Wednesday, July 20, 2016

A Review of the UK Serious Fraud Office's Second DPA

Earlier this month, the UK Serious Fraud Office announced the approval by Lord Justice Leveson of the country's second deferred prosecution agreement.  Readers may recall that the implementation of a DPA process is relatively new in the UK (see prior post here).  According to the SFO press release in the matter, the company, which remains nameless due to ongoing, related legal proceedings, was subject to an indictment charging "conspiracy to corrupt, contrary to section 1 of the Criminal Law Act 1977, conspiracy to bribe, contrary to section 1 of the same Act, and failure to prevent bribery, contrary to section 7 of the Bribery Act 2010, all in connection with contracts to supply its products to customers in a number of foreign jurisdictions."

Pursuant to the terms of the DPA, the indictment was suspended and the company agreed to pay a total of 6,553,085 British Pounds.  The company also agreed to continue to cooperate with the ongoing SFO investigation and conduct a review of all third party transactions and its existing compliance measures. 

The SFO press release went on to state:

In passing the judgment, Lord Justice Leveson said:

“[This conclusion] provides an example of the value of self-report and co-operation along with the introduction of appropriate compliance mechanisms, all of which can only improve corporate attitudes to bribery and corruption.”

SFO Director David Green CB QC said:

“This case raised the issue about how the interests of justice are served in circumstances where the company accused of criminality has limited financial means with which to fulfill the terms of a DPA but demonstrates exemplary co-operation.

“The decision as to whether to force a company into insolvency must be balanced with the level and nature of co-operation and this case provides a clear example to corporates. The judgment sets out the considerations in detail and endorses the approach we took. As with the first DPA with Standard Bank, the judgment provides clear and helpful guidance.”

The suspended charges relate to the period of June 2004 to June 2012, in which a number of the company’s employees and agents was involved in the systematic offer and/or payment of bribes to secure contracts in foreign jurisdictions. The SFO undertook an independent investigation over a period of two years, concluding that of the 74 contracts examined 28 were found to have been procured as a result of bribes.

The SME’s parent company implemented a global compliance programme in late 2011. In August 2012, this compliance programme resulted in concerns being raised within the SME about the way in which a number of contracts had been secured. The SME took immediate action, retaining a law firm that undertook an independent internal investigation. The law firm delivered a report to the SFO on 31 January 2013, after which the SFO conducted its own investigation.

The SFO would like to thank HM Treasury, HM Revenue & Customs and the Department for Business, Innovation & Skills for their assistance in this investigation.

The final redacted judgement in the matter is available here.  

This week, WilmerHale released a piece entitled "The UK's second DPA: a hopeful judgment."  In the piece, author Lloyd Firth argues that several revelations from the DPA are encouraging as we consider the role the new DPA system will have in the UK.  For those interested in the evolving DPA process in the UK, I recommend you give both the final redacted judgment and the WilmerHale piece a read. 

(LED)

July 20, 2016 in Corruption, Deferred Prosecution Agreements, FCPA, International, Prosecutions, Settlement | Permalink | Comments (0)

Friday, July 15, 2016

Fed Ex Case - Real Change Needs to Happen

In 2014, prosecutors proceeded with a case against fed ex.  Unlike many companies in a post-Arthur Andersen world, they would not be bullied into folding and taking a non-prosecution or deferred prosecution agreement.  Instead, they took the risk - and it is always a risk - of going to trial. What makes this case particularly puzzling is that the company had cooperated with the government.  They hired a top-notch white collar attorney Cristina Arguedas and the government folded shortly after the trial began.  Now, according to Dan Levine and David Ingram in their Reuter's story, U.S. Prosecutors Launch Review of Failed Fed Ex Drug Case, the DOJ is reviewing this matter.  Some thoughts -

1.  It is good to see DOJ re-examining this case.  What happened here should not have happened, and learning from this case is important.

2. The review should not be limited to the fed ex case.  There needs to be an examination, especially for the smaller companies that cannot afford to go to trial, of the government cooperation tactics.

3. If cooperation is going to work, then credit needs to rightfully be given.

4. The government's pitting employees (the corporate constituents) against the employers (company) needs to also be examined.  This practice defeats the ability of corporations and individuals working together to root out corporate misconduct.

5. Criminal defense attorneys need to recognize that one can successfully take a corporation to trial against the government. The risk is enormous, but innocence needs to matter.

(esp)

 

July 15, 2016 in Deferred Prosecution Agreements, Media, News, Prosecutions, Prosecutors | Permalink | Comments (0)

Thursday, July 7, 2016

The Clinton Email Hearing

I agree with guest bloggers Ziran Zhang and Eugene Gorokhov in their thoughtful blog post (here) that "[i]f Director Comey is right that individuals in similar circumstances in the past were only subjected to administrative sanctions, then its decision to recommend no prosecution in this case may be the right one." 

I would, however, go a step further - a declination of prosecution was the right decision here even without the long precedent of not bringing these cases. After listening to FBI Director Comey's testimony in an over four hour hearing of the House Oversight and Government Reform Committee on the "Hillary Clinton Email Investigation" (see here) we find out that the 3 emails that were alleged to be classified were not in fact properly marked. And they looked at "tens of thousands of emails." Here there was no header on the documents or in the text. And FBI Director Comey stated that it would be a reasonable inference to think it was not classified when there was no header on the document.

Attorneys Zhang and Gorokhov reference the US Attorneys Manual, specifically the Principles of Prosecution in 9-27.000 and 9-27.220(A).  But let me add to their discussion part of the Comment from that portion of the Manual - 

Comment. USAM 9-27.220 expresses the principle that, ordinarily, the attorney for the government should initiate or recommend Federal prosecution if he/she believes that the person's conduct constitutes a Federal offense and that the admissible evidence probably will be sufficient to obtain and sustain a conviction. Evidence sufficient to sustain a conviction is required under Rule 29(a), Fed. R. Crim. P., to avoid a judgment of acquittal. Moreover, both as a matter of fundamental fairness and in the interest of the efficient administration of justice, no prosecution should be initiated against any person unless the government believes that the person probably will be found guilty by an unbiased trier of fact. (emphasis added)

Put the format of the emails together as testified to by Director Comey, with no intent, no evasiveness, and no false statements - Director Comey would be justified in believing that such a case would not return a conviction. Using the guidance of the US Attorney's Manual FBI Director Comey's recommendation to DOJ was justified.

But there is another fascinating aspect to this hearing. One of the key aspects of the Overcriminalization Movement (a bi-partisan coalition) is the need to include a mens rea in statutes.  (see here). Yet in this hearing we see some members of Congress, albeit different ones from the committee looking at Overcriminalization, arguing that in this case a strong mens rea should not be needed for this criminal statute.

(esp)

July 7, 2016 in Congress, Prosecutions, Prosecutors | Permalink | Comments (0)

The Law Behind the FBI’s Decision to Recommend No Charges in Clinton Email Investigation

Guest Bloggers Ziran Zhang & Eugene Gorokhov (Burnham and Gorokhov, PLLC):

Recently, Professor Podgor wrote two informative posts covering FBI Director James Comey’s public statement about the FBI’s year-long investigation into Hillary Clinton’s use of private e-mail servers, its recommendation that no criminal charges be filed (here), and AG Loretta Lynch’s acceptance of the FBI’s recommendation (here). Professor Podgor noted many unusual aspects about Director Comey’s statement, including the fact that the FBI does not usually publicize its recommendations.  The short version of Director Comey’s speech is that the FBI did find “evidence of potential violations of the statutes regarding the handling of classified information,” but is recommending against criminal prosecution for a variety of reasons.  This post examines two questions: (1) Is Director Comey right when he says that the evidence indicated potential violations of federal laws?  (2) if so, why is the FBI recommending against prosecution? 

What laws did Hillary Clinton’s conduct potentially violate?

While the FBI’s investigation undoubtedly looked at many federal statutes, the one that Director Comey referenced in his statement appears to be 18 U.S.C. 793(f), which makes it a federal crime for anyone  “through gross negligence" to permit  classified information "to be removed from its proper place of custody or delivered to anyone in violation of his trust, or to be lost, stolen, abstracted, or destroyed[.]”

In this case, classified information was undoubtedly removed from its proper place of custody.  According to Director Comey, of the approximately 30,000 emails provided by Hillary Clinton, 110 contained classified information at the time they were sent or received. (Another 2,000 emails were later determined to contain classified information, although those were not formally classified at the time they were sent or received).  A small number of emails also contained documents with markings that indicated the presence of classified information. Comey noted that “none of these e-mails [containing classified information] should have been on any kind of unclassified system,” let alone “unclassified personal servers not even supported by full-time security staff[.]” 

Whether the act of communicating classified information through personal servers constitutes “gross negligence” is a more difficult question to answer. The Supreme Court has called “gross negligence” a “nebulous” term “lying somewhere between the poles of negligence at one end and purpose or knowledge at the other[.]” Farmer v. Brennan, 511 U.S. 825, 836 n.4 (1994).

Reported decisions of prosecutions under 18 U.S.C. § 793(f) are rare. In one case, a Marine Corps intelligence officer pled guilty to a violation of § 793(f) where he inadvertently packed classified documents into his gym bag along with his personal papers and took the classified documents home. United States v. Roller, 42 M.J. 264 (CAAF 1995). Former FBI Agent James J. Smith, who had an affair with suspected Chinese spy Katrina Leung, was also charged under this provision for taking classified documents to Leung’s home, resulting in Leung covertly copying the documents without Smith’s knowledge.  Smith later pled guilty to a charge of false statements.

Director Comey opined that the use of a private server was “extremely careless” and that any “reasonable person” in Hillary Clinton’s position would know better than to use an unclassified system to discuss classified information. A jury looking at the full evidence, including the actual content of the emails and the context in which these events occurred, may have agreed with Comey, or may have decided that although negligent, Clinton’s conduct did not rise to gross negligence.

Why did the FBI recommend that no criminal charges be filed? 

Director Comey’s primary reason for not recommending criminal charges in this case appears to be the lack of precedent for criminal charges in similar cases in the past.  According to Director Comey, “[a]ll the cases prosecuted involved some combination of: clearly intentional and willful mishandling of classified information; or vast quantities of materials exposed…; or indications of disloyalty to the United States; or efforts to obstruct justice.” Whereas “in similar circumstances,” “individuals are often subject to security or administrative sanctions”

While the decision to prosecute is ultimately up to the prosecutor, what some may not realize is that in federal cases, the prosecutor’s decision to bring criminal charges is governed by the United States Attorney’s Manual. USAM 9-27.000, titled “Principles of Federal Prosecution” contains the DOJ’s written guidance to prosecutors about decisions to initiate or decline prosecution. Specifically, 9-27.220(A) instructs prosecutors to file criminal charges in all cases where there is a violation of federal law and the evidence is sufficient to obtain a conviction, unless one of three grounds exist:

  • Lack of a substantial federal interest;
  • The defendant is subject to prosecution in another jurisdiction; or
  • The existence of adequate non-criminal alternatives to prosecution.

In this case, both the first and third grounds are potential reasons that a federal prosecutor can rely on to justify not bringing any charges. 

The first ground, “substantial federal interest,” is a composite factor that weighs a number of considerations including federal law enforcement priorities, the nature and seriousness of the offense, the deterrent effect of prosecution, the personal characteristics of the individual, and the probable sentence upon conviction.  Nationally, the DOJ’s number one law enforcement priority is protecting U.S. citizens from national security threats.  See Memorandum re: Federal Prosecution Priorities. However, a prosecutor can potentially justify declining prosecution based on Hillary Clinton’s personal characteristics and the nature and seriousness of the offense.

The third ground, the existence of adequate non-criminal alternatives, appears to have been the one that Director Comey relied upon.  In this case, for example, Hillary Clinton could potentially face security and administrative sanctions such as revocation of her security clearance, and such a sanction may be “adequate” in light of past practice. (How such a sanction would work if Clinton is elected President, however, is a question we can’t answer). 

Concluding remark

The FBI’s investigation uncovered sufficient evidence for a reasonable jury to find that Hillary Clinton did violate the law. However, the federal government does not (and should not) bring criminal charges in every case. If Director Comey is right that individuals in similar circumstances in the past were only subjected to administrative sanctions, then its decision to recommend no prosecution in this case may be the right one. 

(ZZ & EG)

July 7, 2016 in Investigations, Prosecutions, Prosecutors | Permalink | Comments (0)

Comey's Pronouncement and Lynch's Recusal Both Inappropriate

The declination to prosecute Hilary Clinton and the public announcement of that decision by FBI Director Comey, were, in my opinion, wholly proper.  When an investigation of a public figure receives widespread notice, it should be incumbent on the prosecuting agency to make public a decision not to prosecute.

However, the severe criticism of Ms. Clinton  by Director Comey was inappropriate.  I do not know enough to assess the accuracy or fairness of his report and do not challenge it.  However, the FBI (either acting, as here, as the surrogate prosecutor, or otherwise) should not, in the absence of sufficient evidence to recommend charges,  issue a public declaration of fault in any case, let alone one that affects a presidential election.  By his pronouncement, Comey, obviously knowingly, did so.  That he had no business doing.

The Department of Justice is also at fault.  Attorney General Lynch should never have agreed to meet with Bill Clinton, the husband of the target of a criminal investigation under her supervision, even if he were a past President and even just to exchange pleasantries.  I do understand how Attorney Lynch, a classy and courteous person, would have been reluctant to refuse to meet a past President, but propriety should have trumped gentility.   Worse, she never should have abdicated the responsibility of the Department of Justice  to determine whether to prosecute.  If she felt she were or appeared to be personally tainted by the meeting, she should at most have recused herself and left the decision to her deputies, not have turned it over to an investigating agency.

The American system of justice essentially places the responsibility of investigation on the investigators and the decision to prosecute based on the results of that investigation to the prosecutors.  Effective prosecution often involves an integration of and input from both agents and prosecutors, but the prosecutors still should be the sole and final deciders of whether to prosecute.  There is an inherent bias on the part of investigators, wanting a positive and public result of their work, in favor of arrest and prosecution.  The prosecutors, more knowledgeable about the law and the workings of the court system than the investigators, should act as  a buffer and, giving regard to the investigators, make the determination whether to prosecute.  That is an important check in the criminal justice system's checks and balances.  I hope this unusual situation does not serve as a precedent.

July 7, 2016 in Celebrities, Current Affairs, Government Reports, Investigations, Prosecutors | Permalink | Comments (0)

Wednesday, July 6, 2016

AG Loretta Lynch's Statement Contrasted With FBI Director Comey's Statement

Attorney General Loretta Lynch issued a statement today regarding the DOJ's decision to close the investigation without charges. (see here). It's 3 1/2 lines shows the proper way to handle a declination of prosecution.  It simply tells the individual and public that the investigation is over and that there will be no charges.

Unlike FBI Director Comey's comments it does not state opinions and hypotheticals.  Further, it does not carelessly accuse a person of conduct that they did not and will not have an opportunity to refute in a legal forum. One also has to give AG Lynch credit for removing herself from the decision-making function and leaving this matter to career prosecutors.  

From the perspective of process - Attorney General Loretta E. Lynch gets an "A" in my book.

(esp)

July 6, 2016 in Investigations, Prosecutions, Prosecutors | Permalink | Comments (0)

Tuesday, July 5, 2016

Comey's Statement on Hillary Clinton's Use of E-Mail

FBI Director James B. Comey spoke this morning regarding the FBI's investigation of Hillary Clinton's Use of a Personal E-Mail System.  See his remarks (here), which are unique in many ways:

1.  Most investigations do not receive a formal statement saying that no charges will be recommended.  ("we don’t normally make public our recommendations to the prosecutors"). Most individuals are left hanging without receiving a statement such as this or a statement from DOJ.  Often folks may go through a lengthy investigation and but for the statute of limitations, they may never know it was over.

2.  By not recommending that she be charged, but by stating negative comments about her actions (calling her "careless") she is left without the opportunity to demonstrate the truth or falsity of these statements.  That said, having a statement that their recommendation to DOJ is that she not be indicted, is probably appreciated.

3.   It is important to remember that an investigation such as this is one-sided -  that is, the government is running the show. The FBI has no obligation to review or consider exculpatory evidence and one has to wonder if they shared what they found with defense counsel and gave them the opportunity to respond after they had reviewed the specific documents in question. Government investigations typically are not a give and take with defense counsel - they are the government accumulating as much evidence as they can to indict an individual and one only hears from the defense if and when there is a trial.

4. Is it the FBI's role to speak about hypotheticals when they have no hard facts?  For example, FBI Director Comey stated - "It could also be that some of the additional work-related e-mails we recovered were among those deleted as 'personal' by Secretary Clinton’s lawyers when they reviewed and sorted her e-mails for production in 2014."

5. The accusations about what her lawyers did were unnecessary statements that had no place in this FBI statement.  The statement that the "lawyers cleaned their devices in such a way as to preclude complete forensic recovery,"  seems like a proper  action on the part of counsel - especially since they are dealing with the alleged classified documents.

6.  Their statement about deficiencies in the security culture of the State Department ("While not the focus of our investigation, we also developed evidence that the security culture of the State Department in general, and with respect to use of unclassified e-mail systems in particular, was generally lacking in the kind of care for classified information found elsewhere in the government.") - To rectify this problem clearly takes money -  will Congress authorize money for better technology and security within the State Department?  

My Conclusions - It sounds like FBI Director James Comey's office did an extensive investigation and concluded that criminal charges are not in order - as it should be when a mens rea is lacking. It would be nice if this special instance of telling the individual that they are recommending against indictment were used in all cases when they have a recommendation for no indictment. When they do provide an announced recommendation of non-indictment, the FBI should limit their statement to just that. There is no need to tarnish a person's reputation in the process - especially when there is no concrete evidence to support the hypotheticals. Finally, becoming technologically savvy is difficult as the technology is constantly changing.  Perhaps we need to re-examine our technological infrastructure across the board with the government -something we should have learned post-Snowden.  Perhaps this can be put on the agenda of the next President.

(esp)

July 5, 2016 in Government Reports, Investigations, News | Permalink | Comments (0)

Can a Breach of Contract Be the Basis for a Wire Fraud Conviction

An interesting case is pending in the 11th Circuit that considers whether a breach of a real estate contract can be the basis for a wire fraud conviction. The case involves a failure to disclosure a sinkhole when selling a residence.  There is a huge federalism question here that is magnified by the fact that Alabama "employ[s] the cannon of caveat emptor in real estate transactions." But the most interesting aspect of the case is the government's taking a civil action and using the wire fraud statute to prosecute the conduct.  I'll withhold further comment until after I have seen the government's brief - but I have to wonder if this is the case that the late-Justice Scalia was waiting for to limit the reach of the mail/wire fraud statutes.  

Appellant's Brief - Download Defendant-Appellant's Initial Brief

(esp)

July 5, 2016 in Fraud, Prosecutions, Prosecutors | Permalink | Comments (0)

Friday, July 1, 2016

McDonnell Is Nothing New

Some folks have expressed critical views of the Supreme Court's opinion in the McDonnell case. But they are forgetting several important points:

  1. This was a unanimous decision by the Court.  There were no dissents.  There were no concurring opinions.  It was clearcut!
  2. This decision does not put a stop to prosecutions for bribery and extortion. Cases in which there is a receipt of money for official acts can still be prosecuted. (Evans v. United States).
  3. This decision does not create any new limit to the bribery/extortion statute.  It has always existed. (see United States v. Birdsall - a 1914 decision).

So what happened here?  The government tried to push the envelope further than permitted and they were caught.  This is no different than back in the 1980s when they tried to bring mail fraud cases based on intangible rights as opposed to property, a requirement of the statute.  The Supreme Court in 1987 issued the McNally decision to place the government on notice that developing a new theory that exceeded the language of the statute would not be permitted.

Bottom line - Congress writes the laws and government prosecutors need to stay within the language provided to them.

(esp)

July 1, 2016 in Judicial Opinions, Prosecutors | Permalink | Comments (0)