, and provides that at the request of the government, the court will issue an order that the witness may not refuse to comply with the order on the basis of his privilege against self-incrimination but no testimony or other information compelled under the order may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order. ii. Transactional Immunity a. Grants the witness full immunity from any later prosecution for any crimes about which the witness testifies. iii. Global Immunity a. No one knows exactly what this means. b. McDougal case prosecutors offered Susan McDougal global immunity, presumably that she would not be prosecuted for ANY offense that she may have committed in her life in exchange for her testimony. XIV. Self-Incrimination Privilege and the Subpoena of Documents A. The Act of Production Doctrine 1. Personal Papers i. Fisher v. United States a. In each of these cases taxpayers who were under investigation for possible civil or criminal liability under the federal income tax laws, after having obtained from their respective accountants certain documents relating to the accountants' preparation of their tax returns, transferred the documents to their respective attorneys to assist the taxpayers in connection with the investigations. b. Subsequently, the Internal Revenue Service served summonses on the attorneys directing them to produce the documents, but the attorneys refused to comply. c. The Government then brought enforcement actions, and in each case the District Court ordered the summons enforced.

White Collar Crime Outline Spring 2004 - Podgor Page 43 of 56 d. In one of the cases, the Court of Appeals affirmed, holding that the taxpayers had never acquired a possessory interest in the documents and that the documents were not immune from production in the attorney's hands. e. In another of the cases, the Court of Appeals reversed, holding that by virtue of the Fifth Amendment the documents would have been privileged from production pursuant to a summons directed to the taxpayer if he had retained possession, and that, in light of the attorney- client relationship, the taxpayer retained such privilege after transferring the documents to his attorney. f. The Supreme Court held 1). Compelled production of the documents in question from the attorneys does not implicate whatever Fifth Amendment privilege the taxpayer-clients might have enjoyed from being themselves compelled to produce the documents. i). Whether or not the Fifth Amendment would have barred a subpoena directing the taxpayers to produce the documents while they were in their hands, the taxpayers' privilege under that Amendment is not violated by enforcing the summonses because enforcement against a taxpayer's lawyer would not "compel" the taxpayer to do anything, and certainly would not compel him to be a "witness" against himself, and the fact that the attorneys are agents of the taxpayers does not change this result. ii). These cases do not present a situation where constructive possession of the documents in question is so clear or relinquishment of possession so temporary and insignificant as to leave the personal compulsion upon the taxpayer substantially intact, since the documents sought were obtainable without personal compulsion upon the taxpayers. iii).The taxpayers, by transferring the documents to their attorneys, did not lose any Fifth Amendment privilege they ever had not to be compelled to testify against themselves and not to be compelled themselves to produce private papers in their possession, and this personal privilege was in no way decreased by the transfer.

White Collar Crime Outline Spring 2004 - Podgor Page 44 of 56 iv). Even though the taxpayers, after transferring the documents to their attorneys, may have had a reasonable expectation of privacy with respect to the documents, the Fifth Amendment does not protect private information obtained without compelling self-incriminating testimony. 2). Although the attorney-client privilege applies to documents in the hands of an attorney which would have been privileged in the hands of the client by reason of the Fifth Amendment, the taxpayer-clients in these cases would not be protected by that Amendment from producing the documents in question, because production of such documents involves no incriminating testimony and therefore the documents in the hands of the taxpayers' attorneys were not immune from production. i). The 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. ii). Here, however incriminating the contents of the accountants' workpapers might be, the act of producing them the only thing that the taxpayers are compelled to do would not itself involve testimonial self-incrimination, and implicitly admitting the existence and possession of the papers does not rise to the level of testimony within the protection of the Fifth Amendment. 2. Sole Proprietorship Records i. United States v. Doe a. Supreme Court, referring to Fisher, indicated that although the contents of a document may not be privileged, the act of producing the document may be. b. The act of producing the documents may have testimonial value since it could indicate that the documents existed, were in the possession of the witness, etc. 3. Foregone Conclusion Doctrine i. United States v. Hubbell a. As part of a plea agreement, respondent promised to provide the Independent Counsel investigating matters relating to the Whitewater Development Corporation with information relevant to his investigation.

b. c. d.

e. f. g.

h.

i. j. k.

White Collar Crime Outline Spring 2004 - Podgor Page 45 of 56 Subsequently, the Independent Counsel served respondent with a subpoena calling for the production of 11 categories of documents before a grand jury in Little Rock, Arkansas. Respondent appeared before that jury, invoked his Fifth Amendment privilege against self-incrimination, and refused to state whether he had the documents. The prosecutor then produced an order obtained pursuant to 18 U.S.C. 6003(a) directing respondent to respond to the subpoena and granting him immunity to the extent allowed by law. Respondent produced 13,120 pages of documents and testified that those were all of the responsive documents in his control. The Independent Counsel used the documents' contents in an investigation that led to this indictment of respondent on tax and fraud charges. The District Court dismissed the indictment on the ground that the Independent Counsel's use of the subpoenaed documents violated 18 U.S.C. 6002--which provides for use and derivative-use immunity--because all of the evidence he would offer against respondent at trial derived either directly or indirectly from the testimonial aspects of respondent's immunized act of producing the documents. In vacating and remanding, the Court of Appeals directed the District Court to determine the extent and detail of the Government's knowledge of respondent's financial affairs on the day the subpoena issued. 1). If the Government could not demonstrate with reasonable particularity a prior awareness that the documents sought existed and were in respondent's possession, the indictment was tainted. Government appealed to the Supreme Court. Supreme Court held that the indictment against respondent must be dismissed. Rationale 1). The Fifth Amendment protects a person from being "compelled in any criminal case to be a witness against himself." The word "witness" limits the relevant category of compelled incriminating communications to those that are "testimonial." In addition, a person such as respondent may be required to produce specific documents containing incriminating assertions of fact or belief because the creation of those documents was not "compelled" within the meaning of the privilege. However, the act of producing subpoenaed documents may have a

White Collar Crime Outline Spring 2004 - Podgor Page 46 of 56 compelled testimonial aspect. That act, as well as a custodian's compelled testimony about whether he has produced everything demanded, may certainly communicate information about the documents' existence, custody, and authenticity. It is also well settled that compelled testimony communicating information that may lead to incriminating evidence is privileged even if the information itself is not inculpatory. 2). Section 6002 is constitutional because the scope of the "use and derivative-use" immunity it provides is coextensive with the scope of the constitutional privilege against self-incrimination. Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212. When a person is prosecuted for matters related to immunized testimony, the prosecution has an affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of that testimony. Id., at 460, 92 S.Ct. 1653. This ensures that the grant of immunity leaves the witness and the Government in substantially the same position as if the witness had claimed his privilege in the grant's absence. The compelled testimony relevant here is not to be found in the contents of the documents produced, but is the testimony inherent in the act of producing those documents. 3). The fact that the Government does not intend to use the act of production in respondent's criminal trial leaves open the separate question whether it has already made "derivative use" of the testimonial aspect of that act in obtaining the indictment and preparing for trial. It clearly has. It is apparent from the subpoena's text that the prosecutor needed respondent's assistance both to identify potential sources of information and to produce those sources. 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. Indeed, that is what happened here: The documents sought by one grand jury to see if respondent had violated a plea agreement led to the return of an indictment by another grand jury for offenses apparently unrelated to that agreement.

White Collar Crime Outline Spring 2004 - Podgor Page 47 of 56 The testimonial aspect of respondent's act of production was the first step in a chain of evidence leading to this prosecution. Thus, the Court cannot accept the Government's submission that respondent's immunity did not preclude its derivative use of the produced documents because its possession of the documents was the fruit only of the simple physical act of production. In addition, the Government misreads Fisher v. United States, 425 U.S., at 411, 96 S.Ct. 1569, and ignores United States v. Doe, 465 U.S. 605, 104 S.Ct. 1237, 79 L.Ed.2d 552, in arguing that the communicative aspect of respondent's act of production is insufficiently testimonial to support a privilege claim because the existence and possession of ordinary business records is a "foregone conclusion." Unlike the circumstances in Fisher, the Government has shown no prior knowledge of either the existence or the whereabouts of the documents ultimately produced here. In Doe, the Court found that the act of producing several broad categories of general business records would involve testimonial self- incrimination. ii. Effect of Hubbell a. After Hubbell, prosecutors are no longer free to use the contents of documents to prosecute a witness after they have immunized that witnesss act of producing those documents. b. If prosecutors can show prior knowledge of the existence, location, and authenticity of the documents, then the act of production has no testimonial value, and a court must reject a witnesss assertion of an act of production privilege. c. In that case, the prosecution can obtain the documents without an immunity grant and is free to use both the act of production and the contents of the documents to prosecute the witness. B. Entity Documents 1. Braswell v. United States i. A federal grand jury issued a subpoena to petitioner as the president of two corporations, requiring him to produce the corporations' records. The subpoena provided that petitioner could deliver the records to the agent serving the subpoena, and did not require petitioner to testify. ii. The corporations involved were incorporated by petitioner, who is the sole shareholder of one of them. Petitioner, his wife, and his mother are the directors of both corporations, and his wife and

iii.

iv.

v.

White Collar Crime Outline Spring 2004 - Podgor Page 48 of 56 mother are secretary-treasurer and vice president of the corporations, respectively, but neither has any authority over the corporations' business affairs. The District Court denied petitioner's motion to quash the subpoena, holding that the "collective entity doctrine" prevented petitioner from asserting that his act of producing the corporations' records was protected by the Fifth Amendment privilege against self-incrimination. The Court of Appeals affirmed. The Supreme Court held that the custodian of corporate records may not resist a subpoena for such records on the ground that the act of production will incriminate him in violation of the Fifth Amendment. Rationale a. This Court's precedents as to the development of the collective entity doctrine do not support petitioner's argument that, even though the contents of subpoenaed business records are not privileged, and even though corporations are not protected by the Fifth Amendment, nevertheless his 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. b. If petitioner had conducted his business as a sole proprietorship, United States v. Doe, 465 U.S. 605, 104 S.Ct. 1237, 79 L.Ed.2d 552, would require that he be provided the opportunity to show that his act of production would entail testimonial self-incrimination as to admissions that the records existed, were in his possession, and were authentic. c. However, representatives of a collective entity act as agents, and the official records of the organization that are held by them in a representative rather than a personal capacity cannot be the subject of their personal privilege against self-incrimination, even though production of the papers might tend to incriminate them personally. d. The plain mandate of the precedents is that the corporate entity doctrine applies regardless of the corporation's size, and regardless of whether the subpoena is addressed to the corporation or, as here, to the individual in his capacity as the records' custodian. e. Any claim of Fifth Amendment privilege asserted by the agent would be tantamount to a claim of privilege by the corporation, which possesses no such privilege. Recognizing a Fifth Amendment privilege on behalf of records custodians of collective entities would have a

White Collar Crime Outline Spring 2004 - Podgor Page 49 of 56 detrimental impact on the Government's efforts to prosecute "white-collar crime." f. Such impact cannot be satisfactorily minimized by either granting the custodian statutory immunity as to the act of production or addressing the subpoena to the corporation and allowing it to choose an agent to produce the records who can do so without incriminating himself. g. However, since the custodian acts as the corporation's representative, the act of production is deemed one of the corporation, not the individual, and the Government may make no evidentiary use of the "individual act" of production against the individual. XV. The Role of Counsel A. Protecting Client Information 1. Providing Client Identity and Payment Information i. United States v. Sindel a. Sindel was an attorney that appealed a District Court order requiring him to disclose information about two clients. b. Sindel received cash payments from two clients that amounted over $10,000 within one year. c. Form 8300 must be filed with IRS. 1). p. 254 of supplement has actual form. d. Sindel refused to give the identifying information for the clients. e. District Court ordered him to report the information. f. On appeal, Sindel argued that one of clients information fell under an exception to federal common-law rule that identification of client and fee information does NOT violate attorney-client privilege. 1). Exceptions i). Legal Advice Exception a). Protects client identity and fee information when there is a strong probability that disclosure would implicate the client in the very criminal activity for which it is sought. ii). Last Link Exception a). Prevents disclosure when it would incriminate the client by providing the last link in an existing chain of evidence. iii).Confidential Communications Exception a). Prevents disclosure when it would necessarily disclose confidential communications.

White Collar Crime Outline Spring 2004 - Podgor Page 50 of 56 g. Court found that one of the exceptions applied to one client, but not the other. h. Sindel then argued that the 1st, 5th, and 6th Amendments prevented disclosure. 1). 6th Amendment i). Court indicates that 6th Amendment is not implicated because client could pay with something other than cash and also that the client is not prevented from communicating with an attorney because of the disclosure rules. ii). However, the checking of Suspicious Activity box could be a problem, according to the court. 2). 5th Amendment i). Court indicates that as compliance with IRS summons would merely require disclosure of information which Sindels clients have already given him, their 5th Amendment privilege is not implicated. st 3). 1 Amendment i). Court indicates that a 1st Amendment protection against compelled speech, however, has been found only in the context of governmental compulsion to disseminate a particular political or ideological message. i. Court holds that Sindel must disclose identity and fee information. j. 11th Circuit has held that there is a duty to disclose the identity and fee information. 2. SEC Disclosure Rules i. Sarbanes-Oxley Act of 2002 mandates that the SEC issue rules prescribing minimum standards of professional conduct for attorneys appearing and practicing before it in any way in the representation of issuers, including at a minimum a rule requiring an attorney to report evidence of a material violation of securities laws or breach of fiduciary duty or similar violation by the issuer or any agent thereof to appropriate officers within the issuer and, thereafter, to the highest authority within the issuer, if the initial report does not result in an appropriate response. B. Subpoena of Attorneys 1. The government increasingly seeks to obtain information from attorneys about their clients because it is so valuable. 2. The DOJ permits federal prosecutors to subpoena attorneys for information about their clients, but exercises close control over such

White Collar Crime Outline Spring 2004 - Podgor Page 51 of 56 subpoenas by requiring prior approval of the Assistant Attorney General for the Criminal Division. 3. Impounded Case i. A federal grand jury began investigating target and issued several subpoenas for documents. ii. Attorney for target did not comply and government got a search warrant that found documents that attorney had previously indicated did not exist. iii. Government subpoenaed attorney to testify before the grand jury investigating his clients obstruction. iv. Attorney invoked the attorney-client privilege. v. Government claimed that the crime fraud exception allowed them to get the information from the attorney. vi. District Court denied the government motion and quashed the subpoena. vii. Federal Rules of Evidence and Federal Rules of Criminal Procedure give limited authority for court review of grand jury subpoenas. viii. Court indicated that the District Court did not follow either FRE or FRCrimP. ix. Court indicated that District Court used a fundamental fairness standard that was not appropriate. x. The appellate court indicates that the District Court erred by not evaluating properly. C. Ethical Regulations 1. ABA Model Rule of Professional Conduct 3.8(e) The prosecutor in a criminal case shall: (e) not subpoena a lawyer in a grand jury or other criminal proceeding to present evidence about a past or present client unless the prosecutor reasonably believes: (1) the information sought is not protected from disclosure by any applicable privilege; (2) the evidence sought is essential to the successful completion of an ongoing investigation or prosecution; and (3) there is no other feasible alternative to obtain the information 2. McDade Act i. Act makes attorney for the federal government shall be subject to state laws and rules as other attorneys within that state. D. Contact with Represented Persons 1. ABA Model Rule of Professional Conduct 4.2 indicates that in representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter. E. Conflicts of Interest

White Collar Crime Outline Spring 2004 - Podgor Page 52 of 56 1. Conflicts from Joint Defense Agreements i. A group of defendant in an investigation may enter into a joint defense agreement under which the communications by any one member with any attorney will be privileged. ii. United States v. Henke a. Three co-defendants who were executives of CalMicro. b. They were alleged to be involved in a false revenue reporting scheme. c. One of three defendants took a plea right before trial and agreed to cooperate with government. d. Attorneys of remaining two defendants argued that a conflict of interest prevented counsel from properly crossexamining cooperating witness because of previous representation. e. District Court denied the attorneys motion to withdraw. f. Rule 1). An attorney should also not be allowed to proceed against a co-defendant of a former client wherein the subject matter of the present controversy is substantially related to the matters in which the attorney was previously involved, and wherein confidential exchanges of information took place between the various co-defendants in preparation of a joint defense. g. Court of Appeals indicated that it was error in not fully acknowledging the conflict and then acting on its implications. h. The Court indicates that nothing in the holding suggests that joint defense agreements are in and of themselves disqualifying. 1). There may be cases where information about former co-defendant turned government witness would not be improper. XVI. Federal Sentencing Guidelines A. Introduction 1. The United States Sentencing Commission i. Federal Guideline Sentencing was established by the Sentencing Reform Act of 1984. ii. A major impetus for guideline sentencing was to level the playing field between white collar offenders and street offenders. 2. Guidelines Sentencing i. The guideline range results from the combination of two numerical values a. Offense level

White Collar Crime Outline Spring 2004 - Podgor Page 53 of 56 1). Determined by establishing the base offense level for the crime(s) of conviction and, as applicable, the specific offense characteristics and adjustments. 2). Specific offense characteristics include i). More than minimal planning ii). Amount of loss involved iii).Infliction of bodily injury 3). In applying the specific offense characteristics, the court looks to both the crime of conviction and any other conduct deemed relevant under USSG 1B1.3 i). Relevant Conduct a). Acts and omissions of the defendant b). Can include offenses that were uncharged, charged and dismissed, or charged and resulted in acquittal. 4). Adjustments fall into five major categories i). Victim-related ii). Defendants role in the offense iii).Obstructing the administration of justice iv). Multiple count convictions v). Defendants acceptance of responsibility 5). Determining Offense Level where Conviction is on Multiple Counts i). Counts having a specified relationship to each other must be placed in groups of closely related counts. ii). The offense level for each group of closely related counts is then determined. iii).The combined offense level for all of the different groups is then determined. b. Criminal history category 3. Sentencing a Corporate Executive: United States v. Waksal i. One of the big issues in sentencing of white-collar criminals is what they have done for the community. ii. Prior to sentencing guidelines, these types of things were looked into. B. The Offense Level 1. Relevant Conduct i. Establishing the nature and extent of defendants involvement in the offense is important for determining the sentence because the Guidelines use what is termed a modified real offense system that considers the circumstances of the crime in imposing the sentence. 2. The Appropriate Guideline i. Sometimes difficult to determine the applicable guideline.

White Collar Crime Outline Spring 2004 - Podgor Page 54 of 56 3. Acceptance of Responsibility i. A defendant who manifests acceptance of responsibility for the crime can receive a two or three level reduction in the offense level. ii. The judge determines whether to grant the two or three level reduction. 4. Loss i. The Guidelines define loss to include actual and intended loss. ii. Actual loss is the reasonably foreseeable pecuniary harm that resulted from the offense. iii. Intended loss is the pecuniary harm that was intended to result from the offense and includes pecuniary harm that would have been impossible or unlikely to occur. iv. Pecuniary harm does not include emotional distress, harm to reputation, or other non-economic harm. 5. Sophisticated Means i. The Guidelines provide a two level enhancement for using sophisticated means to accomplish fraud and tax offenses that involve especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense. ii. Conduct such as hiding assets or transactions, or both, through the use of fictitious entities, corporate shells, or offshore financial accounts ordinarily indicates sophisticated means. 6. Abuse of Position of Trust i. Individuals in white collar cases may sometimes be subject to a sentence enhancement for occupying a position of trust. ii. A position of trust under the Guidelines is one characterized by professional or managerial discretion. a. The position must be one characterized by substantial discretionary judgment that is ordinarily given considerable deference. C. Departures 1. Grounds for Downward Departures i. Congress authorized judges to depart upward or downward if there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines that should result in a sentence different from that described. 2. Koon v. United States i. Case arose out of Rodney King beating. ii. District Court departed downward eight levels. iii. District Court cited four factors a. Particularly likely to be targets of abuse in prison; b. They face job-termination proceedings and will never have jobs in law enforcement;

White Collar Crime Outline Spring 2004 - Podgor Page 55 of 56 c. Significantly burdened by having been subjected to successive state and federal prosecutions; d. They were not violent, dangerous, or likely to engage in future criminal conduct. iv. Court of Appeals rejected the departure. v. Forbidden factors for departures under Guidelines a. Race, sex, religion, etc. vi. Encouraged factors for departures under Guidelines a. Diminished capacity, mental disability, etc. vii. Rule a. A federal courts examination of whether a factor can ever be an appropriate basis for departure is limited to determining whether the Commission has proscribed, as a categorical matter, consideration of the factor. If the answer to the question is no, the sentencing court must determine whether the factor, as occurring in the particular circumstances, takes the case outside the heartland of the particular Guideline. viii. Court indicates that abuse in prison and successive prosecutions were OK to be considered for downward departures. 3. United States v. Crouse i. Crouse was convicted of shipment and sale of adulterated orange juice. ii. District Court based downward departure on several factors a. Crouses record of community service; b. Desire to achieve proportionality in sentencing among Crouse and co-conspirators; c. Extensive adverse publicity and business losses that Crouse suffered as a result of his conviction. iii. Rule a. If Guideline already takes a factor into account, it cannot be used for downward departure. 4. Standard of Review i. Appellate courts review district court decisions de novo in terms of applying Guidelines to the facts in a particular case. ii. Abuse of discretion is still used for district courts factual determination. 5. Further Limitations on Downward Departures i. Departure After Remand ii. Limiting New Ground for Downward Departures iii. Permissible Grounds for Departure iv. Revising the Guidelines D. Substantial Assistance 1. Only party that can make a motion for substantial assistance downward departure is the government. 2. Government has power to make motion, NOT a duty to make it.

White Collar Crime Outline Spring 2004 - Podgor Page 56 of 56 3. United States v. Alegria i. Defendant was convicted of several white collar offenses and was upset because government did not fulfill agreement to move for substantial assistance departure. ii. Court indicates that, absent clear contractual agreement, government has discretion to move for downward departure. 4. Judicial Acceptance of the 5K1.1 Motion i. A sentencing court is not bound to accept the governments 5K1.1 motion for departure premised upon substantial assistance. ii. When a court considers the governments 5K1.1 motion, it must state clearly on the record its decision. iii. United States v. Torres 5. Reforming 5K1.1 i. American College of Trial Lawyers Report E. Plea Bargaining Agreements 1. Waiving the Right to Appeal a Guidelines Sentence i. In 1995, the U.S. Department of Justice began to insert provisions in plea bargain agreements requiring defendants to waive the right to appeal sentences imposed under the Guidelines. ii. Lower courts have generally upheld agreements with such provisions by applying basic contract law. a. Under ordinary circumstances, a knowing, voluntary, and intelligent waiver of the right to appeal from a sentence, contained in a plea agreement, ought to be enforced. F. Sentencing Corporations 1. Corporate sentencing works differently from sentencing of individuals. 2. Corporations can only be fined. 3. Determining Fine i. Start with Offense Level for Individual and find the fine in 8C2.4 (p. 337 in Supplement) ii. Calculate Culpability Score (p. 340 in Supplement) a. a. Corporation starts with 5 points b. b. Involvement in or Tolerance of Criminal Activity c. c. Prior History d. d. Violation of an Order e. e. Obstruction of Justice f. f. Effective Program to Prevent and Detect Violations of Law g. g. Self-Reporting, Cooperation, and Acceptance of Responsibility iii. Apply Minimum and Maximum Multipliers (p. 346 of Supplement) a. Multiply Minimum and Maximum by Fine above. iv. Court then determines the fine within that range using factors (p. 347 in Supplement).