Sunday, April 19, 2009
The Ninth Circuit Court of Appeals in U.S. v. Lazarenko tells the story of an international money laundering, wire and mail fraud, and transportation of stolen property case that is much reduced from the original charges/convictions brought by the government. It started as a 53-count indictment, but after the government dismissal of some, and the court dismissal of others, what remained was 14 counts. This decision brings it even lower.
The facts of this case present a unique international flavor, in that Ukrainian law is the specified unlawful activity for the money laundering charges. The breadth of the money laundering statute is clearly reaching international levels when a US jury is being asked to determine whether there has been a violation of another countries laws. Although the Ninth Circuit upholds the money laundering convictions, the court does reverse the interstate transportation of stolen property count.
But the more fascinating part of this decision relates to the wire fraud counts. In reversing the convictions here, the court focuses on the "in furtherance" element of wire fraud. The court states:
"If the government's theory were correct, then it would be possible for an ordinary fraud to be converted into wire fraud simply by the perpetrator picking up the telephone three years later and asking a friend if he can store some fraudulently obtained property in his garage before the police execute a search warrant or later taking the proceeds of fraud and transferring them to another bank. The government's theory extends an already broad statute too far."
It is good to see a court requiring strict adherence to the "in furtherance" element.
(esp) (w/ a hat tip to Evan Jenness)
Monday, February 16, 2009
Fionnan Sheahan, Independent.ie, Government refuses to ask fraud squad to investigate (concerning investigations in banking)
Michael O'Regan, Irishtimes.com, Irish white-collar criminals should be 'in handcuffs'
Thursday, December 11, 2008
Fish & Richardson, PC has a client alert authored by Matthew L. Levine, William B. Mateja, and Franceska O. Schroder titled, "Justice Department Report Shows Enforcement of Export Controls," and has an opening statement - "The Justice Department announced last month that it had filed criminal charges against more than 145 defendants for its Fiscal Year 2008."
Sunday, November 23, 2008
An Exclusive LexisNexis Private Screening at AALS
It is estimated that one million people, mostly women and children, are trafficked around the world each year, lured into involuntary servitude and sexual slavery. The gross and unjust economic exploitation of vulnerable people is a direct result of an absence of Rule of Law. As a company that does business throughout the world, LexisNexis is committed to promoting the Rule of Law. We are proud to sponsor the Somaly Mam Foundation’s efforts to combat and raise awareness of this epic problem. A very effective way to raise awareness and promote action is the film "Holly". Please join us for a private screening of this film on Tuesday, January 6th from 7-9pm at the San Diego Marriott Hotel and Marina (Salon A, North Tower, Lobby Level). Appetizers and refreshments will be served before the film. More details will be available at the AALS booth. Seating at the theater is limited to a maximum of 200. Please RSVP by sending an email to: carrie.irvin@lexisnexis.
Wednesday, July 30, 2008
Back in November 2007, the blog (here) discussed the BAE investigation. Now, David Leigh, The Guardian has an article titled, "Law Lords: Fraud Office Right to End Bribery Investigation in BAE Case" that tells of a recent ruling that supports the right of the Serious Fraud Office (SFO) to cease an investigation. (see also Francis Gibb, Times Online, "SFO 'Courageous' in Dropping BAE Arms Probe ; Forbes -Thomson Financial,House of Lords clears SFO of 'unlawful' conduct in Saudi arms case) It seems the Serious Fraud Office made a decision to stop an investigation involving BAE. The media notes that the reason for terminating the investigation was based on considerations of public interest, but that many were not happy with this decision.
In the United States, prosecutors have enormous discretion in deciding who will be investigated and for what, if any, possible crimes. In considering these discretionary decisions, the DOJ gives deference to executive power. Thus, it is possible that conduct might not be fully investigated if the result would hurt international relations. The public has little recourse in the U.S. to contest the prosecutorial decision-making when an investigation ends.
Stopping an investigation can sometimes be detrimental to the person or entity being investigated. Never having the chance to prove innocence can hurt the person or entity. On the other hand, if the person or entity had possible criminal exposure, ceasing an investigation would likely be very welcomed.
(esp) (blogging from SEALS '08 in Palm Beach, Florida)
Thursday, July 17, 2008
Simon Bowers, Guardian.co.uk, White-collar crime: SFO boss plans to cut back on prosecutions and investigations - (The Serious Fraud Office is taking a different approach from the U.S. to efforts to combat white collar crime. It seems the SFO "plans to spend less money prosecuting and investigating in order to pursue alternative 'harm reduction' initiatives...")
Wednesday, May 21, 2008
A DOJ Press Release reports that "[a] federal grand jury in the Eastern District of Tennessee returned an 18-count indictment today charging [ ] a Professor Emeritus at The University of Tennessee, and Atmospheric Glow Technologies Inc. (AGT), a Knoxville-based technology company, with conspiring to defraud the U.S. Air Force and disclose restricted U.S. military data about Unmanned Aerial Vehicles (UAVs), or 'drones,' to foreign nationals without first obtaining the required U.S. government license or approval." It further states that "between January 2004 and May 2006, [the individual and company were alleged to have] engaged in a conspiracy to defraud the U.S. Air Force and transmit export-controlled technical data related to a restricted U.S. Air Force contract to develop plasma actuators for a munitions-type UAV, or 'drone,' to one or more foreign nationals, including a citizen from the People’s Republic of China. The Chinese national was a graduate research assistant at the University of Tennessee."
Monday, March 31, 2008
A DOJ Press Release tells of the plea entered by a defense department official in an espionage case related to China. Pleading to a "one-count criminal information charging him with conspiracy to disclose national defense information to persons not entitled to receive it, in violation of 18 U.S.C., Sections 793(d)," the press release states that "the criminal conduct spanned the time period of March 2007 to February 2008." The individual, "a Weapons Systems Policy Analyst at the Arlington, Va.-based Defense Security Cooperation Agency, an agency within the Department of Defense -- provided national defense information on numerous occasions to [ ] , a New Orleans businessman."
Monday, March 24, 2008
A press release of the Department of Justice states that an individual was "found guilty by a federal jury in May 2007 of conspiracy, two counts of attempting to violate export control laws, failing to register as an agent of a foreign government and making false statements to federal investigators." The sentence imposed was 293 months in prison. The press release also states that the defendant is "[a]n engineer who conspired with family members to export United States sensitive military technology to the People’s Republic of China." White collar cases will sometimes implicate military and defense issues.
Thursday, March 13, 2008
The House of Lords denied a request by the United States to extradite a defendant from England to face an antitrust charge related to price fixing in carbon products. The basis was the lack of dual criminality, that price fixing was not made a criminal offense in the United Kingdom until the adoption of the Enterprise Act of 2002. The Lords' decision (available below) rejected the argument that a conspiracy in restraint of trade was an offense at common law:
The common law recognised that an agreement in restraint of trade might be unreasonable in the public interest, and in such cases the agreement would be held to be void and unenforceable. But unless there were aggravating features such as fraud, misrepresentation, violence, intimidation or inducement of a breach of contract, such agreements were not actionable or indictable.
While the defendant cannot be extradited on the antitrust charge, he was also indicted in the United States on obstruction of justice charges related to destroying documents. For those counts, he argued that because price fixing was not a crime in England at the time of his conduct, then he could not obstruct an investigation of such a charge because there could not be an analogous criminal investigation in the U.K. On that issue, the Lords took a different approach:
Destroying documents to prevent them falling into the hands of the investigators may well affect the outcome of that investigation and is, indeed, intended to do so. So the mere fact that the result of the investigation in Mr Norris’ case was a charge of simple price fixing, which does not constitute an offence under English law, is no reason to hold that it would not have been an offence under English law to obstruct the progress of an equivalent investigation by the appropriate body in this country.
The Lords remanded the case to the trial court, however, to consider the defendant's argument that to extradite him now for conduct that took place years earlier would violate his rights under the European Convention on Human Rights. So there will be no extradition quite yet, and the lower court's decision would be subject to appeal, so it may be years before there is a final decision on extradition. (ph)
Tuesday, March 4, 2008
Saturday, February 23, 2008
Three former British investment bankers for NatWest Bank who were charged for their role in helping former Enron CFO Andrew Fastow dress up the company's balance sheet were sentenced to thirty-seven month prison terms. The so-called "NatWest Three" -- David Bermingham, Giles Darby, and Gary Mulgrew -- became a cause célèbre over their extradition from Great Britain under a new treaty between the U.S. and U.K. designed to facilitate the transfer of terrorist suspects. The appeal went to the House of Lords, which upheld the extradition order, and the three have been living in Houston for the past two years. Their guilty plea in November 2007 to wire fraud ended one of the few remaining cases arising from the Enron collapse. A Houston Chronicle story (here) discusses the sentencing.
As foreign nationals, the NatWest Three will be eligible to apply to the Department of Justice's International Prisoner Transfer Program to serve their terms in Great Britain. The DOJ website on the Program (here) notes that "[w]hen a prisoner is transferred to another country, the completion of the transferred offender's sentence is carried out in accordance with the laws and procedures of the receiving country, including those governing the reduction of the term of confinement by parole, conditional release, or otherwise." The Chronicle article points out that in England a defendant has to serve one-half the prison term and is then released on a type of probation. This is much less stringent than the federal sentencing law, which requires a prisoner sentenced to a term such as those given here to serve 85% of the time, i.e. about two and one-half years.
Among the criteria considered for authorizing a prisoner transfer are acceptance of responsibility, criminal history, seriousness of the offense, and ties to the two nations. Also considered is whether the prisoner will remain in the home country or return to the United States -- rest assured, the NatWest Three are unlikely to darken our shores again any time soon. In addition, according to the Bureau of Prisons Policy Statement (here) on transferring foreign prisoners, the transfer cannot be authorized until the prisoner pays any outstanding fine. In addition to the sentence in this case, U.S. District Court Judge Ewing Werlein ordered the three to repay the $7.3 million they received from the transaction that triggered the charges. While not a fine but restitution, I suspect there won't be a transfer until that money is repaid. Even then, the application process will take at least a few months to complete ,once they begin their prison terms, as the bureaucracy processes the requests. (ph)
Thursday, February 21, 2008
When you are the victim of a $7.2 billion fraud perpetrated by an employee, one would think that there would be a fair measure of self-criticism for not detecting the misconduct. French banking giant Société Générale issued an progress report (available below) on its internal investigation, called "Mission Green," into the losses caused by rogue trader Jerome Kerviel, based on the work of its General Inspection department -- which sounds like the equivalent of the internal auditors -- and reviewed by PriceWaterhouseCoopers. While Kerviel's unauthorized trades began in 2005 or 2006, they increased substantially in size in March 2007, and went undetected until mid-January 2008. That's nine months in which he took increasingly risky positions, estimated to total as much as 50 billion euros at the peak.
The obvious question is how Kerviel could get away with trading such huge amounts when he was a fairly low-level trader dealing in a narrow range of market indexes. The progress report is not particularly critical, making Kerviel's trading the result of what almost seems like just minor oversight glitch:
The General Inspection department believes that, on the whole, the controls provided by the support and control functions were carried out in accordance with the procedures, but did not make it possible to identify the fraud before January 18th 2008. The failure to identify the fraud until that date can be attributed firstly to the efficiency and variety of the concealment techniques employed by the fraudster, secondly to the fact that operating staff did not systematically carry out more detailed checks, and finally to the absence of certain controls that were not provided for and which might have identified the fraud. The Inspection General department has refrained from drawing any conclusions at this stage regarding the responsibility of the front office managers supervising the fraud's author, given the ongoing legal investigation which has not enabled it to interview all those concerned. At this stage of the investigations, there is no evidence of embezzlement or internal or external complicity (i.e. the existence of a third party who knowingly assisted the fraudster to conceal his positions).The investigations are continuing, in particular, to cover a wider area than the activities of the author of the fraud. [Italics added]
Société Générale may give itself only a B- in the internal controls department, but it's hard to see any oversight system that misses such a large amount of unauthorized trading for nearly nine months as anything other than a abject failure. The bank continues to maintain that Kerviel acted alone, and to this point it hasn't identified any accomplices nor even any theft or personal enrichment from the trading. Kerviel admitted his role in the transactions, but asserts that there were warning signs about what he was doing that were ignored by his superiors, or perhaps even worse, they acquiesced in his conduct because at one point he had generated profits for Société Générale of over 1 billions euros. An International Herald Tribune story (here) discusses the report. (ph)
Sunday, February 3, 2008
A DOJ Press Release tells that "the director of a Singapore-based aviation company was arraigned [this past week] in federal court in Brooklyn on charges that she illegally exported controlled U.S. military aircraft components and shipped commercial aircraft components to Iran."
Defendants were "indicted with one count of conspiring to export aircraft parts to Iran and 15 counts of exporting aircraft parts to Iran, in violation of the International Emergency Economic Powers Act (IEEPA); one count of conspiring to export defense articles without a license and two counts of exporting and attempting to export defense articles without a license, in violation of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR); and one count of conspiring to launder the proceeds of the unlawful export of defense articles."
Thursday, January 31, 2008
The Wall Street Jrl (here) points out yet another difference between the French and the United States when discussing the support the CEO received from the board of directors at Societe Generale. Prior differences were discussed here and here. In the United States, the board might be very reluctant to back a company head or individuals within a company when there is a potential investigation or potential civil or criminal liability. With deferred and non-prosecution agreements, companies often leave the individuals at risk and without support, as the entity becomes the sole focus in saving the company from the devastating effect of a possible prosecution. So far, it appears that in France the decision is to support the CEO, at least in this case. Will a difference like this move more companies into operating abroad?
Saturday, January 26, 2008
Legal cultures respond differently to reports of wrongdoing, and the disclosure of the massive fraud in France perpetrated by a "rogue trader" identified as Jérôme Kerviel shows how different things can be. One of France's oldest banks, Société Générale was chartered in 1864 by Napoleon III and is now the country's second largest publicly traded financial institution, well-known for its extensive and heretofore sophisticated derivatives trading operation. The controls on the trading desk were somehow circumvented by Kerviel, described as a mid-level trader, whose transactions in European stock index options and futures totaled as much as €40 billion and ended up down over €2 billion when discovered on January 19. Société Générale secretly began to unwind the trades over three days beginning on Monday, January 21, in the midst of a market meltdown that may have been exacerbated by its transactions. The sales triggered even greater losses for the bank, with the total estimated at €4.9 billion, or about $7.2 billion, from Kerviel's investments. This surely ranks among the largest financial frauds ever, and raises serious concerns about Société Générale's internal controls -- how do you not notice positions as large as €40 billion in your portfolio, even if computer programs to flag these types of risk were circumvented?
The interesting point is not so much the size of the losses, but the response of the bank and French authorities, in contrast to how U.S. regulators and prosecutors would have acted when informed of similar conduct. As an initial matter, it appears that Société Générale informed very few officials in the French government of the problem. While the governor of the Banque de France, Christian Noyer, was kept abreast of the issues, upper levels of the French government did not learn of the problem until the day before its disclosure (see Bloomberg story here). Meanwhile, Société Générale tried to get out of the investments without making any disclosure to protect itself from even greater losses, which could be viewed as favoritism by the Banque de France. I suspect that a U.S. bank could not get away with disclosing such problems to only one banking regulator, such as the Comptroller of the Currency or the Federal Reserve, while keeping the rest of the government in the dark about transactions involving this type of misconduct. When the news emerged, neither Société Générale nor the Banque de France issued any statement, or at least there's nothing on either's website discussing Kerviel's fraud (see here and here). It is hard to imagine federal regulators not taking the lead on such an issue to explain how the government will respond.
The biggest question, however, is where are the prosecutors? The French system is obviously quite different in its approach to criminal investigations, with magistrates conducting investigations. But according to news reports (see Bloomberg here), Kerviel is "on the run" and not in custody, seemingly having slipped away. Société Générale interviewed him on January 19 to figure out what he had done, and Kerviel was around at least in the early part of this week. In the United States, there is no doubt that a trader accused of such conduct would have been in custody the moment the government learned of the fraud. Indeed, the banking regulators would likely have contacted prosecutors before doing anything on the case, assuming they found out first, and not kept the Department of Justice in the dark. Kerviel's motive for engaging in the transactions is unknown at this point, and it does not appear he was an embezzler or somehow sent the money abroad, at least to this point. His disappearance, however, raises questions about the handling of the case, and I suspect the French authorities hope he does not show up in Namibia or a like jurisdiction. (ph)
UPDATE: An AP story (here) states that Kerviel is now in custody as part of the criminal investigation of his trading. (ph)
Monday, November 12, 2007
If you think that the United States has white collar crime issues, check this article out about Hungary. It notes that a PricewaterhouseCoopers study said that "up to 62% of Hungarian companies were the victim of financial crime during the previous two years."
Tuesday, November 6, 2007
A DOJ Press Release reports that "[t]wo executives of Trelleborg Industrie S.A.S., a manufacturer of marine hose located in Clermont-Ferrand, France, agreed to plead guilty to participating in a conspiracy to rig bids, fix prices and allocate market shares of marine hose in the United States and elsewhere." They are pleading to a "one-count felony charge" and the fines agreed to be paid are $75,000 and $100,000. The pleas include cooperation and 14 months in jail, although the pleas are subject to court approval.
Friday, October 12, 2007
The Department of Justice is using the task force approach targeting illegal exports of restricted U.S. military and dual-use technology to foreign nations and terrorist organizations. According to a press release (here) states that the National Counter-Proliferation Initiative will address a growing problem, and that "China and Iran pose particular U.S. export control concerns. The majority of U.S. criminal export prosecutions in recent years have involved restricted U.S. technology bound for these nations as opposed to others. Recent prosecutions have highlighted illegal exports of stealth missile technology, military aircraft components, Naval warship data, night vision equipment, and other restricted technology destined for China or Iran." The Initiative involves the Department’s National Security Division, which will meet with "districts with large concentrations of high-tech businesses and research facilities -- all of which are potential targets for illegal foreign acquisition efforts -- as potential venues for new task forces." A report (here) summarizes export control prosecutions in the past year. (ph)
Friday, October 5, 2007
Multinational industrial giant Siemens A.G. settled with German prosecutors the probe of corrupt overseas payments by its telecom unit by agreeing to pay €201 million. The company will also pay an additional €179 million to the tax authorities because it improperly deducted the foreign payments as ordinary business expenses. As discussed in an earlier post (here), the scope of the questionable overseas payments is much broader than first suspected, with Debevoise & Plimpton's internal investigation raising questions about as much as €1.6 billion in transfers throughout the company and not just the telecom unit. While the settlement with the German prosecutors closes one avenue of problems, Siemens still faces investigations by the SEC and Department of Justice in the United States and an inquiry by the Italian authorities. Given the size of the payments and their occurrence in different parts of the company, this is the type of case that the federal government will pursue vigorously. A Bloomberg story (here) discusses the settlement. (ph)