Tuesday, September 12, 2006

The Senate Talks About the Thompson Memo

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
Washington, DC


The Honorable Edwin Meese
Former Attorney General
Ronald Reagan Distinguished Fellow in Public Policy
Chairman, Center for Legal and Judicial Studies
The Heritage Foundation
Washington, DC

Thomas J. Donohue
President and CEO
U.S. Chamber of Commerce
Washington, DC

Karen J. Mathis, Esq.
American Bar Association
Chicago, IL

Andrew Weissmann, Esq.
Jenner & Block LLP
New York, NY

Mark B. Sheppard, Esq.
Sprague & Sprague
Philadelphia, PA

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.


September 12, 2006 in Government Reports, Legal Ethics, News, Prosecutions, Statutes, Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 25, 2006

GAO Report on the Use of Shell Companies

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)

Download gao_report_company_formations.pdf

April 25, 2006 in Government Reports | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 5, 2006

Monitor Report on New Jersey Med School Identifies Demands for Jobs from Politicians

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)

April 5, 2006 in Corruption, Fraud, Government Reports | Permalink | Comments (0) | TrackBack (0)

Friday, January 20, 2006

FBI Releases Its 2005 Computer Crime Survey

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)

    January 20, 2006 in Computer Crime, Government Reports | Permalink | Comments (0) | TrackBack (0)

    Thursday, January 19, 2006

    The Last Independent Counsel Report

    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)

    January 19, 2006 in Government Reports | Permalink | Comments (0) | TrackBack (0)

    Wednesday, January 11, 2006

    New FTC Website to Fight Cybercrime

    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)

    January 11, 2006 in Fraud, Government Reports | Permalink | Comments (0) | TrackBack (0)

    Monday, November 14, 2005

    Is DOJ "Cooking the Books" in Its Reporting of White Collar Crime?

    If someone were to tell you that white collar crime prosecutions are down, your response might be the same as mine -- which was -- NO WAY!  According to Trac Reports here in discussing white collar prosecutions it stated that DOJ:

    "documented a decline of about ten percent from FY 2003 to FY 2004. Estimates for 2005 indicate that the decline is continuing."

    The problem is not the Trac Reporting System, a wonderful resource of Syracuse University (blog author notes that she received a BS from this institution), but rather how DOJ is categorizing white collar crime.  It seems that white collar crime includes antitrust and fraud, but fails to include corruption as well as a host of other criminal activity that clearly is white collar in nature.

    So what isn't considered white collar crime by the DOJ - see here - the list includes environmental offenses, bribery, federal corruption, procurement corruption,  state and local corruption, immigration violations, money laundering (how many white collar cases tack on money laundering :) ), OSHA violations, and copyright violations.  Oddly enough, every white collar crime casebook seems to include at least some of these categories. And if you go to a typical website of a United States Attorney, many of these items are considered white collar crime.  For example, the United States Attorney's Office for the Northern District of California describes its efforts against white collar crime here as follows:

    "The White Collar Crime Section is responsible for prosecuting a wide range of complex cases, including public corruption (such as bribery, kickback schemes, and theft of government funds) health care fraud, financial institutions fraud, bankruptcy fraud and mail and wire fraud.  Civil rights cases are also monitored, evaluated and prosecuted by the section.  Environmental cases are prosecuted under the Clean Water Act, Clean Air Act and other federal environmental statutes.  The section also prosecutes cases involving the protection of wildlife and Food and Drug Administration cases concerning the safety of the nation's food supply." 

    Maybe white collar prosecutions really are down, but it might be more palatable if the statistics were a bit clearer. So why would DOJ "cook the books" to show a decrease in white collar crime prosecutions?  I can think of no possible reason. Could this be a situation of the cook not knowing what is in the books?


    November 14, 2005 in Government Reports | Permalink | TrackBack (0)

    Thursday, September 8, 2005

    Report on UN Oil-for-Food Programme Describes Quite a Mess

    The final report of the Independing Inquiry Committee Into the United Nations Oil-for-Food Programme has been released, and it is a catalogue of how a well-intentioned relief effort spun out of control through a lack of oversight and the inability of the UN, particularly the Security Council, to maintain any sort of responsible discipline over the operation.  The Report (available here) points out that among the lessons to be learned from the effort was leaving far too much initiative for the program's design and implementation with the Iraqi regime -- which is a bit like leaving the punishment to the offender that led, to no one's great surprise, to systematic abuses.  The Committee also emphasized the "grievous absence of effective auditing and management controls" for the program.  Among the lessons of Enron et al. is that corruption and a lack of internal controls is a recipe for disaster. (ph)

    September 8, 2005 in Corruption, Government Reports, International | Permalink | TrackBack (0)

    Tuesday, August 9, 2005

    Two Officials in Oil-for-Food Program Lose UN Immunity

    The Independent Inquiry Commission Into the United Nations Oil-for-Food Programme issued its third interim report (here) and identified two senior officials in the Programme who it concluded engaged in criminal wrongdoing.  The report analyzes the role of Benon Sevan, the Executive Director of the UN Office of the Iraq Programme, and Alexander Yakovlev, a UN procurement office, and concludes that they solicited bribes.  The Commission further recommends that the UN waive the immunity that protects each from prosecution.  A statement (here) by the UN chief of staff announced that Secretary-General Annan intends to waive the immunity, and that "[w]ith specific regard to Mr. Sevan, the United Nations is already cooperating with inquiries from the Manhattan District Attorney and is in the process of replying to a request for cooperation from the U.S. Attorney for the Southern District of New York. With regard to Mr. Yakovlev, the UN's Office for Internal Oversight Services (OIOS) last month contacted the U.S. Attorney for the Southern District of New York to alert them that internal, ongoing investigations of Mr.Yakovlev had turned up prima facie evidence of criminal wrong doing and has shared that evidence with the U.S. Attorney's office."   With the immunity from prosecution gone, look for prosecutors to file charges in the near future against each for his role in a program that was rife with corruption. (ph)

    August 9, 2005 in Corruption, Fraud, Government Reports, International | Permalink | TrackBack (0)

    Saturday, July 9, 2005

    The Thompson Memo and Corporate Compliance

    For those interested in how the Department of Justice's policy on charging business organizations, known as the Thompson Memo, affects the way in which corporations now have to conduct their business, be sure to check out a series of posts by Paul McGreal on the Corporate Compliance Prof blog for an excellent summary of the issues (posts here in Compliance 101). (ph)

    July 9, 2005 in Government Reports, Prosecutions, Prosecutors | Permalink | TrackBack (0)

    Thursday, June 30, 2005

    Does the Passport Office Meet the Requirements for Effective Corporate Compliance?

    The Corporate Compliance Prof Blog has an interesting post (here) on the FBI's test of the Passport Office's control system, and asks whether companies should conduct their own tests of internal corporate control programs. (ph)

    June 30, 2005 in Government Reports | Permalink | TrackBack (0)

    Wednesday, June 8, 2005

    Defense Department Inspector General's Report on Boeing Aircraft Lease Program

    The Department of Defense's Inspector General issued a very extensive report on the acquisition program involving the leasing of 100 tankers from Boeing (at a total cost of over $23 billion) that involved what it termed an "inappropriate acquisition strategy."  Problems of favoritism shown to Boeing by Darleen Druyan, former Principal Deputy Assistant Secretary of the Air Force for Acquisition and Management, and her improper negotiations to obtain a job at the company, resulted in her pleading guilty to a conflict-of-interest charge and sentenced to a nine-month prison term; in addition, former Boeing CFO Michael Sears also entered a guilty plea related to the botched hiring of Druyan.  The IG report (available to download here -- like all things military, it is very long) notes that in the future, DoD "must not tolerate situations where senior officials use their positions to have contractors put pressure on other senior officialsto have them change their stance relative to a particular situation." (ph)

    June 8, 2005 in Government Reports | Permalink | TrackBack (0)

    Tuesday, May 24, 2005

    An Independent Counsel Probe Mimics the Energizer Bunny

    Who among us really misses the independent counsel statute?  An earlier post (here) discussed a D.C. Circuit case involving a former lower-level administrator at the White House who got caught up in the travel office investigation, a minor sideshow in the Whitewater investigation, and sought attorneys fees under the statute.  At least that investigation has ended, but it seems that the IC investigation of former HUD Secretary Henry Cisneros remains alive,  and with continuing support from Congress it may keep going, and going . . .  According to an AP story (here), a move to terminate funding for the investigation was killed in a closed-door Senate negotiation, which allows Independent Counsel David Barrett to remain on an investigation in which the initial target (Cisneros) entered a guilty plea to a misdemeanor in 1999 (he paid a $10,000 fine) and was pardoned in 2001, arising from lying to the FBI about payments made to a mistress.  Barrett estimates that it will take at least another ten months, and possibly longer, to complete the investigation and issue a report.  How has it taken so long, you might ask?  Well, the Wall Street Journal had reported back in 2000 that Barrett expanded his investigation to cover possible obstruction by the IRS and DOJ of the Cisneros investigation at the instigation of the Clinton White House, but not much has been heard recently (see National Review article here).

    Barrett was appointed on May 24, 1995, so this is his tenth birthday, which I suspect is the record for the longest continuous service as an Independent Counsel -- he's been on the job longer than my youngest daughter has been around.  While being the Cal Ripken of the IC crowd is something to be proud of, one wonders how much longer the investigation will remain open, especially after the government's expenditures on it have exceeded $21 million and not much seems to have come out over the past couple years.  Nevertheless, Robert Novak had an article earlier this month (here) proclaiming that Barrett's report contains blockbuster information about IRS efforts to obstruct the Cisneros investigation, something likely to draw a yawn from most. (ph)

    May 24, 2005 in Corruption, Government Reports, Investigations | Permalink | TrackBack (0)

    Monday, May 23, 2005

    NASD Funds Study About Why Investment Scams Target the Elderly

    A story in the North County Times (San Diego) discusses the NASD's funding of a study to analyze why the elderly are the targets of investment scams.  George  Chamberlin sums it up (here): "I could have saved these guys a lot of money. The reason the elderly are targeted for investment scams is the same reason that Willie Sutton said he robbed banks: That's where the money is."  I'm always leery of criticizing studies based just on the title, and there is certainly value in determining whether there are particular schemes or pitches that work well on the elderly.  That said, scam artists focus on the elderly because of particular vulnerabilities of many of them, such as isolation and a lack of access to unbiased financial (and legal) advice; pressures from living on a fixed income in the face of increasing costs (especially medical and prescription costs), a lack of investing experience, and susceptibility to high-pressure sales tactics.  These traits are not exclusive to the elderly, and many scams also target immigrants and religious groups (the latter particularly fall prey to appeals based on trust of a fellow church member).  The elderly are like banks because they do have assets, and as the baby boomers age, the schemes targeting those near retirement age and the newly-retired will only increase.  Let's hope the NASD is investing its research dollars well. (ph)

    May 23, 2005 in Fraud, Government Reports | Permalink | TrackBack (0)

    Tuesday, May 17, 2005

    Update On the (So-Called) Detroit Terrorism Trial

    The so-called Detroit Terrorism trial, which ended with the government admitting that its theory of prosecution was unsupported by the evidence, resulted in an apology by outgoing Deputy Attorney General James Comey recently.  An AP story (here) quotes Comey as stating, "I think that the people we represent -- the people of the United States -- were owed an apology for the way the work was done in that particular matter."  While the government dismissed the terror-related charges against the two defendants convicted of those offenses in the earlier trial, it did subsequently indict both men on fraud charges related to an attempted insurance fraud involving a claim for $15,000 from a fake auto accident -- a claim that was never paid.  An AP story (here) reveals internal DOJ e-mails around the time of the trial regarding the fraud charge, expressing concern that bringing such a charge might be perceived as "vindictive" if brought after the defendants were acquitted or a mistrial declared.  The e-mails give a rare inside look at assessment of the charges by the prosecutors. One defendant entered a guilty plea to the fraud charge, a second one awaits trial.

    An additional aspect of the case that remains active is the investigation of Richard Convertino, one of the prosecutors, and others for conduct related to the investigation and trial.  Convertino resigned on Monday from the Department of Justice, which will likely end the investigation by the Office of Professional Responsibility (see AP story here). (ph)

    May 17, 2005 in Fraud, Government Reports, Prosecutions, Prosecutors | Permalink | TrackBack (0)

    Monday, May 16, 2005

    FBI Unable to Account for Health Care Fraud Funding

    A New York Times story (here) discusses a report that will be issued this week by the Government Accountability Office (GAO) reviewing the FBI's spending of funds appropriated by Congress for health care fraud investigations.  According to the Times' discussion of the report, a portion of an annual appropriation of $114 million from the Medicare trust fund that is earmarked specifically for health care investigations may have been shifted over to counterterrorism projects.  While the money was not misappropriated, it raises questions about the Bureau's accountability for the use of resources targeted to a specific area of investigation and prosecution.  Given the sizable spending on Medicare and Medicaid ($474 billion), and persistent patterns of abuse in the field, health care fraud remains an area of considerable importance for federal law enforcement. (ph)

    May 16, 2005 in Government Reports | Permalink | TrackBack (0)

    Monday, February 21, 2005

    U.S. Attorney White Paper on Procurement Fraud

    The U.S. Attorney's Office for the Eastern District of Virginia issued a white paper on Feb. 18, "Combating Procurement Fraud: An Initiative to Increase Prevention and Prosecution of Fraud in the Federal Procurement Process."  The district is home to the Pentagon and, more importantly, thousands of government defense consulting firms in Crystal City, Rosslyn, and Alexandria; the revolving door spins rather quickly in D.C.  The recent scandal involving Boeing (see previous post here) that led to the sentencing of the company's former CFO and a senior Air Force procurement officer has led to a large-scale initiative by the U.S. Attorney's Office, which is already well-known for the Ill-Wind investigation of the 1980s.  The white paper discusses the reasons for the formation of a new Procurement Fraud Working Group:

    In addition to increasing DoD contracts, these contractors are expanding operations to acquire and service contracts from the State Department, DHS, and other federal agencies. For example, the President and Chief Operating Officer of one of DHS's top ten contractors recently announced the company’s intent to grow 15 per cent each year. With increased procurement, including a rise in the outsourcing of particular services, there is also the potential for an increase in procurement fraud, which includes product substitution, defective pricing or other irregularities in the pricing and formation of contracts, misuse of classified or other sensitive information, labor mischarging, accounting fraud, fraud involving foreign military sales and ethical and conflict of interest violations. This puts the United States Attorney's Office, as chief law enforcement agency for this district, in a unique position to act.


    February 21, 2005 in Corruption, Fraud, Government Reports, Investigations | Permalink | TrackBack (0)