December 17, 2012
HSBC Settlement: The Unanswered Questions
You can debate all day whether the government should allow any financial institution to get too big to fail. You can also debate whether such an institution, if it is too big to fail, should be too big to prosecute, even when it engages in blatantly criminal conduct over a lengthy period of time. However, you cannot seriously debate whether to prosecute senior bank officials of an international mega-bank who knowingly directed the criminal enterprise in question. Corporations only act through agents. Those agents are human beings.
We are not talking about technical matters here. This is not a question of whether each party to a complex transaction understood the fine print which revealed, or obscured, that an investment bank was betting against the deal it was pushing. According to the published reports and press statements, obvious narcotics-related money laundering was repeatedly facilitated by the bank, despite multiple regulatory warnings. The sources of funds connected to outlaw regimes were intentionally and repeatedly hidden. If this stuff happened, people did it. And they were no doubt high-ranking people.
No credible person will contend that the prosecution of corrupt bank officers can ever endanger the financial community. No matter how important the institution or high-ranking the officer, employees are fungible. The global financial impact of prosecuting these officers, no matter how important they think they are, will always be negligible.
Assistant AG Lanny Breuer said at his press conference that individual prosecutions were not being ruled out. (Similar statements were made at the time of the robo-signing settlement press conference, and we all know what an avalanche of individual DOJ prosecutions followed in the wake of that!) But other comments Breuer made, discussing how hard it supposedly is to prosecute the individuals involved, appear to be window-dressing rehearsals for future DOJ declinations.
Reporters should not let this issue slide into oblivion. The DOJ does not typically comment upon pending investigations of individuals. (Of course this does not stop some FBI and IRS agents from telling all of a target's friends that he is being criminally investigated, thereby ruining the target's life.) Here is an occasion where the policy should be ignored, particularly since the DOJ can comment on a pending investigation without revealing the names of the subjects and targets.
The question every self-respecting reporter should be asking AG Holder and Assistant AG Breuer is not whether individual indictments have been ruled in or out. The questions to be asked at every opportunity in the coming weeks and months are:
"What is the status of the investigation?"
"Is there really any investigation?"
"Are you treating this investigation like you treat the investigation of other individuals suspected of facilitating murder and drug crimes?"
Here is an account by Rolling Stone's Matt Taibbi of his appearance on Eliot Spitzer's Viewpoint program discussing the HSBC settlement. Taibbi's account contains a link to the Spitzer interview. Hat tip to Jack Darby of Austin's Krimelabb. com for alerting me to this posting. Taibbi also has an interesting opinion piece about the HSBC settlement on his Rolling Stone TAIBBLOG.
January 04, 2012
Yesterday In Fraud
A 5th Circuit panel (including Chief Judge Edith Jones!) unanimously reversed two Section 1956 money laundering convictions based on insufficient evidence. The case is U.S. v. Harris (5th Cir. 2012) (Section 1956 money laundering evidence insufficient). The reasoning? The government conflated the underlying crime with the separate crime of money laundering. The proven transactions were not proceeds of specified unlawful activity. The evidence only showed "payment of the purchase price for drugs. Money does not become proceeds of illegal activity until the unlawful activity is complete. The crime of money laundering is targeted at the activities that generally follow the unlawful activity in time."
June 17, 2011
NACDL's 1st Annual West Coast White Collar Conference, “Turning The Tables On The Government” – Keynote Address: Benedict P. Kuehne, Friday, June 17, 2011
Guest Blogger: Darin Thompson, Assistant Federal Public Defender, Office of the Federal Public Defender (Cleveland,OH)
The Keynote Presentation, "Standing Tall: Criminal Defense Lawyers as Constitutional First Responder s in Today’s War on Crime," was given by Benedict P. Kuehne.
Benedict Kuehne spoke regarding the important role that criminal defense attorneys play in America. He noted that criminal defense lawyers often put at risk not only their fee, but their own liberty. Because the role of criminal defense lawyers is to safeguard our constitutional rights, that role itself is threatened. Mr. Kuehne used his personal story to examine these principles. In 2004, his office was searched pursuant to a federal warrant. He was the subject of a grand jury investigation into conspiracy and money laundering. His alleged crime related to legal advice he provided another criminal defense lawyer regarding the source of his fee.
This prosecution was part of an overall trend towards the broadening of the scope of money laundering prosecutions, Mr. Kuehne suggested, noting that money laundering has replaced conspiracy as the prosecution’s weapon of choice.
Mr. Kuehne noted that this prosecution theory threatened to chill the assertion of the Sixth Amendment right to counsel and the willingness of counsel to provide legal representation to individuals facing prosecution.
Mr. Kuehne then explored the history of litigation surrounding the specific statutory exemption for criminal defense fees. For 20 years, the government persisted in attempts to convince courts that the exemption did not mean what it said. These efforts, combined with the ability to seek forfeiture of fees, had a chilling effect on that Sixth Amendment right.
His case resulted in the decision U.S. v. Velez, vindicating the criminal defense fees exemption in money laundering cases. Mr. Kuehne's story is an inspiring one that clearly demonstrates the importance of the work that we defense lawyers do everyday.
May 23, 2011
President Obama Grants Eight Pardons
It is good to see that President Obama is using his pardon powers, granting eight pardons this past week. (See Press Release here) Clearly more pardons would have been better as there are many suffering from the collateral consequences of a conviction that should not have happened. Likewise, there are many that have significantly reformed their lives and are deserving of a second chance. Some observations about these pardons:
- Four of the eight included a conspiracy count.
- Three of the eight had a drug related charge.
- The largest sentence that had been given in any of these offenses was five years.
- Four had a sentence of no prison time.
- The most recent sentencing from these cases was 2001.
- Seven of the eight cases were prior to 2000.
- Only two cases were from the same state, that being Indiana.
An important question to ask is whether any of these cases should have been criminal activity in the first place. Did we really need to send someone to prison for "the possession and sale of illegal American alligator hides" in violation of the Lacey Act? Would a civil fine have been sufficient?
February 15, 2011
Grand Juries Are Not For Trial Preparation
In a case pending and set for trial in March in the Central District of California, with allegations of FCPA and money laundering violations, DOJ prosecutors are seeking to start another grand jury investigation of the defendants. Lawyers for the defendants cried foul and moved to quash five subpoenas calling for testimony today. As a result, the federal judge presiding over the case imposed stringent conditions on any use of the grand jury by DOJ prosecutors.
A grand jury is not to be used for "strengthening [a] case on a pending indictment or as a substitute for discovery." (Beasley, Simels, Arthur Andersen). Prosecutors claimed that their purpose in questioning these witnesses, all current employees of the company under indictment, was for a "new" investigation. Interestingly, the filings show that this "new" grand jury investigation came immediately after DOJ prosecutors were denied access to the employees for pre-trial, witness preparation interviews.
Defense lawyers Jan Handzlik and Janet Levine also argued that the DOJ prosecutors were "manufacturing" a new investigation to create reasons to postpone the trial, set for March 29th. They suspected the government would seek a superseding indictment leading to a trial continuance. Prosecutors disagreed and filed an under seal, in camera declaration to justify the new investigation.
US District Judge Howard Matz denied the defense motion to quash the grand jury subpoenas, but issued an order that handed the DOJ prosecutors what some of us consider to be a stinging defeat. He placed conditions on what the government could do if it chose to proceed with its "new" investigation, stating in part:
(1) At the upcoming trial, the Government may not proffer or refer to any newly obtained evidence derived from the testimony of any witness before any grand jury session conducted after the return of the First Superseding Indictment on October 21, 2010. . . .
(2) The Government may not, and shall not, question any witness about any business and financial relationship that the [defendant ] Company had with [other individuals and entities named in the pending indictment]
(3) The Government may not, and shall not, question any witness about any of the other events that directly form the basis for the charges contained in the first superseding indictment.
(4) The Government shall file under seal a transcript or transcripts of the grand jury testimony it obtains from the aforementioned witnesses, and it shall do so by not later than one week before the start of trial, and
(5) The Government may not point to or rely on whatever evidence it obtains at the upcoming grand jury sessions to seek or obtain a continuance of the trial date.
See Court's Order - Download Matz min order re GJ
See also Richard Cassin, FCPA Blog, Sparks Fly Before LA Trial
January 15, 2011
Tom Delay: Political Prisoner (Part 2)
In commenting here Wednesday about former Travis County District Attorney Ronnie Earle's shameful money laundering prosecution of Tom DeLay, I noted that:
"The election code conspiracy charge [against DeLay] was almost immediately thrown out because there was no such crime in existence in Texas, as Earle should have known, and as the state’s highest criminal court later confirmed."
R. K. Weaver sent in a comment disagreeing with my analysis. According to Weaver:
"While it is true that there is no express 'conspiracy' provision in the Election Code, there is a general 'conspiracy' provision in the Penal Code which, on its face, and historically was considered to apply to all crimes in Texas. The Texas Court of Criminal Appeals, an elected body that is entirely occupied by Republicans, held for the first time in the history of Texas law, and contrary to abundant precedent, that this provision was limited to Penal Code crimes and was not applicable to the thousands of crimes that exist outside the Penal Code. That decision is generally considered by Texas lawyers to be absurd on its face and blatantly political. Unfortunately, it is also not terribly uncommon. There is a good reason that this court is referred to as 'the clowns on the Colorado.'" [emphasis added].
"When Earle indicted DeLay for conspiracy to violate the criminal provisions of the Election Code he was acting on established and well known Texas legal principals. DeLay's victory before the Court of Criminal Appeals was more about the political landscape in Texas than about the state of the law. I anticipate that when the current case gets before that court they will once again carve a 'DeLay exception 'to the law." [emphasis added].
Weaver is mistaken.
Title 4, Section 15.02 of the Texas Penal Code is the general criminal conspiracy statute. In 1977, long before Tom DeLay's rise to prominence, the Texas Court of Criminal Appeals, the highest court in Texas authorized to rule on criminal cases, held in Baker v. State, 547 S.W.2d 627 (Tex.Cr.App.1977), that Section 15.02 (the general conspiracy statute) could not be applied to a criminal offense defined by another law (that is, defined by a law located outside of the Penal Code) unless the other law explicitly referenced the Penal Code. The non-Penal Code offense at issue in Baker was the Texas Controlled Substances Act. Baker followed a similar holding in Moore v. State, 540 S.W.2d 140 (Tex.Cr.App. 1977), which had found Section 15.01 of the Penal Code, the general attempt statute, inapplicable to the Controlled Substances Act. Both rulings were based on a strict reading of Penal Code Section 1.03(b) which stated in part that “[t]he provisions of Titles 1, 2 and 3 of this code apply to offenses defined by other laws, unless the statute defining the offense provides otherwise.” Since the conspiracy and attempt statutes were contained in Title 4, they could not apply to the Controlled Substances Act, the Court of Criminal Appeals reasoned, unless the Controlled Substances Act provided otherwise. The Controlled Substances Act did not provide otherwise, and did not contain its own attempt or conspiracy provisions. (The Texas Legislature later amended the Controlled Substances Act and it now expressly references Title 4 Penal Code offenses.) Both Baker and Moore were written by Tom G. Davis, a widely respected mainstream jurist. Judge Davis was a Democrat, as were all of the judges on the Court of Criminal Appeals at the time. In reversing Baker’s conviction and ordering the prosecution dismissed, Davis ruled that “[t]he complaint and information in the instant case do not allege an offense against the laws of this state."
Baker was still the law in Texas in 2005, when Earle brought his indictment against DeLay, and had been the law for 28 years. The pertinent portions of the conspiracy statute (Section 15.02) and of Section 1.03(b) remained the same. Earle’s original indictment of Tom DeLay charged that DeLay conspired in October of 2002 to violate the Texas Election Code. The Election Code is not a part of the Penal Code. In 2002, the Election Code did not contain a conspiracy provision or reference or incorporate Section 15.02. In other words, under authority of Baker and Moore, one could not conspire to violate the Election Code. The Election Code was amended, effective September 1, 2003, to permit application of Title 4 offenses, including the Section 15.02 conspiracy statute. But the amended version could not be applied to DeLay’s alleged conduct without violating Ex Post Facto principles. Ergo, Earle’s original indictment of DeLay did not, in the words of Tom G. Davis, “allege an offense against the laws of this state.”
According to a story in the Washington Post, Earle did not learn that there might be a problem with the original charge until his assistants told him about it, shortly after the indictment was returned. How sad. The Penal Code went into effect in 1973. The Election Code was enacted in 1975. Earle was elected Travis County District Attorney in 1976. Baker was decided in 1977. DeLay was indicted in 2005. When Earle found out about his mistake, he did not drop the Election Code conspiracy charge, which would have been the right thing to do. He re-indicted DeLay, using a new grand jury under dubious circumstances, but kept the Election Code conspiracy charge in the indictment. The trial court properly threw it out. The Court of Criminal Appeals affirmed in a 5-4 opinion.
January 12, 2011
Tom DeLay: Political Prisoner
The Washington Post reports here on the three year prison sentence handed down Monday to former House Majority Leader Tom DeLay by Texas state judge Pat Priest. DeLay was found guilty last November by an Austin jury of money laundering and conspiracy to commit money laundering under Texas criminal statutes.
The prosecution of DeLay by Travis County District Attorney Ronnie Earle and his successor has been nothing less than a travesty of justice. This is really not about Tom Delay. You can love him or you can hate him. It is instead about our collective glee whenever a person of an opposing ideology gets indicted.
Earle originally indicted DeLay for conspiracy to commit money laundering and conspiracy to violate the state election code. The election code conspiracy charge was almost immediately thrown out because there was no such crime in existence in Texas, as Earle should have known, and as the state’s highest criminal court later confirmed. The money laundering charge, and the conspiracy charge on which it is bottomed, should have never been brought either. Here’s why.
Delay's alleged laundering activity was accomplished through the writing of checks. DeLay was accused and convicted of knowingly conducting, supervising, and facilitating a transaction involving the "proceeds" of criminal activity in violation of the state money laundering statute, Texas Penal Code Section 34.02. In 2002, the year of the alleged offense, Section 34.01 of the Penal Code provided that "‘Proceeds’ meant "funds acquired or derived directly or indirectly from, produced through, or realized through an act." Section 34.01 defined "funds" as follows.
(A) coin or paper money of the United States or any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issue;
(B) United States silver certificates, United States Treasury notes, and Federal Reserve System notes; and
(C) official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country and foreign bank drafts."
So, in 2002 the "proceeds" of criminal activity meant "funds" acquired, derived, produced or realized through an act. "Funds" in turn included: coin or paper money designated as legal tender, circulating, and used as a medium of exchange; United States silver certificates, United States Treasury notes, and Federal Reserve System notes; and, official foreign bank notes used and accepted as a medium of exchange in a foreign country, and foreign bank drafts. Most conspicuously, "funds" did not include checks. This was no accident. The final version of the 1993 money laundering statute was far narrower than the draft first introduced in the Texas House of Representatives. The initial draft prohibited the knowing facilitation of a transaction involving "property" that was the "proceeds" of criminal activity. Property was defined broadly to cover tangible or intangible personal property as well as "a document, including money, that represents or embodies anything of value."
I am aware of no reported cases under the original Texas money laundering statute, prior to DeLay’s indictment, in which the proceeds of criminal activity were identified as checks. In the vast majority of the cases, the laundered proceeds consisted of currency. There were no reported cases even discussing whether a check could constitute laundered funds. The reason for this is obvious. Virtually no prosecutor in Texas thought that checks were "funds" under the old money laundering statute.
In 2005, the Texas Legislature amended the money laundering statute and broadened the definition of "funds" to include "currency or its equivalent including an electronic fund, personal check, bank check, traveler’s check, money order, bearer negotiable instrument, bearer investment security, bearer security, or certificate of stock in a form that allows title to pass on delivery." The House Research Organization’s analysis of the amendment stated that it would "broaden the definition of ‘funds’ to include money other than cash." The analysis also notes, in the "Supporters Say" section, that "[u]nder current law, prosecutors may not prosecute offenders for money-laundering if the offender received a form of money other than cash, such as checks or money orders. This is inadequate as it prevents prosecution under this statute in an array of cases." The new bill "would fix this problem by covering money received in a variety of forms other than cash." It gets even worse. Members of Travis County District Attorney Ronnie Earle’s own staff helped in the drafting of the 2005 amendment!
Of course DeLay could not be prosecuted under the 2005 version of the statute, for conduct that allegedly occurred in 2002, without violating the Constitution’s ex post facto clause. But that sort of problem did not bother Earle. He simply used the 2002 version, even though nobody thought back then that "laundering" via checks constituted laundering under Section 34.02.
The case is now headed for the higher courts. Here’s hoping that one of them does the right thing.
October 31, 2010
An Overlooked Key to Combating Overcriminalization: Reflecting on a Decade of Supreme Court Decisions Disfavoring Overly-Expansive Interpretations of Criminal Statutes
Federal courts often make an understandable mistake when faced with issues of statutory interpretation in criminal cases, focusing only on precedent that is directly on point. As a result, courts sometimes miss important trends that are broader than a specific statute or case. The fight against overcriminalization—which in part stems from overly-expansive readings of criminal statutes—is one such trend. By reflecting on a decade of Supreme Court decisions invalidating overly-expansive readings of criminal statutes, lower courts might notice the trend and avoid repeating previous mistakes that led to overcriminalization.
Since 1999, and in the midst of stiff opposition from prosecutors and lower courts, the Supreme Court has spend much of its effort curtailing the seemingly-limitless reach of various federal criminal statutes.
- Mail and Wire Fraud: In Neder, the Supreme Court rejected the argument that the federal fraud statutes contain no “materiality” requirement in relation to misrepresentations or omissions. In Cleveland, the Court rejected the position that a State’s “right” to truthful information in a license application is “property” protected by the fraud statutes. And most recently, in Skilling, the Court limited the honest-services fraud statute to “bribe and kickback” schemes, rejecting a more expansive interpretation extending the statute to undisclosed “conflicts of interest” and “self dealing.”
- Money Laundering: In Cuellar, the Supreme Court disagreed that the federal money laundering statutes criminalize the act of concealing money merely to transport it, rather than transporting money to conceal it. And in Santos, the Court held that the term “proceeds”—at least when applied to illegal gambling—means “profits,” not “gross receipts.”
- Bribery: In Sun-Diamond Growers of California, the Supreme Court determined that, contrary to the government’s position, bribery under 18 U.S.C. § 201 requires a quid pro quo—i.e., a link between a “thing of value” and a specific “official act.”
Read in isolation, each decision addresses a specific statute and utilizes—in addition to common canons of statutory interpretation—specific principles to narrow the statute (e.g., fair notice or federalism). But when courts read these cases in isolation, they inevitably end up watering down their true meaning and intended effect. For example, after Neder, courts so broadly interpreted the “materiality” element that misrepresentations and omissions rarely are deemed immaterial; after Santos, lower courts overwhelmingly refused to apply the decision’s definition of “proceeds” outside the gambling context (and Congress later amended the definition to expressly include “gross receipts” in all cases); after Sun Diamond, most courts have refused to require a specific quid pro quo under bribery statutes similar to section 201, such as section 666; and after Skilling, at least one court (the Northern District of New York, in a case called Queri) has allowed the government to repackage invalidated honest-services theories as “intangible property” theories.
If the Supreme Court cases are read together, on the other hand, they show a decade-long trend disfavoring overly-expansive readings of criminal statutes, which contribute to overcriminalization. Equally important, when read together the cases provide all the tools needed to avoid expansive interpretations and overcriminalization, rather than one tool discussed in one case addressing one statute. Lower court’s should keep this Supreme Court trend in mind in future cases.
September 05, 2010
New Books, Articles, and Other Materials
Sara Sun Beale, (forthcoming Ohio St J of Criminal Law), An Honest Services Debate
Alexander Bunin (Federal Public Defender Northern District of NY), Federal Convictions Reversed (a wonderful compilation of federal cases from the United States Courts of Appeal and the United States Supreme Court. The opinions contain at least one point favorable to criminal defendants), Download Federal Convictions Reversed 08.2010
August 11, 2010
Money Laundering Counts Reversed in Two Sixth Circuit Cases
Two former officers and directors of the National Century Financial Enterprises had been convicted on multiple counts. The Sixth Circuit reversed the money laundering counts.
In the first case, United States v. Ayers, the court examined a conviction of conspiracy to commit money laundering and held that based upon Cuellar v. United States, 128 S.Ct. 1994 (2008), the conviction could not be upheld. The court stated:
"The government is correct that the Receivables Purchase Reports involved concealment: They falsely represented that investors’ funds were being legitimately used, and thereby induced the Trustees to wire the funds to providers. But that explains only how, and not why, the money was moved. The proposition that Ayers authorized the advances for the purpose of submitting phony Reports is simply implausible on this record. The government proved only that the Reports facilitated the advances; it did not prove that the Reports, or concealment generally, were the transactions’ purpose."
In Faulkenberry v. United States, the court stated in part:
"All of this reasoning, in our view, applies to the meaning of "designed" as used in § 1956(a)(1)(B)(i). To prove a violation of that subsection, therefore, it is not enough for the government to prove merely that a transaction had a concealing effect. Nor is it enough that the transaction was structured to conceal the nature of illicit funds. Concealment—even deliberate concealment—as mere facilitation of some other purpose, is not enough to convict. . . What is required, rather, is that concealment be an animating purpose of the transaction." (citations omitted)
"Money in motion does not necessarily equal money laundering."
Ayers -Download Ayers Opinion
Faulkenberry -Download Faulkenberry 1
(esp)(w/ a hat tip to Regina Ashmon and Monica Smith)
November 13, 2009
Breaking News: William Jefferson Sentenced to 13 Years
Guest Blogger: Tiffany M. Joslyn, National Association of Criminal Defense Lawyers (NACDL)
U.S. District Judge T.S. Ellis III has sentenced ex-congressman William Jefferson to 13 years in prison for his conviction on 11 counts of public corruption. See breaking news coverage below:
October 02, 2009
NACDL's 5th Annual Defending the White Collar Case Seminar - "Getting Paid, Not Charged--Avoiding Indictment by Collecting Fees Ethically," Friday, October 2, 2009
Guest Blogger: Jon May, Chair, White Collar Crime Section, National Association of Criminal Defense Lawyers
Over the last ten years, and particularly as a result of the indictment of prominent Miami Attorney Ben Kuehne, criminal defense counsel have had cause to be concerned that they could be the subject of prosecution solely for taking a legitimate legal fee. In this morning’s presentation by Jane Moscowitz and Martine Pinales, lawyers found reasons to be hopeful that such fears may be overblown, at least as to potential prosecution. Forfeiture of fees, on the other hand, remain a significant concern.
The Kuehne prosecution is an instance of ideology trumping common sense. Benedict P. Kuehne is the most unlikely of government targets. As Jane Moscowitz, who is one of his attorneys observed, Ben is the best of all of us. He is not just a leader of the bar—having been the President of the Miami-Dade County Bar Association and a member of the Board of Governors of the Florida Bar—he has devoted countless hours to pro bono activities on behalf of organizations representing the interests of African-Americans, Hispanics, Gays and others. He was also one of Al Gore’s principal attorneys during the Florida recount. Not surprisingly, he was Roy Black’s choice for counsel when Roy Black needed an attorney to vet the legal fees he was to be paid to represent notorious Colombian cartel leader Fabio Ochoa.
Roy Black was ultimately paid $5 million for his representation of Ochoa. Ben Kuehne earned approximately $175,000 for vetting this fee. Ben was indicted for conspiracy to launder, what the government recognized, and the indictment stated, was a bona fide legal fee. This is despite the fact that the money laundering statute 18 U.S.C. Sec. 1957 contains a specific exemption for the receipt of funds necessary to preserve the Sixth Amendment. It was the government’s position before the District Court and just recently before the Eleventh Circuit in their appeal from the dismissal of this count, that the decision of the Supreme Court in Caplin and Drysdale nullified this exemption. The district court, however, was persuaded that it was the intent of Congress to protect counsel from prosecution, even if attorney’s fees could be forfeited. It appears from the tenor of the oral argument, which I was present to see, that the government’s theory is being met with the same level of skepticism that it received by Judge Cooke.
Martin Pinales discussed his experience dealing with government efforts to seize legal fees. Even in instances where the AUSA states that she has no intent to seize fees, counsel can be faced with a post trial effort by the government’s money laundering/forfeiture counsel to claw back those fees. Strategies were discussed for dealing with that problem. One way is to be paid by a third party from monies totally unconnected to any alleged criminal activity. Where money is obtained from the defendant, it is important to insure that the money did not come from any source named in a forfeiture count. And counsel should do due diligence even as to assets that could be later characterized as a substitute asset. It was also important to have your retainer agreement tie fees received to services provided. Where the funds are clearly substitute assets, counsel who takes these steps will have a better chance of demonstrating that they are bona fide purchasers for value in later forfeiture proceedings.
During the seminar, other important issues were raised. In many districts, counsel do not have to worry about their fees if their clients cooperate. Doesn’t that create a conflict of interest? You can charge a flat fee so long as you can demonstrate that it was earned. But don’t call it non-refundable (unless you practice in Florida, but it still has to be reasonable). The final irony, and outrage, discussed was the fact that the indictment against Ben also includes forfeiture count. The government is seeking to forfeit from Ben, the $5 million that Roy Black received.
July 23, 2009
Could there be corruption in New Jersey?
NYTimes (AP), 2 Mayors Arrested in Broad N.J. Corruption Sweep
In this same US Attorney's Office, just a couple of days ago, an assemblyman and former mayor had a new charge added to his Indictment alleging that "he participated in a scheme with his former key political advisor to circumvent the contribution limitation and reporting requirements of the Federal Election Campaign Act." (see here).
May 27, 2009
Fraud Enforcement Recovery Act of 2009 - The Money Laundering Provisions
In recent years, some white collar cases have had money laundering charges included in the Indictment. Some may believe that the addition of money laundering counts is used as leverage to secure a plea from the accused. The Fraud Enforcement Recovery Act of 2009 includes changes to both sections 1956 and 1957 of title 18, the money laundering statutes. The changes are as follows:
SPECIFIED UNLAWFUL ACTIVITY.—
(1) MONEY LAUNDERING.—Section 1956(c) of title 18, United States Code, is amended—
(A) in paragraph (8), by striking the period and inserting ‘‘; and’’; and
(B) by inserting at the end the following:
‘‘(9) the term ‘proceeds’ means any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity.’’.
(2) MONETARY TRANSACTIONS.—Section 1957(f) of title 18, United States Code, is amended by striking paragraph (3) and inserting the following:
‘‘(3) the terms ‘specified unlawful activity’ and ‘proceeds’ shall have the meaning given those terms in section 1956 of this title.’’
It is obvious in reading the language that Congress was reacting to the Supreme Court decision in United States v. Santos, where a plurality (Scalia, Souter, Ginsberg, and Thomas) found that the rule of lenity applied because of a failure to define the term "proceeds" in the statute. Justice Stevens went with these four justices, but limited his decision, saying he would not have ruled this way if the case involved contraband or organized crime. The Court, therefore, held that "proceeds referred to "profits" and not "receipts." A four person dissent (Breyer, Alito, Roberts, and Kennedy) believed that proceeds should include the total amount brought in. This Congressional amendment to the statute endorses the position taken by the dissent and provides a definition of what is meant by the term "proceeds."
But there are several points to note here. Even though the new legislation clarifies the statute, thus voiding any need to resort to the Rule of Lenity in defining "proceeds" and also resolves future cases on which crimes are covered by the Santos decision (an issue that several district and circuit courts have had to contend with), it may still allow defense counsel to make merger arguments. As stated by Justice Stevens in his concurring opinion in Santos
"Allowing the Government to treat the mere payment of the expense of operating an illegal gambling business as a separate offense is in practical effect tantamount to double jeopardy, which is particularly unfair in this case because the penalties for money laundering are substantially more sever than those for the underlying offense of operating a gambling business."
It also leaves open the issue of how this statute applies to mail fraud when the crime is not complete and whether a sentence can be enhanced when the predicate offense and the money laundering merge. Congress was clearly concerned about the merger issue as the amendment includes a specific statement "Sense of the Congress and Report Concerning Required Approval for Merger Cases" that states:
(1) Sense of Congress - It is the sense of the Congress that no prosecution of an offense under section 1956 or 1957 of title 18, United States Code, should be undertaken in combination with the prosecution of any other offense, without prior approval of the Attorney General, the Deputy Attorney General, the Assistant Attorney General in charge of the Criminal Division, a Deputy Assistant Attorney General in the Criminal Division, or the relevant United States Attorney, if the conduct to be charged as ‘‘specified unlawful activity’’ in connection with the offense under section 1956 or 1957 is so closely connected with the conduct to be charged as the other offense that there is no clear delineation between the two offenses.
(2) REPORT.—One year after the date of the enactment of this Act, and at the end of each of the four succeeding one-year periods, the Attorney General shall report to the House and Senate Committees on the Judiciary on efforts undertaken by the Department of Justice to ensure that the review and approval described in paragraph (1) takes place in all appropriate cases. The report shall include the following:
(A) The number of prosecutions described in paragraph (1) that were undertaken during the previous one-year period after prior approval by an official described in paragraph (1), classified by type of offense and by the approving official.
(B) The number of prosecutions described in paragraph (1) that were undertaken during the previous one-year period without such prior approval, classified by type of offense, and the reasons why such prior approval was not obtained.
(C) The number of times during the previous year in which an approval described in paragraph (1) was denied.
April 19, 2009
Wire Fraud is Not Limitless - It Requires "in Furtherance"
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)
August 30, 2008
The American Bar Association/American Bankers Association - Money Laundering Enforcement Conference - October 19-21, 2008 D. C. here
ABA - National Institute on Criminal Enforcement of Intellectual Property Rights - Septebmer 26, 2008, San Francisco here
ABA - The Foreign Corrupt Practices Act: Current SEC and DOJ Enforcement Initiatives - September 11, 2008 - Teleconference and Live Audio Webcast here
ABA - National Institute on Securities Fraud - October 2-3, 2008, Arlington, Virginia here
June 02, 2008
Supreme Court Rules Against the Government in Two Money Laundering Cases
One would not normally think of money laundering in the same sentence as white collar crime, since one usually considers the money laundering statutes in the context of drugs or gambling. But the reality is that "[t]here are more than 250 predicate offenses for the money-laundering statute," (J. Scalia, Santos) and often one sees money laundering added in white collar cases. (see here) It is a crime facing Attorney Ben Kuehne of Miami (see here). Thus, the Supreme Court decisions against the government in money laundering cases are important to the white collar area.
In Cuellar v. United States, the Court reversed a Fifth Circuit decision. The Court held -
"The provision of the money laundering statute under which petitioner was convicted requires proof that the transportation was "designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control" of the funds. §1956(a)(2)(B)(i). Although this element does not require proof that the defendant attempted to create the appearance of legitimate wealth, neither can it be satisfied solely by evidence that a defendant concealed the funds during their transport. In this case, the only evidence introduced to prove this element showed that petitioner engaged in extensive efforts to conceal the funds en route to Mexico, and thus his conviction cannot stand."
In United States v. Santos, the Court affirmed a Seventh Circuit decision. The Court held -
"From the face of the statute, there is no more reason to think that "proceeds" means"receipts" than there is to think that "proceeds" means"profits." Under a long line of our decisions, the tie must go to the defendant. The rule of lenity requires ambiguous criminal laws to be interpreted in favor of the defendants subjected to them. See United States v. Gradwell, 243 U. S. 476, 485 (1917); McBoyle v. United States, 283 U. S. 25, 27 (1931); United States v. Bass, 404 U. S. 336, 347– 349 (1971). This venerable rule not only vindicates the fundamental principle that no citizen should be held accountable for a violation of a statute whose commands are uncertain, or subjected to punishment that is not clearly prescribed. It also places the weight of inertia upon the party that can best induce Congress to speak more clearly and keeps courts from making criminal law in Congress’s stead. Because the "profits" definition of"proceeds" is always more defendant-friendly than the"receipts" definition, the rule of lenity dictates that it should be adopted."
March 12, 2008
Spitzer Quits -- Will Charges Follow?
Eliot Spitzer resigned as Governor of New York, issuing a statement (here) declaring that "I have begun to atone for my private failings with my wife, Silda, my children, and my entire family. The remorse I feel will always be with me." The resignation came only two days after the public revelation of his philandering, and whether he will face any federal charges for his conduct remains to be seen. As discussed in earlier posts (here and here), the U.S. Attorney's Office for the Southern District of New York could conceivably pursue potential violations of the Mann Act or the anti-structuring statute. An interesting question is whether prosecutors might have sought Spitzer's resignation as a condition for not filing charges, or as part of an as-yet undisclosed plea agreement.
Federal prosecutors seeking the resignation of an elected state official, or conditioning charges on such a decision, could raise significant federalism concerns. Moreover, the political overtones of a Republican-selected U.S. Attorney seeking (or demanding) the resignation of a Democrat from elected office in an election year would only add to the concerns. The U.S. Attorney's Manual in Sec. 9-16.110 addresses the issue of seeking the voluntary resignation of a non-federal elected official (here):
GENERAL RULE: Resignation from office, withdrawal from candidacy for elective office, and forbearance from seeking or holding future public offices, remain appropriate and desirable objectives in plea negotiations with public officials who are charged with federal offenses that focus on abuse of the office(s) involved. Where the office involved is not one within the Legislative or Judicial Branches of the federal government, such negotiated terms may be also be enforced involuntarily against the will of the defendant by a sentencing judge pursuant to the Federal Probation Act.
While not stated explicitly in the USAM, resignation does not seem to be an "appropriate or desirable objective" when the charges are unrelated to the official's exercise of authority. To this point, Spitzer's tryst with the prostitute "Kristen" seems to be an entirely personal act, and the funds involved apparently came from personal accounts. Thus, it would seem that the resignation should not connected to any charging decision, at least if the U.S. Attorney's Office acts in accordance with Department policy. Should the use of government funds for the assignations have occurred, then Spitzer's resignation could be tied to a charging decision. Of course, a decision to abjure filing charges is not subject to any outside scrutiny, so we would never know -- at least not officially -- whether his decision was in response to a request from the federal prosecutors. (ph)
UPDATE: The U.S. Attorney's Office for the Southern District of New York issued a press release after Spitzer's resignation that states in its entirety: "In response to press speculation, MICHAEL J. GARCIA,the United States Attorney for the Southern District of New York,said: 'There is no agreement between this Office and GovernorEliot Spitzer, relating to his resignation or any other matter.' " (ph)
March 11, 2008
Spitzer and the Southern District of New York
The fact that federal prosecutors from the U.S. Attorney's Office for the Southern District of New York pursued the investigation of New York Governor Eliot Spitzer's use of large amounts of cash for transactions that turned out to involve the services of one or more prostitutes means he could be looking at federal charges for his conduct. Blog co-editor Ellen Podgor has already discussed (here) the possible application of the Mann Act to Spitzer's involvement in the interstate transportation of a person for prostitution, which in fact is among the charges against the leaders of the Emperors Club service Spitzer used (criminal complaint and affidavit below -- the juicy "Client 9" material begins in paragraph 73 for those with their minds in the gutter). The investigation began because of Suspicious Activity Reports filed by banks because Spitzer purportedly made large cash withdrawals, and while the initial focus was for possible public corruption, the case turned out to involve a more mundane, albeit considerably salacious, prostitution ring.
While Mann Act charges against Spitzer certainly would be quaint, a criminal structuring charge may be more likely. The applicable statute is 31 U.S.C. Sec. 5324(a), which provides:
No person shall, for the purpose of evading the reporting requirements of section 5313(a) or 5325 or any regulation prescribed under any such section, the reporting or recordkeeping requirements imposed by any order issued under section 5326, or the recordkeeping requirements imposed by any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508—
cause or attempt to cause a domestic financial institution to fail to file a report required under section 5313(a) or 5325 or any regulation prescribed under any such section, to file a report or to maintain a record required by an order issued under section 5326, or to maintain a record required pursuant to any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508 . . . .
If Spitzer split deposits or withdrawals in his accounts to stay below the $10,000 threshold for filing a Currency Transaction Report by the bank, then he could be guilty of structuring. The predecessor to this provision was the subject of the Supreme Court's decision in Ratzlaf v. United States, 510 U.S. 135 (1994), in which the court interpreted the "willfully" element to require proof that the defendant knew there was a legal duty to report the transactions and sought to have the bank violate the law by structuring his transactions. As the Court explained, "Undoubtedly there are bad men who attempt to elude official reporting requirements in order to hide from Government inspectors such criminal activity as laundering drug money or tax evasion. But currency structuring is not inevitably nefarious." (Italics added) In response, Congress sought to overturn Ratzlaf by removing "willfully" as an element of the crime. Thus, all the government must prove is that the person intended to structure the transactions, not that the person intended to commit a crime by violating the provision. So while structuring is not always nefarious, it is a crime regardless of the desire to violate the law.
The Second Circuit rejected a fall-back argument that the statute requires that the money that is the subject of the structuring must be tainted and not just funds properly controlled by the defendant. In United States v. MacPherson, 424 F.3d 183 (2d Cir. 2005), the court stated, "The anti-structuring law may well have been intended to prevent criminals from concealing their illicit profits, but that is not the limit of its reach. Section 5324 makes no reference to the source of the monies at issue or to the reason why a person seeks to avoid CTR filing. Its singular focus is on the method employed to evade that filing requirement, i.e., structuring." (Italics in original) Spitzer could not avoid a structuring charge by arguing that the money was his, or at least he had lawful access to it, so he could do with it as he wanted. Moreover, an ignorance defense would be difficult to offer for a former state Attorney General who fancied himself the Sheriff of Wall Street. The structuring provision is different from the money laundering statute, which reaches the proceeds of "specified unlawful activity," even though it reaches similar activity and often involves conduct by people who are trying to hide criminal activity.
An interesting question is whether any other federal criminal charges could come out of the cash transactions. The old adage is to "follow the money," and here it may be to trace the dollars backward to find out where they came from and how they traveled, and not so much where they ended up. Spitzer is a fairly wealthy man, so he probably has access to a sizable pool of money. Yet, according to the criminal complaint, he did not want to make a wire transfer, even though Emperor's Club employed a shell corporation that could be used to hide the true nature of the payments. If Spitzer was trying to hide what he was doing from his family, then large cash withdrawals might have raised just as many questions as wire transfers. It would not surprise me that federal investigators were looking into whether any campaign money was involved in the transactions, or at least campaign bank accounts, that could be used so that it was not as apparent when slugs of cash were used for personal purposes. Whether that violates any federal laws is an open question, but I suspect the U.S. Attorney's Office is going to take a very close look at the flow of the money to see what roads it traversed. (ph)
March 10, 2008
Sex or Crime, Spitzer Has Been Punished?
Four individuals had a criminal complaint filed against them. Two were charged with a conspiracy to violate federal laws related to prostitution. The other two face charges of prostitution and money laundering. (See NYTImes here) Enter client 9 - an individual unnamed in the charges. The details of the D.C. meeting involving client 9, and how the woman meeting him was to arrive are outlined in the NYTimes here. Some of the questions that are likely to be explored in the upcoming days are:
- Did Spitzer violate the Mann Act? The Mann Act, 18 U.S.C. Sec. 2421, provides: "[w]hoever knowingly transports any individual in interstate or foreign commerce, or in any Territory or Possession of the United States, with intent that such individual engage in prostitution, or in any sexual activity for which any person can be charged with a criminal offense, or attempts to do so, shall be fined under this title or imprisoned..." Even if this did amount to a technical violation, one has to seriously question whether consensual acts warrant prosecution.
- Will Spitzer need to be a witness in the case against the four individuals charged with conspiracy, prostitution, and money laundering? Will he be given immunity? In the federal system this would be "use" immunity as opposed to "transactional immunity," which means that anything he said or derived from what he said could not be used against him.
- Was it really necessary to include all of these acts in the charging instrument? Prosecutors, obviously, knew who they were dealing with in this case. But, on the other hand, did fairness require this to happen - should any one person be protected here more than others?
From a purely punishment perspective, and irrespective of Spitzer having any criminal culpability, it seems obvious that a "shaming" has occurred here. Even if there was some criminal culpability, should taxpayer's dollars be spent on investigating and prosecuting this man. The higher the office holder, the longer the fall from power, and in this case it is pretty hard ground that Spitzer is landing upon.