Outline 1: Corporate Criminal Liability

- I. Intro o New York Central & Hudson River RR v. US

A corporation can be criminally liable, not just the individuals Corporation is essentially its stockholders Policy against the holding:

• Wrongfully punishes stockholders for individuals doing wrong • However, stockholders have to gamble that they have competent, honest

management Policy for holding:

• Stockholder doesn’t have any personal liability o Only his shares decrease value

• No stigma of criminal conviction • If the corporation has been benefited for years b/c of the criminal conduct, then

the stockholders deserve to lose some of that value o Keep in mind:

Corporate prosecution is the exception not the rule More often there is deferred prosecution

• If you cooperate fully and correct all the problems, we won’t prosecute you and drop the criminal charges

o US v. CR Bard Inc Facts: there were serious problems w/the catheters they made, and they produced the

catheters w/out FDA approvals and did illegal tests Holding: Plea agreement is ok where there is adequate deterrence/punishment and where

individuals are still being pursued • Because the corp. was cooperating and there was still prosecution of individuals • Would not accept the plea agreement if the individual prosecution was not going

forward The reason for prosecution of corp. is deterrence and punishment

• There needs to be a change of corp. culture (Greed needs to end) • Can’t afford to do business this way if they keep getting sued

Compliance program • Checks and balances in place to ensure that the program works • Monitor can come in and review the compliance program to see if it is sufficient

to prevent the conduct from occurring again Opens the corporation up to civil liability No one was willing to blow the whistle

• Frustrated the government • Why?

o Didn’t want to expose themselves to criminal/civil liability o Didn’t want to get fired

• There needs to be whistle blower protection o Sarbanes Oxley

Gives this protection

2

o Charging Corporations: Eight Factors of US Federal Guidelines 1) Nature/seriousness of offense, risk of public harm 2) Pervasiveness of wrongdoing w/in corp 3) Corp’s history of similar conduct 4) Corp’s timely and voluntary disclosure 5) Existence/adequacy of compliance program 6) Corp’s remedial actions 7) Collateral consequences, disproportionate harm to innocent shareholders/employees 8) Adequacy of non-criminal remedies (Prosecution corporation should never be a substitute to prosecuting individuals)

- II (A). The Respondeat Superior Rule: Criminal Acts o Allows imposition of corporate liability for criminal acts performed by officers and agents in the

course of their employment, w/o regard to their status in the corporate hierarchy Federal court rule, not MPC Agent who commits crime must be acting w/in scope of authority & on behalf of the corp

o Commonwealth v. Beneficial Finance Co Facts: Corporate employee is bribing public officials Holding: When an employee is acting within the scope of authority of his employment

and on behalf of the corporation, the corporation can be liable for his actions The corporation was a beneficiary of the criminal conduct of the employee The corporation itself was funding the bribes Rejects the MPC approach that the corporation is only liable for employee action when

the action is authorized, encouraged or ratified by high managerial agent However, there is no public records to show that managers approved this action

• Very unlikely that there will be paper trial to the top The lower employees are more likely to be involved w/the day to day opportunities Prosecutors should not let corporations use lower employees to be scapegoat

• However, other individuals should be also be pursued o US v. Hilton Hotels Corp.

Facts: Sherman Act violation; offenses are usually motivated to enhance profits Employee violated the act, even though his managers told him to abide by the act Pervasive effort in corporations to produce the highest profit The only way to deter this behavior by employees is to punish the corporation

• If the corporation really wanted the employee to stop doing the behavior they could have fired him

• The bottom line is that the employee is doing something w/in the scope of his employment and is still acting within his authority

Its not enough that the company has a “policy,” they have to have an effective method to enforce this policy

• Must monitor employees and make sure they do what they are supposed to do Federal Guidelines: Rule 5

• Look at the existence and adequacy of the corporation’s compliance program Within the scope of their employment includes not only that which has been authorized

by the corporation, but also that which outsiders could reasonably assume the agent would have authority to do

3

If behavior is done regularly enough by employee, then the employee has apparent authority, and thus the corporation can be liable

- II (B). The Respondeat Superior Rule: Criminal Intent o US v. Bank of New England

A corporation can commit a crime that has a knowing standard Knowingly= voluntarily Willfully=specific intent to do the action and violate the law There can be collective knowledge to prove knowingly

• B/C many corporations are compartmentalized Multiple transactions, internal memo, and chose not to file

• Actions were deliberate • Suspected the man was a bookie • Cant still find knowing conduct if people consciously avoided learning the truth

Can impute state of mind of employees to corporation by looking at the circumstances of what the employees should have known

Look at the culture of the corporation and the flagrant indifference 2. Personal Liability in an Organizational Setting

- II. Direct Participants o US v. Booker * Sentencing Guidelines

Two Opinions Stevens

• Blakely applies to the federal sentencing guidelines • Judge cannot unilaterally decide aggravating factor to increase sentencing

Breyer • Blakely applies in the federal sentencing guidelines as well • Sentencing guidelines are advisory only • Sentencing can still be appealed

o Maybe sentence not reasonable? o Abuse of discretion?

• Congress needs to fix the system and fix the sentencing guidelines o US v. Wise

A corporate officer is subject to prosecution whenever he knowingly participates in effecting the illegal conduct, regardless of whether he is acting in a representative capacity

o Federal law recognizes no distinction between principles and accessories o US v. Brown

Corporate officer could be held criminally liable for the illegal actions of subordinates if they knowingly authorized or consented to such behavior

Officer doesn’t have to have hands on role Knowingly participating in illegal conduct of subordinates requires more than purely

passive behavior, however, encouraging, advising, or assisting for the purpose of furthering the conspiracy is enough

Can be passive (but has power to control conduct)

4

- III. Responsible Corporate Officials o Dotterwich

As long as corporate officer has a responsible share in the illegal conduct that violated a public welfare statute, they can be found guilty

Officer in a better position to make sure the violations are not committed o US v. Park

Facts: CEO found guilty of shipping adulterated food, public welfare statute Received letter from FDA, but did not do everything in his power to clean up the problem Not just responsible because of this title, but because corporate employees have a

responsible share in the furtherance of the transaction which the state outlaw • Principles applied whether or not the crime requires conscious of wrongdoing

The bylaws of the company shows that he has overall responsibility • Has a duty to exercise the highest degree of foresight and vigilance

Defense: If objectively impossible to prevent or correct the problem, then not guilty? • BUT He was on notice of the problem and could have relied on his system of

delegation to subordinates to prevent or correct the problem Strict liability!!

• No mental state • Failed to fulfill duty • Prior history of notice is enough to negate the defense

o Problem 2-2 If on notice that there is a violation, must follow up to make sure clean up has occurred

o SUMMARY: Individual Liability for Corporate Crime Highest standard of foresight and vigilance is necessary in order not to be personally

liable for breaking the law 4. Mail Fraud: 18 U.S.C. § 1341

- I. Intro o Definition: Use of mail for fraudulent activities o The fraud itself does not have to be punishable for an independent crime o Congress does not have to have the authority to punish the underlying fraud

- II (A). Schemes to Defraud: Intent to Defraud o United States v. Hawkey

Facts: Money was raised for benefit concert for Sheriff’s association through the mail • Sheriff used some of money raised for his own personal and business expenses • However, he did put some of the money back, and the concert did go on

Holding: Since person gave funds in order for those funds to go to charity, they didn’t get what they bargained for, and this it was a fraudulent scheme

Statute prohibits the use of the mails to execute “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises”

To obtain a conviction, the government must prove: • (1) The existence of a scheme to defraud; and • (2) the use of the mails… for purposes of executing the scheme

5

To act with intent to defraud means: • to act knowingly and with the intent to deceive someone for the purpose of

causing some financial loss… to another or bringing about some financial gain to oneself or another to the detriment of a third party

False or fraudulent representations must be material • Material if:

o A reasonable man would attach importance to its (non) existence in determining his choice of action OR

o The maker of the representations knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it

• However, material statement has to be backed up with intent to defraud in order to violate the mail fraud statute (Not all lies or misrepresentations are fraudulent)

o Lustiger v. United States Facts: subdivision sold on 32-page color brochure filled with fraudulently misleading and

deceptive pictures Mail fraud statute protects the gullible Average person of ordinary intelligence may rely on the mailed brochure Rule:

• If a scheme is devised with the intent to defraud, and the mails are used in executing the scheme, the fact that there is not misrepresentation of a single existing fact is immaterial

- II (B): Schemes to Defraud: Protected Interests o United States v. George

Facts: Exclusive K between Accurrate (Greensphan) and Zenith (Yonan) No competition allowed Yonan is getting kickbacks; George is getting a huge kickback too Court says it is fraud even though Zenith is getting the price and services it expected

• If this was really on the up and up, why was it under the table? Breached a duty of honest and loyal services

o Carpenter v. United States Facts: A reporter for the WSJ, was giving up confidential business information to friends

to make money (This information has economic value) The lost of the right to be exclusively publishing this information has an economic impact

on the WSJ In order to be found guilty of violating the mail fraud statute, there has to be a scheme to

defraud citizens of their property Congress didn’t intend the statute to be so expansive to include honest and loyal service

• (McNally: must be money or property taken away) However, confidential business information is intangible property that is included in the

statute o § 1346: Congress said that we want mail fraud statute to be expansive

Honest and loyal services are covered by the statute Intangible rights are thus part Statute punishes: Infliction of harm OR unearned benefits

6

o Cleveland v. United States Question after Carpenter is: what is property? Facts: Video poker licenses scheme: properties of Louisiana?

• NO, licenses are not property o Fountain v. United States

Facts: Scheme to transport cigarettes from Canada in order to defraud Canada of taxes • Taxes are different from licenses or tax credits

Taxes are considered property under the wire fraud statutes o United States v. Czubinski

Unauthorized assess of files in the IRS database from an employee is reprehensible conduct, but not fraud were there was no deprivation of property and no gain from this usage

• Has to be a very serious breach of duty, not just every kind of misconduct • Must go to the heart of your responsibility as a public official, and call into

question your impartiality/trustworthiness Didn’t take any additional steps to confirm his fraudulent intent

• Didn’t create the dossiers, or sell the information o United States v. Devegter

Facts: Hired to give rec. for who would be best underwriter for Fulton Country • Only one party gets a chance to get the underwriting business, adjusted bid to win

Economic harm to the County comes from the fraud Private sector honest services IS sufficient to sustain § 1346 charges

• In this case, because of the nature of the services, Devegter was more like a public servant, b/c Fulton County was relying exclusively on his honest services

Honest Services: Public v. Private servant • Private Sector

o Fiduciary duty o Breach o Foreseeable economic harm

• Public Sector o Inherent fiduciary duty to public

- III. Use of the Mails o Sufficient that use of the mails was “incident to an essential part of the scheme”

Government can use circumstantial evidence to prove the mails were used to further an alleged scheme to defraud

Government just merely show that the routine is normally handled in such a way involving the mail

o Schmuck v. United States Facts: D rolled back odometers of cars so that he could get more money from dealers, and

then title applications would be mailed before the cars were sold to the owners Argues that mailing was tangential to the scheme

• Doesn’t matter: the mailing is foreseeable because in order to the dealer to sell the cars, he would have had to mail the applications

o United States v. Sampson Facts: Advanced fees for a loan Sent out a form letter saying the loan was accepted after receiving the fees

7

• The letters were to lull them by assurances, allowing Ds to continue their scheme Even though the letter doesn’t provide any more money, the letters do advance the

scheme, and thus in furtherance of the fraud - IV. Mail and Wire Fraud Affecting a Financial Institution

o Wire Fraud: Must be interstate Don’t need knowledge of jurisdictional state to be in violation

o United States v. Bouyea Mail and wire fraud statutes increase their penalties if financial institutions are affected Longer statute of limitations for fraud to financial institution

o Untied States v. Archer, 486 F.2d 670 Manufactured Jurisdiction

- V(A). Statutes Prohibiting Specific Frauds: Bank Fraud o 18 U.S.C. § 1344

1) knowingly executing/attempting to execute a scheme to defraud a financial institution 2) knowingly executing/attempting to execute a scheme to obtain money, assets, or other

property owned by or under the custody/control of a financial institution through false or fraudulent pretenses, representations, or promises

o United States v. Doke Facts: Bank lends Bass (lawyer) money w/o the disclosure that Doke was his partner

• Both Bass and Doke are insiders in the bank • Doke has already borrowed money from the bank and couldn’t lend him as much

money that he needed There was an intent to deceive the bank

• Doke was the true beneficiary of the loan (Knowingly put the bank at risk) • Goes against banking regulations

Jurisdiction comes from the scheme being directed toward a bank - V(B). Statutes Prohibiting Specific Frauds: Compute Fraud

o 18 U.S.C. § 1030 7 categories of crimes that target harms resulting from accessing “protected computers”

w/o authorization or in excess of one’s authorization § 1030(e) (2) “Protected computer” means:

• A) Exclusively for the use of a financial institution or the US gov; or computer not exclusively for that use but affects that use

• B) which is used in interstate or foreign commerce or communication o United States v. Middleton

Facts: A disgruntled x employee hacked into the former employers comp and changed administrative passwords, altered the computer’s registry, deleted the entire billing system, and deleted two internal databases

Under the statute, prohibits a person from knowingly transmitting a program information, code, or command, and as a result of such conduct, intentionally causing damage without authorization, to a protected computer

• If you are hooked up to the internet, you are a protected computer because you are involved in interstate communication

Damage must be to one or more individuals, and a corporation is an individual, or any other fictional person or legal entity

8

• § 1030(e)(8) Damage must be more than $5000 in one year, and this loss includes that which was a foreseeable consequence of his criminal conduct, including those costs necessary to “resecure” the computers

o Hourly rates of employees to fix the computer(s) can be added to the damage

See § 1030(a) (4) & (5) p. 146 o United States v. Czubinski

Unauthorized use without obtaining anything of value from this use does not violate the computer fraud statute

• If he had used to information for something more, then he may have violated § 1030(a)(4), need “something of value” to violate statute

5. Securities Fraud - I. Intro

o Statute to promote truth in the offering and selling of securities o SEC cannot bring criminal charges, only civil actions

The SEC can only refer possible criminal cases to the DOJ o However, often the DOJ and SEC investigate together, and sometimes they coordinate their

efforts, often plea w/one branch will cause dropping of charges from the other - II. Willfulness

o Does not require specific intent to disregard the law; only that conduct is deliberate and intentional as opposed to accidental or inadvertent

o United States v. Weiner Serious financial accounting problems for years Auditors should be held responsible criminally

• These accounting problems go beyond mere negligence • Didn’t comply with the basic auditing standards

o Made up to “innovative” accounting practices o Court couldn’t believe that the auditors didn’t actually know because the

numbers were so unbelievably inflated • The auditors have a serious conflict of interest because they are not independent,

but involved as part of the company Thus, it was WILLFUL conduct Deliberate ignorance is the same as positive knowledge

• Primary function of auditor is to run a series of checks to make sure the financial statements truly reflect the financial status of the company

• Thus, when you see something suspicious, you must investigate it or withdrawal Auditors are now scrutinized far more than they were at the time of this case

o See p. 138, 15 U.S.C. §78ff: Penalites, changed by Sarbanes-Oxley Act o Private Securities Litigation Reform Act of 1995

If auditors find something wrong that may be material, the auditor must report it to senior management then the board then the SEC

o Sarbanes-Oxley Act of 2002 Part 1:

• Public accounting oversight board • Gives the board the power to set standards for auditors who are auditing publicly

held companies

9

• Can investigate auditing firms • Can bring disciplinary procedures

Part 2: • Auditing companies cannot offer other services to a company • Switch up engagement teams, must look at auditing issues w/fresh eyes • Makes sure there is no conflict of interest

- IV (A). Insider Trading: The Evolving Doctrinal Rules o There is no insider trading statute, but it gets reached through general antifraud provisions o Chiarella v. United States

Facts: Defendant worked for a newspaper, and figured out confidential information that wasn’t yet published in the paper

• Defendant then bought stock in the target company that was going to taken over, and then made profit when the news was made public and he sold his stock

Insider trading prohibition is based on breach of fiduciary duty of trust and confidence Government argues:

• Possession of material which is non-public information is enough, and there is a duty of all market participants not to use it

BUT Court says: • Defendant was NOT an insider, and thus had no duty to those who were buying

and selling shares of the target companies stock No duty to disclose where the person who has traded on insider information “was not [the

corporation’s] agent, … was not a fiduciary, [or] was not a person in whom the seller [of the securities] had placed their trust and confidence”

Not every case of financial unfairness is fraud o United States v. O’Hagan

Facts: A lawyer whose firm was assisting of taking over another company bought stock in the target company

• Used the money he gained from the insider trading to cover up his embezzlement Court says:

• Lawyer has duty to his law firm and his law firm’s clients • Must disclose that you are in possession of the undisclosed material • However, lawyer misappropriates the confidential information and converts it to

his own use, which is fraud/insider trading o See p. 225 17 C.F.R. §240.10b-5: Employment of Manipulative and Deceptive Devices

(c) Illegal to engage in fraud in connection w/purchase or sale of any security o Classical Theory of Insider Trading

Corporate Insider • Fiduciary duty • Corp& Shareholders

o Abstain from trading Material nonpublic information

• Disclosure of market participants of those whose rights will be entrenched Misappropriation by outsider

• Owes a fiduciary duty to the firm in which he works o Ie law firm & client (O’Hagen)

10

• Stealing information and using it Tipper/Tippee

• Ie. Corporate insider (Dirks) o Dirks v. SEC

• Tipper: corporate insider o No breach of tipper to corporation

• Tippee: corporate outsider o Owed no independent duty to the corporation

And no derivative liability unless there was duty on the part of the insider

o No expectation by Dirk’s sources that he would keep their information in confidence, nor did Dirks misappropriate or illegally obtain the info

o The tippee receive no monetary benefit, and the tipper was motivated by a desire to expose the fraud

• NO breach of duty to shareholders o United States v. Chestman

Fiduciary duty can agreed to, but it does not come naturally w/a family relationship • There needs to be something more

Fiduciary relationship involved discretionary authority and dependency Trustee, lawyer, doctor etc have an inherently fiduciary relationship

• If one of these people misuse their info for personal gain, it is a violation, even if them being told it was not a breach

Facts: Family insider secret that company is being sold gets out through grandchild’s husband’s (Keith) stockbroker

• The stockbroker then purchases some of this stock • Keith also ordered some of the stock

However, there was no fiduciary duty owed by Keith to the family Thus, he did not defraud them by disclosing the news to the stockbroker

• The stockbroker then did not have any knowledge of a breach of fiduciary duty b/c there was none

o New rule: Rule 10b5-2 (to address Chestman) The SEC responds by passing a law that creates a family duty when there is a family

business, unless there is explicitly no duty Main body of law for insider trading still remains to be case law

o United States v. Teicher Facts: Attorney was given information from arbitrager Teicher Trading while in knowing possession of insider information

• Defense says that just because they have the insider information, doesn’t mean they used it, however, this theory doesn’t hold up

A requirement of a causal connection between the information and the trade could frustrate attempts to distinguish between legitimate trades and those connected with inside information: NO REQUIREMENT OF CAUSAL CONNECTION

Prima facia case: (1) if someone is in possession of insider information, and (2) that they traded the securities that the insider information is about

Its unrealistic to think that someone who knows about valuable, non-public information when trading

11

o Bottom line: If you have insider information, don’t trade on it 10b5-1 adopts the Teicher rule

o 10b-5-1: Affirmative Defenses Proof that you were going to do this before you got the insider info

• In writing, contract • Instructed another person to buy/sell it for your account before • Pre-existing agreement

o Agreement must be specific and binding o Must have proof of the agreement

Thus, put in a plan first in order to protect yourself o Sabanes-Oxley: 18 U.S.C. § 1348 (to replace 15 U.S.C. § 78ff)

Criminal statute for securities fraud Modeled after the mail fraud statute Crime to:

• Knowingly execute • A scheme to defraud • In connection with any security • Purchase or sale

Problems w/the law • What is the definition of fraud • What is the unit to be charged

6. False Statements: 18 U.S.C. § 1001

- I. Intro o Punishes: Making or using a false statement in any matter w/in the jurisdiction of any department

or agency of the United States No oath requirement

- II. Jurisdiction o United States v. Rodgers

Facts: Lied to FBI about kidnapping of wife Jurisdiction means the power & authority to act in the matter

• Covers all matters confided to the authority of an agency or department Culpability is knowingly & willfully The statement must be material Here, FBI has jurisdiction

o Untied States v. Wright EPA has jurisdiction to see if the state agency is complying and is granting money to the

agency Thus, it is within federal jurisdiction when superintendent filed false reports to the state

agency o United States v. Steiner Plastics

Company was making plastic canopies from the Navy Company tried to pass off defective canopies by deceptively switching approval stamps

before giving them to the Navy Considered a false statement of a material fact to a government agency

12

- III. Department or Agency o Statute Amended in 1996

Applies to Legislative, Executive, and Judicial branches • Except it does not apply to judicial proceedings, or that party’s counsel, for

statements, representations, writings, or documents submitted by such party or counsel to judge or magistrate in that proceeding

o United States v. McNeil Facts: Lied in form required for defendant to list his assests so that he could receive

public attorney Conviction reversed b/c statements were made in a judicial proceeding

o United States v. Pickett (DC CIR) Facts: During anthrax scare, and police officer guarding the capitol building played a joke Charged w/making a false statement to the legislative However, this isn’t in a matter of any of the three branches, and thus there is no

jurisdiction In order to be in a matter w/in the jurisdiction, it had to be within an investigation,

whereas this statement was made before any investigation Contradicts what the Supreme Court said in Rodger

- IV. Material False Statements o United States v Lemaster

Facts: Denied taking bribes • Lemaster was making false statements that the FBI knew were false

If the FBI already knew the statements were false, how can these statements be material? Ask does the statement have the capacity to be misleading, not whether in the specific

case it is actually illegal The FBI did have to follow up to make sure there were no plausible explanations to

taking the money, and thus his statements were slightly misleading o United States v. Shah

Facts: Bidder was to keep bid confidential, and arrive at price independently, and not to induce others to bid or not to bid

• Signed “I have not an will not disclose this information At time he signed bid form, he didn’t disclose Promise for future isn’t a statement? And thus can’t violate § 1001?

• Yes If you represent that you intend to do something or intend not to do something, and you

are lying about this intent, it is sufficient to constitute a statement under §1001 - V. Exculpatory No’s

o Brogen v. United States No exception for an “exculpatory no” 3 possible avenues

• Admit guilt, false denial, remain silent (Doesn’t matter if it not fair to remain silent, assumes guilt)

Court says that the 5th amendment doesn’t give you a constitutional right to lie Innocent people wouldn’t have to lie D was told by the agents that they knew he was lying and that lying is a crime

o If Congress didn’t like this application of the false statement statute, then they should change it

13

- VI. Culpable Mental State o United States v. Yermian

Y argues that you have to have knowledge of fed jur However, he knew he was lying in his application to the DOD Government does NOT have to prove that the false statement under § 1001 was made

with actual knowledge of federal agency jurisdiction o United States v. Green

No knowledge of agency jurisdiction requirement • Said Yermian didn’t go far enough

No mental state is required w/respect to federal involvement to establish § 1001 violation - VII. Multiple Punishment

o United States v. Ramos Facts: D used false name, place, and dob & false papers in applying for a passport in

violation of §1001 and §1542, which requires false statement with intent to defraud Where the same act or transaction constitutes a violation of 2 distinct statutory

provisions, the test to be applied to determine whether there are two offenses is whether each provision requires proof of a fact which the other does not

Each statute must have different elements, not necessarily different sources of proof - VIII (A). Related Theories of Liability: Procurement Fraud

o Major Fraud Act 13 U.S.C. § 1031(a)-(b), p. 151 prohibits knowingly executing or attempting to execute a scheme to defraud the

government or to fraudulently obtain money or property by making false or fraudulent representations regarding government contracts worth more than $1 million

o United States v. Brook Question: whether the subcontract must amount to $1 million, or the jurisdictional

requirement is established so long as the prime contract w/the US or any part thereof is worth $1 million

Any K or part thereof must be worth $1 mill o United States v. Sain

What constitutes “execution” under the Major Fraud’s Act? Each instance was independent from overall scheme b/c each sought to obtain a separate

amount of money from the government and caused the government a distinct loss • If there was one goal and several steps to achieving it, however, then it would

only be one execution • In the instant case, the scheme was indefinite and thus a separate act

- VIII (A). Related Theories of Liability: False Claims o 18 U.S.C. §287, p.142

Punishes knowingly making false, fictitious claims against the government for money or property; claim must be physically presented to the government

o United States v. Maher The statute does not specify an intent to defraud as an element to be proven under §287. Purpose of §287 will not be furthered by limiting criminal prosecutions to instances

where the defendant is motivated solely by an intent to cheat the government or to gain an unjust benefit

• Knowing of falsity is enough

14

In this case, however, it is pretty clear that there was an intent to defraud, and the over billing was NOT in good faith

o Statute is designed to protect the integrity of the government contracting - SUMMARY: Intent/Conduct/Circumstances

o § 1001: false statement statute Intent: Knowing & willful Conduct: Making of a false statement Circumstances: W/in jurisdiction

o § 287: false claims statute Intent: Knowing Conduct: Physically submit the false claim to gov Circumstances: money or property

o §1031: major fraud statute Intent: Knowing & intent to defraud Conduct: Execute Circumstances: $1 mill gov K, procurement fraud

7. Perjury and False Declarations

- I. Intro o 18 U.S.C. § 1621: False declarations; 18 U.S.C. § 1623: False statements under Oath o Test for materiality is not whether the statement has an actual effect on the proceeding but is,

instead, whether the statement has capacity/tendency to influence the outcome of the proceeding - II. Making Material False Statements

o Bronston v. United States The federal perjury statute cannot be construed to sustain a conviction based on an

answer that was truthful, but unresponsive o United States v. Walser

Defendant subpoenaed witness that she knew had a document that she gave him that was false in order to corroborate her story

• Also subpoenaed the false document Defendant argues that she lacks the capacity to commit perjury b/c she didn’t take the

stand, and the person who did take the state didn’t have the intent to commit perjury b/c he thought he was telling the truth

Defendant, however, can be an accomplice of witness testifying under oath • He’s committed the act • Defendant has the requisite mental capacity • Can combine the two • Just like she had taken the stand herself

o See principle rule: 18 U.S.C. §2 - III. The Two Witness Rule

o United States v. Davis Two witness/or 1 witness and corroborating evidence for perjury under § 1621 Signed statement and testimony of statement The statement is thus corroborating evidence b/c he signed it §1621: 2 witnesses

15

• If not signed by Mr. Davis and Mrs. Davis testified at trial, then his own testimony at trial can corroborate the truth or falsity of the prior statement to the agent

o False declarations statute (§ 1623) expressly abandons 2-witness rule It shall not be necessary that such proof be made by any particular number of witnesses

or by documentary or other type of evidence If gov can prove that D made 2 inconsistent declarations under oath, one of which was

necessarily false, it need not prove which statement is false o Problem7-2: § 1623

Fla, Trial- conducts • Conducted supervising studies

Cal. Deposition • No supervision of studies

Defense: at time, believed statement to be true - IV. The Recantation Defense

o Can recant if: declaration as not substantially affected the proceeding, or (and) It has not become manifest that such falsity has been or will be exposed (to the witness)

o Two requirements or 1? “Or” means “and” in all but 8th circuit

o If already affected proceedings, too late to recant o Repudiation has to be more than a change of plea o United States v. Fornaro

OR means AND - V. Competent Tribunals and Ancillary Proceeding

o Dunn v. United States §1631 more limited than §1621 Only applies to judicial proceedings

• Added language or “ancillary to” a judicial proceeding Must have the formal trappings of the deposition

- SUMMARY: o § 1621

informal settings and trials 2 witnesses No defenses available

o § 1623 Judicial proceedings or ancillary to No particular # of witnesses or evidence Irreconcilable statements Recantation available

o Government has absolute discretion of which statute to prosecute under Thus, some courts may treat statutes as interchangeable

- VI. Immunized Testimony o United States v. Applebaum

1) 5th Amendment 2) Immunity order compelling 3) Contempt

16

4) Use immunity However, immunity is coextensive w/5th Amendment protections

• He’s not being prosecuted for something he’s already done • Neither the immunity statute nor the 5th Amendment gives you the right to lie • However, not equivalent of not testifying at all

8. Obstruction of Justice

- I. Intro o 28 USC § 1503

Criminal sanctions for anyone who “corruptly… influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice”

• Omnibus clause There must be a pending judicial proceedings

- II. Pending Judicial Proceeding o United States v. Simmons

Facts: Defendant destroyed documents that were subpoenaed by the AUSA for the grand jury proceeding

It didn’t matter that the grand jury didn’t know about the subpoenas • If it was required that the grand jury know about it, it would serve no real

purpose, but just be a technical obstacle • Grand juries are tools of the prosecutor

It did matter, however, that the grand jury was sitting More like Walasek than Ryan

• In Ryan, the documents weren’t for a pending judicial proceeding o The documents were given to the IRS, not the AUSA or the grand jury

• In Walasek, the documents were for a pending judicial proceeding o United States v. Lundwall

Destroying documents for a pending civil proceeding can be prosecuted under 1503 - III. Endeavour to Influence or Impede

o Statute punishes any effort to do what the statute forbids, provided that the conduct has “at least a reasonable tendency” to corrupt a legal proceeding

o United States v. Collis Forged letter of employer

• Meant to influence a judicial proceeding • Is the normal type of letter to rely on in these proceedings • Edited the letter and signed it to make it more effective

The endeavor does not actually have to influence the hearing, as long as it has the natural and probable effect of influencing the judicial proceeding

o Collis Variation Lawyer knows that letter is false when he turns it in to judge Obstruction of justice NOT perjury

• Not under oath False statement?

• Is material because the letter has a natural tendency to influence, even though it does not actually influence

• However, this cannot be applied to court proceedings, ie statements by lawyer

17

o United States v. Griffen Facts: witness perjured himself, concealing knowledge, rather than injecting falsehoods Perjury is not necessarily always obstruction of justice However, here there is nothing more to do with follow up questions

• Basically a flat refusal to testify • Closes off avenues of testimony

Normally the court can sift through contradictions in testimony • Not necessarily with obstruction of justice

For obstruction of justice, all you have to have is a corrupt endeavor • It doesn’t have to be successful • Has to have natural & probable effect of influencing

Is material if it is relevant to any subsidiary issue or is capable of supplying a link to the main issue under consideration

o United States v. Aguilar Endeavor must have the “’natural and probable effect’” of interfering with the due

administration of justice It is not enough that there be an intent to influence some ancillary proceeding Uttering false statements to an investigating agent who might or might not testify before a

grand jury is NOT sufficient to make out a violation of § 1503 o United States v. Cintolo

Was lawyer acting corruptly or in good faith to advise his client to plead the 5th? Clear that the client didn’t have a 5th amendment privilege Court won’t create a blanket exception for people to refuse to cooperate if they feel in

danger, however, if there is clear, proven dangers, exceptions can be made o Lawyer liability § 1515(c)

Nothing in obstruction of justice prohibits/punishes “the providing of lawful, bona fide, legal representation services in connection with or anticipating of an official proceeding”

This is an element of the crime, NOT an affirmative defense - IV (A). Victim and Witness Protection Act (§1512): Noncoercive Witness Tampering

o 1. § 1503: United States v. Lester Does § 1503 still apply to witnesses?

• § 1512 didn’t apply b/c it didn’t apply to non-coercive conduct Congress did not intend to make conduct that was previously criminal not criminal

anymore • Thus, § 1503 can apply to witnesses • However, now § 1512 is amended to apply to non-coercive conduct

Harder case to find corrupt persuasion under § 1512 b/c witness could have wanted to go and wasn’t a willing witness

§ 1503 was enacted to preserve the due administration of justice § 1512 is concerned about protecting the witness, not protecting the due administration of

justice This case is clearly an effort to intimidate the witness not to testify

• Gang leader’s attorney visited him in jail, urged him not to testify, and then showed him a note from the gang leader

o 2. Corrupt Persuasion: United States v. Shotts Facts: persuaded employee of his law office not to tell anything to law enforcement

18

§ 1512 • Corruptly persuades

o Defined as improper purpose • W/intent to withhold evidence

D acted “knowingly and dishonestly with the specific intent to subvert or undermine the integrity or truth-seeking ability of an investigation by a federal law enforcement officer”

o SUMMARY §1503

• Omnibus Clause o Corrupt endevour o Impede of obstruct o Due administration of Justice

§1512(b) • Corruptly w/intent • Corrupt persuasion • Misleading conduct

o Intent to influence testimony o In official proceeding

o 3. Misleading Conduct Intended to affect another’s participation in an official proceeding, impair the availability

of evidence in an official proceeding, or impede the reporting of information relating to the commission of a federal crime to law enforcement authorities or judges

“Misleading conduct” includes making false or misleading statements or inviting reliance on false or misleading evidence

United States v. Gabriel • An official proceeding need not be pending or about to be instituted at the time of

the offense • Likely to affect requirement from Aguilar incorporated into § 1503 should NOT

be incorporated into § 1512 o 4. Harrassment: United States v. Wilson

Even if witnesses have already testified, they can still be harassed under §1512 b/c they could be called again

• The success of an attempt or possibility thereof is irrelevant; the statute makes the endeavor a crime

§ 1512(a): Harrass • Badgering, pestering,bothering • Intentionally harass

o Thereby cause …. (no intent) Causing is then strict liability

- IV(B). Victim and Witness Protection Act (§1512): Coercive Witness Tampering o § 1512(b)

Corrupt Persuasion • Influence

Misleading Conduct • Deceive

19

o United States v. Willard § 1512: knowingly used intimidation or physical force, threatened, or corruptly persuaded

another person, or attempted to do so, or engaged in misleading conduct toward another person, with intent to influence, delay, or prevent the testimony of any other person in an official proceeding

o United States v. Anderson Corruptly improper purpose

• persuade conceal or destroy Anderson argues that there must be

• Independent duty • Inherently bad conduct

§ 1512 gives authority to charge w/more obstruction of justice when there isn’t a pending judicial proceeding (§ 1503)

Here, there was intent to impede fact finding of the SEC Even though a lot of documents were destroyed, the government was able to retrieve a lot

of material document Do you actually have to prove that material documents were destroyed forever?

• Focus should be intent on actor instead of what he does? o How is §1512(b) different than the newly enacted §1512(c)?

(c) • Corruptly • Applies directly to the person who is obstructing

(b) • Knowingly • Applies to person who is influencing/persuading another • There must be a corrupt persuader in this case

o §1513 (a)-(d) Don’t kill/intimidate witnesses/informants (e)

• any retaliation/harmful act to a person (economic or otherwise) against a person who is providing truthful information to law enforcement relating to a federal crime or possible commission of a federal crime

9. Bribery of Public Officials - II (A). Bribery of Public Officials: Official Acts: 18 U.S.C. § 201

o Bribery Encompasses corruptly attempting to influence a public official in the performance of

official acts through the giving of valuable consideration o Gratutity

Consists of rewarding a public official on account of an official act, whether or not the payor acts with corrupt intent

o United States v. Parker Soliciting money for forging dues

• Access computer • Influencing official Acts

20

Official acts can encompasses use of a governmental computer system to fraudulently create documents for the benefit of the employee/3rd party for compensation, even when the employee’s scope of authority does not fully encompass the act

o United States v. Arroyo Small Business Administration loan officer tells someone whose loan has already come

through that unless he paid a bribe, he would not get the loan As long as it looks like the bride is “in return for” an official act, then it does not matter if

it actually can influence the act • Doesn’t have to be actual influence

As far as the bribee was concerned, he would never have gotten the loan w/o the bribe - II (B). Bribery of Public Officials: Motive and Intent

o Bribery Intent to influence Quid pro quo

o Gratuity Reward for past or future act For or on account of

o United States v. Sun-Diamond Growers of CA Bribery v. Gratuity Bribery requires intent “to influence” an official act

• Whereas gratuity is “for or because of” an official at Money/gift has to be linked to specific action

• Can’t just be money given to a public official o United States v. Anderson

A gift or promise of something of value with intent to exert an influence IS bribery While Anderson can be found guilty of bribery, Brewster can be guilty instead of

gratuities - II (C). Bribery of Public Officials: Things of Value

o United States v. Williams Corruption of office occurs when the officeholder agrees to misuse his office in the

expectation of gain, whether or not he has correctly assessed the worth of the bribe - II (D). Bribery of Public Officials: Public Officials

o 1. Appointed Official: Dixon v. United States Officers of private, nonprofit corporations administering and expending federal

community block grants can be considered “public officials” for the purpose of federal bribery statute

o 2. Elected Officials: United States v. Brewster Speech or Debate Clause

• For any Speech or Debate in either House, they shall not be questioned in any other Place.

A member of Congress may be prosecuted for accepting a bribe in exchange for a promise to an official act

• Accepting a bribe is not a legislative act The S/D Clause

• To preserve the independence of the legislative branch

21

• Its not what happens after he agrees to accept the money, it’s the fact that he accepted the money

• What he did on the floor is irrelevant - II (E). Bribery of Public Officials: Cooperating Witnesses

o § 201 also prohibits bribing witnesses before federal tribunals to influence their testimony or paying gratuities “for or because of” a witness’ sworn testimony

o United States v. Ware Does not apply to federal prosecutors obtaining testimony by use of plea deals

- III. Federal Program Bribery o 18 U.S.C. §666

Prohibits payoffs to state/local officials who are agents of an organization or government entity that receives more than $10,000 in federal funds in any one-year period

o Salinas v. United States No federal funds need to be affected In this case, the bribe was related to the federal funds

o United States v. DeLaurentis Must be a nexus between bribe and federal funds

o United States v. Copeland Organizations engaged in purely commercial transactions w/the government are not

subject to § 666, only those whose contractual relationships are constituting some form of “Federal assistance”

o United States v. Sabri No nexus required Spending Clause Necessary & Proper Clause Enough that he was a public official

• Not necessary for Congress to say a statement for jurisdictional basis because it only applies to agencies that receive $10,000 or more of federal funds, and bribe must be $5,000 or more + corruption

10. RICO

- 18 U.S.C. §1961 - II. Enterprise

o “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity”

o A compound crime A lot of economic crimes are encompassed in RICO Can’t have a RICO violation w/o an enterprise

o United States v. Turkette Enterprise can refer to illegitimate and legitimate

• Congress could have just written in legitimate, but didn’t Enterprise and racketeering can’t be combined

• The enterprise can be the racketeering activity, but not in every case o Two Categories of Enterprise

1) Legal Entity (1962(c))

22

• Individuals have conducted the affairs of the enterprise through a pattern of racketeering activity

o Must be conducting affairs of the entity • Corp/partnership • Normal every day activities

2) Associate in Fact o De jure or de facto enterprise

Legal or fact Public or private Legitimate or illegitimate

o Engaged in or affecting commerce o National Organization for Women v. Scheidler

Pro-life Action Network (PLAN) • Nationwide conspiracy to shut down abortion clinics through a pattern of

racketeering activities including extortion in violation of the Hobbs Act No economic motivation

• However, an economic motivation is not needed Adverse effect on commerce could be shutting the clinics down

• Interstate patients as well Engages in or affects interstate commerce is merely a jurisdictional requirement

• But must have minimum contact w/interstate commerce - III (A). Pattern of Racketeering Activity: The Pattern Requirement

o HJ v. Northwestern Bell Telephone Activity –bribing to influence Commissioners in carrying out their duties in order to win

approval of unfairly and unreasonably high rates for Northwestern Bell –happened on a regular basis for a 6 yr period

• Thus it is a pattern Definition in Statute

• Pattern requires at least 2 acts of racketeering activity Pattern distinguished by:

• Continuity o Either a closed period of repeated conduct for a substantial periodor to

past conduct that by its nature projects into the future with a threat of repetition indefinitely (open or closed-ended)

o Temporal • Relationship (relatedness)

o Embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise interrelated by distinguishing characteristics and are not isolated events

o Looked at Title X, which is an entirely different statute Since Congress knew how to define pattern, why didn’t it put it in

the RICO statute? - III (B). Pattern of Racketeering Activity: State Predicate Crimes

o United States v. Garner Private sewer contractors were bribing sewer inspectors of the City of Chicago This “bribery” activity was charged under the Illinois official misconduct statute

23

• Doesn’t require corrupt attempt or quid pro quo • D argues that at best crime is gratuity not bribery

However, Congress intended “bribery” in the statute to be generically defined Test is whether the charged acts fit into the generic category of the predicate offense

whether the indictment charges a type of activity generally known or characterized in the proscribed category, namely, any act or threat involving bribery

State crimes can be predicate offense for RICO - SUMMARY of RICO

o Enterprise o Pattern o Racketeering Activity

Federal • Listed in statute

State • Listed in statute • Widespread problems that state and local governments can’t handle or are too

corrupted/unwilling to deal with the official corruption o Affects interstate commerce o States can still do whatever they want to

Can still prosecute the underlying predicate crime o Does tread on some territory that states used to have exclusive dominion

over, but Court is ok with this o P- 10-2

Constitutional issue • Double Jeopardy

o However, because there are two sovereigns, each can prosecute for same crime

• Statutory construction o The statute doesn’t refer to the defendant but the conduct o All it needs to be is a predicate crime, doesn’t matter what has happened

to the defendant but whether it is a state crime o In the case where in the federal court, RICO is guilty, and bribery not

guilty, we don’t usually second guess jury unless there is no sufficient evidence to sustain the count of conviction

You don’t have to charge the defendants and try them for any of the predicate crimes

o If a jury finds a defendant “not guilty,” the state cannot re-prosecute even if there is lenity, mistake, arbitrary etc

Why not charge both? • Practical matter

o Would take too long • State charges

- IV. Relationship Between Person and Enterprise o Reves v. Ernst & Young

Facts: Auditor took steps without consulting the co-op board or the accounting firm § 1962(c)

24

• Conduct o v. to lead manage or direct o n. direction

• Participate o v. to take part in

• Can’t just be associate with or employed by the enterprise o You have to have a direction role in carrying out the affairs of the

enterprise o Auditor is an outsider

• Doesn’t have to be in upper management, however o § 1962 (c)

Most frequently litigated What does it mean to conduct or participate in conduct of enterprise affairs through a

pattern of racketeering activity (Reeves) • Emphasis on very conduct

o Means to direct, manage, operate or lead o Must take some part in this conduct

However, not limited to upper echelons of management o P 10-3

Outsider can be deemed to have an influence • Influence can be indirect

Criminal defense lawyer can influence prosecutors officer Prosecutor and defense lawyer have to be distinct from the enterprise

• Enterprise must be distinct from the individual • Doesn’t have to be illicit • Enterprise can be the victim of the conduct

o McCullough v. Suter Sole proprietor who engaged in racketeering activity

• Argues that since you can’t conspire with yourself, you can’t violate RICO as a sole proprietor

Sole proprietorship can be an “enterprise” with which the proprietor can be “associated” • Either formally (as when there is incorporation) or practically (as then there are

other people besides the proprietor working in the organization), the enterprise MUST be separate from the individual

- V. Conspiracy to Violate RICO o Salinas v. United States

You don’t have to commit or agree to commit two or more predicate acts under RICO in order to be convicted of conspiracy

• Overt act requirement has been dispensed As long as the group shares a common purpose, conspirators are liable for the acts of

their co-conspirators o RICO penalties are very severe

Long sentences and forfeiture - VI (A). Forfeiture under RICO: Forfeiture Interests

o United States v. Simmons

25

Codefendants are to be held jointly and severally liable for the proceeds of a RICO enterprise

• Thus, even though defendant was neither indicted for nor convicted of any racketeering acts related to a particular scheme, as long as the defendant was part of some of the schemes that were part of the illegal enterprise, then he is liable

• All members of a conspiracy are responsible for the foreseeable acts of co-conspirators taken in furtherance of the conspiracy

Proceeds of RICO should be defined as the gross receipts of the illegal activity • No deductions for legitimate costs associated with activity • Government has the right to all gains which were achieved through wrongful acts

o Its hard to prove exactly what kind of overhead costs there are for a particular activity

o United States v. Rubin Gov can forfeit right to offices one currently holds However, can’t reach D’s right to seek and reattain such offices in the future

- VI (B). Forfeiture: Third Party Interests o Third parties can assert interest to RICO forfeitures

1) If the third party has a vested right, title, or interest in the assets at the time when the conduct giving rise to the forfeiture occurred, the forfeiture is invalid to the extent of the claimant’s proven interest

2) Claimants who acquire an interest in the assets after the conduct giving rise to the forfeiture may prevail IF he

• a) entered into a bona fide transaction with the defendant; • b) gave valuable consideration for the asset • c) was reasonably w/o cause to believe property was tainted by criminal conduct

o United States v. BCCI Facts: Bank knew BCCI was being investigated for illegal conduct before they asserted

their interest in the money Thus, they were not reasonably w/o cause to believe the property was tainted by criminal

conduct - VII (A). Civil Liability under RICO: § 1964: Injury to Business of Property

o All the elements of the criminal RICO must be found Enterprise

• An interstate commerce connection A “person” who committed the RICO violation

• Separate from the enterprise Conduct- affairs Pattern of RICO activity

o In addition, P must prove injury to his or her business or property by reason of RICO violation

o Sedima v. Imrex A civil RICO action does not need to proceed only after a criminal conviction

• Prior Criminal Conviction o Chargeable/indictable/punishable

• Preponderance standard for elements of RICO, not reasonable doubt

26

Injury • Does not have to be a distinct “racketeering injury” • RICO violation itself v. predicate act

o Injury can be by predicate act Why bring civil RICO action?

• Treble damages • Cost of suit • Reasonable attorney fees

1964(a) or (b) don’t require the person and enterprise to be separate whereas (c) does o Libertad v. Welch

For Civil RICO, to have standing, must have • Injury in fact to business or property • Causal connection between injury and conduct • Injury will be redressed by favorable decision

- VII (B). Civil Liability under RICO: Causation o Holmes v. SIPC

Can’t establish standing b/c there was no proximate cause Too distant of injury Facts: Stock manipulation, brokers bought worthless stock, stock plummeted

• Brokers became insolvent • Customers asserted claims against the brokers • SIPC stepped in to reimburse customers

SIPC sued Holmes • Too distant of causation

Two Types of Causation • Proximate cause

o Direct link/relationship “But for” causation

• Factual Damages

• Brokers’ insolvency not necessarily due to stock manipulation scheme • Indirect or remote from fraud can’t sue under RICO • Damages speculative

o Question 1a

• Bondholders o Loss on the return on their investment o Standing

• Farmers that couldn’t get low interest loans o Could have nothing to do with this scheme o Generally available, indefinite opportunity o No standing

1b • Johnson was told directly that he would have gotten the contract if he would have

paid the kickback

27

o Direct opportunity lost o Clear damages o Standing

1c • Might be many reasons why chicken consumption goes up, beef goes down • No standing • Consumer might be the only one w/a direct interest

- SUMMARY: Standing for Civil RICO o Court rejected prior criminal conviction requirement o Unless conviction under RICO has been final,

May not rely on conduct that would have been actionable as fraud in the purchase or sale of securities to establish violation of section 1962 (see p. 190)

Mail fraud, wire fraud, etc related to securities violation can also NOT be used for basis of civil RICO actions

12. Currency Reporting Crimes and Money Laundering

- I. Into o Requirements

$10,000-> Financial Institution • Duty to report-> CTR-> IRS

- II (A). Currency Reporting Crimes: Bank Secrecy Act o Enables government to monitor large monetary transactions and the use of foreign financial

services Just a recording statute Doesn’t make anything “illegal” Anytime you deposit or withdrawal more than $10,000, bank must record it and file a

report w/government • On the bank to do this

o 1. Transporting Monetary Instruments Reports of the movement of currency into and out of the country must be filed

w/Customs if over $10,000 o 2. Domestic Currency Transactions

Currency reporting requirements apply to financial institutions at which a deposit, withdrawal, currency exchange, or other physical transfer of more than $10,000 in currency occurs

United States v. Beidler • Structured transactions to avoid recording requirements • However, does this mean he knew the structuring was illegal?

o The jury could infer this b/c he did far more than he had to do to avoid the recording requirements

• All there needs to be now is facts that you knew the reporting requirements existed

o Don’t need to prove you knew the structuring was illegal o 3. Enhance Penalties

Willful violations of the currency reporting requirements are punishable as felonies

28

• Penalties double for willful violations that occur while the actor is “violating another law of the United States” or for violations that are “a part of a pattern of any illegal activity involving more than $100,000 in a 12-month period”

United States v. St. Michael’s Credit Union • Total non-compliance w/reporting • Lied to auditor • Pattern of illegal activity

o “repeated and related” o 50 instances of non-recording qualifies

- II (B). Currency Reporting Crimes: Section 6050I o Requires any person who is engaged in a trade or business to report the receipt of more than

$10,000 in cash in one or more related transactions in the course of the trade or business Transactions include sales, rentals, cash exchanges, custodial arrangements, payments of

loans and debts Name, address, occupation, and ssn of payor, as well as the date and nature of the

transaction and amount involved must be reported Willful violation of §6050I is a felony

o 1. Attorney Client Privilege United States v. Goldberger & Dubin

• Reporting requirements apply to attorneys as well • Must disclose name of client giving cash more than $10,000 • No constitutional right to pay your lawyer in cash

o Right to counsel doesn’t protect large cash deposits • No attorney/client privilege

o Fact of who is representing you is not privileged o Balancing of interests

Strong public policy that requires disclosure • Not in trade or business? NO • If we allow attorneys not to disclose fees/client identity, we allow attorneys to

have a monopoly on money laundering Penalty for intentional non-compliance with §6050I is the greater of $25,000 or the

amount of cash received in the unreported transaction, up to the maximum of $100,000 Lefcourt v. United States

• Law firm penalized for intentionally non-compliance and that the law firm had not established “reasonable caused” for doing so

o Failing to disclose client identity was done purposefully, rather than inadvertently

It is irrelevant that the filed may have believed he was legally justified in withholding such information

o 2. Designated Reported Transactions Reporting transactions of retail sales for more than $10,000 in cash for

• 1) Consumer durables • 2) Collectibles • 3) Travel or entertainment activity • Cashier’s checks, bank drafts, traveler’s checks, and money order having a face

amount of not more than $10,000 are deemed to be cash

29

o If the aggregate value of such monetary instruments and/or currency exceeds $10,000 the transaction is reportable

- III. Money Laundering o § 1956: Prohibits conducting a financial transaction when the actor knows the transaction

involves the proceeds of unlawful activity Actor must intend (1) to promote “the carrying on of specified unlawful activity” or (2) to

commit tax evasion or fraud; or must know that the financial transaction is designed • (a) to “conceal or disguise the nature, the location, the source, the ownership, or

the control of the proceeds of specific unlawful activity” OR • (b) to avoid federal or state currency reporting requirements, including those

imposed by the Bank Secrecy Act The term “specified unlawful activity” includes RICO predicate crimes, financial

institution crimes, customs violations, and various forms of fraud o § 1957: Illegal to knowingly engage ‘in a monetary transaction in criminally derived property

that is of a value greater than $10,000 and is derived from specified unlawful activity Same threshold as reporting amount under the Bank Secrecy Act If actor structures deposits in smaller amounts to avoid running afoul of § 1957, he runs

the risk of violating the anti-structuring rule in the Bank Secrecy Act if the structuring is also animated by the desire to avoid filing a currency transaction report

o United States v. Tencer Although in his financial transactions Tencer did not try to conceal his identity, he did try

to funnel illegal money through legal means, ie MONEY LAUNDERING • Plan was to have cash delivered to private airstrip!

o United States v. Campbell Facts: Drug dealer passed cash under the table for real estate transaction Real estate agent convicted for money laundering because she subjectively knew that he

was a drug dealer • Knowledge must be subjective, not what objectively should have been known • Willful blindness, however, can be subjective knowledge

If you consciously try to avoid learning something, which you know in all probability is the truth, the willful blindness doctrine steps in

o United States v. Johnson § 1956: Financial transactions

• Used proceeds of criminal activity to pay off mortgage and to buy a car o Transactions were done with intent to promote illegal activities: wire fraud o Gave him an aura of legitimacy to lure more victims to invest in scheme

§ 1957: Monetary transactions +$10,000 • Monetary transactions w/criminally derived property • Only the funds that he did monetary transactions with AFTER the investors wired

money in his account violated this statute o At the time the funds were transferred they were NOT criminally derived

Only criminally derived AFTER the transfer • If you commingle of legal and illegal funds, then government doesn’t have to

show that the funds are illegal; can’t trace specific dollars in accounts

30

o United States v. Kennedy Here the first crime was mailing the brochures, depositing and withdrawing the money to

promote his underlying crime of fraud Thus, the proceeds were already OBTAINED from criminal activity when D was in

possession of the checks, before he put them in the bank