Tuesday, January 17, 2012

Post-Skilling Remand Includes Spillover

The Third Circuit in United States v. Wright held that the Skilling decision requires an new trial in this case on the honest services fraud convictions and that "prejudicial spillover tainted their traditional fraud convictions."  The court stated:

"An honest services fraud prosecution for bribery after Skilling thus requires the factfinder to determine two things.  First, it must conclude that the payor provided a benefit to a public official intending that he will thereby take favorable official acts that he would not otherwise take.  Second, it must conclude that the official accepted those benefits with the intent to take official acts to benefit the payor."

The court also stated that, "[i]n light of Skilling, the jury should have been instructed on the bribery theory but not the conflict-of-interest theory." 

The defense counsel on this case were Lisa A. Mathewson, Peter Goldberger, Ellen Brotman, and William A. DeStefano.

(esp)

January 17, 2012 in Corruption, Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 23, 2011

Some Further Thoughts On Judge Sullivan's Order

My colleague Ellen Podgor recently commented here on Judge Emmet Sullivan's 11-21-11 ORDER in In Re SPECIAL PROCEEDINGS, the ancillary proceedings initiated by Judge Sullivan to investigate the multiple Brady violations committed by DOJ prosecutors in U.S. v. Theodore Stevens. The ensuing investigation was conducted, on Judge Sullivan's behalf, by veteran DC lawyers Hank Schuelke and William Shields, who have now issued a report that is, I hope, only temporarily under seal.

It is obvious from reading his Order that Judge Sullivan is still outraged. That's a good thing. Until enough federal judges get hopping mad about systemic DOJ Brady violations, we will have no real legislative discovery reform at the federal level.

In addition to the points highlighted by Professor Podgor, Judge Sullivan's Order notes the following findings and conclusions by Schuelke and Shields:

1. "[T]he investigation and prosecution of Stevens were 'permeated by the systematic concealment of significant exculpatory evidence which would have independently corroborated his defense and his testimony, and seriously damaged the testimony and credibility of the government's key witness.'"

2. "[A]t least some of the concealment was willful and intentional, and related to many of the issues raised by the defense during the course of the Stevens trial."

3. Schuelke and Shields "found evidence of concealment and serious misconduct that was previously unknown and almost certainly would never have been revealed--at least to the Court and to the public--but for their exhaustive investigation."

4. Schuelke does not recommend criminal contempt proceedings, because "in order to prove criminal contempt beyond a reasonable doubt under 18 U.S.C. [Section] 401 (3), the contemnor must disobey an order that is sufficiently 'clear and unequivocal at the time it is issued'... [but] no such Order existed in this case. Rather, the Court accepted the repeated representations of the subject prosecutors that they were familiar with their discovery obligations, were complying with those obligations, and were proceeding in good faith."

5. "Mr. Schuelke also notes that '[i]t should go without saying that neither Judge Sullivan, nor any District Judge, should have to order the Government to comply with its constitutional obligations, let alone that he should feel compelled to craft such an order with a view toward a criminal contempt prosecution, anticipating its willful violation.'"

6. "Mr. Schuelke 'offers no opinion as to whether a prosecution for Obstruction of Justice under 18 U.S.C. [Section] 1503 might lie against one or more of the subject attorneys and might meet the standard enunciated in 9-27.220 of the Principles of Federal Prosecution.'" 

It is clear that most or all of this Report is going to be publicly released. It will be interesting to compare it to DOJ OPR's report, assuming that DOJ decides to release it. Two attorneys for two of the prosecutors under scrutiny have already announced that OPR's report clears their respective clients. DOJ has a long history of ignoring the critical comments of federal judges. The latest example of this took place in reference to the prosecution of former Blackwater employees. Despite Judge Ricardo Urbina's scathing factual findings regarding the conduct and credibility of the original set of prosecutors, they were treated to a laudatory/fawning DOJ press release upon reassignment. Urbina, like Sullivan, is one of the most respected federal judges in the country and his factual findings were not questioned or disputed on appeal. 

Some final thoughts.

1. For every Emmet Sullivan (or Ricardo Urbina or Howard Matz) there are 10 federal judges who unquestioningly accept the Government's representations regarding Brady issues, irrespective of non-frivolous matters brought to their attention by the defense bar.

2. The defense attorney has an obligation to ferret out Brady issues through the filing of detailed, fact-specific Brady motions closely tied to the formal allegations in the case.

3. We must rapidly move toward open discovery in the federal criminal system, with appropriate safeguards in place to protect witnesses where necessary. The presumption, however, must always be in favor of open discovery. Many states have gone this route without any disastrous consequences. It is appalling that civil litigants have substantially more access to discovery at the federal level than do people who are literally fighting for their liberty.

4. In the meantime, federal prosecutors must be relieved of the burden of determining whether exculpatory information is material. DOJ already recommends this in the Ogden Memo, but it should go one step further and require it. The rule should be: IF IT HURTS MY CASE IN ANY WAY, TURN IT OVER! When a man judges himself, the verdict is always in his favor. When a federal prosecutor, in the heat of trial or pretrial battle, is deciding whether exculpatory evidence is material, the verdict will too often be that it is not. Let's end this invitation to injustice.

5. Of course, federal prosecutors do not think like criminal defense attorneys. That's okay. We don't want them to! But this is the very reason why they cannot ultimately be trusted to make the determination of what is or is not exculpatory. The competent defense attorney headed to trial or sentencing is constantly thinking about anything that will help the defense. Prosecutors are not trained or inclined to do this. Even when they are trying to fulllfil their Brady obligations, AND THE VAST MAJORITY OF FEDERAL PROSECUTORS ARE TRYING TO DO THIS, they cannot be trusted to spot the issues. This difference in outlook/inclination/thought processes really comes to the fore during the period leading up to sentencing hearings, when the prosecutor looks at the defense attorney like a deer in the headlights when reminded of his/her obligation to provide any and all mitigating evidence!

6. Please. Let's have no more: "We understand our Brady obligations and intend to abide by them." Congress should pass a statute requiring some form of detention for any prosecutor who utters this bromide.

(wisenberg)

November 23, 2011 in Contempt, Corruption, Current Affairs, Government Reports, Investigations, Judicial Opinions, Legal Ethics, Media, Obstruction, Perjury, Prosecutions, Prosecutors | Permalink | Comments (4) | TrackBack (0)

Tuesday, November 8, 2011

Honest Services and Section 666 Includes Fraud Committed by a Foreign Worker

Second Circuit - United States v. Bahel - Honest Services -  Post-Skilling, courts have struggled with what gets included as bribery and kickbacks and what gets omitted from the new contours of honest services. In Bahel, the defendant was convicted of four counts of mail and wire fraud premised on a deprivation of the United Nations, his former employer, and a 666 violation and conspiracy. Issues of immunity were considered, but the court said that the "United Nations expressly waived Bahel's immunity" and that irrespective he waived the issue. The court held that "Section 1346 is broad enough to encompass honest services fraud committed by a foreign worker at the United Nations."

Bahel also argued "that ‘[n]o reading of [18 U.S.C. § 666] could plausibly be extended to the charges in this case,’ because ‘[t]he United States’ membership in the United Nations is not a "federal program" under [Section] 666(b), and the contributions made to the United Nations under the United States treaty obligation in the U.N. Convention and Charter is not a "benefit" or "form of Federal assistance" under that same sub-section.’ Bahel argues accordingly that Section 666 cannot reach the conduct at issue in this case."  The court, however, held that "the United Nations Participation Act, which authorizes the payment of the United States' dues to the United Nations (UN), is both a "federal program" and a "benefit" within the meaning of section 666, which encompasses bribes as well as illegal gratuities."

(esp)

November 8, 2011 in Corruption, Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Sunday, August 7, 2011

What's Happening in Congress - Clean Up Government Act & FCPA

It isn't all about the budget. And perhaps this one is ironic in many ways.  But there have been some interesting hearings that are well worth noting. NACDL has a press release on the "Clean Up the Government Act" here.  Also they have a Section-by-Section Analysis of the Clean Up the Government Act of 2011 (HR 2572).  The hearing can be found here.  And don't miss Tim P. O'Toole's (Miller & Chevalier) testimony before the House Committee on the Judiciary, Subcommittee on Crime, Terrorism & Homeland Security - Download OTooleTestimony_07262011

 There also was a hearing on the FCPA (here).  Check out the testimony of Shana-Tara Regon (Director - White Collar Policy- NACDL) - Download FCPA Regon Testimony

(esp) (blogging from Ottawa)

August 7, 2011 in Congress, Corruption, FCPA, News, Statutes | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 12, 2011

KPMG Global Study Confirms: Most Fraud Perpetuated by Company Bosses

Guest Blogger - Carolyn F. McNiven (DLA Piper)

Although 56 percent of fraud cases were preceded by red flags, instances where actions were taken in response to those red flags "fell massively" since 2007, according to a global KPMG survey. This is probably the most surprising and eye-opening observation in KPMG’s 2011 study, which also found that most fraud was committed by long-term employees, particularly male executives between the ages of 36 and 45; and individuals who worked in the finance area. The increased failure to respond to red flags highlights the need for companies not only develop system for identifying red flags, but also acting on them.

The other notable development KPMG found was an increase in the number of fraud matters perpetrated by company board members. According to KPMG, fraud by board members increased from 11 percent in 2007 to 18 percent in the 2011 analysis. Overall, it found that, "people most often entrusted with a company’s sensitive information and able to override controls are statistically more likely to become perpetrators." Nevertheless, this increase in crimes perpetuated by board members is significant.

KPMG’s global survey was based upon a review of 368 actual fraud investigations conducted by KPMG member firms in 69 countries, over the period January 2008 and December 2010. It only took into consideration frauds that were material to the company. According to KPMG, the majority of the investigations involved matters that were not publicized.

Some might argue that the nature of the investigations themselves accounted for this result: namely that only larger companies are in a position to engage KPMG to investigate such matters, consequently perpetrators examined by KPMG are necessarily more likely to be corporate executives who are in a position to commit fraud that is material to such companies. While KPMG’s data pool was necessarily limited, I think that it would be a mistake to discount their observations. Among other things, their profile of a fraudster fits the typical demographic of white collar criminal defendants in the United States, at least those prosecuted for federal crimes in the past few years, and is consistent with what I observed during my over 13 year tenure with U.S. DOJ.

Fraud is by and large an opportunistic crime. Insider-fraud thrives in environments of trust and access, as the survey points out. Individuals in the executive suite and higher level employees in the finance area are less likely on average to be closely supervised than clerks in accounts receivable. By analogy think of the security surrounding bank employees: tellers have their cash drawers counted after every shift; bank loan officers, who have access to vastly larger sums of bank funds, are generally not scrutinized in the same way although they too are human and subject to the same impulses to steal and self-deal.

That being said, KPMG’s observation that most perpetrators were long term company employees, is noteworthy. KPMG found in its 2011 survey that a solid majority (60 percent) of perpetrators worked at the company for more than five years; and 33 percent of perpetrators had worked at the company over 10.

So what turns a good employee into one who commits fraud? KPMG found that the primary motivators behind the fraud they investigated were greed and work pressure. KPMG found that attempts "to conceal losses or poor performance (possibly due to pressures to meet budgets and targets, to enhance bonuses, or to safeguard against loss of employment)" were motivating factors in many cases. Of course, greed – satisfied by misappropriating assets – was the other primary motivator that they identified.

Good employees turning bad may well also result from the same economic and cultural shifts we have seen in other areas. People -- particularly the middle class -- were hard hit in the recession resulting in increased financial pressure, which in turn can create the incentive to steal or "borrow" from one's employer. That incentive combined with a fairly systemic disenchantment with employers -- particularly those that downsized significantly --creates an environment where workers may be more likely to take what they can get from an employer, particularly if they believe that they are being undercompensated or the employer has transgressed in some way (for example, by paying its upper level management disproportionately while cutting staff and middle management).

All-in-all, KPMG’s 2011 global survey is eye-opening, and a reminder to all companies that they cannot be complacent. At a minimum, companies should regularly ensure that internal controls are operating effectively to prevent and detect insider fraud; and that red flags are not only seen, but acted upon.

Carolyn F. McNiven is a partner in DLA Piper’s San Francisco office where she is a Partner in the White Collar, Corporate Crime and Investigations practice. She is a former long-time federal prosecutor, and handles white collar criminal defense and related administrative, regulatory and compliance matters for individuals and companies. She has particular expertise in the areas of health care, food and drug, and FCPA compliance counseling, risk assessment and litigation.

July 12, 2011 in Corruption, Fraud | Permalink | Comments (0) | TrackBack (0)

Saturday, April 23, 2011

Lauren Stevens Case To Start Tuesday: Has The Government Overcharged?

The federal criminal trial involving former GlaxoSmithKline ("GSK") Vice President and Associate General Counsel Lauren Stevens commences this Tuesday in Greenbelt, Maryland. When I first read the Indictment, without knowing anything else about the facts, it struck me that the government may have overcharged. That is probably not a good sign for the feds, since the Stevens charging instrument is a classic one-sided speaking Indictment that seeks to put the United States' case in the best possible light.

The crux of the prosecution theory is that Stevens, who headed up a team of inside and outside GSK counsel responding to an FDA inquiry, withheld information about off-label marketing of Wellbutrin. Specifically, Stevens allegedly learned that several doctors, paid by GSK and speaking at GSK-sponsored events, promoted off-label (weight-loss) use of the drug. GSK's responses were part of a voluntary production pursuant to a written request from the FDA's Division of Drug Marketing, Advertising, and Communications ("DDMAC"). Stevens allegedly agreed, orally and in writing, to provide DDMA with "materials and documents presented at GSK-sponsored promotional programs, even if not created by, or under the custody or control of GSK." But, according to the Indictment, Stevens knowingly failed to produce numerous off-label promotional and presentation materials, provided to GSK by the doctors in question, with intent to obstruct an FDA proceeding. Rather than focusing entirely or primarily on this failure to produce, the Indictment lumps in many other broad statements contained in Stevens' various cover letters to the government. It seems to me that at least some of these statements are open to differing interpretations. Perhaps the government should have more narrowly honed in on the failure to turn over the presentation/promotional materials.

Part of Stevens' defense will entail her purported reliance on the advice of outside counsel in sending GSK's written responses to the FDA. The original Indictment was thrown out by Judge Roger Titus, because federal prosecutors incorrectly instructed the grand jury that reliance on the advice of counsel is only an affirmative defense. In fact, good faith reliance on advice of counsel negates the specific intent element under the federal obstruction and false statement statutes at issue in the trial.

This prosecution should strike terror into the hearts of inside and outside counsel throughout corporate America. Of particular note is that the FDA inquiry into off-label Wellbutrin marketing did not involve a compelled production and was not even quasi-criminal in nature.

Attached for our readers' benefit are some documents setting out the government's case and what are likely to be key portions of Ms. Stevens' defense.

Here are: Court's Memorandum Opinion Dismissing Indictment, Lauren Stevens Indictment(2), Background Section of Defense Response on Opinion Testimony, and Declaration of Brian O'Connor.

(wisenberg) 

April 23, 2011 in Arthur Andersen, Corruption, Current Affairs, Defense Counsel, Fraud, Grand Jury, Judicial Opinions, Legal Ethics, Obstruction, Prosecutions, Statutes | Permalink | Comments (0) | TrackBack (0)

Sunday, March 27, 2011

New ABA Website Features U.S. and International Anti-Corruption News and Peer-Reviewed Analysis by and for Practitioners

The American Bar Association’s Criminal Justice Section is launching a new website that provides up-to-date, practitioner-oriented information and analysis on global anti-corruption matters. Managed by the section’s Global Anti-Corruption Task Force, the site features, among other unique categories of information:

Peer-reviewed articles and analysis from practitioners worldwide;

Up-to-date news reports;

Extensive online resource links;

A library of presentations; and

Notices of upcoming anti-corruption events and seminars.

The task force provides a neutral, practitioner-focused online resource to monitor, evaluate and report on anti-corruption news and developments in transnational anti-bribery efforts. Focus is on the interplay between anti-corruption governmental efforts and the effect that those efforts have on global commerce and business development.

The website’s distinguishing features are: a) all published articles are peer-reviewed and available free of charge online; b) its subject-matter focus covers the globe, and not just the United States; c) published pieces come from leading practitioners and industry leaders from all over the world; and d) its objective is to provide news and analysis that is "for and by" practitioners who are looking for the latest developments and insights in the ever-changing global anti-corruption arena.

The site also provides extensive real-time news announcements and reports on criminal and regulatory enforcement activities relating to the Foreign Corrupt Practices Act, as well as similar international instruments such as the United Kingdom Bribery Act, the German Anti-Corruption Act, Russia’s National Plan for Counteraction to Corruption, and the U.N. Convention Against Corruption.

The Global Anti-Corruption Task Force is co-chaired by Assistant U.S. Attorney Andrew S. Boutros (in his personal capacity) and Perkins Coie Investigations and White Collar Defense Group partner (and former Assistant U.S. Attorney) T. Markus Funk.

A link to the task force website is available here.

(esp)

March 27, 2011 in Corruption, FCPA, International, News, Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, March 3, 2011

ABA White Collar Crime Conference - Public Corruption Panel

This afternoon breakout session on public corrruption was moderated by Joshua R. Hochberg (McKenna, Long & Aldridge).

Jack Smith, Chief of the Public Integrity Section of the Criminal Division of the Department of Justice,spoke about how his office was moving cases along. He stressed the importance of maintaining the deadlines that are established.  He also stated he has not found a problem finding statutes to use when bringing state and local corruption cases post the Supreme Court's modification of 1346. He said that other statutes are available to bring conflict of interest cases.

Robert M. Cary, a partner in the Washington, D.C., office of Williams & Connolly LLP,  noted the lack of transparency in discovery.  Until there is an enforceable rule, it will be a problem.

Laura A. Miller, Nixon Peabody LLP, said that "successful representation is when my name and my client's name does not appear in the press."

Patrick M. Collins, Perkins Coie LLP questioned why the government can't go the extra mile and have open file discovery.

The panel discussed the Speech & Debate Clause and how it can affect a case.  They also looked at discovery issues - Laura Miller noted the lack of uniformity on discovery issues.  She mentioned how in the "rocket docket" they receive Jencks material the Friday before trial. Jack Smith said that if it is close - turn it over.Jack  Smith said they sometimes he will highlight documents for the defense. He recognized his duty to go through documents and find Brady material.  Laura Miller noted that we should all work together to manage discovery.  A final topic discussed was venue.

(esp)(blogging from San Diego)

March 3, 2011 in Celebrities, Conferences, Corruption, Fraud | Permalink | Comments (0) | TrackBack (0)

Friday, February 18, 2011

Third Circuit Rules Losing Election Is A Hobbs Act Win

The Third Circuit Court of Appeals affirmed a district court opinion here that dismissed conspiracy and attempt charges under section 1951 (Hobbs Act) finding "that acting 'under color of official right' is a required element of an extortion Hobbs Act offense, inchoate or substantive, when that offense does not involve threatened force, violence or fear." The court looks at the text of the statute, the legislative history, and provides a wonderful discussion on the history of the phrase "extortion under color of official right." The bottom line is that "[c]onduct by an unsuccessful candidate in an election does not meet that requirement."

(esp)

February 18, 2011 in Corruption, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Monday, February 7, 2011

Post-Skilling Conviction Overturned on Corum Nobis

Finding no bribery or kickbacks, a U.S. District Court in the Eastern District of California set aside and vacated in its entirety an honest services mail fraud conviction. See here - Download Judicial Order The Motion to Vacate this Conviction was presented via a Motion of Coram Nobis - Download Corum Nobis Petition Some will obviously claim that this is why section 1346, the honest services fraud provision, should be rewritten.  Others of us will say - this is exactly why such a prosecutorial extension should not be allowed.  When prosecutors have a deprivation of "money or property," even when the property is intangible property, there is ample basis for prosecuting mail and wire fraud. But to allow prosecutions premised on intangible rights, with little understanding of what constitutes intangible rights, provides prosecutors with discretion that allows them to stretch prosecutions beyond what folks would recognize to be criminal conduct. Attorney Doug A. Goss represented the accused in this case.

See also Scott Smith, Recordnet, Judge vacates conviction of ex-prosecutor

(esp)

February 7, 2011 in Corruption, Fraud, Judicial Opinions, Prosecutors | Permalink | Comments (4) | TrackBack (0)

Monday, January 17, 2011

Speech and Debate Clause Hampers DOJ

Boo hoo. The Washington Post has a good article here, by Jerry Markon and R. Jeffrey Smith, about the Constitution's Speech and Debate Clause, and the various ways in which it is hampering DOJ corruption probes. Unfortunately, the article implies that certain high-profile cases were dropped primarily or solely because of Speech and Debate. This unfairly maligns the named lawmakers and/or former lawmakers in question, and makes it seem that they were let off on a technicality. That damned technical Constitution--always getting in DOJ's way. In fact, the very idea that DOJ wiretapping of House members was, until recently, considered a legitimate and entirely appropriate law enforcement tool is a testament to how out of whack the balance of powers between the Legislative and Executive Branches has become. Congress finally woke up and smelled the coffee and, with an assist from the DC Circuit in U.S. v. Rayburn House Office Building, is resisting Exective Branch encroachment on its institutional powers. 

(wisenberg)

January 17, 2011 in Congress, Corruption, Current Affairs, Investigations, Prosecutions, Prosecutors, Searches | Permalink | Comments (0) | TrackBack (0)

Friday, January 14, 2011

Corruption in Florida?

At the end of this past year, the Statewide Grand Jury in Florida issued its first Interim Report - Statewide Grand Jury Makes Anti-Corruption Recommendations in First Interim Report(Report is here) According to the press release issued at that time -

"Key recommendations of the Statewide Grand Jury include:

- Expanding the definition of public employees to include private employees contracted by government entities that perform government services;
- Creating sentencing enhancements for offenses committed by officials who use their public position to facilitate their crimes;
- Creating an independent State Office of Inspector General, responsible for hiring and firing agency Inspectors General;
- Expanding definition of criminal bid tampering to include bid-rigging schemes; and
- Authorizing the Ethics Commission to initiate investigations with a supermajority vote of commission members."

This report comes at an interesting time, as the American Law Institute is gearing up for a new project called Principles of Government Ethics.

(esp)

January 14, 2011 in Corruption, Government Reports, Grand Jury, News | Permalink | Comments (1) | TrackBack (0)

Wednesday, January 12, 2011

Tom DeLay: Political Prisoner

The Washington Post reports here on the three year prison sentence handed down Monday to former House Majority Leader Tom DeLay by Texas state judge Pat Priest. DeLay was found guilty last November by an Austin jury of money laundering and conspiracy to commit money laundering under Texas criminal statutes.

The prosecution of DeLay by Travis County District Attorney Ronnie Earle and his successor has been nothing less than a travesty of justice. This is really not about Tom Delay. You can love him or you can hate him. It is instead about our collective glee whenever a person of an opposing ideology gets indicted.

Earle originally indicted DeLay for conspiracy to commit money laundering and conspiracy to violate the state election code. The election code conspiracy charge was almost immediately thrown out because there was no such crime in existence in Texas, as Earle should have known, and as the state’s highest criminal court later confirmed. The money laundering charge, and the conspiracy charge on which it is bottomed, should have never been brought either. Here’s why.

Delay's alleged laundering activity was accomplished through the writing of checks. DeLay was accused and convicted of knowingly conducting, supervising, and facilitating a transaction involving the "proceeds" of criminal activity in violation of the state money laundering statute, Texas Penal Code Section 34.02. In 2002, the year of the alleged offense, Section 34.01 of the Penal Code provided that "‘Proceeds’ meant "funds acquired or derived directly or indirectly from, produced through, or realized through an act." Section 34.01 defined "funds" as follows.

"‘Funds" includes:

(A) coin or paper money of the United States or any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issue;

(B) United States silver certificates, United States Treasury notes, and Federal Reserve System notes; and

(C) official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country and foreign bank drafts."

So, in 2002 the "proceeds" of criminal activity meant "funds" acquired, derived, produced or realized through an act. "Funds" in turn included: coin or paper money designated as legal tender, circulating, and used as a medium of exchange; United States silver certificates, United States Treasury notes, and Federal Reserve System notes; and, official foreign bank notes used and accepted as a medium of exchange in a foreign country, and foreign bank drafts. Most conspicuously, "funds" did not include checks. This was no accident. The final version of the 1993 money laundering statute was far narrower than the draft first introduced in the Texas House of Representatives. The initial draft prohibited the knowing facilitation of a transaction involving "property" that was the "proceeds" of criminal activity. Property was defined broadly to cover tangible or intangible personal property as well as "a document, including money, that represents or embodies anything of value."

I am aware of no reported cases under the original Texas money laundering statute, prior to DeLay’s indictment, in which the proceeds of criminal activity were identified as checks. In the vast majority of the cases, the laundered proceeds consisted of currency. There were no reported cases even discussing whether a check could constitute laundered funds. The reason for this is obvious. Virtually no prosecutor in Texas thought that checks were "funds" under the old money laundering statute. 

In 2005, the Texas Legislature amended the money laundering statute and broadened the definition of "funds" to include "currency or its equivalent including an electronic fund, personal check, bank check, traveler’s check, money order, bearer negotiable instrument, bearer investment security, bearer security, or certificate of stock in a form that allows title to pass on delivery." The House Research Organization’s analysis of the amendment stated that it would "broaden the definition of ‘funds’ to include money other than cash." The analysis also notes, in the "Supporters Say" section, that "[u]nder current law, prosecutors may not prosecute offenders for money-laundering if the offender received a form of money other than cash, such as checks or money orders. This is inadequate as it prevents prosecution under this statute in an array of cases." The new bill "would fix this problem by covering money received in a variety of forms other than cash." It gets even worse. Members of Travis County District Attorney Ronnie Earle’s own staff helped in the drafting of the 2005 amendment!

Of course DeLay could not be prosecuted under the 2005 version of the statute, for conduct that allegedly occurred in 2002, without violating the Constitution’s ex post facto clause. But that sort of problem did not bother Earle. He simply used the 2002 version, even though nobody thought back then that "laundering" via checks constituted laundering under Section 34.02.

The case is now headed for the higher courts. Here’s hoping that one of them does the right thing.

(wisenberg)

January 12, 2011 in Celebrities, Corruption, Current Affairs, Money Laundering, Sentencing | Permalink | Comments (0) | TrackBack (0)

Sunday, October 31, 2010

An Overlooked Key to Combating Overcriminalization: Reflecting on a Decade of Supreme Court Decisions Disfavoring Overly-Expansive Interpretations of Criminal Statutes

Guest Blogger - Dane C. Ball - Gerger & Clarke

Federal courts often make an understandable mistake when faced with issues of statutory interpretation in criminal cases, focusing only on precedent that is directly on point.  As a result, courts sometimes miss important trends that are broader than a specific statute or case.  The fight against overcriminalization—which in part stems from overly-expansive readings of criminal statutes—is one such trend.  By reflecting on a decade of Supreme Court decisions invalidating overly-expansive readings of criminal statutes, lower courts might notice the trend and avoid repeating previous mistakes that led to overcriminalization. 

Since 1999, and in the midst of stiff opposition from prosecutors and lower courts, the Supreme Court has spend much of its effort curtailing the seemingly-limitless reach of various federal criminal statutes. 

  1. Mail and Wire Fraud:  In Neder, the Supreme Court rejected the argument that the federal fraud statutes contain no “materiality” requirement in relation to misrepresentations or omissions.  In Cleveland, the Court rejected the position that a State’s “right” to truthful information in a license application is “property” protected by the fraud statutes.  And most recently, in Skilling, the Court limited the honest-services fraud statute to “bribe and kickback” schemes, rejecting a more expansive interpretation extending the statute to undisclosed “conflicts of interest” and “self dealing.”
  2. Money Laundering:  In Cuellar, the Supreme Court disagreed that the federal money laundering statutes criminalize the act of concealing money merely to transport it, rather than transporting  money to conceal it.  And in Santos, the Court held that the term “proceeds”—at least when applied to illegal gambling—means “profits,” not “gross receipts.” 
  3. Bribery:  In Sun-Diamond Growers of California, the Supreme Court determined that, contrary to the government’s position, bribery under 18 U.S.C. § 201 requires a quid pro quo—i.e., a link between a “thing of value” and a specific “official act.”

 Read in isolation, each decision addresses a specific statute and utilizes—in addition to common canons of statutory interpretation—specific principles to narrow the statute (e.g., fair notice or federalism).  But when courts read these cases in isolation, they inevitably end up watering down their true meaning and intended effect.  For example, after Neder, courts so broadly interpreted the “materiality” element that misrepresentations and omissions rarely are deemed immaterial; after Santos, lower courts overwhelmingly refused to apply the decision’s definition of “proceeds” outside the gambling context (and Congress later amended the definition to expressly include “gross receipts” in all cases); after Sun Diamond, most courts have refused to require a specific quid pro quo under bribery statutes similar to section 201, such as section 666; and after Skilling, at least one court (the Northern District of New York, in a case called Queri) has allowed the government to repackage invalidated honest-services theories as “intangible property” theories.

If the Supreme Court cases are read together, on the other hand, they show a decade-long trend disfavoring overly-expansive readings of criminal statutes, which contribute to overcriminalization.  Equally important, when read together the cases provide all the tools needed to avoid expansive interpretations and overcriminalization, rather than one tool discussed in one case addressing one statute.  Lower court’s should keep this Supreme Court trend in mind in future cases. 

Dane C. Ball is a Houston-based criminal defense attorney with Gerger & Clarke.

(DCB)

October 31, 2010 in Corruption, Money Laundering | Permalink | Comments (0) | TrackBack (0)

Saturday, October 30, 2010

High Marks for Mounting U.S. Foreign Anti-Bribery Efforts -Part 4 of a 5-Part Series

Guest Blogger - T. Markus Funk

OECD Phase 3 Report's General Findings

The 68-page OECD Phase 3 report, issued on October 21, 2010, represents what some regard as the largest available collection of statistics and other information on the Foreign Corrupt Practices Act (FCPA). The assessment provides issue-by-issue analysis of ongoing U.S. enforcement efforts, highlighting a number of key trends and successful practices:

  • Resolving most FCPA cases through plea agreements, deferred-prosecution agreements, and non-prosecution agreements has paid off, resulting in strong enforcement and private sector compliance, without the attendant costs, time, and resource-drain of trials.
  • The Federal Sentencing Guidelines allowing for stiff criminal sanction, more focused SEC guidance, and the potential for hefty civil penalties motivate companies to establish effective compliance policies and procedures.
  • Internal audits of both domestic and foreign subsidiaries, trainings, and whistleblower tip hotlines are the most critical compliance measures.
  • Many FCPA investigations are launched by, or through, U.S. foreign service officers serving in U.S. Embassies overseas.
  • Foreign data protection laws frequently impede companies' abilities to obtain access to the books and records of subsidiaries abroad.
  • From a risk-evaluation standpoint, there are three primary areas requiring the most robust anti-bribery measures: (1) Third parties, including local agents and joint venture partners, (2) facilitation payments, especially to customs officials, and (3) payments for travel, gifts and hospitality.
  • The business community considers corporate monitors with DOJ experience as being the most desirable.
  • The U.S. has devoted significant resources to FCPA enforcement, creating dedicated FCPA units in the DOJ, SEC, and FBI, which, in turn, yield economies of scale, concentrated expertise, and increased enforcement consistency.
  • New federal legislation, including the recent Dodd-Frank whistleblower bounty provisions, is expected to accelerate the detection of FCPA violations and the initiation of investigations and prosecutions.

For the full text of the OECD Phase 3 report: http://www.oecd.org/dataoecd/10/49/46213841.pdf

v "[The U.S. has achieved a] record level of monetary penalties and disgorgement, which should provide a major disincentive to bribing foreign public officials by U.S. companies, FMNEs listed in the U.S., and individuals and a major incentive for establishing effective compliance programmes and measures."

v "Across the board, these companies cited active enforcement by the DOJ and the SEC, in particular recently imposed large financial penalties, as the main thrust for putting into place these measures."

v "The U.S. authorities believe that in light of [the Dodd-Frank Act's whistleblower bounty provisions], reporting violations of the FCPA is likely to increase."

v "FCPA enforcement figures are expected to increase in the near future."

The corresponding USDOJ press release can be found at http://blogs.usdoj.gov/blog/archives/1020

By T. Markus Funk (mfunk@perkinscoie.com). Markus is a partner in Perkins Coie's Investigations and White Collar Defense Group. Markus spent the past 10 years as an Assistant U.S. Attorney in Chicago, Illinois, most recently serving in U.S. Attorney Patrick Fitzgerald's Public Corruption and Organized Crime Section. Markus' full bio is at www.perkinscoie.com/mfunk

(tmf)

October 30, 2010 in Corruption | Permalink | Comments (1) | TrackBack (0)

Thursday, October 28, 2010

High Marks for Mounting U.S. Foreign Anti-Bribery Efforts -Part 3 of a 5-Part Series

Guest Blogger - T. Markus Funk

DOJ's Heavy Reliance on Non-Prosecution and Deferred-Prosecution Agreements

Although non-prosecution agreements and deferred prosecution agreements have been in use since the early 1990s, the October 21, 2010, OECD Phase 3 report points out that only in recent have they become household tools for Main Justice prosecutors:

  • Non-prosecution agreements and deferred prosecution agreements in FCPA cases began in 2004; since then, they have been used in 30 out of 39 completed criminal enforcement actions against companies.
  • DOJ's annual average number of non-prosecution agreements and deferred prosecution agreements has grown from less than 5 in 2004 to a high of 38 in 2007.
  • Since 1998, 23 of the 44 criminal FCPA enforcement actions have resulted in appointment of corporate monitors to ensure compliance with the agreement's terms, in most cases for three years.

U.S. Administration Message: This Is Only The Beginning

During his May 31, 2010, address to the OECD in Paris, Attorney General Eric Holder reiterated the U.S. Government's continued resolute support for the Anti-Bribery Convention: "As Attorney General, I have made combating [global] corruption one of the highest priorities of the Department of Justice." Attorney General Holder also announced the U.S. government’s intent to strengthen global anti-bribery efforts through enhanced transnational collaboration and the sharing of "best practices." Said Attorney General Holder:

The OECD has been at the forefront of efforts to combat corruption wherever and however it occurs . . . . As Attorney General, I have made combating corruption one of the highest priorities of the Department of Justice . . . . [N]one of the progress the United States has made would have been possible without the long-term cooperation of our law enforcement partners around the globe – cooperation fostered by relationships established through the OECD . . . . I urge the countries [that have not yet achieved criminal convictions in anti-bribery cases] to deepen their commitment to this global effort by dedicating the appropriate resources, such as prosecutors and investigators focused exclusively on foreign bribery cases, and by prioritizing the prosecution of corruption, no matter where the evidence leads.

Attorney General Holder also delivered a diplomatically worded, but in reality quite withering, broadside to the outsized group of foot-dragging signatories: "[I]t is important to note that many of the 38 OECD member countries have no criminal convictions to date. This is not because bribes are not paid by companies in these OECD countries. It is because investigating and prosecuting corruption is difficult, requiring more will, resources, experience, and effort than most crimes." 

Not coincidentally, in the month following the Attorney General's OECD speech, the U.S. House passed the Dodd-Frank Act’s conference report of the bill containing the innovative whistleblower bounty provisions. Such proactive public pronouncements, coupled with targeted, stepped-up law enforcement action yielding tangible results, explain why the OECD report so effusively lauds U.S. efforts to date.

For the full text of the OECD Phase 3 report: http://www.oecd.org/dataoecd/10/49/46213841.pdf

The corresponding USDOJ press release can be found at http://blogs.usdoj.gov/blog/archives/1020

By T. Markus Funk (mfunk@perkinscoie.com). Markus is a partner in Perkins Coie's Investigations and White Collar Defense Group. Markus spent the past 10 years as an Assistant U.S. Attorney in Chicago, Illinois, most recently serving in U.S. Attorney Patrick Fitzgerald's Public Corruption and Organized Crime Section. Markus' full bio is at www.perkinscoie.com/mfunk

(tmf)

October 28, 2010 in Corruption | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 26, 2010

High Marks for Mounting U.S. Foreign Anti-Bribery Efforts -Part 2 of a 5-Part Series

Guest Blogger - T. Markus Funk

U.S. Anti-Corruption Efforts At An All-Time High

The U.S. government has placed the fight against bribery of foreign public officials at the top of its list of critical law enforcement priorities. The October 21, 2010, OECD Phase 3 report concludes that this focus translates into vigorous law enforcement action:

  • Prosecutions have increased from less than 5 per year between 2001 and 2005, to almost 19 per year between 2006 and 2009.
  • Between 1998 and September 2010, some 50 individuals and 28 companies were convicted of foreign bribery-related offenses, while 69 individuals and companies have been held civilly liable for foreign bribery.
  • Of the 36 individuals who have been convicted of FCPA violations and sentenced during this period, 25 received sentences of imprisonment, with the average sentence being slightly more than 30 months.
  • 26 companies have been publically sanctioned for foreign bribery under increasingly-popular non-prosecution agreements and deferred prosecution agreements.
  • Since 1998, the U.S. has imposed over $2 billion in bribery-related criminal fines against legal persons.

Rounding out this impressive -- and peerless -- enforcement picture, the OECD report emphasizes the U.S. government's imposition of massive sanctions for accounting misconduct and money laundering related to foreign bribery. Consider, for example, that between 1998 and 2003, the maximum monetary sanctions leveled against a company in an FCPA case was $2.5 million. But in the past 6 years some 23 companies were sanctioned to the tune of more than $10 million each, and during roughly the same time U.S. disgorgement actions have reeled in more than $1 billion in foreign bribery proceeds. In fact, in one case, the U.S. government imposed sanctions totaling $800 million against a single company.

The SEC, a federal agency increasingly in anti-bribery motion, obtains civil penalties separate from DOJ criminal fines for foreign bribery-related misconduct. In the first 9 months of 2010 alone, the SEC obtained over $404 million in disgorgement, interest and civil penalties from 13 companies and 8 individuals.

And the business and legal communities have certainly noticed these ramped-up, multi-faceted (and multi-agency) enforcement efforts. According to the OECD report, business leaders credit heavy sanctions and amplified prosecutions for having "significantly raised the FCPA‘s profile," resulting directly in more finely-tuned anti-bribery measures and internal controls, and more carefully-calibrated compliance systems.

For the full text of the OECD Phase 3 report: http://www.oecd.org/dataoecd/10/49/46213841.pdf

The corresponding USDOJ press release can be found at http://blogs.usdoj.gov/blog/archives/1020

By T. Markus Funk (mfunk@perkinscoie.com). Markus is a partner in Perkins Coie's Investigations and White Collar Defense Group. Markus spent the past 10 years as an Assistant U.S. Attorney in Chicago, Illinois, most recently serving in U.S. Attorney Patrick Fitzgerald's Public Corruption and Organized Crime Section. Markus' full bio is at www.perkinscoie.com/mfunk

(tmf)

October 26, 2010 in Corruption | Permalink | Comments (2) | TrackBack (0)

Monday, October 25, 2010

High Marks for Mounting U.S. Foreign Anti-Bribery Efforts -Part 1 of a 5-Part Series

Guest Blogger - T. Markus Funk

On October 21, 2010, the Organization for Economic Cooperation and Development (OECD) issued its much-anticipated "Phase 3" report. This weighty report formally grades the U.S.'s constantly constricting anti-bribery enforcement noose, concluding that U.S. efforts provide a model other nations seeking to similarly fortify their anti-corruption efforts should emulate.

The OECD points its shaming finger at signatory nations not living up to their anti-bribery obligations, and the organization in its report also identifies certain discrete areas for U.S. improvement. But the deep-dive assessment's bottom-line message is that the U.S. government is out in front – way out front – in its all-out offensive against foreign bribery. And the U.S. is not waiting for others to catch up.

OECD Anti-Bribery Convention: The World's Leading Anti-Bribery Instrument

By way of some background, the historic 1997 OECD "Convention of Combating Bribery of Foreign Public Officials in International Business Transactions," adopted by 38 countries, announces standards criminalizing foreign bribery. The OECD Anti-Bribery Convention, in fact, remains the only such international anti-corruption instrument.

In an effort to encourage compliance, the highly-regarded OECD peer-reviewed Working Group on Bribery Monitoring carefully, and publicly, scrutinizes signatories’ performance. The Working Group, in so doing, takes a holistic approach, collecting input not only from the subject signatory governments, but also from representatives of the private sector and civil society. The end-product is an all-things-considered written assessment which enjoys the high regard of the broader international legal and political community.

In terms of procedure, OECD evaluations take place in phases: Phase 1 evaluates the adequacy of a country’s legislation to implement the OECD Anti-Bribery Convention, and Phase 2 assesses whether a country is applying this legislation effectively. Phase 3 then focuses on enforcement of the Convention, the 2009 Anti-Bribery Recommendation, and any earlier recommendations that remain outstanding. An evaluation for good reason feared by many signatory nations, the OECD Phase 3 probing U.S. compliance with the Anti-Bribery Convention will undoubtedly receive a warm, appreciative reception in the Nation's capitol.

For the full text of the OECD Phase 3 report: http://www.oecd.org/dataoecd/10/49/46213841.pdf

The corresponding USDOJ press release can be found at http://blogs.usdoj.gov/blog/archives/1020

By T. Markus Funk (mfunk@perkinscoie.com). Markus is a partner in Perkins Coie's Investigations and White Collar Defense Group. Markus spent the past 10 years as an Assistant U.S. Attorney in Chicago, Illinois, most recently serving in U.S. Attorney Patrick Fitzgerald's Public Corruption and Organized Crime Section. Markus' full bio is at www.perkinscoie.com/mfunk

(tmf)

October 25, 2010 in Corruption | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 5, 2010

Legislators and Lobbyists Charged in Alabama

Here is the Alabama Electronic Bingo Indictment, unsealed yesterday.

(slw)

October 5, 2010 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Thursday, September 30, 2010

NACDL's 6th Annual Defending the White Collar Case Seminar – “Where Do We Go From Here? Honest Services Fraud and Public Corruption,” Thursday, September 30, 2010

Guest Blogger: Steven P. Ragland, Keker & Van Nest LLP (San Francisco, CA)

Moderator: Abbe David Lowell

Panelists: Miguel A. Estrada, Ross Garber, Hon. Barbara M. G. Lynn and Timothy O’Toole

The future of honest services fraud—that immensely nebulous charge—was addressed by an afternoon panel comprised of Miguel Estrada, Ross Garber, Hon. Barbara Lynn, Jack Smith (N.D. Tex.), and Tim O’Toole.  Abbe Lowell moderated. 

The context was set by a complex hypothetical involving government contracts and an amorphous “benefit” without a concrete quid pro quo.  In other words, the perfect scenario for a charge-of-last resort.  Now that the United States Supreme Court has limited the reach of honest services fraud charges with the recent Skilling opinion, the future of honest services/public corruption charges is unclear.  The Court said that bribery and anti-kickback charges are certainly viable in the post-Skilling world, but undisclosed conflicts of interest may no longer be sufficient to state a federal crime.  Indictments alleging mushy, apparent benefits short of a concrete quid pro quo, therefore, are vulnerable to challenge. 

Here, the hypothetical is one of those mushy cases.  The target of the investigation, Reynolds, is a U.S. Congressman and former Texas state legislator.  Since the Texas legislature is a part-time gig, Reynolds was employed by Dallas Dynamics when in the State house.  Dallas Dynamics is a recipient of state contracts.  Reynolds’ compensation from Dallas included a bonus based on business he generated.  One year, the state Comptroller, Brown, awarded a contract to Dallas Dynamics after Reynolds introduced Brown to Dallas Dynamics’ CEO, Cowen.  As a result of this contract, Reynolds received a $1.5 million bonus.  Brown’s office also got increased appropriations thanks to help from legislator Reynolds.  Reynolds and Cowen agreed to pay his bonus out over the course of 8 years.  As a result, there was no discernible spike in Reynolds’ income.  Reynolds reported his income from Dallas Dynamics, but did not particularize the salary and bonus amounts or reveal that part of his compensation was based on bringing in business.  Dallas Dynamics hired Reynolds’ son soon after receiving the government contract.  Finally, after becoming a U.S. Congressman, Reynolds could no longer earn new income from outside work, but he did disclose the remaining years of amounts owed to him by Dallas Dynamics in the same way as he did while in the state house.

A key preliminary issue identified was the need for separate representation for Reynolds, for Cowen, for Brown, and possibly for the son too.  This issue of ensuring no conflict in representation is a theme that has run through several of the panels today.  The broad consensus is that the more separate lawyers, the better.  Even if individuals sign conflict waivers, the better practice is to provide separate counsel.  From a judicial perspective, conflicts are not only problems for the immediate case, but down the road in case one of the targets is convicted and later raises the conflict issue as a habeas petition.  The possibility of collateral attacks and ineffective assistance claims make separate representation all the more important and prudent. 

Adding to the need for more lawyers in the hypothetical investigation, entities such as the Comptroller’s Office and the Texas legislature will likely receive investigative subpoenas.  Because these agencies and entities need to protect themselves against allegations of spoliation or even obstruction, separate, independent counsel is very important. 

This led to a discussion of joint-defense agreements, whether they should be written or oral, and whether the prosecutor could challenge a joint defense agreement under the theory that it is tantamount to a joint representation conflict?  It’s probably unlikely that a court would declare a joint defense agreement null and void.  But, if someone in the joint defense pleads out, there may be judicial oversight, requiring, for example, notice to the other members if one person is going to start talking to the government.

Going back to the hypothetical, is a case viable if it alleges that as a state senator, Reynolds failed to disclose properly his true benefit from Dallas Dynamics because the bonus payment was not separately disclosed?  Reynolds appears to have gotten an improper benefit by introducing Brown to Cowen and the business-generation bonus was hidden. 

Now, after Skilling (and Black) limited the breadth/application of the honest services statute, it is much more difficult to bring a viable indictment under that theory case because there is no evidence of an explicit agreement.

Post-Skilling, do you have to allege there was a quid pro quo?  Unclear.  If the theory is bribery, probably so.  But, if you make this hypothetical into a kickback case, you may be able to allege that Reynolds got a kickback in the form of his bonus by using his public office to arrange the contract.  By creative pleading, such as using section 371 (conspiracy) and section 666 (bribery), an indictment might survive even without an allegation of a concrete quid pro quo.  If it does not allege an actual bribery or kickback, such allegations are vulnerable to a bill of particulars and a mere failure-to-disclosure scenario is probably no longer enough.  Additionally, the line between illegitimate “gratuity” and legitimate, e.g., campaign contributions is very hard to draw. 

But ultimately, how big is the gap that Skilling left?  The consensus is that some creative pleading of conspiracy, bribery/kickback charges can probably survive initial motions to dismiss.  There may be proof issues, particularly at the Rule 29 stage, but such charges are probably sufficient in the first instance.

Finally, Congress is now looking at how to fill the “gap” left by the Skilling case—trying to find a way to make the mushy case that the Supreme Court kicked out again subject to prosecution.   Senator Leahy’s current gap-filling measure criminalizes the failure to disclose a benefit that was “in whole or in part” motivated by a private interest. 

My ultimate take from the discussion is that while the narrowing of honest services charges is indeed a boon to defense lawyers and the accused, and should impose upon prosecutors a higher bar to charging public corruption cases, the ultimate fallout is unclear.  There are plenty of arrows left in the government’s quiver and Congress seems eager to simply provide more ammo.  Time will tell, but a cynic (e.g., a criminal defense lawyer) would guess that the victory—as important and monumental as it was—may prove academic for all but a handful of individuals…and ultimately short-lived.

(spr)

September 30, 2010 in Conferences, Corruption, Fraud | Permalink | Comments (0) | TrackBack (0)