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Module 05
Criminal Law and Business
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Learning Objectives
Upon successful completion, the student will be able to:
Compare crime categories;
Explain elements of Crimes;
Analyze defenses and constitutional rights;
Analyze Evidence;
Explain prosecution process;
Analyze white collar crime;
Describe sentencing guidelines and compliance.
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Crime: Positive or negative action that violates a penal law
Not civil law
Acts against a state, local, or federal government
Congress and state legislatures decide the criminality of actions – by
statute – including punishment possibilities.
Computer and technology have created new versions of old criminal
laws.
e.g. Unauthorized entry into computer systems is the new version of the
old “breaking and entering” laws
Crime
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Crime Categories
Felonies more serious than misdemeanors
Classifications (Class A, Class B) and degrees (First degree,
Second degree) denote seriousness of criminal charge.
Violent crimes – murder, manslaughter, forcible rape, aggravated
assault
Non-violent victim crimes – vehicle theft, burglaries
Victimless crimes – i.e., possession of illegal drugs
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Crime Categories (2)
White collar crimes – embezzlement, bribery, fraud
Punishment depends on the category under which a person is
convicted
A few crimes may be punished by death
Most crimes: Imprisonment/Fines
If convicted of a felony—unable to own a firearm, removed from public
office and disqualified from voting in most states.
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Crimes & Elements of Crimes
Government agencies decide who will be charged with a crime.
Prosecutors receive reports of alleged crime and results of
investigation. Prosecutors decide whether or not to bring charges.
Not all claims of criminal activity are investigated.
Politics & personal preference may affect prosecutors’ decisions.
Process not perfect.
Standard for criminal conviction: “Beyond a reasonable doubt.”
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Crimes & Elements of Crimes (2)
Corporations cannot be sent to prison: May pay fines or be subject
to various controls if culpability is assigned. May be barred from
public contracts.
Criminal negligence: “a degree of carelessness amounting to a
culpable disregard of rights and safety of others”
Example: Drunk driver drives wrong way down highway and kills a
person
Requirements for prosecution:
Actus reus – the guilty act
Mens rea – criminal intent
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Elonis v. U.S.
After wife left him, Elonis used Facebook to post rap lyrics
Contained violent language; images of wife; co-workers at amusement
park; a kindergarten class & law enforcement
He was fired for threats to co-workers.
Wife was granted a “protection-from-abuse” order against him.
FBI arrested him.
Charged him federal crime: transmitting in interstate commerce
“communication containing any threat . . . To injure the person of
another.”
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Elonis v. U.S. (2)
Trial Court: Instructed jury that Elonis could be found guilty if a
reasonable person would foresee his statements were a threat.
Jury convicted him.
Appeals court affirmed. He appealed.
Defense by Elonis: Indictment failed to allege he intended to
threaten anyone.
At trial Elonis testified:
killing his ex-wife.
Said he posted “nothing. . .that hasn’t been said already.”
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Elonis v. U.S. (3)
All victims said they were afraid & viewed posts as serious threats.
Court said: Defendant must be “blameworthy in his mind.”
Such as scienter or mens rea
Must consider defendant’s mental state
“Wrongdoing must be conscious to be criminal. . . .”
HELD: Conviction cannot stand.
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Constitutional Right: 5th Amendment
Miranda Rights must be read if a person is accused of or held in
suspicion of a crime
Right to remain silent (under the 5th Amendment)
Statements made can be used as evidence against you in court
Right to be represented by counsel
If accused cannot afford an attorney, one will be provided by the court
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Raise doubts in jurors’ minds through alibi
Evidence that crime was not committed
Affirmative Defenses: Even if prosecution’s claims are true, other
facts prevent the claims from constituting the crime.
Intoxication and insanity (rarely successful).
Improper procedure (such as tainted evidence) in prosecution
Statute of Limitations expired (time varies by crime)
Unsolved murders – statute of limitations may never end
Defenses
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Defenses (2)
Statute of limitations can “toll” to stop the running of time (e.g. if
criminal flees country to avoid prosecution)
Action was justifiable, i.e. self defense with reasonable force
Self-defense in violent crimes cases (use of force justifiable to
protect oneself against another)
Entrapment (Law enforcement sets a trap to lure someone into
committing a crime he/she had no intention of committing
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Evidence
Strict standards for gathering and presentation at trial
Evidence was handled properly in the “chain of custody”
If improperly obtained or presented, evidence is excluded (under
procedural due process)
Called the exclusionary rule (a 4th Amendment protection)
May be referred to as ”fruit of the poisonous tree”
Authorities may
Search property
Seize documents and other physical items
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Evidence (2)
Warrants usually needed for search of property, persons, or seizure
of property.
Warrant issued by a judge or magistrate
There is a “hot pursuit” exception.
Also a plain view exception
Law enforcement officials must show probable cause to a judge to
obtain a warrant.
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Prosecution Process
Occurs when prosecuting attorney has enough evidence to make
criminal charges
Charge will be a misdemeanor or felony
In some cases, a grand jury will review a potential felony case
If grand jury determines probable cause, usually it issues an
indictment against the accused
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Accused is placed under arrest based on a warrant.
In non-violent matters, accused turns herself in, rather than be taken
into custody by the police.
Suspect is booked at police station, photographed, finger printed,
and searched.
Chance given to the accused to contact an attorney.
Arraignment – court appearance of the accused (before a judge or
magistrate).
Arraignment
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Arraignment (2)
Accused may plead guilty, nolo contendere (no contest) or innocent.
Judge may release accused or require bail and will set a court date.
Violent criminals, or those who court fears might flee before trial are
held without bail, or bail is set very, very high.
Often defendants plea bargain – allow matter to be settled under
court supervision.
Defendant pleads guilty to charges or lesser charge or pleads no
contest in exchange for agreed punishment.
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Discovery In Criminal Cases
Civil Law: To reduce surprises both sides must turn over anything requested
by other side.
Criminal Law: Parties do their own investigations. Disclose only subset of
what is found to the other side prior to trial.
Prosecution must disclose any exculpatory evidence
Evidence that may show defendant is not guilty
The choice to disclose left up to prosecutions lawyers
Defendant has no obligation to disclose to prosecution evidence showing
guilt
5th Amendment protects defendants
Right before criminal trial, prosecution & defense exchange witness and
exhibits lists.
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If matter goes to trial, government attorney (often district attorney)
presents prosecution’s case.
Defendant must be found guilty “beyond a reasonable doubt.”
If jury finds defendant innocent – trial ends. Double jeopardy
prevents a defendant from being tried a 2nd time for same criminal
charges. But new charges can be brought and another trial occur.
If jury can’t agree on verdict, there is a mistrial, and prosecutor will
decide whether to proceed again.
If guilty, there may be prison time, jail time (usually less than a year),
probation, fines, restitution to victim
Trial
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White Collar Crimes
1939 reputed origination of term: “Crime committed by a person of
respectability and high social status in the course of his occupation.”
Criminal activity for financial advantage occurring in business.
FBI estimates such crimes create 1/3 of a trillion dollars in losses
each year.
Most cases are against individuals; corporations may also be
prosecuted.
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White Collar Crimes (2)
Antitrust: Violation under the Sherman Act and Clayton Act. May be
prison terms involved especially for in price fixing
Bankruptcy Fraud: Person or corporation hides or lies about assets
in bankruptcy proceeding (also applies to creditors giving false
information or illegal pressure to bankruptcy petitioners).
Bribery: Offer or taking of money, goods, services, etc. to influence
official actions or decisions.
Counterfeiting: Copying of genuine items without authorization –
money, designer clothing, other products.
Credit Card Fraud: Unauthorized use of a credit card.
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White Collar Crimes (3)
Computer and Internet Fraud:
Credit card fraud involving a computer or the internet
Unauthorized access to financial accounts
Unauthorized use of computers and computer files
Sabotage of computers
Economic Espionage: Theft or misappropriation of valuable
business information, such as a trade secret
Embezzlement: Person in position of trust takes money or property
for his own use.
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White Collar Crimes (4)
Environmental Law Violations: Federal (EPA) and state laws
Data fraud, e.g. submit false environmental data
Hazardous waste dumping
Ocean dumping by cruise ships
Oil spills
International smuggling of CFC’s
Illegal handling of hazardous substances (pesticides, asbestos, etc.)
EPA averages 1,500 criminal investigations/year; hundreds of years of prison
Financial Fraud: Regulation of banks and financial institutions
Firms and employees subject to criminal liability
Fraud in loans, financial documents, mortgages, etc.
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White Collar Crimes (5)
Government Fraud: Based on contracts with public agencies
Billing for goods not delivered
Double billing
Inferior goods
Government payment programs
Farm subsidies
Public housing
Educational programs
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White Collar Crimes (6)
Healthcare Fraud: Over-billing and scams by hospitals, doctors
ambulance services, laboratories, pharmacies, extended care
facilities
Insider Trading: Person trades a security while in possession of
material, non-public information.
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White Collar Crimes (7)
Insurance Fraud: Insurance companies commit fraud, charging
higher rates than allowed by state regulators.
Policy holders lie to get lower rates.
Policy holders pad claims to get paid more.
Mail Fraud: Sending of fraudulent materials through U.S. Postal
Service to communicate fraudulent activities.
Money Laundering: Hiding the truth about the origins of money,
especially illegal activities.
Obligation to report income even from illegal income for tax purposes.
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White Collar Crimes (8)
Racketeer Influenced and Corrupt Organizations (RICO) Act
Originally an extra weapon against organized crime, such as the Mafia
Racketeering meant activities such as bribery or extortion.
Meaning expanded to include activities such as mail fraud, etc.
Successful RICO claim receives triple actual damages + attorneys’ fees
through civil claims
Government can seek injunction, seize defendant’s assets, prevent
asset transfer, or require defendant to post a performance bond.
Government may press for imprisonment.
Complicated and unpredictable area of the law now used in suits
against persons, businesses, political protest groups and terrorist
organizations by government and private parties.
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Bridge v. Phoenix Bond & Indemnity Co.
Cook County, Illinois holds auctions for tax liens on delinquent
taxpayers’ properties.
Buyers must submit bids in own names. Cannot use “agents,
employees or other related entities” to disguise the real bidder.
Phoenix Bond and other bidders sued Bridge for fraudulently getting
tax liens by filing false documents about name of bidders.
Claimed defendants violated RICO through racketeering involving
mail fraud by sending false documents related to tax lien purchases.
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Bridge v. Phoenix Bond & Indemnity Co. (2)
District court dismissed RICO claims. Held that plaintiffs not
protected by mail fraud statute because scam not directed at them.
If there was a scam, it was directed at County & property owners
(not plaintiffs) so plaintiffs had no cause of action.
Appeals court reversed in favor of plaintiffs.
Defendant appealed.
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Bridge v. Phoenix Bond & Indemnity Co. (3)
Supreme Court affirmed in plaintiff’s favor.
Plaintiff asserting RICO claim based on mail fraud need not show
reliance on defendants misrepresentations.
The basis of mail fraud is a mailing that furthers a scheme to
defraud – even if the mailing does not contain false information.
Here, mail was used to submit false attestations of compliance with
the Bidder Rule to the County.
Congress can change the statute, but Court will not change RICO’s
strict outcome.
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White Collar Crimes (9)
Internal Fraud:
Many small businesses do not know they are defrauded
Study shows 1/4 of companies with fewer than 100 employees suffered
from check tampering
(Company checks used for improper purposes)
21% suffered from skimming
(When cash is taken before it is recorded on the books)
Rigging Payroll/Falsifying Reimbursement Expenses (such as for travel)
are common
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White Collar Crimes (10)
Securities Fraud: Different kinds
Misinformation or omission of information
Insider trading gets a lot of press
Market rigging
Theft from accounts of clients of securities firms
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White Collar Crimes (11)
Tax Evasion:
Failure to file tax returns
Failure to report income
Overstating expenses
Not reporting illegal income
IRS devotes significant resources to track down violators – jurisdiction
can be international, i.e. money hidden in foreign bank accounts.
Hundreds of billions recovered in thousands of cases annually.
Whistleblowers may collect percent.
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White Collar Crimes (12)
Telephone & Telemarketing Fraud: Any scheme to defraud using the
telephone as means of communication with victims
Trying to persuade them to send money to scheme
Solicits people to buy goods and services, invest money or donate to
bogus charitable causes
Fraud on the Internet: Essentially the same as telephone &
telemarketing fraud
Chat rooms, e-mail, message boards or Websites presenting fraudulent
solicitations to victims
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White Collar Crimes (13)
Wire Fraud: Any electronic communication involved in illegal
activities (like mail & telephone/internet fraud)
Traditionally only state prosecution
Now often federal prosecution
There is a sweeping nature to the statutes seen in cases
Includes “a scheme or artifice to deprive another of the right to honest
services”
Ex: Pasquantino v. U.S.: Americans bought liquor in U.S. and smuggled it
into Canada for resale, avoiding high Canadian taxes. Because
electronic (wire) communications were used and originated in the U.S.,
two people convicted in the U.S. sent to prison for 5 years each for
cheating the Canadian government.
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Business Implications From Money Laundering
Obligations exist in normal business operations
$1 to $2 trillion laundered worldwide each year
Money laundering is taking proceeds of criminal activities (i.e. drug
smuggling) & transforming cash in the appearance of legitimate business by
putting in bank, buying real estate, etc. to try to avoid law enforcement
attention.
Tony Soprano example:
Tony earns $1 million from loan sharking and drug dealing
Deposits cash into corporate bank account as income from laundry
Pays himself a salary
Looks like legitimate income
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Anti-Money Laundering (AML)
Regulations making money laundering more difficult
Banks (and any other organization receiving cash) must comply with
federal regulations.
Require financial organizations to use Know Your Customer (KYC) or
Customer Due Diligence (CDD) Programs
Track It Down: Tracing asset flows – large cash transactions are
suspect
Who Is Up to What? Must suspicious transactions – cash deposited
over certain amounts ($10,000) and unusual activities.
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Consequences for Non-compliance
Failure to File suspicious activity report
Civil/criminal penalties, or both
Civil penalties – willful violation of reporting requirements
Civil penalties can be up to the greater of the amount involved in a
transaction
Willful violations may lead to criminal penalties
Fines up to $250,000 or 5 years in prison
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Sentencing Guidelines and Compliance
Congress mandated that courts be given clear rules about imposing
sentences for criminal law violations.
Sentencing Commission created list of factors to consider for each
conviction.
Punishment is reduced under Sentencing Guidelines when a
company has a program in place to reduce chance of problems
DOJ has Guidelines for effective compliance programs.
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Sentencing Guidelines and Compliance (2)
Some companies have accounting and financial reporting to audit
committees to reduce likely problems.
Other companies hire an outsider to be on the compliance
committee.
Companies have whistleblower hotlines to encourage anonymous
tips.
However, some European countries, such as France, prohibit
hotlines saying person accused of impropriety has right to know
who complained.
Supreme Court HELD: Guidelines are advisory, not mandatory, for
judges to use, but judges are expected follow them closely.
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United States v. Allmendinger
Allmendinger and Oncale ran insurance investment scam. $100
million losses for 800 investors
Misrepresented what they were selling; pocketed cash rather than
investing it
When federal investigators closed in, Allmendinger hid assets.
Ringleaders were indicted by grand jury for Mail Fraud, Money
Laundering & Securities Fraud
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United States v. Allmendinger (2)
Court ordered them to freeze all accounts.
Allmendinger did not; transferred money to secret accounts.
After convictions, judge imposed sentences based on Sentencing
Guideline measures.
Due to size of loss, lack of cooperation with investigators by
Allmendinger, and hiding his money, he was given a 45-year
sentence.
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United States v. Allmendinger
Appeals Court considers whether district court committed procedural
error in calculating guideline range or explaining sentence imposed.
If so, sentence vacated and remanded for resentencing.
If not, then appeals court considers if sentence was “substantively
reasonable” under “abuse of discretion” standard.
Allmendinger and Oncale were viewed the same initially, but acted
differently.
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United States v. Allmendinger (2)
District court gave lengthy explanation for the sentence imposed and
reasons for selecting sentence it did.
Oncale plead guilty. Gave assets to the government and helped in
investigation.
Allmendinger refused to accept responsibility for his actions.
Anticipating his indictment, sought to hide cash
Continued to live a lavish lifestyle with the money
Hid money in violation of the restraining order
Attempted to flee just days before the trial
HELD: No error in Allmendinger’s convictions and sentence
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THE END
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