Download - [White Collar Crime] [Moohr] [Outline] [Fall 2001] [McCormick]

White Collar Crime - Prof. Moohr Tracey McCormick - Fall 2001

Four part analysis of WCC cases:1. What is the lie?2. Who is the liar(s)?3. Who did they lie to/who was hurt?4. What was stolen/what were the damages?

White collar crime similarities: lack of physical harm, lack of force use of trust and deceit – fraud requires a lie pecuniary often done in the course of business or occupation often involves a technical skill often involves a breach of fiduciary duty victims not always sympathetic crimes are planned/calculated, so you’d think they could be deterred

Federal Jurisdiction Federal criminal code has no general theft or fraud statutes

o A theft must be charged as extortion, mail fraud, etc. Must include a jurisdictional hook to make something a federal offense 3 types of federal criminal statutes

o an act that involves an instrumentality of interstate commerceo an act that is in an interstate commerce channelo laws that affect interstate commerce

I. TRADITIONAL WHITE COLLAR CRIMES

A. Mail & Wire Fraud – 18 USC §§ 1341, 1343, 1346

Fraud – obtaining money or property through a trick, deceit or misrepresentation Criminal Fraud:

o Must be an affirmative misrepresentationo Need no actual damages

Civil Fraud Elements:o Misrepresentation of material fact

1. Can be a half-truth, or 2. an omission, IF: it creates an impression, or there is a fiduciary relationship

o Intent – can be reckless intento Requires actual damages & reliance by the victim

Mail Fraud Act § 1341 – passed in 1872 The oldest – post Civil War - part of Post Office reform Congress has no power to simply prohibit fraud, so

o used power to have a post office & the necessary and proper clause to protect mailsWire Fraud Act § 1342 – passed in 1952

Interpreted the same as Mail Fraud Act § 1341 Δ must have used a connection that crossed a state line Courts have said this covers telephone, fax, Internet (on phone lines)

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Honest Services Fraud § 1346 – passed in Extends what may be defrauded – not just property Includes depriving another of the intangible right of honest services Can only be found where there is a fiduciary duty

Elements of Mail & Wire Fraud Use of the mail (or a private carrier) A scheme to defraud, or engaging in false pretenses

o Defraud is depriving another of property (includes the right to honest services) IntentMailing or wire –

o Mailing is just a jurisdictional hook to create a federal offenseo “Knowing” requirement - need only be reasonable foreseeable

o Δ need not intend that anyone mail the letter o Mailing “for the purpose of executing” scheme

o Can occur after Δ has the moneyo Cover-up is part of “overall” scheme to defraud

o Mailing need not be fraudulento Mailing need only be incidental to an essential part of the schemeo Δ need not mail the letter - could be by a subordinate or even a 3rd partyo Some case law– legally required mailings not included

o This was diluted – must be innocent – have no deceitful statements.Scheme to defraud – the actus reus

o Deception or planned deception - 3 ways to deceive statement (affirmative) conduct (affirmative) failure to disclose – w/§1346 violation – only when a fiduciary duty

5th Circuit in Brumley says must look to state law to see if honest services were owed

other circuits, state law can establish a duty, but duty may still be established without state law

o Deception must be about a material fact – induced victim to make decisiono To obtain $ or property (courts split over whether intangible = property)o §1346 defines “the intangible right of honest services” as property

Intent – criminal = specific intent to defraudo Acting with purpose to deprive someone of money or property

even if the fraud has been completed (covering up can be part of scheme) Inchoate - prosecution does not have to prove the fraud occurred, only intent

o High standard from 2nd Circuit – 11th says only general intent to deceive neededo Jury can infer specific intent from the circumstances

Ω - Pereira – held that mailing need not be an essential part of the scheme – need only be incidental to an essential part of the scheme

Guy marries widow, says he is an investor in oil, hotels - takes off with her $ and Cadillac Mailing - Wife’s check was mailed from the presenting bank to the paying bank

o Mailing check was incidental to collecting money (the essential part of scheme)o Intent to mail satisfied by reasonable foreseeability that bank would mail check

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Ω - Sampson – held that mailing can occur after crime has reached fruition – cover-up is part of the overall scheme to defraud

Corporation, its officers & employees took fees to secure loans they never intended to get Mailing – after getting fees, Δs mailed letters to victims assuring they would get loans Before Sampson, Kann and Parr held the mailing had to occur before fruition

Ω - Schmuck – affirmed Pereira & Sampson – mailing can be incidental to an essential part of scheme, can occur after crime has reached fruition – also, mailing need not be deceptive

Guy rolled back odometers, sold used cars to dealers, who sold to retail customer victims Mailing – after cars were sold, dealers mailed title applications to DOT Court – ongoing & continuous scheme could not have continued w/out mailing

Ω - Brown – held reliance is not an element of criminal fraud – no scheme to defraud if the representation is about something the customer could easily confirm

Florida developer used false appraisals to sell 2nd homes to snowbelt buyers for high prices Court – puffery is not fraud – reasonable buyers would have checked the value Other circuits disagree with Brown – criminal liability should turn on scheme, not victims Moohr - false financing documents (the appraisals) are probably more than puffery

Ω - Emery – Posner holds that an omission or half-truth is actionable as fraud - also differs from Brown because he thinks there is a higher duty to “gullible” victims

Emery sues finance co. for RICO damages – predicate crime is mail fraud Mailing – Finance co. sends borrower offer for loan, but intends to “flip” original loan Remanded to determine finance co.’s intent (Δ’s employees’ state of mind)

Ω - D’Amato – 2nd Circuit held intent to deceive is not enough – must have specific intent to defraud, which is specific intent to cause a result

Unisys hired senator’s brother to get senator’s ear, but paid him for reports D’Amato not guilty of fraud b/c no specific intent to harm Unisys

o Evidence is that he did exactly what they wanted him to do Lie is the deceit (general intent), causing harm is the defraud (need specific intent) Inchoate, so gov’t need not show actual harm, only intent

o But actual harm is evidence of intent 11th Circuit uses lower (general intent) standard – equates deceit with the defraud Moohr – 2nd Circuit uses correct standard

Ω - George – 1973 – held that a party can be defrauded of the right to honest services when there is a fiduciary relationship

Zenith buyer Yonan took kickbacks from supplier that would have gotten contract anyway First, Yonan held himself out to be a loyal employee, but did not give his honest services Second, Yonan did not disclose that supplier would have taken less profit (kickback $)

Ω - McNally – 1987 – held mail fraud does not cover losses of intangible rights, such as the right to honest and faithful services

Public officials took kickbacks for insurance contracts There was no property loss, because gov’t would have paid anyone the same $ § 1346 now covers honest services, but courts are split on other intangibles

Ω - Brumley – 5th Circuit held that §1346 “services” must be services owed under state law, AND that the gov’t must prove in a federal prosecution that the services were in fact not delivered

Associate Director of Texas WCC “borrowed” $ from attorneys who appeared before himo Brumley did not give those attorneys more $, but did give them favoritism

Δ argued that McNally limited mail fraud to tangible propertyo Court – §1346 overturned McNally with respect to the right to honest services

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Δ argued that §1346 “another” (victim) should be defined by “whoever” (criminal), and since “whoever” has been held to not include the gov’t, a state can never be a victimo Court - it does not make sense to define the victims by the definition of the perpetrator

B. Conspiracy – 18 USC §371

2 Kinds of Conspiracy:

1. To commit a crime against the United States (federal crime)2. To defraud the United States (or any agency of the U.S.)

Conspiracy Elements:

Agreement between 2 or more persons to commit a wrongful (civil) or illegal (criminal) act

Agreement may be tacit Mental actus reus may be difficult to prove – courts have allowed juries to infer agreement §371 – target offense = offense against the United States , or defraud of the United States

o Offense need not be a crime – can be violation of executive order or act of Congresso Defraud need not be a crime – can be a lie that results in obstructing a gov’t function

Intent to commit the wrongful or illegal act (target offense) Intent is that of the target offense Knowledge may be inferred when Δ acts in furtherance of the conspiracy

One overt act committed by one co-conspirator is in furtherance of the conspiracy Some federal crimes’ (Hobbs, RICO) conspiracy provisions that don’t require overt act

Conspiracy is valuable prosecutor tool because once conspiracy is proven, the FRE allow co-conspirator statements that would otherwise be hearsay to prove other crimes

Ω - Brown – If Δ acts in furtherance of the conspiracy, a jury may infer knowledge Attorney helped clients hide assets from bankruptcy court: drafted quitclaim deed, burned files Offense against the United States is defrauding the bankruptcy court Δ need not have knowledge of all the details of the conspiracy

Ω - Morrow – held that a Δ must have knowledge of the conspiracy’s multiplicity of objectives before he can be convicted of a multiple-crime conspiracy

Group of guys traded cars, made documents to show false prices & accidents for insurance $ If a Δ agrees with others to commit a single crime, but has no knowledge of the conspiracy’s

broader scope, that Δ is a member only of the narrower, one-crime conspiracy Although no single conspiracy included both M & N, each was guilty of separate conspiracy M & N argued it was prejudicial to allow co-conspirator statements against them from

conspiracies they were not involved in – Court agreed, but found harmlessΩ - Arch Trading – held that “offense” includes not only crimes, but also violation of executive

orders, and “defraud” includes a lie that results in obstructing a gov’t function Arch violated Bush’s executive order prohibiting travel to Iraq and dealing with Iraq gov’t

o Arch execs went to Iraq to to install virology & bacteriology equipment per contracto They then lied about dates to make it seem the trip was before the executive order

Arch argued that violation of executive order is not an “offense against the United States” Although not a crime, violation of an executive order constitutes a §371 “offense” Also, “defraud” includes a lie that results in obstructing a gov’t function

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II. PUBLIC CORRUPTION

A. Bribery and Gratuity – 18 USC §201; Federal Program Bribery – 18 USC §666

§201 Bribery and Gratuity

Covers only federal officials (or person about to become one) – no jurisdictional hook needed Covers both briber and bribee Bribe – requires quid pro quo - $ in return for – an official act

o “corruptly gives/receives” is high intent - purposeful Gratuity – thank you - $ because of – an official act

o Can be given before or after the official act “Official act” is defined in §(a) as “any decision or action on any question, matter, cause, suit,

proceeding or controversy . . .” that the public official may decide upon in his official capacity. “Anything of value” is more broad than property – could be a job or services

Ω - Sun Diamond – held that gov’t must prove a link between a thing of value conferred upon a federal official and a specific “official act” for or because of which it was given

Growers’ cooperative gave U.S. Open tickets & other gifts to Sec. of Agriculture Espy Indictment did not allege a specific connection between alleged desired acts and gifts Jury charged that conviction did not require such a connection – charged it was sufficient that:

o Sun Diamond provided things of value to Espy because of his position Court – plain language of statute requires the gifts be given “for or because of any official act”

§666 Federal Program Bribery Enacted in 1984 to fill a gap in the Federal bribery statute (§201).

o §201 limited to federal officialso §666 covers any agent of an agency receiving federal $

Punishes the briber and the bribee – inconsistent verdicts are common Jurisdictional hook - spending power, not commerce clause power Includes a theft provision $5,000 minimum bribe

o “Anything of value” is more broad than property – could be a job or services “Value” may be subjective or objective – statute is unclear

$10,000 federal funding requirement - the agency must receiveo since most gov’t gets federal $, this is almost a general bribery statute

What connection must exist between the bribery and the funds?o 6th Circuit – No connectiono Salinas (USSC) - No particular connectiono Zwick (3rd Circuit) – Some federal interesto Direct interest – not the standard

Ω - Salinas – held that §666 bribe need not affect federal funds, but did not answer whether a connection is required between the bribe and the federal funds

County jail guard took a pickup truck & 2 watches to let convict have conjugal visitso Federal funding included a grant to improve jail & daily $ for each federal prisoner

Statute not limited to cases where the bribe has a demonstrated effect on federal fundso Need not consider whether a connection is required

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if so, there was enough connection here (bribe related to prisoner in facilities paid for in part by federal funds)

Ω - Zwick – held that the bribe must have some connection with the federal interest involved (funded) Town commissioner/gambling addict took $ for granting permits and landscaping contracts

o Federal funds were for soil removal – snow erosiono Zwick’s bribes were for things unrelated to the soil removal

§666 requires that federal interest is implicated by the corrupt conduct – 2 ways to show: o If the greater part of an agency’s budget came from federal funds, ORo If the offense conduct implicates a particular substantive federal interest

B. Extortion – Hobbs Act, 18 USC §1951

Extortion – the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right

Covers only the person who solicits the bribe (bribee, not bribor)o Anyone, not just federal officials

“Fear” element can be satisfied by putting the victim in fear of economic losso Fear of economic loss is considered from the victim’s point of view

Proof must establish that the victim reasonably believed that: The Δ had the power to harm the victim, AND The Δ would use the power to the victim’s detriment

“Under color of official right” – campaign contributionso Gov’t must show quid pro quo

Payment in exchange for a specific exercise of official powero Need not show Δ induced the dealo Must show that Δ had actual, not constructive knowledge of quid pro quo

This can be established by showing mutual understanding of the parties

Ω - Capo – held that fear of economic loss requires that the victim feared the Δ would harm the victim’s prospects of getting the economic benefit (job, contract, etc.)

Several guys were selling temporary Kodak jobs for $500 - $1000 eacho Although Δs took $ for securing jobs, the victims did not believe that failure to pay

would damage their prospects of getting Kodak jobs through the normal channelsΩ - McCormick – held that quid pro quo is necessary to establish extortion of payments “under color

of official right” in the campaign contribution context W. Va. Congressman took campaign contributions from foreign doctors Court of Appeals said payments were not “legitimate campaign contributions”

o See 7 part test on page 510 Scalia dissent – “under color of official right” means asking for $ to do what the official’s

position already requiresΩ - Evans – extortion of payments “under color of official right” established even if a campaign

contribution when there is a quid pro quo – inducement not required, but actual knowledge is County commissioner took $ from undercover agent for re-zoning (agent solicited the deal)

C. Cover-up Crimes

1. Obstruction of Justice – 18 USC §§ 1503 & 1512

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§ 1503 omnibus clause elements: Need a proceeding Corruptly (motivated by an improper purpose)

o has to know about impending proceeding (actual knowledge)o because he must know his act will have “natural and probable effect” of obstructing justice

Endeavor to influence (inchoate) Due administration of justice

Ω - Aguilar – Judge Aguilar denied knowledge of wiretap to investigators Court finds Aguilar did not know his false statement would be provided to a grand jury

o A false statement to an investigator cannot be said to have the “natural and probable effect” of obstructing justice

2. False Statements – 18 USC §1001

§1001 False Statement elements:o statemento false, fictitious or fraudulento within jurisdiction of the USo materialityo knowingo willful

Includes all 3 branches of government Excludes judicial proceedings unless:

o Administrative matterso Investigation or review

Exculpatory denials of wrongdoing are false statements within §1001 “Knowingly” mens rea does not apply to the jurisdictional element

o Δ need not know that his statements are being made to the U.S. Government

Ω - Hubbard – A federal court is not a “department or agency of the U.S.” Hubbard made false statements in un-sworn bankruptcy proceeding papers Pre-revision of §1001 – limited “department or agency of the U.S.” to executive only

Ω - Brogan – held that §1001 covers false statements that consist of a mere denial of wrongdoing Union officer lied to federal investigator – said he had not received $ from JRD Management

o USSC abolished the “exculpatory no” doctrine Brogan’s false denial of his acts to federal investigator violated §1001

Ω - Yermian – held knowledge requirement does not apply to jurisdictional element – knowledge of gov’t involvement is not required

Guy lied on job application – admitted knowledge of lie, but denied actual knowledge that his statements would be transmitted to a federal agency

III.CIVIL VIOLATIONS AND CRIMINAL OFFENSES

A. RICO – 18 USC §§ 1961-68

Overview: Racketeer Influenced and Corrupt Organizations Act

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Congress passed to reach organized crime - has much been used against legitimate businesses Supreme Court has insisted upon broad interpretation Both criminal and civil provisions (civil may be brought by U.S. Attorney or private person(s)) Stiff penalties:

o Criminal violation: mandatory forfeiture & possible 20-year imprisonment and fineso Civil violation: treble damages & attorney fees

4 different offenses: §1962(a) – a person may not “use or invest” income derived from a PRA in an enterprise §1962(b) – a person may not acquire or maintain control of any enterprise through a PRA §1962(c) – most common offense – see elements below §1962(d) – a person may not conspire to do any of the acts in §§1961(a)-(c)

o Usual conspiracy elements & agreement must be to violate substantive RICO provisionElements of §1962(c) -

Person (Δ) employed by or associated with Enterprise Conducted/participated in conduct of enterprise Through pattern of racketeering activity *EXAM* always start with the PRA

“Enterprise”: 2 types of “enterprise”: 1) legal business entity (will always qualify as an “enterprise”)

2) association-in-fact (may be legal or illegal) Turkette factors:

1) There is an ongoing organization, formal or informalo there must be some sort of structure within the group for making decisions

2) The associates function as a continuing unit o can be shown by repeated commission of the same type of acts, even if actors change,

AND3) Enterprise is an “entity separate and apart from the pattern of activity in which it engages”

o Enterprise has an existence beyond that necessary merely to commit each predicate acto Minority of courts – enterprise need be no more than the sum of the predicate acts

Arg. against this view: enterprise element would be superfluous However, same evidence may be used to establish both enterprise and PRA

Enterprise must be distinct from the person named as the RICO Δo Δ’s involvement in the enterprise does not create an identity with the enterprise

“Pattern of Racketeering Activity”: At least 2 listed racketeering acts (though 2 may not be sufficient) Must occur within 10 years of each other Racketeering predicates must be related

o same or similar purposes, results, participants, victims or methods, ORo are otherwise interrelated by distinguishing characteristics, and are not isolated events

Predicates amount to/pose a threat of continued criminal activityo “Continuity” requirement may be met in 2 ways:

1) Closed: during a period of activity, a continuing threat existed More than a few weeks or months – courts say at least a year

2) Open: activity is presently continuing, or there is a threat of continuing activity

Threat can be found:1) by the open-ended nature of the bad acts, or

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3) the acts are part of an ongoing enterprise’s way of doing business“Conduct the Affairs of the Enterprise”

Person “must participate in the operation or management of the enterprise itself”o Applies to both civil and criminal RICO actionso Does not exclude lower-level participants or outsiders

Ω - United HealthCare – civil RICO case that goes through all the elements Benton ran UHC premiums through his 3 intermediary companies - $ never got to the final

insurance companies – UHC sued for civil RICO – Benton claims RICO elements not met Enterprise was the 3 companies – met 3 elements – also, Benton was not the enterprise Benton was associated with the enterprise as consultant or owner to each company Racketeering activities were mail & wire fraud – elements of these were met PRA – the mail & wire fraud was done for the same purpose (to get UHC’s $) and used the

same methods. Continuity was shown by the regularity of the activities over a lengthy periodEnterprise cases:Ω - Console – applied Turkette factors to establish the existence of an enterprise

Lawyers & doctors referred accident victims to each other & inflated insurance claims Proof of an ongoing organization: parties met & Console directed most activities Associates function as continuing unit: Δs & employees each performed roles to further fraud Entity separate from PRA: Δ coordinated multiple predicate acts & provided legit services Association-in-fact can be composed of legal as well as non-legal entities

Ω - Burdett – held that informal enterprise exists if structured and continuous (not ad hoc) Prof. Miller & friends got Ms. Burdett to invest in limited partnerships that later failed Miller plus 3 associates constituted an “association-in-fact” enterprise Defense argued enterprise not “separate & apart” because same individuals involved

o Burdett lost because complaint alleged wrong enterprise (Miller & accounting firm)PRA cases:Ω - H.J., Inc. – multiple acts cannot be condensed into a “single scheme” to preclude finding

existence of a PRA – proper inquiries are continuity and relationship of acts Customer class action - NW Bell bribed Minn. Public Utilities Commission to increase rates Court of Appeals had ruled that NW Bell’s acts constituted a single fraudulent scheme, and

that a single scheme was insufficient to establish a pattern of racketeering activity USSC said too narrow – RICO must be interpreted broadly PRA requires continuity plus relationship

Ω - Sawyer – held no PRA when RICO predicate acts are part of a single, otherwise lawful transaction PrimeTime Live broadcast that TV church did not make paid-for prayers Predicate acts = PrimeTime stole mail, transported computer disks interstate, wire fraud Court found church did not plead a continuity of racketeering activity, or its threat

Ω - Vild – applied relationship factors to find no PRA Vild contracted with Δs to exclusively sell their real-estate

o Alleged many predicate acts – M&W fraud, extortion, state law violations Court said Δs committed 2 types of conduct – some acts were directed at Vild, some at others Relationship element not met because the 2 types of conduct had dissimilar purposes, results,

victims, and methods – same participants was held irrelevantΩ - Uniroyal – held lack of multiple victims does not preclude finding of PRA

Saudi distributor MTC paid Uniroyal exec for confidential info & help with several schemeso Uniroyal paid MTC for non-existent refunds, billboards, bonuses on non-existent sales, etc.

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Several schemes here are not a single act: different and distinct injuries even if only 1 victim

Conduct the affairs of the enterprise case:Ω - Ernst & Young – held that to meet the “conduct the affairs of the enterprise” element, “one must

participate in the operation or management of the enterprise itself” Accounting firm E&Y omitted information about co-op’s insolvency on condensed financial

statements (full financials did not omit) E&Y only prepared financial statements based on management’s information - did not

participate in the operation or management of the enterprise itselfCivil RICO - § 1964

Gives civil plaintiffs a cause of action to recover for damages caused by a RICO injury §1964(c) – Elements of Civil RICO

o Any persono Injured (in business or property – physical injuries not included)o By reason of “violating §1962”o May sue for treble damages, costs & attorney fees

4 year statute of limitations The injury need not be a “racketeering injury” – may be from a predicate act Criminal conviction of predicate acts not required, but

o will be collateral estoppel in a civil RICO action

Ω - Sedima – held that civil RICO requires neither a previous criminal conviction, nor a racketeering injury

Imrex was supposed to share deal profits, but understated profits to cheat Sedima Lower courts said injury must be different from direct injury resulting from predicate acts

o USSC held that damages occurring by reason of a §1962 violation will flow from the commission of the predicate acts

Lower courts said requirement of RICO “violation” not met without prior criminal convictiono USSC said “violation” does not imply conviction – refers to a failure to adhere to the law

USSC said lower courts’ holdings would handicap potential plaintiffs – RICO is broad Marshall dissent argues against “private attorneys general” – federalism implicated

B. False Claims and Qui Tam Actions – 18 USC §287; 31 USC §3729-33

3 kinds of actions:1) Criminal2) Civil - Brought by the DOJ3) Civil - brought by private relator - Qui Tam action

§ 287 False Claims Act

§287 False Claims elements:o Claimo False, fictitious or fraudulento Upon the U.S.o Knowing (no willful requirement)

§1001 False Statement (also used to prosecute false claims) elements:o Statement (can be an omission if there is a duty to disclose)o False, fictitious or fraudulent

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o Within jurisdiction of the USo Materiality (statement material if it has a natural tendency or is capable of inducing action)o Knowing & willful

Ω - Irwin – held that: 1) an omission can be a false statement – there must be a duty to disclose; and 2) a falsification is material if it “has a natural tendency or is capable of inducing action”

Grant writer becomes city manager & takes kickbacks on industrial park contractso Submitted federal grant applications - omitted the $ he was getting from contractor

Δ wanted jury instruction that a statement is material if it is capable of inducing payment, or of influencing a determination or decision to be made.o Court said jury charge substituting “action” for “payment” was not in error

Omission = false statement if duty to disclose: gov’t didn’t plead omission so didn’t show dutyΩ - Siddiqi – we just skimmed the case

Oncologist prosecuted for § 287 false claims & Medicare fraud – he billed for services performed while out of the country, but had arranged for another doctor to supervise

§ 3729-33 False Claims & Qui Tam § 3729 – False claims

o Presents a false bill to the governmento Knowingly: 1) actual knowledge; 2) willful blindness; or 3) reckless disregardo Differs from §287 in burden of proof

§3729 is preponderance standard §287 is reasonable doubt

o Civil penalty = treble damages plus $5 to $10K fine § 3730 – Civil actions for violation of § 3729

o Brought by attorney general OR a relator (qui tam)o Purpose of qui tam is to provide incentive for people to come forward with informationo Relator is usually an employee/whistle-blower

§(h) gives extra damages if employer retaliateso Relator brings suit

Stays under seal for 60 days while gov’t decides whether to join If gov’t joins, qui tam plaintiff becomes an adjunct party

Relator still gets 15-20% of judgment (+ costs & attorney fees) If gov’t does not join, relator may proceed alone

Relator gets 25-30% of judgment (+ costs & attorney fees)o If relator planned & initiated the violation, his % of recovery is reduced

If criminal conviction for his role, he is dismissed from action – gets nothing

Jurisdictional Bar - §(e) No court will have jurisdiction “based upon public disclosure” of the info Reason for bar – qui tam goal is to get information – no need if already public

o Public Disclosure: 2d Cir – John Doe – standard is “public disclosure” even if relator brought info 4th Cir – Siller – standard is “based upon” – ask if the relator’s claim is based

upon facts publicly disclosed, or facts brought in by the relatoro Kind of “Public Disclosure:

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10th Cir - Ramseyer – actual public disclosure required (filed away ≠ disclosed) 3d Cir - Stinson – potential disclosure enough (discovery material = disclosed)

o Original Source Exception: 2d Cir – LILCO – original source:

1. has direct and independent knowledge of the information on which the allegations are based

2. has voluntarily provided such information to the gov’t before filing suit3. provided information that became the basis of the suit in the public

disclosure 4th Cir – more Siller – original source:

first 2 requirements only (statutory) no invented 3d requirement

o Government Employees: 1st Cir – Raytheon – gov’t employee may be relator, but not if:

information is discovered in his regular employment 11th Cir - Williams – no bar against gov’t employee as relator

Ω - Vermont Agency of Natural Resources – held that a state cannot be a qui tam Δ – states are sovereign, and may not be sued without their consent

Agency was overstating labor to increase federal grant $ - Employee filed qui tam as relator

IV. ENVIRONMENTAL CRIMES

4 major federal statutes: RCRA - Resource Conservation and Recovery Act - 42 USC § 6928

o Solid waste disposal CERCLA - Comprehensive Env. Response, Compensation and Liability Act – 42 USC § 9603

o Clean-up of abandoned hazardous waste sites CAA - Clean Air Act – 42 USC § 7413 CWA - Clean Water Act – 33 USC § 131933 USC §1319(c) provides criminal penalties for violations of other CWA sections

Intent: “Knowingly” requires only knowledge of conduct, not knowledge that conduct is illegal

o Mistake of fact (mistaken as to what the conduct actually is) ≠ knowing violationo Mistake of law (mistaken as to whether conduct is illegal) = knowing violation

CWA - § 1319(c)(3) - knowing endangerment provision:o Requires actual awareness or belief that he is placing another in imminent danger

Jury can infer actual knowledge from circumstantial evidence “Imminent danger” = danger that is a highly probable consequence of a discharge

o Risk analysis - balances: Risk of event happening Dangerousness of event if it did happen

Individual Criminal Liability:

CERCLA § 103 requires “a person in charge of a . . . facility” to notify the NRC immediately upon release of a hazardous substanceo This can be a relatively lower-level employee

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o The facility he is in charge of may be broadly definedo Goal – to make people in a position to detect, prevent &

abate release of hazardous substances accountable Responsible Corporate Officer Doctrine

o 3 elements:1. Officer of corporation – not just an employee2. Had direct responsibility to supervise the activities in question3. Must have known or believed that the illegal activity of the type alleged

occurredo Not appropriate when the mens rea is actual knowledge

Actual knowledge means knowledge of the specific instance of illegal activityo May only be used in strict liability cases

Ω - Weitzenhoff – held that “knowingly” requires only knowledge of conduct, not knowledge that conduct is illegal

Managers at a Honolulu sewage treatment plant pumped sewage into the ocean Δ - they did not know they were violating the terms of their permit Court – they still knew they were dumping - mistake of law does not negate “knowingly”

Ω - Ahmad – held that mistake of fact is not “knowing” violation Convenience store owner pumped 5000 gallons of gas into sewer Ahmad said he knew it was illegal to dump gas – thought he was dumping water Court – mens rea must be applied to every element - mistake of fact is not “knowingly”

Ω - Villegas – knowing endangerment requires actual awareness of imminent danger to another Guy dumped blood vials in a river CWA has “knowing endangerment” provision

o Δ had no actual knowledge that vials would be swept to sea, or people walked on rocksΩ - Carr – held that CERCLA §103 reaches even a person of low rank – who was in a position to

detect, prevent, and abate a release of hazardous substances b/c he was “in charge of a facility” Foreman had army base workers dump paint cans in a pit – knew illegal, he said cover w/dirt

o Defense: Carr was not “in charge of a facility” under CERCLA §103 Court said paint truck was a facility – Carr did not have to be “in charge of” the army base

Ω - MacDonald – held that the Responsible Corporate Officer Doctrine is not appropriate when mens rea is actual knowledge – may only be used in strict liability cases

Waste company was hired by chemical manufacturer to dispose of toluene waste (hazardous) M&W employees convicted of RCRA violation - knowingly transporting and causing

transportation of hazardous waste to a facility which did not have a permito Δ M&W employee Shadd signed K to remove contaminated soil and toluene

Shadd challenged “knowingly” – court held she signed K, so she knewo Δ Ritarossi supervised transportation of toluene to NIC dump property

Conviction affirmed – evidence of actual knowledgeo Δ D’Allesandro was M&W President

Conviction vacated – no evidence of actual knowledge M&W and NIC convicted of: 1) RCRA violation – knowingly treating, storing and disposing

of hazardous waste without a permit; 2) CERCLA §103 violation – failure to reporto Δ NIC leased property to M&W where toulene was dumped - no hazardous waste permit

Conviction vacated – may have been based on D’Allesandro’s vacated conviction

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D’Allesandro was also convicted under the Responsible Corporate Officer Doctrine in his capacity as M&W President for RCRA violation o Conviction vacated – RCRA requires actual knowledge – cannot come from agent liability

V. ASSIGNING CRIMINAL LIABIILITY

A. Corporate Liability

Vicarious Liability - holding someone responsible for the acts and mens rea of another

o Not a part of criminal law because criminal law punishes the choice to do a bad act Respondeat Superior - common law

o Federal standardo Elements – corporation will be held liable for the acts of its agents who:

Commit a crime Within the scope of employment/authority With the intent to benefit the corporation

This element has been almost read out of existence MPC – standard in many states

o Corporation only responsible for offenses by a high managerial agent High managerial agent = policy-maker

Problem – ostrich effect Collective Intent – used by some courts when one single agent has not broken the law

o Imputes the agents’ collective knowledge to the corporationo Significantly broadens corporate liability

Ω - Beneficial Finance – Mass. Supreme Court rejects MPC “high managerial agent” standard – adopts common law respondeat superior theory of liability

Employees of small loan companies bribed public officials Court adds 2 elements to common law respondeat superior:

o Conduct at issue must have been performed “on behalf of the corporation”o All elements of this standard must be proven “beyond a reasonable doubt”

B. Managerial Liability

Responsible Share Doctrine – from Dotterweich

Offense is committed by all who have a “responsible share” in furthering the criminal transactiono A manager will be liable for criminal sanctions even without mens reao Where grave public harm & low punishment, OK to hold manager liable to encourage care

Standard: the law requires some fault – not quite strict liability – can be an omission

Compliance Plan Directors have a duty to establish/maintain a corporate compliance plan

o Failure to do so may make director liable for losses

Ω - Park – applied responsible share doctrine to an omission – failure to prevent FDA violation CEO of grocery chain liable for rodent-infestation at 2 food warehouses

o Park received FDA letters advising of unsanitary conditions Δ – he delegated responsibility for correcting problem – did all he could

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Court seems to create an affirmative duty for management to seek out violations Court allows may be defense if: powerless or impossible to know of/correct violations

Ω - Caremark – held that directors have a duty to ensure that an adequate corporate information and reporting program exists, and that failure to do so may render a director liable for losses

Derivative suit against directors of health care provider that was found to be breaking rules regarding Medicare referral fees

Caremark had a compliance plan – made serious efforts to enforce guidelines - failed

VI. NEW WHITE COLLAR CRIMES

A. Money Laundering – includes both reporting and transportation violations

Reasons people want to hide money:o Protect from legal judgments or divorce property divisiono Tax evasiono Capital flight - move cash to a country with a more favorable economyo Hide securities law violationso Smuggling of contraband

3 steps in money laundering:o Placement – introducing cash into banking system or legitimate commerceo Layering – separating $ from criminal origins by transferring or getting cashiers’ checkso Integration – mixing the dirty $ with legitimate $, or lying about its origin

1. Reporting Statutes – 31 USC §§ 5313, 5324; 26 USC §60501

Not as widely used as the transportation statutes§ 5313 – requires domestic financial institutions to report cash transaction of $10,000 or more

Exemptions allowed for certain customers, but banks rarely use – more trouble than it’s worth§ 5322 – provides criminal penalties for “willful” violation of chapter§ 5324 – prohibits structuring financial transactions to evade reporting requirements

“Smurfing” is breaking up transactions into amounts under $10,000 to avoid reporting Also prohibits causing (or attempting to cause) a bank to:

Not file a required report, or File a false report

§(c) provides criminal penalty - mens rea satisfied here if actor knew about reporting requirement, but purposefully evaded it (avoids Ratzlaf problem)

§ 60501 – requires “all persons engaged in a trade or business” to report cash transactions over $10,000 this section has its own structuring provision – same as §5324 Gertner – attorneys made report, but did not disclose names/addresses of clients that paid cash

Ω - Ratzlaf – held that “willful” mens rea requires knowledge that the activity was illegal – later, Simon case held that actual knowledge may be inferred

Guy pays casino gambling debt with several cashiers’ checks under $10,000 after casino advises him of reporting requirements

Δ argued (and won) that even though Ratzlaf knew of the reporting requirement, he did not know that the structuring was illegal, and “willful” crime requires actual knowledge

No longer good law as to $ laundering - Congress amended § 5324 to add criminal penaltyo Still applies to regulatory offenses with a willful mens rea

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Forfeiture rules: Criminal – involvement of property must be proven beyond a reasonable doubt Civil – prosecutor need only show cause & only by a preponderance

Ω - Bajakajian – USSC found that $357,144 forfeiture violated the Excessive Fines Clause Guy tried to transport $357,144 out of the country - $ was taken in criminal forfeiture USSC found that forfeiture was grossly disproportionate to the crime

o Only crime was failure to report - $ was legally obtained, used for legal purposes

2. Transportation Statutes – 18 USC §§ 1956, 1957

Money laundering is called “the new RICO”o §1956(c)(7)gives “specified unlawful activity” list of predicate crimeso 20 year penalty is higher than most predicate crimeso Unlike RICO, does not require DOJ approval

§ 1956 – Elements:

Knowing that property came from any illegal activity, Conducts (or attempts to conduct) a financial transaction That involves the proceeds of specified (see list) unlawful activity, Either:

o § (a)(1)(A) – with the intent to promote a specified unlawful activity, ORo § (a)(1)(B) – knowing the transaction is designed to conceal (or violate IRS code)

Concealment – non-exclusive factors to consider: Defendant’s statements indicating intent to conceal, Unusual secrecy surrounding the transaction, Structuring the transaction to avoid attention, Commingling of illegal with legitimate funds, Highly irregular features of the transaction, Using 3rd parties to conceal the real owner’s identity, Series of unusual financial moves culminating in the transaction

o (Moohr thinks Congress wrote (A) to cover the criminal, and (B) to cover the bank) No minimum jurisdictional requirement Very strict penalties § (a)(2) – deals with international transportation §(a)(3) – still a crime when not really illegal proceeds, if represented as such by undercover agent

§ 1957 – Elements: Knowing that property came from any illegal activity, Engages (or attempts to engage) in a monetary (banking) transaction with that property

o Property must come from a specified unlawful activity, but Δ need not know this $10,000 minimum jurisdictional requirement

Ω - Jackson – spending illegal proceeds on lawful expenses satisfies “designed to conceal” element

Davis, an inner-city minister/crack dealer, deposited drug proceeds in legal church accounto He spent some $ on expenses to further drug business, and some $ on lawful expenses

Δ argued can’t prove because can’t trace drug $ to church accounto Court said no tracing required – commingled funds count – transaction need only involve

illegal proceeds – this was shown because deposits far exceeded church income

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Court - some payments did not violate §(a)(1)(A) - not used to promote the drug deals Court - all of the payments violated §(a)(1)(B) - designed to conceal the source of the funds Moohr – this holding is too broad - makes it a spending, not a laundering, violation

Ω - Sanders – held if party did not intend to conceal a transaction, it was not “designed to conceal” – intent can be proven by conspicuous use & no use of 3rd parties to hide identity

Sanderses bought 2 cars & put one in their daughter’s name – may have used heroin proceedso They conspicuously purchased cars themselves - didn’t use 3rd parties to hide their identity

Mrs. Sanders did not intend the transaction to conceal, so it was not “designed to conceal”

B. Computer Fraud and Abuse Act – 18 USC § 1030

CFAA prohibits 2 kinds of abuse: 1) Damage to a computer; or2) Using a computer as a tool to get something

o Another tool to prosecute theft of information§ (a)(2) – Using a computer to obtain information

o Intentionally accesses a (non-protected) computer,o Without authorization, OR exceeds authorized access, ANDo Thereby obtains:

Credit card/financial information, Information from any U.S. department or agency, OR Information from any protected computer if by interstate or foreign communication

§ (a)(4) – Using a computer as a tool to defraud or to steal somethingo Knowingly and with intent to defraud,o Accesses a protected computero Without authorization, OR exceeds authorized access, ANDo Obtains anything of value

Value is the value to Δ – Czubinski says use by Δ may show value If only value is use of computer, must exceed $5000

§ (a)(5) - Damage to a computer systemo Knowingly transmits a program/command thato Causes damage to a protected computer

3 mens rea sections: Intentionally causes damage - felony Recklessly causes damage - felony Causes damage (strict liability) - misdemeanor

Protected computer: 1) U.S. gov’t or financial institution computer (see code - exclusive use) 2) computer used in interstate or foreign commerce communication

Not covered in class: (a)(1) – accessing a computer with national security information(a)(3) – little used(a)(6) – traffic in passwords(a)(7) – extortion – threatening to damage computer

Attempt carries same penalties as completed crime (specific penalties) Civil cause of action – like RICO, but no enhanced damages - economic damages only

Ω - Morris – (§(a)(5) – Held – mens rea only required intent to release the virus, not cause damage Cornell student released internet virus – caused lots of $ damages in down-time

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Now §(a)(5) has been amended – 3 possible intent levels – see aboveΩ - Czubinski – (§(a)(4)) - limits CFAA to serious violations - no fraud if nothing of value is taken –

use may establish value Racist IRS agent looked up tax records of his friends & enemies - did not print or further use IRS lost exclusive use of its property; value to Czubinski was the thrill of seeing private info Court – criminal law measures value to Δ – Czubinski did not use, so did not realize any value

o May be possible to show use (thus value to Δ) if he prints or makes notes

C. Intangible Property

1. Theft and Fraud

Problem: Information is different from tangible propertyo If someone takes tangible property, original owner has lost ito If someone takes information, original owner still has it

Harm is the diminished value of information owner still has due to loss of exclusivity Traditional theft/fraud statutes dealt with physical taking of property

Is intangible property “property”? Consider in the M&W fraud context (also other crimes)

Ω - McNally – 1987 – USSC held mail fraud does not cover losses of intangible rights, such as the right to honest and faithful services

Public officials took kickbacks for insurance contracts There was no property loss, because gov’t would have paid anyone the same $ § 1346 now says honest services = property, but what of other intangibles?

Ω - Carpenter – 1987 - USSC held confidential information = property (pre-§1346) WSJ columnist & stockbrokers profited from stock trades based on his columns

o He didn’t alter columns – used knowledge of how columns would influence buyers/marketo WSJ did not lose $ - guys were convicted of M&W fraud & insider trading

Exclusive use of contents and publication is a property rightΩ - Czubinski – held that information is not property or a thing of value in itself

Racist IRS guy looked up tax records of his friends & enemies - did not print or further use Followed McNally, not Carpenter – held loss of exclusive use ≠ property right Important b/c limits mail & wire fraud (both honest services & property) to serious violations

Ω - Cleveland – held that a business license (intangible) is not property before issued by the State Guys lied on state (LA) video poker license applications & mailed them Court – a business license is property in the hands of the owner

o Business license is NOT property in the hands of the State State’s “power to regulate” is NOT a property interest

M&W fraud require that owner’s property be takenΩ - Dowling – held that copyrighted songs ≠ property under the National Stolen Property Act

Guys were selling bootlegged Elvis recordings – transported across state lines Copyrighted materials are not traditional “property” – statute uses “infringed”, not “stolen” Copyright act is exclusive remedy for infringement

o Gov’t can’t use NSPA for easier prosecution & stiffer penaltieso NSPA was meant to be a gap-filler – there was no gap here

Ω - LaMacchia – held that copyrighted material ≠ property for M&W fraud (extended Dowling)

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LaMacchia let public copy copyrighted software from his website for free Copyrighted materials are not traditional “property” – statute uses “infringed”, not “stolen” Copyright act is exclusive remedy for infringement

o Gov’t can’t use M&W fraud for easier prosecution & stiffer penaltieso M7W fraud was meant to be a gap-filler, there was no gap here

2. Economic Espionage Act – 18 USC §§ 1831-39

Prohibits 2 types of conduct:1) Stealing trade secrets to benefit a foreign government,

instrumentality or agent2) Converting a trade secret

o Elements: intent to convert a trade secret product is made for or placed in interstate commerce (jurisdictional element) for economic benefit of one other than the owner intent/knowledge that the owner will be injured knowingly, either:

steals or takes by deception copies or transmits accepts or buys, knowing secret is stolen attempts to do one of the above, OR conspires to do one of the above

Prosecution for M&W fraud is still available §1835 protects from disclosure of trade secrets in court proceedings – may get interlocutory appeal EEA is more broad than state laws

o §1839(3) trade secret definition includes all forms of information, if: owner has taken reasonable measures to keep information secret, and information has value b/c not generally known to the public

Penalties:o Mandatory forfeitureo Fineso Prison term (§1831 - max. 15 years; §1832 – max. 10 years)o Injunctive relief

Ω - Hsu I &II – held that if charge is attempt or conspiracy, prosecution need not establish there was an actual trade secret – only need the Δ to believe there was a trade secret

Taiwan company tried to buy trade secret info on Taxol from Bristol-Meyers employee through undercover FBI agent

VII. FEDERAL SENTENCING GUIDELINES

A. Individuals – (((I didn’t get this far)))

B. Corporations

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VIII.JURISPRUDENTIAL ISSUES: (((These are covered throughout the semester)))

A. Federalization of Criminal Law

Can & should a crime be federally governed/prosecuted? (ask this w/each new crime)Can = jurisdictional base (Lopez)Should = federalism arguments

“Can” question: Does Congress have specific jurisdiction to pass a federal criminal law?

o The Constitution grants the States unlimited police powero The powers granted to the federal government are few and definedo Congress must have a specific jurisdictional grant to pass a lawo Criminal laws are usually under the Commerce Clause, but sometimes others

Commerce Power – 3 broad categories of activity Congress may regulate under CC:o The use of channels of interstate commerceo The instrumentalities of, or persons or things in, interstate commerce, even though the

threat may come only from intrastate activitieso Those activities having a substantial relation to interstate commerce, i.e., those

activities that substantially affect interstate commerce United States v. Lopez

o Invalidated the Gun-Free School Zones Act - 18 USC §922(q)(1)(A)o Analyzed whether the Act “substantially affected” interstate commerceo §922(q) had no express jurisdictional hook that would limit its reach to only those

firearms possessions that have a connection to or affect interstate commerceo Gov’t argued substantial effect b/c school zone firearm possession increases violent

crime, thus: (1) creates population-wide costs, and (2) affects interstate travel by making people unwilling to travel to violent crime areas

o Court responded that under these theories, there is virtually no limit to federal power, even in traditional State sovereignty areas like crime or education

o Dissent argued that Congress had rational basis – cumulative effect applied Congress has criminalized many state offenses by adding an interstate element:

o Kidnapping, theft, transportation of stolen vehicles, flight to avoid prosecution, sexual exploitation of children, firearms offenses, gambling, credit card counterfeiting, robbery, extortion

“Should” question: Pro-federal role in WCC prosecution arguments:

o Uniform standards (this arg goes both ways – some are pro-local standards)o Feds have more/better resources: laws, procedures

RICO - Can convict on accomplice testimony alone Grand juries easier to access Liberal rules: grand jury testimony (hearsay ok, penalties for refusal to testify) Federal Sentencing Guidelines allow for stricter penalties

Guidelines also allow reduction for “substantial assistance” Prisons have more funding – time served is higher % of sentence

o Avoid corruption – federal judges have lifetime appointments – not elected Anti-federal role in WCC prosecution arguments:

o Burden on the federal courts

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Federal courts will not be as able to tend to their “real” duties Rehnquist – fed is an elite system that shouldn’t be bothered w/small taters District judges would disagree on a lot, so we would still have local law Moohr – not a very principled argument – argument of expediency More trials b/c of high sentences (Why plea bargain?) More appeals through the sentencing guidelines

o Misallocation of federal resources – spending federal $ to do state worko Abuse of powero Usurps states’ role as the “immediate and visible guardians of life and property”o Allows development of law on a small scale

States are more responsive, accountable and flexible States can learn from each other’s mistakes

o Sentencing disparity between state/federal convictions for essentially same crime Balance – when do we want federal action?

o Civil rights violation (federal right violated) Cases – Schmuck broadly framed mail fraud statute to reach state fraud, Sedima endorsed private

attorneys general & allows civil RICO to be litigated in state courts

B. Prosecutorial Discretion

“The U.S. Attorney is not the representative of an ordinary party to a controversy, but of a sovereignty whose . . . interest in a criminal prosecution is not that it shall win a case, but that justice shall be done.” . . . Justice Sutherland.

Prosecutor powers:o Investigations: whether and on what terms (when under prosecutor’s control)o Charging: whether and on what termso Plea Bargaining: whether and on what termso Grand jury power:

To compel the appearance and interrogation of witnesses (reinforced) To compel the production of documents (strengthened) To dispense with fundamental protections of witnesses (broadened) To subpoena Δ attorneys to testify & produce documents (incl. fees)

o Other: Reluctance of courts to check prosecutorial excesses Decline of supervisory powers Δ can’t claim prosecutor misconduct until conviction, must show prejudice

Limitations on Prosecutor powers:o 5th Amendment Double Jeopardy Clause

No one shall twice be put in jeopardy of life or limb for the same offenseo Equal Protection & Due Process Clauses

“Selective prosecution” – Δ must show he has been singled out for prosecution while others similarly situated have not been proceeded against AND that selection was unconstitutionally based on race, religion, or desire to prevent Δ’s exercise of 1st amendment rights

“Vindictive prosecution” – applied only where prosecutors retaliated against Δ’s exercise of protected rights like 1st amendment rights or right to appeal

o US Attorney’s Manual

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“Petite policy” precludes prosecution following a state or prior federal prosecution based on substantially the same act(s) or transaction unless there is compelling federal interest

o Policies and guidelines set “priority” crimes – Administration, Justice Dept. & Localo Ethical restraints – ABA Model Rules of Professional Conduct:

Rule 3.8 says criminal prosecutor shall: not prosecute a charge he knows is not supported by probable cause try to assure Δ is advised of right to and how to obtain counsel &

has reasonable opportunity to obtain counsel not seek a waiver of important pretrial rights make timely disclosure of all evidence favorable to Δ (and

mitigating evidence to tribunal for sentencing decisions) try to prevent associated personnel from making extra-judicial

statements the prosecutor could not make himself Rule 4.2 says a lawyer can’t talk about a case with a person that is represented by

another lawyer (What if Δ doesn’t want his corrupt lawyer to know? No constitutional violation, because Δ has waived his right, but 4.2 is violated.)

“Reno rule” permits investigative contacts with represented persons Hyde Amendment - 1998

o When the Δ prevails in a criminal case, the court may award reasonable attorney’s fees and litigation expenses where the court finds the U.S. position was vexatious, frivolous or in bad faith (unless special circumstances make an award unjust).

o U.S. v. Reyes (Δ lost) Δ won summary judgment on conspiracy, aiding & abetting federal bribery

Filed for atty fees under Hyde Amendment Δ has burden to prove the U.S. was vexatious, frivolous or in bad faith Dictionary definitions of vexatious, frivolous & bad faith:

Vexatious is without reasonable or probable cause or excuse Frivolous is of little weight or importance Bad faith implies the conscious doing of a wrong b/c of dishonest

purpose or moral obliquityo U.S. v. Ranger (U.S. lost)

Ranger violated permit import regs - imported CB radios w/wrong frequencies

Charges dismissed b/c knowledge requirement not met Held: prosecutor’s acts fell within “bad faith” of Hyde amendment

Withholding of evidence violated obligation to share exculpatory info

o U.S. v. Holland (U.S. lost) Senator & son acquitted of bank fraud, perjury, obstruction of justice Won attorney fees under Hyde District Ct - gov’t caused undue irritation, worry by bringing criminal charges

o What is frivolous, vexatious or bad faith? Withholding of evidence Probably the subornation of perjury (Ranger) Mere dismissal of case before it goes to grand jury is not enough

Pro-Prosecutor discretion arguments:

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o Δ will get due process later, at the grand jury, preliminary hearing or trialo Prosecutors are ethical & will make ethical decisions

Anti-Prosecutor discretion arguments:o Standardless discretiono Can invoke society’s harshest judgments on the basis of ad hoc personal judgmentso Risk of unequal treatment, arbitrary enforcemento Minorities, poor, outcast (typical discrimination targets) will be treated most harshlyo Δs have no opportunity to be heard before prosecutor makes his decisions

Cases:o Reyes, Ranger,Hollando Gertner

Gov’t used $ laundering reporting requiremt to attack attorneys (get client info)

C. Blurring the Civil-Criminal Distinction

4 assertions of Coffee Article (or, “whether to price or to prohibit”:

o Any clearly definable line between civil and criminal law has disappearedo This blurring will result in injustice and will weaken criminal law as social controlo To define the proper sphere of criminal law, must explain how its purposes and methods

differ from those of tort lawo Implementation of the crime/tort distinction is feasible only at the sentencing phase

3 trends:o WCC law is mostly judge-madeo Mens rea requirement is disappearing, especially in regulatory crimeso Traditional public welfare offenses, which combined strict liability with modest penalties,

are being upgraded to felonies Hart, Kadish & Packer school:

o Overcriminalization – excessive reliance on the criminal sanction, particularly w/respect to behavior that is not inherently morally culpable

o Criminal law is society’s mechanism of communicating the moral condemnation of the community

Critics – law shapes morality – determines what is morally culpableo Also – if criminal law is overused, it will lose its distinctive stigma

If everything wrongful is made criminal, society is unable to reserve special forms of condemnation for really bad stuff

If everything is a crime, everyone is a criminal or there is no deterrence Deterrence goal justifies criminal penalty for corporate managers’ pollution, negligence, etc. Deterrence is no justification for strict liability/no mens rea crimes

o Can’t change unintended behavior Civil law focuses on victim, not actor

o Focuses on reparation of actual harm – not intent Criminal law focuses on actor, not victim

o Focuses on bad intent – not actual harmo The actor’s conduct was the same, regardless of the outcome

Prison is a disincentive unique from fines – incarceration is a societal equalizer – should be

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reserved for morally bad stuff Who will draw the line? (according to Coffee)

o Courts have left to legislatureo Legislature can’t – too politically risky to oppose any call for criminalizationo Prosecutors can’t – would seem an attempt to undermine legislatureo U.S. Sentencing Commission should decide when to price and when to prohibit

Behavior that society wishes only to tax should be fined Behavior that society wishes to prohibit should be sentenced Coffee – no mens rea crimes should only be priced

Cases:o

D. Effect of Civil Penalties (Parallel Proceedings)

When is a civil penalty really a criminal penalty?

o Prong 1 – Does the legislature label the sanction civil? If yes:o Prong 2 – Kennedy test

Kennedy test – to decide when a civil sanction is so punitive it is really a criminal penalty, evaluate whether:

o the sanction involves an affirmative disability or restraint,o it has historically been regarded as a punishment,o it comes into play only on a finding of scienter,o it promotes the traditional aims of punishment-retribution and deterrence,o the behavior to which it applies is already a crime,o an alternative purpose to which it may rationally be connected is assignable for it (is its

sole purpose to punish?), ando it appears excessive in relation to the alternative purpose assigned.

**These factors must be considered in relation to the statute on its face, ando **Only the clearest proof will suffice to override legislative intent and transform what has

been denominated a civil remedy into a criminal penalty United States v. Halper

o Halper inflated 65 Medicare claims for $9 each ($585)o Criminal sentence - 2 years prison and $5000 fine; Civil sanction - $130,000o USSC said sanction violated double jeopardy b/c really punishmento “Punishment” serves traditional goals of retribution and deterrenceo Any sanction so “overwhelmingly disproportionate” to the injury could not be said solely

to serve the remedial purpose of compensating the government for its losso Repudiated by Hudson

Hudson v. United Stateso Hudson was chairman of 2 banks – got the banks to loan him $ through 3rd partieso Hudson & accomplice bankers paid “Civil Money Penalty” of $16,500 to the OCCo Indicted for conspiracy & other criminal charges, they moved to dismiss on double

jeopardy groundso Court held the OCC proceedings were civil, and no bar to later criminal prosecutiono Used Kennedy test & said Halper was wrong for 2 reasons:

Halper bypassed question whether punishment is a “criminal” punishment

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Treated excessiveness of punishment as dispositiveo Kennedy says no one factor should control as they may point in different directions o Interestingly, the Hudson court’s analysis seemed to look at each of the sevcn factors in

isolation – no one factor showed the OCC fines were really criminal.o Since all civil penalties have some deterrent effect, a requirement that a sanction be solely

remedial would mean no civil penalties are beyond the scope of the DJ Clauseo Halper had other constitutional protections:

Due Process and Equal Protection Clauses protect from irrational punishment Eighth Amendment protects against excessive civil fines

Mary Cheh: 3 constitutional problems w/parallel proceedings:o Can put special pressure on a Δ’s 5th amendment self-incrimination privilegeo Can weaken a Δ’s due process rights b/c the government may benefit from the more

generous discovery allowed in civil proceedingso May undercut a Δ’s 6th amendment right to effective assistance of counsel – 2 ways

When government gets info protected by attorney-client privilege through civil discovery

When Δ counsel discovers materials for civil defense that hurt criminal case Cases:

o

E. Criminalization

Stuart Green’s 3 elements of moral content:

o Culpability = the moral value attributed to a Δ’s state of mind during the commission of a crime (mens rea, guilty mind, scienter, lack of excuse such as insanity or mistake)

Refers to the actor rather than the act and its consequences Crimes said to be lacking in culpability include:

Public welfare and strict liability crimeso Green says not all regulatory offenses are part of this group

o Social Harmfulness = an intrusion into a person’s interest (thing the person has a stake in) Refers to the act and its consequences rather than the actor Includes harms to individual’s person/property; to society’s interests collectively;

to governmental interests Acts can be harmful without being wrongful Crimes said to be lacking in social harmfulness include:

Trivial and minor violationso Some, like parking violations, are trivial in comparison to more

harmful crimes such as rape or homicideo Some, like retailers tearing off a mattress tag, have a very low

probability of resulting in any harm (house fires)o Moral Wrongfulness = conduct that violates a moral norm or standard

Refers to the moral conduct of the act, rather than the moral status of the actor Acts can be wrongful w/out being harmful (lying, cheating, promise-breaking) Acts can be wrongful w/out the actor being culpable (murder by accident/insanity) Crimes said to be lacking in moral wrongfulness (morally neutral) include:

Malum prohibitum, economic & certain white-collar crimes Issues:

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o Criminalization of conduct that is virtually indistinguishable from “acceptable aggressive business behavior”: regulatory economic offenses including antitrust, unfair competition, price controls, securities regulations, some tax laws. Lack of moral wrongfulness?

If there is no stigma of moral reprehensibility, the deterrent nature of the criminal sanction is impaired

o Relationship between criminal law and society’s views of morality. Hart – criminal sanctions cannot be justified unless crime is condemned by the

community – the decision to make certain conduct criminal reflects publicly-held moral norms.

But – public perceptions of morality are affected by what has been made criminal. Law shapes morality.

o Over-Criminalization bad effects: Dilution: weakens deterrent effect of criminal penalties & criminal stigma If all action is crime, fear of criminal punishment results in inaction.

Cases:o

F. Sentencing the Corporation

DOJ Policy: Benefits of indicting a corporation

o When one corporation is indicted for criminal conduct that is pervasive throughout the industry, other corporations are likely to take immediate remedial action, providing deterrence on a massive scale

o A corporate indictment may result in specific deterrence by changing the culture of the indicted corporation and the behavior of its employees

o Certain crimes that have a substantial risk of public harm, like environmental crimes or financial fraud, are most likely to be committed by businesses

DOJ Policy: Respondeat Superioro Prosecutors should always consider targeting a corporation for its’ agents’ wrongdoing.o Corporations may be held criminally liable for illegal acts of their directors, employees,

officers and agents.o To hold a corporation liable, the government must establish that the agent’s actions were:

Within the scope of his duties, AND Intended, at least in part, to benefit the corporation.

DOJ Policy: Factors to consider as to the proper treatment of a corporate target in: 1)determining conduct of an investigation, 2)when to bring charges, and 3)when to negotiate plea agreements:

o Nature and seriousness of offense, including risk of harm to the public, and policieso Pervasiveness of wrongdoing within the corporation, including management complicityo Corporation’s history of similar conducto Corporation’s timely and voluntary disclosure of wrongdoing, and willingness to cooperateo Existence and adequacy of corporation’s compliance plano Corporation’s remedial actionso Collateral consequences (harm to innocent employees and shareholders)o Adequacy of non-criminal remedies

Other relevant stuff:o “Scope of employment” can include situations where an employee is acting contrary to

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express corporate policyo An employee’s act may be deemed “for the benefit of the business” even if the business

received no actual benefit or if the employee was also motivated by personal factorso Collective knowledge doctrine: businesses can be found criminal even if no single

employee is criminally culpable – no single agent need satisfy all the elements of a crimeo Criminal intent can be satisfied by “willfully blindness” o Regulatory offenses often have little or no intent requirement

Federal Sentencing Guidelines:o Prosecutors have been unwilling to use the guidelines’ full potential against corporations

Early practice – prosecutions are aimed at corporations with higher culpability Core offenses involving small corps with culpable high-level personnel

o Calculations: Base fine = the highest of:

Fine amount from the fine table, which ranks offense levels Pecuniary loss from the offense (extent caused intentionally, knowingly or

recklessly), OR Pecuniary gain to the organization

Then factor in “culpability score” Factors that increase culpability score:

Prior history of criminal activity Obstructing justice during the investigation, and Extent of high-level personnel involved in or tolerant of the activity

Factors that decrease culpability score (may reduce base fine as much as 95%): An existing “effective program to prevent and detect violations of law” Prompt reporting of any offenses Full cooperation in the investigation Acceptance of responsibility for the conduct

MPC Standard (see Texas Code)o Agent = director, officer, employee or other who is authorized to act for corporationo High managerial agent = partnership partner, corporate officer, or corporate policy-makero Business is criminally liable for:

Laws plainly meant to reach businesses, or for strict liability offenses, for the conduct of its agents

Felonies, only if offense was authorized, commanded, performed, or recklessly tolerated by a majority of the board or a high managerial agent.

o Affirmative defense: the high managerial agent diligently tried to prevent offense. Cases:

o

G. The Aims of Criminal Law – Hart article

Criminal law has many goals. They overlap and sometimes are at odds with each other.o Deterrence of offenderso Rehabilitation of offenderso Disablement of offenderso Sharpening of the community’s sense of right and wrongo Satisfaction of the community’s sense of just retribution

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o Avoiding conviction of the innocento Enhancing society’s sense of security

What is crime?o Not simply anything a legislature chooses to call a crime.o Not simply antisocial conduct which public officers are responsible to suppress.o Not simply conduct to which the legislature has attached a criminal penalty.o IS conduct which incurs a formal pronouncement of the community’s moral condemnation

True Goal, then, is to define the minimum conditions of man’s responsibility to his fellows and hold him to that responsibility. Criminal law helps to create the good society.

Cases:o

H. Judicial Role in Defining Crime

Federal criminal law is statutory – Congress has sole power to makeo Judiciary does not engage in wholesale penal-lawmakingo Judiciary does engage in interstitial lawmaking in the course of interpreting positive lawo If the criminal statutes are so broad as to completely lack definition, courts are arguably

creating federal criminal common law when they apply statutes to fact situations that the statutes do not speak to.

o “An unclear criminal statute forces the judge and jury to derive the elements of the law from the factual circumstances of the case.” Moohr

Problems with/prohibitions on federal criminal common law (O’Sullivan, Moohr):o Separation of Powers:

Federal judges would have too much power if allowed to make, interpret and administer federal criminal law

Only the legislature should make laws that can deprive personal freedom, since the legislature is most accountable to the people.

o Principle of Legality – advance legislative specification of criminal misconduct – 2 tools: Void for Vagueness Doctrine – criminal offense must be definite – 2 prongs:

1. Notice prong: Ordinary people can understand what conduct is prohibited,2. Arbitrary prong: In a manner that does not encourage arbitrary &

discriminatory enforcement Facial analysis – 1st amendment issue on its face – rarely used against

federal laws – facial analysis addresses both prongs “As applied” analysis – if no 1st amendment issue, look only at the statute as

applied - the as applied analysis addresses both prongso Courts do not usually address the 2nd prong above

Rule of Lenity – If Congress did not use clear and definite statutory language, the court should choose the less harsh interpretation of what conduct is criminal. Ambiguity that does not rise to vagueness

Based upon 2 theories:o Notice – a clear line must be drawn to fairly let people know what is

criminalo Because criminal penalties are serious, and represent the

community’s moral condemnation, legislatures should define themo Kahan’s 3 “costs” of federal criminal common law:

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Limited expertise of federal judges Uniformity (every federal district could have different criminal law) Prosecutorial overreaching

Arguments in favor of federal criminal common law (Kahan):o Common law is cheaper than legislated law

It would take too much of Congress’s time to define every possible prohibitiono Efficient updating of the criminal code

Courts can adapt existing statutes to new crimes and to loopholes – Congress would have to amend or enact new laws to cover

o Quality of criminal law: Courts deal with real world circumstances, and can use that info to avoid

unforeseen conflicts with other values and policieso Notice problem? Ordinary morality suffices to tell criminals what not to do (at least when

dealing with clearly undesirable conduct – what about “aggressive business practices”?)o Democracy problem? Congress does not necessarily enact criminal law the people want,

anyway – judges do just as well. (But are they accountable when they do not?) Cases – Pereira

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Exam format for M&W fraud questions:(This is important to Moohr—got me an A on the final)

I. Scheme to defraud includes deception (lie) and defraud (harm)1. Deception or planned deception – must be affirmative act or conduct, except

Failure to disclose will suffice if there is a fiduciary duty - Emery (Posner case) Also - deception must be about a material fact – induced victim to make a decision

2. Defraud – is the thing taken traditional property, intangible property or honest services? What kind of fraud?

3. If 3 parties – ask: 1) who is deceived; 2) who lost property If property comes from party other than the one deceived, it is a 3 party fraud

o This is honest services fraud, since party deceived has no loss Say who is deceived & how

Deception in HSF is pretending loyalty when really not loyal Must be a fiduciary duty not to deceive – mention Brumley holding

Say who loses property & how § 1346 establishes intangible right to honest services = property

If property comes from deceived party, it is a 2 party fraudo This is usually property fraud, whether tangible or intangible (may still be HSF)

Still say who is deceived & how Deception in intangible property fraud is also pretending loyalty Must be a fiduciary duty not to deceive – mention Brumley holding

Still say who loses property & how If intangible, need to relate cases

o Δ will argue McNally, Czubinski, Cleveland (intangible ≠ property)

McNally – intangible property ≠property Czubinski – property must be used by taker Cleveland – must be property in the hands of orig. owner

o Prosecution will argue Carpenter (loss of exclusive use = property)

II. Mailing - Can establish even if 3rd party mails:

o “Knowingly causes to be mailed” is established by reasonable foreseeability Mailing can occur after Δ has the money – part of “overall” scheme to defraud - Sampson Mailing need only be incidental to an essential part of the scheme - Pereira Mailing need not be fraudulent Legally required mailings may not be included, but must have no deceitful statements.

III. Intent is the specific intent to defraud (cause harm) – Mention D’Amato- 2nd Circuit Was party acting with purpose to deprive someone of $ or property?

o Jury may infer specific intent from the circumstances 11th Circuit disagrees – only general intent needed (equates deceit w/defraud)

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Download - [White Collar Crime] [Moohr] [Outline] [Fall 2001] [McCormick]

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