Friday, January 15, 2010
GAO issued a third report on Deferred Prosecution Agreements (DPA) and Non-Prosecution Agreements (NPA), this time titled - DOJ Has Taken Steps to Better Track Its Use of Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness. The report recommends that:
"To assess its progress toward meeting its strategic objective of combating public and corporate corruption, the Attorney General should develop performance measures to evaluate the contribution of DPAs and NPAs towards achieving this objective."
There were 12 U.S. District and magistrate judges who provided comments that assisted in the report. A highlight sheet on the report states that "prosecutors, company representatives, monitors, and judges with whom GAO spoke more frequently cited disadvantages to greater judicial involvement - such as the lack of time and resources available to judges and concerns about the separation of powers and constitutionality of increased judicial involvement -than advantages to such involvement-such as the court's ability to act as an independent arbiter of disputes, increased transparency in the DPA process, and decreased perceptions of favoritism in selecting the monitor."
I wonder what defense attorneys would have said if they had been consulted on this question.
Prior Reports - Prosecutors Adhered to Guidance in Selecting Monitors for Deferred Prosecution and Non-Prosecution Agreements, but DOJ Could Better Communicate Its Role in Resolving Conflicts;Preliminary Observations on DOJs Use and Oversight of Deferred Prosecution and Non-Prosecution Agreements
Tuesday, January 5, 2010
In the wake of recent events that demonstrate discovery violations (see here), DOJ has issued three new policies here. It is wonderful to see that DOJ is beefing up its discovery practices and taking a hard look at what should happen in the future. It also sounds like a better management system is being considered. But that said, looking at the actual guidance memo, here are a few preliminary comments -
- After telling prosecutors that they need to familiarize themselves with Brady, Giglio and other discovery rules and statutes, the paragraph ends with a statement that this new memo "provides prospective guidance only and is not intended to have the force of law or to create or confer any rights, privileges, or benefits." Yes, this is the standard language one finds throughout the DOJ manual. But wait a minute -- although DOJ guidelines can be guidelines, these mandates are constitutional, statutory, and rules - they often do have the force of law. This fact should be emphasized to prosecutors.
- The memo states - "Prosecutors should never describe the discovery being provided as 'open file.'" The memo explains the fears of missing something. It seems odd that the DOJ doesn't want prosecutors to accept credit when they do the right thing and provide all discovery. Saying not to call it "open," for fear of missing something, implies that this is not a policy that recognizes the value of an "open file" system that can work well and provide efficiency. And taking this one step further -- if it is not acknowledged as an "open discovery" practice, and something is missed - will it sound any better to the accused who failed to receive their discovery material?
- The memo gives no real guidance as to when a prosecutor has to turn over Jencks material, and leaves it to the individual offices to create their individual rules. It is ironic that DOJ wants sentencing consistency, but doesn't want discovery consistency. Should a defendant in Wyoming have different rights to witness statements than the defendant in New York?
- It is good to see memorialization of witness statements is important. But only turning over "material variances in a witness's statements?" Shouldn't all variances be turned over?
- It is interesting how the memo provides an extensive review process of discovery material - will this hold up getting the materials to defense counsel? Also will defense counsel be given an equal amount of time to review these materials and time to conduct additional investigation that may be warranted as a result of the materials provided?
- And yes, it is important to protect witnesses and national security - but should DOJ be the one deciding when they think they can withhold evidence? Shouldn't that be for neutral parties like the judiciary?
It is good to see DOJ trying to do a better job than past administrations, but what really needs to be done is setting forth clearer rules and statutes by independent parties, as opposed to a working group made up of "senior prosecutors from throughout the Department and from United States’ Attorney Offices, law enforcement representatives, and information technology professionals," so that our system does "do justice" as desired by AG Holder.
Wednesday, December 9, 2009
In a recent press release, President Barak Obama announced that he was establishing an interagency Financial Fraud Enforcement Task Force. The executive order (13519) lists a long list of individuals offices that will be represented on this task force (e.g. Homeland Security, FTC, SBA). Yes, TARP is also at the table. At the head of the task force is the Attorney General with the Deputy AG directing the work of the task force. The task force clearly has a mission of coordinating efforts for financial fraud prosecutions. Perhaps the most interesting aspect of the task force is found near the end of the executive order - "The Task Force shall replace, and continue the work of, the Corporate Fraud Task Force" which had been created by a 2002 Executive Order. The use of a task force is not new for DOJ. In addition to the Corporate Fraud Task Force, we have seen task forces like the Katrina Hurricane Task Force that focused on fraud. (see here).
One aspect that is particularly good to see as an aspect of this task force is its "Outreach" section. It states:
AG Holder comments on this new task force here.
Outreach. Consistent with the law enforcement objectives set out in this order, the Task Force, in accordance with applicable law, in addition to regular meetings, shall conduct outreach with representatives of financial institutions, corporate entities, nonprofit organizations, State, local, tribal, and territorial governments and agencies, and other interested persons to foster greater coordination and participation in the detection and prosecution of financial fraud and financial crimes, and in the enforcement of antitrust and antidiscrimination laws.
Sunday, September 6, 2009
As noted here, the SEC's release of the executive summary of the Madoff Report (Investigation of Failure of the SEC to Uncover Bernard Madoff's Ponzi Scheme) demonstrated that there was no finding of corrupt conduct. But the bottom line was that the ball was dropped on more than one occasion. It is, of course, easy to look back and examine the mistakes made. The 477 page Report, now released, allows that to be done. But as people ponder the sad findings in this report, the more important report and findings that need to now be made - is what to do about all of this to make certain it won't happen again. Clearly the new SEC chair has put into place some measures to allow for better regulations and control. But is this enough? Some thoughts -
- If this had been a company that had missed the red flags, the DOJ would be making them pay a lot of money, institute a more effective corporate compliance program, and probably have monitors in place to make certain that wrongdoing would not occur again.
- Is Madoff no different from the rogue employee who operates improperly and hurts innocent victims (in this case the victims are those who invested, those who benefitted from entities that had invested, and the general public).
- Will there ever be sufficient controls in place without thorough outside monitoring? In the case of corporations, the DOJ typically wants more than a company compliance program and looks for outside monitors to make certain there are no future violations. Should the SEC be held to a lesser standard? No - I am not suggesting that we employ John Ashcroft for this one.
- An Inspector General Report after-the-fact is wonderful, but where was the oversight when this fraud was occurring.
- It is easy to put blame on individuals who may have missed items, but we need to also consider their workload and whether it was reasonable for them to discover this fraud and whether more resources and systems are needed to assure they can properly perform their jobs.
- Clearly it is easy to Monday morning quarterback, especially on a Sunday over Labor Day - but this amount of fraud needs more thought and consideration.
The 477 pages tells us what happened. Now we need to examine the controls in place to assure it will never happen again.
Tuesday, May 13, 2008
White Collar Crime prosecutions continue to be extremely low, despite the fact that they have increased this past month. According to the Syracuse TRAC reporting system, there has been a 28.4 percent increase in the number of white collar crime prosecutions in the month of January. This number, however, is a -17.3 percent change from 5 years ago (including the magistrate court) and a -19.4 (excluding the magistrate court). It is disheartening to see that white collar crime is not being prosecuted at the levels that it was being handled five years ago, although AG Mukasey can credit himself with increasing these prosecutions from the last couple of administrations. Not surprising, however, is the fact that the number one charge being used by prosecutors is mail fraud - 18 U.S.C. 1341.
This reporting, however, has many deficiencies as DOJ's categories for white collar crime do not match the definition provided by many and also do not include many offenses that clearly are considered white collar crime by the individual U.S. Attorney offices (see Is DOJ Cooking the Books in its Reporting of White Collar Crime?) Interestingly, aggressive overcharging by the government, may be hurting their statistics. There is no category under white collar crime for recording the use of money laundering and RICO charges that are used by the government in so many of the white collar cases.
(esp) (w/ disclosure that she is a B.S. graduate of Syracuse U.- home of the Trac Reports).
Monday, March 10, 2008
A House Judiciary Committee hearing on deferred prosecution agreements issued its list of witnesses for the Tuesday, March 3, 2008 - 10:30 AM Subcommittee on Commercial and Administrative Law Hearing on "Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?" The panelists are:
Panel I: Hon. David E. Nahmais
The U.S. Attorney's Office
Northern District of Georgia
Timothy L. Dickinson, Esq.
Paul, Hastings, Janofsky & Walker, LLP
Hon. John D. Ashcroft
The Ashcroft Group, LLC
George J. Terwilliger, III
White & Case, LLP
University of Virginia School of Law
Panel II: Hon. Frank Pallone Jr.
Member of Congress
New Jersey, 8th District
Hon. William J. Pascrell Jr.
Member of Congress
New Jersey, 6th District
Thursday, January 31, 2008
Guest Blogging - Professor Christopher W. Behan writes:
In Catch-22, Milo Minderbender started a successful enterprise, the Syndicate, that accomplished extraordinary feats of logistical and financial legerdemain: the Syndicate bought eggs for seven cents apiece and sold them at a profit for five cents apiece, used American military assets to transfer goods and products throughout an entire war theater, and even contracted with the American military to bomb a bridge that the German military was under contract with the Syndicate to defend. An amoral war profiteer, Milo defended his actions by saying, "I just saw a wonderful opportunity to make some profit out of the mission, and I took it. What’s so terrible about that?"
Milo’s Syndicate flourished in an atmosphere of enormous temptation and little oversight. In many respects, military operations in Iraq and Afghanistan offer similar temptations and remarkably, not much oversight at all given the scope of contracting operations. To an unprecedented extent, US forces rely on contractors to provide everything from bullets and beans, to translation services, maintenance, and security. Contractors have billed United States taxpayers enormous amounts of money since the beginning of the war, much of it from cost-plus contracts in which incentives for efficiency (and in some cases, even honesty) do not exist. Individuals and corporations alike have succumbed to the temptation to bribe and accept bribes, double-bill, bill for services not provided, or engage in what might charitably be called "fraud, waste and abuse."
In the past two weeks, the government has taken steps to increase oversight and end contracting abuses. The Army has transferred significant responsibility for contract oversight from the troubled Kuwait contracting office to Rockford, Illinois, Rockford Link Transferring oversight of contract activity to Rockford will permit the Army to use the technical contracting expertise and experience that seems to be in short supply in a deployed environment. According to news reports, the Army took this action after identifying the Kuwait office as a hub of corruption. The Army Criminal Investigation Command (CID) has 87 ongoing criminal investigations related to contract fraud in Iraq, Kuwait and Afghanistan, and 24 individuals have been charged with contract fraud so far. CID has uncovered evidence of more than $15 million in bribes. Those bribes involved military and civilian personnel. An Army officer, Major Gloria Davis, committed suicide after an investigation revealed she had accepted at least $225,000 in bribes; another investigation found that Army Major John Cockerham and his wife and sister accepted up to $9.6 million in bribes for defense contracts. Davis Article
Congress has begun a round of hearings into the matter of contract oversight in Iraq, Kuwait and Afghanistan. Last week, the House Appropriations defense subcommittee released a GAO report that details the Department of Defense’s shortcomings in managing contracting operations in a deployed environment. Those shortcomings include failure to plan, failure to integrate lessons learned, failure to supervise and failure to devote sufficient resources to tackling the problems. GAO Report
Still, the Department of Defense’s failure to properly plan for and supervise contractors provides no excuse for fraudulent behavior. American corporations have a shameful history of placing profits over patriotism during wartime: in past conflicts, American troops have endured rotten food, shoddy uniforms, substandard equipment, defective arms and ammunition and inadequate shelter because of the malfeasance of individuals and corporations. In the current conflicts, the American taxpayer seems to be the chief victim of contracting abuses; it’s as if the Department of Defense is a giant ATM dispensing gobs of free money to whomever will take it. And plenty of corporations and individuals have stepped up to take the money.
On Monday the 28th of January, a federal judge unsealed an indictment against Elie Samir Chidiac, a U.S. citizen, and Raman International Inc. of Cypress, Texas, which does business as Raman Corporation. Samir and Raman are charged with conspiracy to commit bribery and contract fraud with respect to military contracts in Iraq and Kuwait. [Download chiriac_indictment.pdf ] According to the DOJ press release, Chiriac Release An unidentified military contracting officer canceled contracts that were already awarded to, and often had been performed by, third-party contractors;
- The unidentified military contracting officer re-awarded those contracts to Raman and fraudulently verified that Raman had performed the requisite service or delivered the requisite goods;
- Chidiac and the unidentified military contracting officer forged various contracting documents and fraudulently modified the military contracting database in order to create the appearance of propriety with respect to these canceled and re-awarded contracts;
- The unidentified military contracting officer authorized Chidiac to receive cash payment on those contracts, which Chidiac did, despite the fact that neither Chidiac nor Raman performed any work, provided any service, or delivered any good with respect to these contracts;
- Upon receipt of cash payment from the United States, typically in U.S. $100 bills, Chidiac remitted a portion of the money back to the unidentified military contracting officer, often delivering the money to the officer at Raman’s compound, adjacent to Camp Victory; and
- The unidentified military contracting officer sent money received from Chidiac via U.S. Postal Service to a family member in Midwest City, Okla.
All of these allegations, if true, are disturbing. They illustrate the harm that can arise from greed and a lack of oversight on the part of the government. One hopes that a combination of increased congressional oversight, improved Army and DoD accountability, and an active justice system will help stem the tide of modern-day war profiteers doing business in Iraq and Afghanistan.
Monday, December 17, 2007
The 2007 Government Accountability Office Report can be found here. How would the DOJ use this evidence if this were a private company and they were proceeding against this private company in a criminal case? Will criminal/corporate defense counsel be permitted to use this report as a point of comparison when under scrutiny by DOJ?
In part the report states:
"A significant number of material weaknesses (fn5) related to financial systems, fundamental recordkeeping and financial reporting, and incomplete documentation continued to (1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government’s ability to reliably measure the full cost as well as the financial and nonfinancial performance of certain programs and activities; (3) impair the federal government’s ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable financial information to operate in an economical, efficient, and effective manner. We found the following:
• Certain material weaknesses in financial reporting and other limitations on the scope of our work (fn6) resulted in conditions that continued to prevent us from expressing an opinion on the accompanying accrual basis consolidated financial statements for the fiscal years ended September 30, 2007 and 2006. (fn7)
• The 2007 Statement of Social Insurance (fn8) is presented fairly, in all material respects, in conformity with GAAP; we disclaim an opinion on the 2006 Statement of Social Insurance.(fn9)
• The federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2007.
(fn5) A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
(fn6) Three major impediments continue to prevent us from rendering an opinion on the accrual basis consolidated financial statements: (1) serious financial management problems at the Department of Defense, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government’s ineffective process for preparing the consolidated financial statements.
(fn7) We previously reported that certain material weaknesses prevented us from expressing an opinion on the consolidated financial statements of the U.S. government for fiscal years 1997 through 2006.
(fn8) The valuation date is January 1 for all social insurance programs except the Black Lung program, for which the valuation date is September 30.
(fn9) We disclaimed an opinion on the fiscal year 2006 consolidated financial statements, including the Statement of Social Insurance."
Thursday, October 4, 2007
A preliminary investigation by the French financial regulator Autorité des marchés financiers (AMF) indicates that a number of senior executives at Franco-German aircraft manufacturer European Aeronautic Defense & Space Co. NV (EADS) sold shares before the announcement of problems with the company's largest development project ever, the A380. The AMF report was discussed in the French newspaper Le Figaro and the trading allegedly occurred between November 2005 and March 2006, before the June 2006 announcement of technical problems with the superjumbo A380 and also the A350 aircraft. The stock dropped over 25% on that announcement, and it is not clear how far in advance the information was known to 21 managers and executives who sold shares. The AMF issued a statement (here) that
it submitted an interim memorandum to the prosecuting authorities in Paris in early September, in accordance with law; it obviously has no comment on the Le Figaro report; it insists that it has not completed its investigations and is unlikely to do so before the beginning of 2008; consequently, the AMF Board, which has sole authority to commence regulatory proceedings against persons suspected of infringing its General Regulation, has not given an opinion on the matters reported in the article and, at this stage, has decided solely to inform the criminal court thereof; at this stage of the procedure, which is still a standard inquiry, the persons concerned have not had the opportunity to exercise their right of defence.
Insider trading cases in the European Union are fairly uncommon, at least as compared to the United States. It will be interesting to see how the investigation develops, especially when it involves a company with the political significance of EADS. A story on CNN.com (here) discusses the report. (ph)
Monday, January 1, 2007
Representative John Conyors was the subject of a public statement issued by Chair Doc Hastings and Ranking Minority Member Howard L. Berman concerning "an informal inquiry in December 2003 into reports that members of the congressional staff of Representative John Conyers had performed campaign activity on official time and in some instances using official resources, and that some staff members may have been compelled to do campaign work or personal work for Representative Conyers." If the assertions had proved to be true it "could implicate" house rules and perhaps if egregious it might have risen to the level of being subject to a criminal inquiry. But the matter did not progress in that fashion. The public statement issued states that:
"After reviewing the information gathered during the inquiry, and in light of Representative Conyers’ cooperation with the inquiry, we have concluded that this matter should be resolved through the issuance of this public statement and the agreement by Representative Conyers to take a number of additional, significant steps to ensure that his office complies with all rules and standards regarding campaign and personal work by congressional staff."
The list of six conditions might be a good model for others in Congress to follow in establishing their own compliance or "effective" programs.
Tuesday, October 17, 2006
Does Congress need an effective compliance program?
The New York Times reports here on a congressional investigation that reveals that Randy Cunningham had been pressuring individuals to place federal business with certain military contractors. This comes in the wake of recent allegations of lack of oversight and quick action in the Mark Foley matter.
So the question is whether congress needs to reexamine its compliance program. If this were a corporation or business operating under the federal sentencing guidelines, the corporation could face consequences for failing to have an "effective [compliance] program." Should Congress be held to this same standard? Does Congress need an effective program to prevent and detect misconduct - see here - as set forth in the organizational guidelines?
Friday, September 15, 2006
Senator Arlen Specter spoke at the NACDL-Georgetown White Collar Crime Luncheon on September 14. Blogging on that speech for the White Collar Crime Prof Blog is Jack King of the NACDL, who reports:
At lunch today, Specter said that he would prepare legislation addressing the “Thompson memo.” Michael Peel of Financial Times (London) asked what the legislation would “look like” and what the “timetable might be.” Specter replied:
“I would say that the government may not consider on charging a corporation whether the corporation has waived the attorney-client privilege and waived the inadmissibility – or the status – of work product. And then it would say that you can’t consider on charging whether the corporation is going to pay attorney’s fees, if that’s in a contract or what the practice is. As for when I’m going to introduce it, we’re going to be in session for two weeks, and I don’t think there’s time enough to put it together, but I would shoot for the lame-duck session, which I think is going to start on November 13. But the timeline for passage is totally unpredictable. Not until next year at the earliest.
"Have I had any indications of support? Yes, Sen. Leahy is for it.”
Tuesday, September 12, 2006
After yesterday's hearing on the Thompson Memo and its inclusion of a waiver provision, waiving the attorney-client privilege, today brings a subcommittee hearing on the "Challenges Facing Today’s Federal Prosecutors" (see here). The witnesses lined up to appear today are:
The Thompson Memo has without doubt raised significant controversy in the legal community. It contains provisions such as waiver of the attorney-client privilege, that factor into whether the company will be prosecuted or receive the benefit of a deferred prosecution agreement. Today was the day of airing this issue before a Senate Judiciary Committee (see here). The day started with a statement from Senator Patrick Leahy, ranking member of the Senate Judiciary Committee. (see here) He noted that:
"[t]he protection of communications between client and lawyer has been fundamental to our nation’s legal justice system since its inception. The right to counsel has long been recognized as essential to ensure fairness, justice and equality under the law for all Americans. This Administration has taken extraordinary steps to investigate and prosecute the press and to intimidate the press, critics, and attorneys while it has claimed unlimited privileges and secrecy for itself."
Some quotes from the testimony -
Hon. Paul McNulty (USA Eastern District of Virginia) here - "We see nothing wrong in asking a corporation to disclose to us the results of their internal investigation to assist us in investigating a corporation’s claim of innocence. Indeed, we believe it is good practice because it conserves public and private resources and, if the corporation’s claim is well-founded, it brings a quick conclusion to the government’s investigation."
Thomas J. Donohue, President & CEO -U.S. Chamber of Commerce here -
- "A company that refuses to waive its privilege risks being labeled as uncooperative, which all but guarantees that it will not get a settlement.
- The “uncooperative” label severely damages a company’s brand, shareholder value, their relationships with suppliers and customers, and their very ability to survive.
- Being labeled uncooperative also drastically increases the likelihood that a company will be indicted and one need only look to the case of Arthur Andersen to see what happens to a business that is faced with that death blow."
Karen J. Mathis, ABA President
"First, the Department of Justice's policy is inconsistent with the fundamental legal principle that all prospective defendants - including an organization's current and former employees, officers, directors and agents - are presumed to be innocent."
Other compelling testimony was also provided - see here
The Senate Committee on the Judiciary has scheduled a hearing on "The Thompson Memorandum’s Effect on the Right to Counsel in Corporate Investigations" for today. The impressive lineup of individual's giving testimony are:
The Honorable Paul J. McNulty
Deputy Attorney General
U.S. Department of Justice
The Honorable Edwin Meese
Former Attorney General
Ronald Reagan Distinguished Fellow in Public Policy
Chairman, Center for Legal and Judicial Studies
The Heritage Foundation
Thomas J. Donohue
President and CEO
U.S. Chamber of Commerce
Karen J. Mathis, Esq.
American Bar Association
Andrew Weissmann, Esq.
Jenner & Block LLP
New York, NY
Mark B. Sheppard, Esq.
Sprague & Sprague
The testimony from these witnesses will be retrievable online here. More will be posted on this blog tomorrow regarding this testimony. But to give a preview, the written testimony of the Hon. Edwin Meese includes the following passage regarding the McCallum Memo, an unsuccessful attempt by the government to appease people by saying that waivers of attorney client privilege need to coordinated within each individual USA's office. Meese states:
"Nevertheless, it appears that the McCallum Memorandum does not represent a sufficient improvement. The main objectives of the Memorandum included providing greater uniformity, predictability, and transparency to the process that federal prosecutors use when requesting a waiver of a business organization’s attorney-client privilege. But the McCallum Memorandum does nothing to address the inherently coercive nature of the Thompson Memorandum factors that take into account whether a company has waived its privilege."
There are many important issues of the day that need to be addressed by the Senate. So why is DOJ allowing so much time to be spent on the waiver issue, an issue they could easily resolve by just removing it from the Memo and from practice? Don't they get it - asking for a waiver of the attorney-client privilege is just plain wrong.
Tuesday, April 25, 2006
The Government Accountability Office (GAO) issued a report (link below) to the Senate Permanent Investigations Subcommittee on the use of shell companies to facilitate criminal activity, and assessing whether greater disclosure requirements would assist law enforcement. Corporations and Limited Liability Companies (LLC) can be formed quite easily in all states, often on-line, and the disclosure of the owners and organizers of the entity usually is quite minimal, with no checking by the states. The Report notes:
Law enforcement officials are concerned about the use of shell companies in the United States that enable individuals to conceal their identities and conduct criminal activity and have encountered difficulties in investigating these shell companies because they cannot determine the owners of the companies. Quantifying the magnitude of the use of shell companies used in crimes is difficult because creating a shell company is not a crime but rather can be a method for hiding criminal activity. However, law enforcement officials told us they are seeing many investigations within the United States and in other countries where individuals have used U.S. shell companies to facilitate illicit activity involving billions of dollars. Most of the law enforcement officials we interviewed said that when they need company information, they obtain some information from state Web sites and company filings, and some said they also requested information from agents. Some law enforcement officials noted that the information available from states had proven helpful because names on the documents generated additional leads. However, some officials said that the information states collected was limited in revealing who owned and controlled the company and that cases had been closed because of insufficient information. For example, an Immigration and Customs Enforcement (ICE) official provided an example of a Nevada-based corporation that received 3,774 suspicious wire transfers totaling $81 million over a period of approximately 2 years. However, the case was not prosecuted because ICE could not identify the beneficial owner of the corporation.
The Report notes that requiring greater disclosure raises potential privacy concerns, and mandating state review of the filings would be costly without preventing much of the illegal activity.
The use, or misuse, of a business organization to engage in wrongdoing is nothing new, and the fact that a corporation or LLC can be used as a front for illegal activity does not mean there is anything wrong with the current system for creating such organizations. Enhanced disclosure rules do not mean that truthful information will be supplied, and the large number of such entities means that ongoing monitoring costs would be significant because misconduct is not necessarily centered on the formation of the corporation or LLC but its subsequent use. The wall hit in the ICE case discussed in the GAO Report was not just a function of the system for creating such entities, but also a reflection of the ease with which accounts can be set up and used at financial institutions to transfer funds without detection. Pointing to the state statutes that facilitate the formation of corporations and LLCs as a cause of the problem with the use of shell companies is a bit like blaming a robbery on the jewelry or money taken. While a bit more disclosure of the organizers might prove helpful, these entities -- like anything else -- can be used to facilitate a crime regardless of whose name is on the documents. (ph)
Wednesday, April 5, 2006
As part of the deferred prosecution agreement with the Department of Justice, the University of Medicine and Dentistry of New Jersey (UMDNJ) appointed former federal judge Herbert Stern as its outside monitor to investigate corruption and financial fraud at the school. Stern's first report (here) to the U.S. Attorney's Office identifies significant problems, ranging from inappropriate expenses to hiring practices tainted by political influence. According to the report, "Our investigation revealed that UMDNJ, for several decades, was besieged by politicians looking to use UMDNJ, and in particular, its large workforce, as a vehicle for patronage and favor peddling. In short, politicians exerted significant pressure and used their offices to influence hiring practices and decisions at UMDNJ." Another issue raised in the report concerns whether a state Senator who chaired the appropriations committee steered millions of dollars worth of appropriations to the school after it retained him as a part-time consultant. A Newark Star-Ledger story (here) discusses the report. If Stern's investigation uncovers significant instances of corruption, federal prosecutors are likely to commence a grand jury investigation of the individuals involved, if it has not started already. (ph)
Friday, January 20, 2006
The FBI released its 2005 Computer Crime Survey on Jan. 18, 2006 (here). The Survey compiles the responses form over 2000 public and private organizations in four states, and contains the following "key findings":
- Frequency of attacks. Nearly nine out of 10 organizations experienced computer security incidents in a year's time; 20% of them indicated they had experienced 20 or more attacks.
- Types of attacks. Viruses (83.7%) and spyware (79.5%) headed the list. More than one in five organizations said they experienced port scans and network or data sabotage.
- Financial impact. Over 64% of the respondents incurred a loss. Viruses and worms cost the most, accounting for $12 million of the $32 million in total losses.
- Sources of the attacks. They came from 36 different countries. The U.S. (26.1%) and China (23.9%) were the source of over half of the intrusion attempts, though masking technologies make it difficult to get an accurate reading.
- Defenses. Most said they installed new security updates and software following incidents, but advanced security techniques such as biometrics (4%) and smart cards (7%) were used infrequently. In addition, 44% reported intrusions from within their own organizations, suggesting the need for strong internal controls.
- Reporting. Just 9% said they reported incidents to law enforcement, believing the infractions were not illegal or that there was little law enforcement could or would do. Of those reporting, however, 91% were satisfied with law enforcement's response. And 81% said they'd report future incidents to the FBI or other law enforcement agencies. Many also said they were unaware of InfraGard, a joint FBI/private sector initiative that battles computer crimes and other threats through information sharing.
(ph -- thanks to Vernon McCandlish for alerting me to the Survey)
Thursday, January 19, 2006
Independent Counsel David Barrett's investigation of former HUD Secretary Henry Cisneros and alleged attempts to thwart the investigation has finally concluded, after nearly 11 years and over $20 million, with the release of the Final Report (here). Cisneros entered a guilty plea to a misdemeanor charge of lying to the FBI after an investigation into false statements related to payments to a former mistress he made as part of a background check for his cabinet appointment. The investigation continued long after the plea in 1999 because of claims that the Clinton administration tried to keep the investigation from expanding into tax and obstruction of justice issues. In the Executive Summary of the Final Report, Barrett states that "[a]lthough we are not able to say with certainty whether any criminal laws were broken, it is clear, I think, that there was questionable activity -- as well as inactivity -- by a number of government officials." The Final Report and related documents is 474 pages, so it's not a quick read, and could even be a cure for insomnia. This does bring an end to the Independent Counsel investigations, and Barrett's office set the record for longest IC investigation. It's always nice to go out setting a record that will never be broken. (ph)
Wednesday, January 11, 2006
The Federal Trade Commission has set up a website, OnGuardOnline (here), to help consumers in dealing with the various types of cybercrime we all run into every day. Hardly a day goes by that I don't receive a notice from "PayPal" or some bank that my account information needs to be updated, or an urgent message asking help in transferring a large amount of money from a bank in Sierra Leone, the Ivory Coast, or the like. The FTC site has information about identity theft, phishing, spam fraud, and spyware. In addition to links to other federal agencies, such as the Department of Homeland Security and the SEC, there is also a page that gives information and links for filing complaints with the appropriate agency. (ph)