White Collar Crime with Professor Dervan
Spring 2012
White Collar Crime Overview
· Definition of White Collar Crime: 1983—Dept of Justice—
o illegal acts that use deceit and concealment –rather than physical force of violence – to obtain money, property, service…White collar criminals occupy positions of responsibility and trust
One of the top 4 priorities for the federal government
Federal Jurisdiction vs. State Sovereignty
o Can be charged by federal government and state government for same offense and does not violate double jeopardy
o If charged by state, DOJ will not charge you unless
§ substantial federal interest and
§ federal interest was not vindicated and
§ conduct is a federal crime and evidence is sufficient to obtain and sustain a conviction
Corporate Liability
· Corporation can be charged criminally and are not immune to criminal prosecution (NY Central & Hudson River Railroad Co v. US)
o Corporation could be imputed with the knowledge of the actions its employees were taking in the course of their employment, any criminal culpability for those actions, should be in violation of the law and could also be imputed to the corporation.
o There are valid public policy reasons to punish Corporations and are treated as persons
§ Must be able to punish corporations to protect interstate commerce
o Corporations are not just civilly liable anymore
· Corporation can be held criminally liability BUT must satisfy the two prongs (Standard Oil v. US):
o Employee’s mens rea can be imputed onto corporations
o Use Respondent Superior Test for Corporate Criminal Liability:
§ Was employee acting with purpose to benefit corporation?
§ Was employee acting in line of his or her duties? (scope of employment)
o In this case, benefit was not to corp., but 3rd party. Corp. = not liable.
· Corporations can be held criminally liable if their employee’s actions meet the two-prong test even if told contrary to corporate rules. (US v. Hilton Hotels)
o Still liable even if contrary to corporation instructions
o Can use collective knowledge to establish liability
· Collective Knowledge (US v. Bank of New England)
o Corporate criminal liability is achieved by the total knowledge of the individual employees being imputed to the corporation if within the scope of employment.
o Corporations compartmentalize their information and duties. Collective knowledge = the sum of all of the knowledge of the employees and can satisfy the mens rea.
o This gets around trying to find the one employee that meets all of the elements of the crime committed.
· DOJ Discretion
o Options for DOJ
§ Prosecute
§ Deferred prosecution agreement – there is an indictment, corp will do following agmt
§ Non-prosecution agreement – no indictment, corp follow agreement
§ Not prosecute at all
o Principles of Prosecution – use to guide DOJ to decide what option to take
§ Nature and seriousness
§ Pervasiveness of the wrongdoing
§ Corporation’s History
§ Timely and Voluntary Disclosures
§ Existence and effectiveness of pre-existing compliance programs
§ Remedial measures
§ Collateral consequences
§ Adequacy of the prosecution of individuals
§ Adequacy of remedies such as Civil of Regulatory Enforcement (Parallel Investigations)
Individual Responsibility
· Strict Liability Offenses:
o Intent and knowledge requirement not need
§ Public danger offenses very serious
o Individual had a duty to seek out and remedy violations of the law and implement measures to ensure violations will not occur (US v. Park)
§ Enough to show that D, because of his position in corp., had responsibility and authority to either prevent or correct, violation complained of, and failed to do so
§ an omission or failure to act is enough for strict liability
§ employees who have a responsible share in the furtherance of the transaction which the statute outlaws are subject to the criminal provisions of the act
§ powerless to prevent or correct is a defense
o No need for mens rea
· Conspiracy
o Criminally, Corporations can be found to conspire with their own employees (US v. Hughes Aircraft)
§ Jury can assume someone else in corporation conspired with D
§ Conviction of one conspirator is valid even with other co-conspirators are acquitted
§ Declined to extend intra-corporate conspiracy doctrine to criminal activity
o Corporation is treated as an individual (18 USC §371)
o Inconsistency of jury verdicts regarding multiple D’s is not a grounds for reversal
o In civil cases, must have a non-employee to satisfy civil statute
§ Corp. and employee cannot conspire together
Internal Investigations
· Attorney/Client Privilege:
o Corporation have a 4th amendment right
o Corporation can assert Attorney –Client Privilege
o Corporations do not have a 5th amendment right against self-incrimination, only individuals do
§ Cannot assert to avoid producing its business records
o Interactions with anyone in corporation and the attorney = privileged (UpJohn)
§ UpJohn Warnings: must inform employees you work for the Corporation and not them
§ Computer Associates case — if lie to in house counsel can be charged with obstruction of justice b/c seen as lying to the government
§ Attorney client privilege belongs to corporation and NOT the individual
o Atty/Client Privilege applies when:
§ Communication seeks to potential client – legal advice/ does not protect facts
§ In confidential way
§ And not planning on telling anyone else and not waiving privilege
§ Applies to all those that receive/ give attorneys information, not just control group
Mail/Wire Fraud — 18 USC §1341 (Mail) & 18 USC §1343 (Wire)
· Definition:
o A scheme devised or intending to defraud or for obtaining money or property by fraudulent means; and
o Use or causing the use of the mails (or private courier) in furtherance of the fraudulent scheme
· Mail/Wire Fraud Elements:
o Scheme to defraud
o Property/$ – intangible or tangible
o Intent to defraud – intent to injure victim
o Materiality of falsehood
o Mailing/Wire
o In furtherance
· Mail fraud is used as a stop gap—used to prosecute new crimes until new legislation is passed (US v. Maze)
· McNally v. US
o 18 USC §1341 – applied to only money or property
§ didn’t apply to intangible rights specifically, intangible right to honest services
· DOJ RESPONSE TO MCNALLY:
o 18 USC §1346 (1988)
§ For the purposes of this chapter, the term scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services
o Honest services fraud is only applicable to bribes and kickbacks! (US v. Skilling)
· What constitutes “property” under Mail Fraud Statute?
o Property = Tangible (McNally) & Intangible (Carpenter v. US)
o Examples:
§ Tangible:
· Confidential business info/ news (Carpenter v. US)
o Exclusive right to use info
o Confidential info is embezzeled when an employee reveals it to others and deprives employer of exclusive possession
· License in hands of individual or recipient of license but
o In hands of government is NOT property
§ Intangible
· Intellectual property right to decision making (US v. D’Amato) – patents, copyrights, trademarks
· “Intending to Defraud”
o Right to Control (US v. D’Amato) – applies into the intention to defraud
§ Test for concealment of information from the corporation
· Whether corporate management made a lawful decision that concealment or failure to disclos
ocured through unlawful means
§ Applies to criminal profits derived from a specified unlawful activity
§ Does not apply to criminal receipts related to unlawful activity
§ Proceeds obtained through lawful activity can be converted into unlawful proceeds.
· Lawful proceeds retained as result of unlawful activity – proceeds of crime
· Not criminal receipts = payments, need proceeds
RICO – 18 USC §1962 – Remedial statute, broadly construed
· 18 USC §1962
o The Four Types of prohibited conduct:
§ (a) Using income from a pattern of racketeering activity to acquire an interest in an enterprise engaged in, or the activities of which affect interstate or foreign commerce.
· Gov does not want people to buy a legitimate businesses from illegal activity
· i.e. gambling house and then use money to buy a restaurant
§ (b) Acquiring or maintaining through a pattern of racketeering activity an interest in an enterprise engaged in or the activities of which affect interstate foreign commerce
· Not using income from pattern of racketeering, instead acquiring enterprise from racketeering
· Loan Sharks take part of business that the person who owes money owns
§ (c) Any person employed by or associated with any enterprise that affect interstates or foreign commerce to conduct or participate in the enterprise’s affairs through a pattern of racketeering activity
· This is most widely use
· Just being a member of enterprise = crime (i.e. to be apart of Gambino crime family)
§ (d) Conspiring to further any of the activities listed in (a), (b), or (c)
o A and B enterprise is infiltrated
o C deals with running enterprise through pattern of racketeering activity
· RICO also contains a civil violation.
· “The Enterprise”
o 18 USC §1961:
§ Enterprise includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals association in fact although not a legal entity.
o An Illegal Entity can be an Enterprise!
§ US v. Turkette (1981) (Classic Goodfellas Case)
· i.e. mafia
§ Charge conspiracy 1962(d) to violate (c)
o Under 1962(c):
§ Requires a Person (employer association) & Enterprise be distinct
§ Kushner Promotions v. King—Don King (employee) employed by Don King Promotions (enterprise) = Distinct
§ Sole proprietorships
· Can be distinct from the individual if sole proprietorship is:
o Incorporated
o There are other employees around
· This is unique to 1962(c)
o Does not have to be economically motivated or have economic interests
· “Association in Fact” Enterprise– US v. Boyle (2009) – applies provision §1962(c)
o An association in fact may exist if it has at least three features:
§ A purpose
§ A relationship among those associated with the enterprise, and
§ Longevity sufficient to permit these associations to pursue the enterprise’s purpose
§ Can be as small as 2 people
o There need NOT be:
§ Structure beyond that inherent in the pattern of racketeering in activity, such as fixed hierarchy
