White-collar crime is defined as a financially motivated,
nonviolent crime committed for illegal monetary gain. Although there has
been some debate as to what actually qualifies as a white-collar crime,
the term today generally encompasses a variety of nonviolent crimes
usually committed in commercial situations. Many white-collar crimes are
especially difficult to prosecute due to complex transactions. Examples
include fraud, bribery, Ponzi schemes, insider trading, embezzlement,
cybercrime, copyright infringement, money laundering, identity theft,
and forgery.
According to the Federal Bureau of Investigation, white-collar crime is
estimated to cost the United States more than $300 billion annually.
Although typically the government charges individuals for white-collar
crimes, the government has the power to sanction corporations as well
for these offenses. The penalties for white-collar offenses may include
fines, forfeitures, restitution and imprisonment. However, sanctions can
be lessened if the defendant takes responsibility for the crime and
assists the authorities in their investigation. Any defenses available
to non-white-collar defendants in criminal court are also available to
those accused of white-collar crimes. A common refrain of individuals or
organizations facing white-collar criminal charges is the defense of
entrapment.
The activities that constitute white-collar criminal offenses may be covered by both state and federal legislation; the Commerce Clause of the U.S. Constitution
gives the federal government the authority to regulate white-collar
crime, and a number of federal agencies including the FBI, the IRS, U.S.
Customs and the Securities and Exchange Commission all participate in
the enforcement of federal white-collar crime legislation. In addition,
most states employ their own agencies to enforce white-collar crime laws
at the state level.
To combat white-collar crime, the U.S. Congress passed a wave of laws and statutes in the 1970s and 80s. The Racketeer Influence and Corrupt Organizations Act (RICO),
originally associated with organized crime, was also applied to
white-collar crime. Under RICO, racketeering now includes embezzlement
from union funds, bribery and mail fraud. RICO has made it easier to
prosecute organizations and seize assets related to corruption, as well
as allowing states or people to sue perpetrators for up to three times
the amount of damages.
Since the United States tightened its federal sentencing guidelines,
white collar criminals now face longer sentences with less opportunity
for early release. Opponents argue that white-collar crime punishment is
too harsh, considering that white collar criminals tend to be
first-time offenders.
Any criminal activity that involved the United States mail or
electronic/digital communications is considered Mail or Wire Fraud. This
includes the use of mail, television, radio or the internet in order to
transmit false promises or advertisements to the public. Penalties may
be up to $1,000,000 and 30 years in prison.
Mail fraud refers to any scheme which attempts to
unlawfully obtain money or valuables in which the postal system is
used at any point in the commission of a criminal offense. Mail
fraud is a legal concept in the United States Code which can provide
for increased penalty of any criminally fraudulent activity if it
is determined that the activity involved used the United States Postal
Service. This statute is often used
as a basis for a separate federal prosecution of what would
otherwise have been only a violation of a state law. Prosecution
under the mail fraud statute must prove beyond a reasonable
doubt:
That the statement is false;
That it was made with the intention it should be relied on;
That it was made for the purpose of securing money or property;
That the statement was delivered by mail;
That money or property was obtained by means of the false statement.
Wire fraud provides for
enhanced penalty of any criminally fraudulent activity if it is
determined that the activity involved electronic communications of
any kind, at any phase of the event. As in the case of mail fraud,
this statute is often used as a basis for a separate federal
prosecution of what would otherwise have been only a violation of a
state law.
The crime of wire fraud is codified at 18 U.S.C. § 1343, and reads as follows:
"Whoever, having devised or intending to devise any
scheme or artifice to defraud, or for obtaining money or property by
means of false or fraudulent pretenses, representations, or
promises, transmits or causes to be transmitted by means of wire,
radio, or television communication in interstate or foreign
commerce, any writings, signs, signals, pictures, or sounds for the
purpose of executing such scheme or artifice, shall be fined under
this title or imprisoned not more than 20 years, or both. If the
violation affects a financial institution, such person shall be
fined not more than $1,000,000 or imprisoned not more than 30 years,
or both."
It is important to note that a victim does not need to actually be
deprived of property or deceived for a conviction under the mail fraud
or wire fraud statutes. The intent to deprive a victim of property is
enough to convict. It also generally does not matter if the property in
question is tangible or intangible: it can be enough to convict
someone who intends to deprive a victim of their intangible right to
control their assets. Each separate use of wire communication or the
mail in furtherance of a scheme generally constitutes a separate
offense.
In 1973 America was gripped by the Watergate scandal,
one of the largest and most infamous in the Nation's history. Beginning
with the arrest of five men for breaking and entering into the
Democratic National Committee (DNC) headquarters at the Watergate
complex on June 17, 1972, it would ultimately result in the trials and
convictions of dozens of President Richard Nixon's top administration
officials and the resignation of Nixon himself.
In February 1973 the Senate created the Select Committee on Presidential Campaign Activities (Resolution S.60)
to investigate Watergate and other Nixon campaign abuses, and in May
Special Prosecutor (Archibald Cox) was sworn in by the U.S. Department
of Justice to direct the investigation.
During the course of their work, the Office of the Special Prosecutor
charged several corporations and CEOs with using corporate funds for
illegal political contributions. The U.S. Securities and Exchange Commission
(SEC) soon recognized the significance to public investors, and their
own subsequent inquiry revealed falsifications of corporate financial
records as well as secret “slush funds” being used for illegal foreign
payments and other purposes.
The SEC eventually exposed further corporate abuses ranging from the
outright bribery of high foreign officials to so-called "facilitating
payments" made to government functionaries for certain ministerial or
clerical duties. Major examples included officials of the Lockheed Aerospace Company
paying over $14 million in bribes to various foreign officials in the
process of negotiating the sale of aircraft, and the "Bananagate"
scandal in which Chiquita Brands paid over $2.5 million in bribes
to the President of Honduras to lower taxes on banana exports.
By the culmination of the SEC investigation, over 400 U.S. companies had
admitted making questionable or illegal payments in excess of $300
million to foreign government officials, politicians and political
parties.
Originally the SEC wasn't directly concerned with the legal implications
of bribery: the international business climate of the time had seen
such payments as a necessity in order to remain competitive in a rapidly
growing corporate environment. Rather, the specific concerns of the SEC
were directed at the nondisclosure of such massive payments to
investors; the hidden "slush funds" clearly undermined the integrity and
reliability of corporate books and records, and the very foundation of
the disclosure system established by federal securities laws.
Congress, however, was seriously concerned with the implications these payments had on U.S. foreign policy. The 1975 Senate Select Committee to Study Governmental Operations with Respect to Intelligence Activities,
chaired by Senator Frank Church, had been conducting their own
investigation and in a series of hearings that year outlined the
involvement of various government organizations including the FBI and
CIA. And beyond issues of foreign policy, a "post-Watergate morality"
was rapidly coming into play, causing concerns over international
perceptions of the U.S. economic stability and the Nation's position as a
global leader.
Between June 1975 and September 1977 approximately twenty bills were
introduced to address the issue of foreign corporate payments: in March
1976 President Gerald Ford issued a memorandum to various federal
agencies establishing a “Task Force on Questionable Corporate Payments
Abroad”.
Finally, after more than two years of deliberation, Congress passed the
first law in the world governing domestic business conduct with foreign
government officials in foreign markets.
The Foreign Corrupt Practices Act of 1977 (15 U.S.C. §§ 78dd-1)
was signed into law by President Jimmy Carter on December 19, 1977 with
the intended purpose of ending corporate bribery of foreign officials,
and the restoration of public confidence in the American business
system.
It was amended in 1998 by the International Anti-Bribery Act of 1998 to implement the anti-bribery conventions of the Organization for Economic Co-operation and Development.
Actions:
The Foreign Corrupt Practices Act (FCPA) essentially addresses a) accounting transparency requirements under the Securities Exchange Act of 1934 and b) the bribery of foreign officials by persons connected to the United States, including:
U.S. businesses
• Foreign corporations trading securities in the United States
American nationals or citizens
Residents acting in furtherance of a foreign corrupt practice whether or not they are physically present in the United States
Foreign natural and legal persons in the United States at the time of the corrupt conduct
Foreign firms and/or persons who take any act in furtherance of such a corrupt payment while in the United States.
Regarding accounting transparency, 15 U.S.C. § 78m
requires companies with securities listed in the United States to meet
specific accounting practices intended to operate in tandem with the
FCPA anti-bribery provisions. Corporations covered by these provisions
are required to keep books and records that accurately reflect
transactions and to maintain adequate internal accounting controls.
The anti-bribery provisions of the FCPA are not restricted to
monetary exchanges (the focus is on the intent of bribery rather than
the amount), and may include anything of value given to a foreign
official for the purpose of obtaining, retaining or directing business
to any person or company covered by the law.
Specifically, the anti-bribery provisions of the FCPA prohibit:
"...the willful use of the mails or any means of instrumentality of
interstate commerce corruptly in furtherance of any offer, payment,
promise to pay, or authorization of the payment of money or anything of
value to any person, while knowing that all or a portion of such money
or thing of value will be offered, given or promised, directly or
indirectly, to a foreign official to influence the foreign official in
his or her official capacity, induce the foreign official to do or omit
to do an act in violation of his or her lawful duty, or to secure any
improper advantage in order to assist in obtaining or retaining business
for or with, or directing business to, any person."
The definition of "foreign official" is broad; examples may include
doctors at government-owned or managed hospitals or anyone working for a
government managed institution. Employees of international
organizations such as the United Nations are also considered to be
foreign officials under the FCPA.
The Act also governs payments to any recipient if any part of the bribe
is ultimately attributable to a foreign official, candidate, or party.
It does draw a distinction between "bribery" and "facilitation"
payments, which are made to an official to expedite performance of the
duties they are already bound to perform. Payments may also be
legal if they are permitted under the written laws of the host country,
or if they relate to product promotion.
Penalties:
The U.S. Department of Justice is chief enforcement agency for the FICA, with the Securities and Exchange Commission (SEC) acting in a coordinating role. DOJ involvement in an FCPA matter is guided by the Principles of Federal Prosecution in the case of individuals, and the Principles of Federal Prosecution of Business Organizations in the case of companies. Generally, the following circumstances may trigger an FCPA investigation:
Unusually large commissions, retainers or fees
Refusal to make FCPA-related representations
Unusual methods of payments
Promises of business by or from a government official
Family or business relationships with a government official
Payments of unusual contingent fees
Political contributions
Penalties for corporations and other business entities found in
violation of the FCPA may include fines of up to $2 million; individual
directors, officers, stockholders, employees and agents can be subject
to fines of up to $100,000 and imprisonment for up to five years,
although individuals are only subject to the FCPA’s criminal penalties
for violations if they acted “willfully". These fines are imposed per
occurrence, and individuals fined for violations of the Act may not be
indemnified by their employer.
Both companies and individuals can also be held civilly liable for
aiding and abetting FCPA anti-bribery violations if they knowingly or
recklessly provide substantial assistance to a violator. The attorney
general or the SEC may bring a civil action for violation of the FCPA,
resulting in fines of up to $10,000 per violation against any firm, its
directors, officers, employees, agents and stockholders. In addition,
the SEC may seek to impose fines not to exceed (1) the gross amount of
the pecuniary gain to the defendant as a result of the violation, or (2)
an amount of up to $100,000 for individuals and $500,000 for business
entities.
Under federal law, individuals or companies that aid or abet an FCPA
violation are as guilty as if they had directly committed the offense
themselves.
Defense:
The FCPA contains an exception for "facilitating payments" for "routine
governmental action," (also known as "grease" payments) intended as a
defense for payments, gifts or tips made in facilitation of
non-discretionary acts of lower-level officials as long as they have no discretion to award business to the party making the payment.
If a defendant can assert that a payment was legal under the laws of
the foreign country in which the payment was made, or that a payment was
a reasonable expenditure directly related to promotion, demonstration,
or explanation of products or services this may also be used as an
affirmative defense.
Enforcing anti-corruption laws has become a major focus of law
enforcement and regulatory authorities in the U.S. and other nations. Parnham and McWilliams
represents clients in FCPA internal investigations, government
enforcement and regulatory actions, and other international white-collar
defense matters. For more information visit whitecollarfraudattorney.com or call (713) 224-3967 for a free consultation.
Tax fraud (or tax evasion) is the general term for
efforts by individuals, firms, trusts and other entities to evade
taxes by illegal means. Tax evasion usually entails taxpayers
deliberately misrepresenting or concealing the true state of their
affairs to the tax authorities to reduce their tax liability, and
includes, in particular, dishonest tax reporting (such as declaring
less income, profits or gains than actually earned; or overstating
deductions).
In the United States "tax evasion" is evading the assessment or payment of a tax that is already legally owed at the time of the criminal conduct.
Tax evasion is criminal, and has no effect on the amount of tax
actually owed, although it may give rise to substantial monetary
penalties.
In the case of U.S. Federal income taxes, civil penalties for willful
failure to timely file returns and willful failure to timely pay taxes
are based on the amount of tax due; thus, if no tax is owed, no
penalties are due. The civil penalty for willful failure to timely
file a return is generally equal to 5.0% of the amount of tax
"required to be shown on the return per month, up to a maximum of
25%. By contrast, the civil penalty for willful failure to timely
pay the tax actually "shown on the return" is generally equal to
0.5% of such tax due per month, up to a maximum of 25%. The two
penalties are computed together in a relatively complex algorithm,
and computing the actual penalties due is somewhat challenging.
Bank fraud is a federal criminal offense that involves any scheme to
obtain money, assets or other property that is owned or in the control
of a financial institution by fraudulent means. Defrauding any
institution insured by the federal government is an offense which is
taken very seriously.
One of the most common frauds against financial institution involves
loan or mortgage applications. During the last decade many
representatives of bank
and mortgage companies are reported to have surreptitiously encouraged
individuals and
businesses to misrepresent their income or other information on mortgage
applications: if these borrowers don't make their payments the bank's
financial departments will look for misrepresentations and if they find
anything they will often
turn the case over to the feds for prosecution. In essence, the banks
and mortgage lenders are trying to use the government to collect on bad
loans they encouraged people to take in the first place.
Bank fraud is also sometimes perpetrated an employee; this constitutes embezzlement, in
which a person entrusted with funds or bank property appropriates it for
his or her own use or benefit. For example, a bank employee may borrow funds during a
personal emergency and then attempt to replace the missing funds
undetected, a move that seldom works.
If you have been accused of bank fraud, your defense depends largely
on pre-trial research, the defense strategies employed by your attorney
and the motivations of the prosecution. While banks may be eager to press charges in these cases, they are generally more
interested in recovering the missing funds. In many cases it may be
possible to reach a financial settlement that can minimize or avoid
entirely prison time.
Insider trading is the trading of a public company's stock or
other securities (such as bonds or stock options) by individuals with
access to non-public information about the company. "Corporate
insiders" are defined as a company's officers, directors or
any beneficial owners of more than 10% of a class of the company's
equity securities. By accepting employment these insiders have
undertaken the legal obligation to put the shareholders' interests
before their own in
matters related to the corporation. This means that any trades in the
company's own stock made by these insiders, if based on material non-public information, are
considered fraudulent since the insiders are violating the
fiduciary duty that they owe to the shareholders.
In addition, this duty may be
imputed; for example, when a
corporate insider "tips" a friend about non-public information likely to
have an effect on the company's share price, the duty that insider owes
the company may now be imputed to their friend. When allegations of a
potential inside deal occur, all parties that may have been involved are
at risk of being found guilty.
The Securities and Exchange Commission prosecutes over 50 cases of
Insider Trading each year, with many being settled administratively out
of court. The SEC and several stock exchanges
actively monitor trading and can refer serious
matters to the U.S. Attorney's Office for further investigation and
prosecution.
US insider trading prohibitions are based on English and American common
law prohibitions against fraud: as early as 1909 the United States Supreme Court ruled that a
corporate director who bought company stock knowing it was
about to jump in price committed fraud by not disclosing
his inside information. The Securities Exchange Act of 1934
was enacted after the stock market crash of 1929 to prohibit
short-swing profits (from any purchases and sales within any six-month
period) made by corporate directors, officers, or stockholders and to
prohibit fraud related to securities trading. The Insider Trading
Sanctions Act of 1984 and the Insider Trading and Securities Fraud
Enforcement Act of 1988 provide for penalties as high as three times the
profit gained or the loss avoided from the illegal trading.
While the Sarbanes-Oxley Act of 2002 enacted post-Enron reforms, accounting fraud is still rampant
in both public and private operations alike. In 2010 the executives at Lehman Bros. were accused of fraud, and
the actions of Ponzi schemer Bernard Madoff were widely publicized.
Healthcare South shareholders plan to finalize a settlement agreement in
July 2010 against accounting firm Ernst & Young
and Swiss bank, UBS AG, seeking restitution for their part in a
multi-billion dollar accounting fraud scandal.
Allegations of accounting fraud may cause serious damage to the
reputation of any corporation or business. The majority of accounting
fraud investigations stem from
authorities pursuing a case where there is suspicion of corporate fraud
and there are signs indicating
that evidence of falsified statements, documents, and or transactions
exist. In many cases, federal prosecutors and investigators are
involved when someone is suspected of accounting fraud. In these cases
the federal prosecution often casts a wide net, bringing charges against
persons who may not have had any prior knowledge of the deception.
The accounting practices of smaller businesses in regulated
industries are also scrutinized in a manner once reserved for public
companies. What were once viewed as honest, innocent accounting errors
can be lumped into an overly aggressive investigation by prosecutors and
regulators and pursued as a potential violation of the criminal law.
These sorts of investigations often turn upon very specific and
technical accounting practices and decisions. If you are under
investigation for allegations of deceptive accounting methods it is
important to hire a white collar criminal defense attorney who
is experienced in these complex cases.
