CRIMINAL
CORPORATE LIABILITY AND WHAT THE TEXAS ATTORNEY SHOULD KNOW
By
ROBERT S. BENNETT
Houston, Texas
REPRINT
FROM
TRIAL
LAWYERS
FORUM
VOLUME
22, NUMBER 4,1988
Criminal Corporate liability and what the Texas attorney should know.
Robert S. Bennett
Corporate or business crime,
or what is more frequently referred to as white-collar crime is as
old as horse-trading, but it continues to take on new forms with the
“advancement” of society and technology.
The landmark study in this field was published by
Edwin H. Sutherland in 1949 and entitled White-Collar
Crime.1 Attempting a definition of the converse of
“street” crime, Sutherland wrote “ ... white-collar crime may
be defined approximately as a crime committed by a person of
respectability and high social status in the course of his
occupation.” 2 Sutherland introduced this definition
with comments that these white-collar crimes are violations of law
by persons in the “upper socio-economic class.”3
Generally,
white-collar offenses do not involve acts of violence.
There are no smoking guns, no blood-stained knives, and no
wails of police sirens associated with their commission.
There is an excellent likelihood that the white-collar
offender, in many instances, is not even aware that the law is being
broken.
Like violent street crimes,
however, white-collar crimes can (and usually do) have certain
elements, including (a) a victim, even though the victim may be the
United States government or a "sophisticated" entity like
an international bank, (b) innocent parties falsely accused, and (c)
those directly involved, who may be skeptical of our criminal
justice system.
As
legal concepts, the terms “white-collar crime” or “corporate
crime” have no real significance.
The term “white-collar crime” is not found in any
criminal code or statute. Definitions
of white-collar crime that supplement Sutherland's definition
generally stress one of three major characteristics of nonviolent
offenses: (a) their frequent commission by persons of respectability
and high standing: (b) their occurrence in connection with and
during the course of the offender's legitimate occupation; and (c)
their nonviolent nature and their consummation through deceit,
concealment, or breach of trust.
In 1976 the Assistant
Attorney General, Criminal Division, of the United States Justice
Department wrote:
However one defines
white-collar crimes, they demand our (prosecutors’) close
attention. Public
losses from these offenses far exceed the combined losses sustained
from more publicized crimes such as robbery, burglary, and
extortion. Although
precise total loss figures are almost impossible to compile, the
United States Chamber of Commerce estimated that in 1974 the public
loss from white-collar crimes was a staggering $40 billion-some two
hundred times the amounts ... stolen by all the country’s bank
robbers in the same year!
There is no evidence that
this figure has declined since 1974.
In the 1970s, corporate
giants such as Lockheed and I.T.T. became involved in bribery
scandals. The
post-Watergate era produced new laws and an awareness on the part of
prosecutors that highly placed government and business officials
were committing criminal acts. More recently, Time
magazine featured an article on "Crime in the Suites."5
The article’s opening sentence stated: "The way things are going. Fortune may soon
have to publish a 500 Most-Wanted list.”6 The article
continued:
During the past few months, the news has been filled with
tales of business schemes and scandals, of corporate intrigue and
downright crime. The
offenses make up a catalog of chicanery: cheating on government
defense contracts, check-writing fraud, bogus securities dealing,
tax dodoes, insider trading, and money laundering. Among the
culprits, General Electric, E. F. Hutton. Bank of Boston, and General Dynamics. Once powerful and respected executives, including Jake
Butcher, a Tennessee banker, and Paul Thayer, former LTV chairman
and, under President Reagan. Deputy
Secretary of Defense, are now facing the humbling prospect of
spending several years in prison.
Probably no area has drawn prosecutorial scrutiny like
government contracts or the defense business.
Altogether, 45 of the 100 largest U.S. military suppliers are
under criminal investigation. In May 1985, General Electric, the sixth largest military
contractor, pleaded guilty of defrauding the Air Force of $800,000
in 1980 on a Minuteman Missile project.
The heightened notoriety of corporate and white-collar crime
has given rise to greater prosecutorial emphasis, and, without doubt
those individuals in businesses who truly believe that a criminal
investigation would never touch them are now being dragged into
court.7
Numerous changes in the law,
as well as heightened prosecutorial and congressional interest,
clearly demonstrate that the government plans to increasingly rely
on criminal law as a means for controlling corporate misconduct.
Corporate lawyers and businessmen must realize the tremendous
range of exposure faced by corporations and their officers.
This article attempts to
provide background information and recommendations that should prove
helpful to a corporation and its attorneys in evaluating its
potential criminal liability and to individuals who may have engaged
in illegal activity without being aware of the consequences of their
actions. As a former
federal prosecutor who is now a defense counsel in numerous
white-collar cases, I strongly recommend consulting with an
experienced criminal lawyer as soon as possible regarding any
possible illegal activity. How
one handles a criminal matter in its inception can have a profound
effect on the results obtained.
INVESTIGATION AND
PROSECUTION
If a corporation is to
operate successfully and free from government interference in this
day and age, the management of the corporation must be aware of the
applicability and effect of current criminal law to their
operations, whether or not the corporation is currently under
governmental investigation, and the identity of the investigative
governmental body that may be intruding into its private affairs.
This knowledge will enable the management of the corporation
to respond to investigative inquiries and to devise an overall
strategy that can ethically and legally protect the corporation's
interest. Federal,
state, county, and municipal government units have certain
responsibility for the prosecution of corporate crime.
There is often concurrent jurisdiction of white-collar and
corporate crime at all levels of government.
Federal jurisdiction is
based, however, only on violations of specific statutes.
This jurisdiction extends to such diverse areas as the
following partial listing: antitrust violations, tax violations,
mail fraud, consumer fraud. Fraud arising out of government
procurement programs, securities fraud, water pollution, violations
of the Truth-in Lending
Act, Food and Drug Act
violations, and election law and Corporate Practices Act violations.8
Ultimate federal jurisdiction rests with the United States
Department of Justice, which operates mainly through its 94 United
States Attorneys, but investigative jurisdiction is significantly
more widespread.
Every government department (thus, every cabinet
officer) has specific responsibilities for criminal investigations
in the white-collar or corporate crime area.9 More
specific investigator and referring responsibilities are within
particular independent agencies, such as the following: Securities
and Exchange Commission, Board of Governors of the Federal Reserve
System, Veterans Administration, Interstate Commerce Commission,
Federal Communications Commission, Federal Deposit Insurance
Corporation, Federal Trade Commission, General Services
Administration, Office of Economic Opportunity, and Small Business
Administration.10
One must never overlook, however, the fact that
criminal investigations at the federal level are often the other
side of the coin with respect to civil proceedings.
An innocuous administrative matter can rapidly turn into a
full-blown criminal investigation if the right facts are discovered.
Thus, most criminal referrals by the Securities and Exchange
Commission follow administrative proceedings or judicial
applications for injunctions; investigations by the Federal Bureau
of Investigation of fraud cases may result in civil fraud cases
following or in lieu of criminal prosecution: investigations by the
Agency for International Development may result in civil proceedings
following or in lieu of criminal proceedings; investigations by the
Department of Defense or the General Services Administration may
result in a contract termination or debarment, to be followed by
criminal proceedings; investigations by the Enforcement Division of
the Interstate Commerce Commission may result in loss of motor
carrier rights and criminal investigation.11
Recently
Bennett & Broocks received a telephone call from a Chicago law
firm requesting our assistance in defending a Houston business under
investigation by the Harris County District Attorney's Office, the
Texas Attorney General's Office, and the United States Secret
Service. Our new client
was in the telemarketing business of selling travel vouchers to
individual customers. Numerous
complaints that were not properly handled resulted in a raid by the
agencies and a confiscation of equipment and documents by the use of
a state search warrant.
The Texas Attorney General's
Office took the lead in the investigation and conducted
administrative depositions of the company’s employees, as part of
the discovery process that is allowed in administrative proceedings.
Once the depositions were completed, the seized documents
analyzed, and other interviews of potential witnesses conducted, the
Attorney General decided to seek an injunction against the client
under the Texas Deceptive Trade Practices Act.
Faced with a defensible
case, but an expensive and long legal battle, a consent decree was
agreed upon with no admission of liability.
The business paid a fine, made some changes in its business
procedures, and was able to continue in business.
But after the state action was concluded, the business
had to face a civil injunction action by the Federal Trade
Commission in Chicago. Simultaneous
with the FTC action, a federal grand jury was investigating the
business in Indianapolis. These
multiple or seriatim investigations and prosecutions are referred to
as "parallel proceedings.”12
In my fourteen years of
experience with the federal and state legal systems, I have
generally found that white-collar or corporate crime is usually
investigated by the federal government.
As opposed to other investigative agencies of a municipal or
state government, the federal government has larger investigative
resources, better trained agents, nationwide jurisdiction, and
certain international reciprocity.
This does not mean, however, that state and local agencies do
not conduct similar investigations. Thus, consumer frauds may be investigated by the attorney
general of a particular state, by a district attorney of a
particular city or county, or by state or local police.
Banking violations may be investigated by a state banking
agency or by the police at any level.
Breaches of trust by attorneys may be investigated by police,
bar associations, or special hearing examiners appointed by the
judiciary on application by bar associations.
Investigations are also conducted by numerous private
organizations. For
example, the Furniture Manufacturers' Credit Association in High
Point, North Carolina, maintains liaison with the Federal Bureau of
Investigation, the United States Postal Service, and the criminal
division of the United States Department of Justice.
Private organizations often conduct preliminary
investigations of putative bankruptcy frauds in order to trigger
formal government investigations and prosecutive action.
Better Business Bureaus, associations of credit
organizations, and various consumer groups are also involved in
private investigations.13 within the private sector.
American Express Company has an efficient, computerized
security office to protect the integrity of its credit card, money
order, and banking operations.
American Telephone and Telegraph also has similar facilities
that are utilized in criminal enforcement.14
For
an additional example, the largest insider trading scandal in
history was discovered in 1986 through the initial investigative
efforts of the compliance unit of Merrill Lynch Pierce Fenner &
Smith, Inc. in New York. A
tip led the compliance investigators to question the trading of two
Merrill Lynch salesmen in Caracas, Venezuela.
This lead revealed a connection to Bank Leu of Switzerland,
which turned up the name of Dennis B. Levine of Drexel Burnham
Lambert, Inc. Levine later named Ivan F. Boeskv.as an inside trader, and
Boeskv was fined $106 million by the SEC for his illegal activities
and pleaded guilty to one five-year felony count.
DETECTION OF CORPORATE AND
WHITE-COLLAR CRIMES
The criminal activities of a
corporation or an individual within a corporation or other business
are usually detected by the following three means: complaints by
victims, tips from informants, and affirmative searches for
violations by law enforcement agencies.
In
many instances, corporate crimes arc based upon predictable delays
in a victim's awareness that he has been defrauded.
For example, and desert land was sold by mail for millions of
dollars in reliance that few purchasers would quickly travel from
the East to parched areas of Arizona or Nevada to see their
expensive oasis. Ponzi
schemes, in which investors are promised significant profit returns
on their investments, involve the payment of such returns from the
capital investments of subsequent investors.
Some of these schemes continue for years, with a dozen
sequential investing groups having losses that often amount to
millions of dollars when the schemes eventually collapse.
Consumer schemes rely on perpetual delay in victim
realization, as do chain referral schemes, work-at-home schemes,
fraudulent self-improvement schools, advance fee schemes, and credit
card frauds.15
Statistics reveal that many
victims never report their losses.
Once the victim knows or suspects that he has been criminally
wronged, he must first decide whether to complain to law enforcement
authorities and then where to lodge a complaint.
This period of delay allows a corporation or business that is
aware of the wrong the opportunity to forestall the matter going
public. If a wrong can
be made right at this point, there may be no need for further
investigation.
From
the law enforcement perspective, this is seen as a crucial stage for
several reasons: (a) if the victim does not complain of an alleged
crime, the crime will go unheeded, and the possibility exists that
others may suffer a similar fate, (b) the success of white-collar
prosecution depends on a showing of criminal intent, inferable from
the circumstances-which often means a showing of similar acts and
transactions (the number of complaints will, therefore, play a key
role in the prosecutive evaluation and in the ultimate success of a
prosecution) ; and (c) if there are not clear procedures for
complaints, then complainants may very well cease their efforts
after unsuccessful initial attempts to reach appropriate law
enforcement officials.16
Informants are an
established detection resource with respect to certain white-collar
crimes, such as tax or customs violations, in which the reward or
bounty system is employed. Informants
also play a role, though a lesser one, with respect to violations of
securities laws, violations of banking laws, and frauds against the
government. Informants are also used extensively in any crime that is
drug-related or where money-laundering or currency violations occur.
Affirmative searches for
violations by law enforcement personnel are widely used in business
crimes or crimes incidental to or in furtherance of business
operations. The
-Antitrust Division of the Department of Justice as well as the
Federal Trade Commission maintains oversight with respect to
mergers, trade association activities, and pricing policies of dominant firms in important markets,
internal Revenue Service and state tax authorities strive to more
carefully audit large returns.
The Department of Agriculture and the Food and Drug
Administration make qualitative and quantitative examinations of
food and drug products. The Securities and Exchange Commission examines new stock
issues and monitors over-the-counter and exchange trading.
Most recently, the
Department of Defense, working cooperatively with the fraud division
of the Department of Justice, has developed a Defense Procurement
Unit to focus on fraud in government contracts.17 In 1985
the Department of Defense debarred b52 contractors from competing
for Department of Defense contracts.18 The Defense
Criminal Investigation Service now has more than 400 investigators
in three military investigative services looking into government
contracts, thereby supplementing what the Federal Bureau of
Investigation has been doing for years in the area of government
contracts.19 As a result of these efforts, significantly
more companies are coming under criminal scrutiny.
INVESTIGATIONS
Most white-collar corporate crimes are violations of
laws in multiple jurisdictions, either vertically (state-federal) or
horizontally (between jurisdictions in one state or between
jurisdictions in the federal government).
From the government's perspective, this leads to
prosecutorial problems of (a) coordination of effort when more than
one jurisdiction is fully on the case, (b) the necessity of
cooperation when one jurisdiction assumes or is ceded the
investigation, (c) conflicts of interest when more than one
jurisdiction claims exclusivity, or (d) bureaucratic in-fighting
when one jurisdiction attempts to avoid responsibility by claiming
another jurisdiction has primary responsibility.20
This
is another critical point for the intervention of a criminal defense
counsel or special outside counsel to determine if it may be
possible to negotiate with the appropriate investigative body
involved and, having reached an arrangement, curtail the
investigative efforts of any other agency.
The possibility always exists for an agreement to be reached
that would reduce the criminal charge to a misdemeanor offense
handled in state court, which is significantly preferable to a
felony indictment arraigned in federal court.
On the other hand, if the crime committed appears to be6
one resulting in jail time, the federal penal system has numerous
advantages over any state penal system.
A good example of multiple
jurisdictional crimes would be a charity fraud in Houston in which
the local charity collects money on street corners, by mail, and by
other solicitations within and outside Texas.
To start with, the charity should register with the
appropriate state and municipal agencies; a legitimate charity would
also register with the Better Business Bureau.
For improper solicitations the charity may be enjoined from
operation for violations of various Texas laws.
The Attorney General of Texas would investigate violations
under its jurisdiction, while the Consumer Fraud Division of the
Harris County District Attorney would investigate any collections by
means of false representations.
The charity's interstate mail solicitations could be a
violation of the mail fraud statute and may be investigated by the
United States Postal Service. The
use of television or radio solicitations or the use of interstate
telephone lines to solicit or conduct other related business could
constitute a violation of the wire fraud statute, which is within
the investigative jurisdiction of the Federal Bureau of
Investigation. The use
of credit cards may trigger the Secret Service to investigate.
There is also a parallel tax problem to be considered with
the Texas taxing authorities and the Internal Revenue Service.
One of the major aspects of the investigative process
is the push for settlement. Since
white-collar or corporate crimes usually deal with deprivations of
money or property, the first concern of any victim (and, in many
instances, the government-when it is a victim) is restitution rather
than punishment. While repayment may have no criminal significance, a civil
settlement by an aggrieved party during a criminal investigation or
prosecution has a damping effect on criminal enforcement.
The dividing line between civil abuse and criminal violation
is often less than clear in the white-collar crime area. As a result, prosecutors and investigators may accept a
settlement as an indication that the civil aspect outweighed the
criminal aspect. The
investigator or prosecutor also knows that the victim of a private
crime, unless it is the government, will no longer be a
whole-hearted witness for the prosecution and that competent defense
counsel will find some way to make the jury aware that the case was
mooted by civil settlement, even though evidence of such settlement
may be inadmissible. Civil
settlement may also be pursued as a device to dispose of an issue of
fact crucial to criminal prosecutions. 21
The desire for settlement is
not the only point of conflict between the allegedly aggrieved and
the investigator or prosecutor.
The complainant may object to being troubled, or he may be
concerned with his public image.
Defrauded corporate complainants may drag their feet in
cooperating because their image as a victim may make their
management look bad to shareholders, and corporate executives have
even voiced concern that customers may question whether a company
that could be easily victimized would be capable of maintaining the
quality of its product. There
are also instances in which the white-collar crime involved may
expose a weakness in the business structure, and the corporation is
fearful that prosecution may educate others about how to do the same
thing. In one case, the
defendants learned how to manipulate postage meters to enable them
to avoid the pavement of more than 5250,000 of postage. The defendants were prosecuted for fooling a foolproof
system, but both the manufacturer of the metering machine and the
United States Postal Service, which investigated the case were
concerned that the moaus
operandi not be made public until correcional measures could be
taken.
Before addressing investigative and prosecutorial
evaluations of fact situations, I must mention the massive
investigation into the banking industry in Texas.
In the Houston area alone, twenty-seven financial
institutions are under investigation by the Federal Bureau of
Investigation. According
to The Houston Business
Journal: ‘From January, 1987 through March 1988, local
investigations have resulted in 49 federal indictments for bank
fraud and embezzlement.”23
The focus of the bank investigation is not limited to
Houston. Special grand jury in Dallas has issued more than -400
subpoenas to individuals. The
Dallas investigation is directed at the savings and loan industry
with special attention being given to insider borrowing or large
borrowers who were caught in the financial crunch.24
According to Edwin Tomko, Deputy Chief, Criminal Division,
Department of Justice, the bank fraud investigation unit in Dallas
is the largest investigative group to investigate white-collar
crime.25
INVESTIGATIVE TECHNIQUES FOR
CORPORATE, AND WHITE-COLLAR CRIMES
It should come as no
surprise that federal criminal investigators operate by paper
and that nothing gets done without a report being written. In a typical investigation, the written complaint first lands
on the investigator's desk. He
must determine whether the facts alleged, if supported by legal
evidence, constitute a crime and, if so, the nature of the crime.
The investigator is usually not an attorney, and, more
importantly, the investigator almost never has any prosecutorial
background.
If he determines that the
alleged facts embody the elements of a crime worthy of prosecution,
the investigator will interview witnesses and seek to examine the
pertinent records. If
his agency has regulatory or special investigative powers, the
investigator may compel answers or production of records by threat
of suspension of business operations, by subpoena, or by both.
If there is a refusal to
cooperate with the regulatory agency, there may be a grant of
immunity. At some point
the investigator may be shifted to the prosecutor's bailiwick, and
the investigation may be continued by a federal or state grand jury.
PROSECUTIVE EVALUATIONS:
WHETHER TO INDICT
Prosecutive evaluation is a
process whereby an investigator or a prosecutor determines whether a
particular case is to be directed toward ultimate prosecution or
dropped. The
prosecutive evaluation is more of an art than a technique.
A corporation or an individual under investigation must
realize that a myriad of factors leads to a prosecutorial decision.
In making this decision, a law enforcement official must call
upon every personal resource of intelligence, social perception,
psychology, and public relations skill in all but the most mundane
cases.26 Evaluation is crucial to the allocation of law
enforcement resources since determination about classes of cases to
investigate or prosecute must always be made in the arena of
conflicting claims and finite resources.
When an investigative agency decides to concentrate on
one particular type of violation, other types must suffer or remain
on standby. When a
prosecutor decides that ever-v bank robbery case must be the subject
of an indictment, he makes the implicit decision that ICC violations
will not be prosecuted even if he does not consider his decision in
that light.27
If
prosecutive evaluations are mishandled, the consequences may be
serious and far-reaching both to subjects of evaluation and to the
administration of justice. Such consequences include (a) a sense of injustice on the
part of those who know that they are singled out for prosecution
while others escape the net after being apprehended; (b) failure to
effectively use prosecutions in investigations for maximum effect
and prevention as well as for deterrence and detection; (c) blurring
of standards for measuring, the effectiveness of law enforcement
efforts; (d) vulnerability to dispense parity in treatment of
offenders based on influence or quality of defense counsel. (e)
Imposition of the brand of criminality on those who should not have
been prosecuted in the first instance, whether they are convicted or
found not guilty; (f) failure to adequately prosecute certain
crimes, particularly some white-collar crimes, that may have little
publicity value or that provide for minimal penalties and may
discourage enforcement efforts by agencies and investigators.28
White-collar
crimes require longer and more sophisticated investigations, as well
as longer and more complicated trials.
Sentences are usually less impressive than sentences from
convictions for common crimes. These factors tend to encourage procrastination on the part
of the investigators or prosecutors.
Lengthy prosecutions mean heavier expenditures of time and
money, thus weighing the scales against these cases in the minds of
many decision makers. No
single comment can be made about how white-collar crimes are
evaluated by investigators or prosecutors, since the variety of
these crimes, their perpetrators, and the victims are infinite-as
are the public interests affected.
EVALUATION BY INVESTIGATORS
In the federal arena, it is
important to understand the referral technique by which a complaint
on the investigator's desk ends up as a prosecution from the United
States Attorney’s Office. The
United States Attorney’s Office rarely commences an investigation
on its own without having first been contacted by some investigative
agency. One exception
is the Securities and Exchange Commission, which is a unique agency
with criminal and civil investigative jurisdiction and with the rare
power to make a criminal evaluation of whether to refer a case to a
prosecutor for criminal action.
Other state and federal agencies usually report all potential
criminal violations to an investigative agency if there is some
evidence to support the allegation that a crime has been committed.
As a practical matter, an investigative agency may exercise
prosecutive discretion in several ways, including the interpretation
of the allegations received as insufficient to spell out a crime as
a matter of law.
An investigator must always
remember that his investigation will be evaluated by the Assistant
United States Attorney. The
investigator also knows that the prosecutor’s ultimate evaluation
is initially influenced most heavily by the work and quality of the
preceding investigation, by the zeal of the investigator, and,
therefore, by the implicit evaluation made by the investigating
agency. This, of
course, depends on the reputation and prior performance of the
investigative agency. An
investigator who promotes every minor case as being worthy of
prosecution, or who withdraws or does not deliver support when the
prosecutor has committed himself to the battle by returning an
indictment or information, will find small regard for his
evaluations on subsequent visits to the prosecutor's office.
EVALUATION BY PROSECUTORS
Prosecutors29
traditionally have the duty to determine who will and who will not
be prosecuted. They are
subject to many pressures in arriving at their decisions and are
continually forced to make not only value judgments or moral
judgments but also difficult discriminations based on their
assessments of priorities. Since
the prosecutor will make the ultimate determination of whether a
corporation or an individual will stand before a jury in a criminal
prosecution and will have the greatest impact on the sentence to be
imposed if a conviction is returned, it is possible to look at how
these decisions are made by examining the role and character of the
typical prosecutor.
As a sweeping generalization, a prosecutor knows that
alleged violators in the white-collar corporate criminal area are
usually represented by counsel who are well above average in
ability, in standing among the legal profession, and in political
influence. Defense counsel's ability promises more tenacious opposition,
his standing among the legal profession promises unique
difficulties, and the significance of his political influence will
vary on a case-by-case basis.30
One of the prosecutor’s major hurdles is the lack of
resources. If the
caseload of a prosecutor has passed the point at which he can
adequately handle the cases currently on his desk, even by working
seventy hours a week, he must become selective about the cases on
which he will proceed. This is certainly one of the most telling pressures on any
prosecutor and is often the motive or rationale for his seeking
other or alternative dispositions for cases submitted to him. 31
Most important of the pressures are those on the
prosecutors themselves. Historians
have said of Napoleon’s legions that “every private carries a
Marshall’s baton in his knapsack.” Similarly, the prosecutor’s
role has traditionally led to political stardom.
Run-of-the-mill white-collar cases rarely attract great
publicity, but they will often generate fierce opposition on the
part of private interests and members of the legal profession who
can be most important to a political career, while victim interest
on the other side may not be able to generate a counterbalancing
weight. Of course,
white-collar cases that are not run-of-the-mill can excite great
public interest and can be stepping stones in and of themselves,
particularly when they are abuse of trust cases.32
A
case being evaluated by a prosecutor must be considered on two
levels. The first level
is whether acts have been committed that (whether violations or not)
would justify criminal sanctions. The second level is whether other legitimate factors should
deter action, even if the first question is answered affirmatively.
This means that there must be some system of priorities.
In any rational system, some cases must stand in line and
never be reached. Prosecutive resources will always lag behind need; and, in
truth, overall law enforcement objectives would certainly be better
achieved by a policy of selective prosecution.
It is vitally important to
understand the personality of the prosecutor who is handling a case.
The prosecutor's commitment or lack thereof will affect every
aspect of the case from the number of counts in the indictment to
the sentencing recommendation.
Rudolph Giuliani, the U. S. Attorney for the Southern
District of New York, personifies the image of the dedicated federal
prosecutor. Commenting
on his success, Nancy Collins in the New
York magazine wrote:
In the last two years alone, Southern District
prosecutors have won racketeering convictions against Tony Salerno
and other leaders of New York’s five major crime families (in the
so called Mob Commission case), and they've put away the operators
of a huge, mob-controlled heroin network (in the “Pizza
Connection” case). Giuliani himself successfully prosecuted former Bronx
Democratic boss Stanley Friedman in the first trial to come out of
the city corruption scandals, and an investigation by his office led
to a guilty plea on tax fraud charges by sewer contractor Carl
Capasso, Bess Myerson's consort.
Together with the Securities and Exchange Commission,
Giuliani's office has been leading the crackdown on insider trading,
getting guilty pleas-and promises of cooperation-from Dennis Levine
and Ivan Boesky, among others.33
In the interview with U. S.
Attorney Giuliani, Collins provided some insight into the
prosecutorial Zeal that many federal attorneys bring to their job. She asked ‘if he was not a Cancerous zealot, and he
responded:
Enforcing the law is an important thing to
me. I try to do it effectively.
If I’m not fair, it's only because I've made a mistake,
because I want to be fair. Everything
I do I have to go to court and prove.
We can't just decide so and so’s a criminal and that’s
it. If anyone thinks I
am enthusiastic about my cases, they should watch me play softball
or watch a football game. I’m
enthusiastic about everything . . . about going to the opera, or
dinner at a restaurant. That's
just the way I approach life.34
PROSECUTIONS
A major problem in
prosecuting major white-collar crimes is delay, a difficulty not
unique to white-collar crimes.
In one sense, white-collar prosecutions are harmed less by
delay than are other prosecutions.
White-collar crimes are more frequently provable by documents
and records that, unlike memories, are not usually altered by the
passage of time. Notwithstanding
this, delay may cause greater havoc on white-collar criminal
prosecutions because there are more excuses for delay and because
turnover of personnel and prosecutors’ offices make it difficult
to be certain that the prosecutor who generated the prosecution (and
knows the most about it) will still be in the office when the case
is finally tried.
Since white-collar criminal
trials are lengthy and complicated. And since questions of guilt or
innocence will often turn on inferences drawn on evidence presented,
much stud of the facts and research of the law may be necessary
before a case can be tried. Difficult
questions, according to the former chief of the Fraud Section of the
Department of Justice, in a typical trial include:
(1) Although the indictment charges a conspiracy, are the required
elements of proof present?
(2) Is the economic interest a “security” within the meaning
of the Securities Act of 1933? This question may entail an
exhaustive analysis of the underlying business.
(3) Although monies solicited for a church were promptly bet at a
local dog track. Did the defendant really believe that his gambling
was commanded by God?
(4) Do continuous unexplained pavements to a Swiss corporation
spell out a criminal tax evasion in which the defendant pleads the
Fifth Amendment and Swiss law prohibits tracing of the funds?
(5) When the condemnation of land for public purpose is
immediately preceded by two sales of the same property at markedly
higher prices on each transaction, was there a scheme to defraud the
government by creating a fictitious value for condemnation purposes?
35
Prosecutions in which such
questions are relevant are fertile ground for complex motions for
bills of particular, for discovery of filing cabinets full of
documents, and for pretrial disputations about the meaning of
documents and constructions of and limitations on indictment
language.
The marked contrast between the trial of white-collar
crimes and of common crimes in all likelihood stems from the fact
that in white-collar criminal trials the issues of why something was
done generally dominate the trial.
If five manufacturers equally raise their prices within a one
week period, there would be no antitrust violation if they did so
independently and without collusive communications or agreements,
but there will be criminal violations if their actions did involve
communications and agreements. The basic issue of criminal intent would depend on inferences
or actual proof of collusive agreements, even though there would be
no problem of proof with respect to simultaneous price increases. Contrast this to homicide or burglary, in which there is
usually no question of whether a crime has been committed; the only
question is who did it and whether there is available evidence,
competent and admissible, in such measure that it would prove guilt
beyond a reasonable doubt.36
From a prosecutor’s point of view, a further
complication with respect to proving criminal intent arises from the
fact that most white-collar crimes arise in a non-criminal context
and are often only illegal appendages attached to an otherwise
proper execution of a previously legitimate role.
Thus, an insolvent businessman might commit bankruptcy fraud
after months of fending off disaster in good faith, and the fraud
would be executed by continuing a prior course of conduct, but for a
different purpose. A
broker may have taken a heavy position in a stock, to the point
where its further decline would spell disaster for him at which
point a continuation of advice to clients to buy the stock might
well be altered in character from a mistake in judgment to a
criminal, manipulative, deceptive device in connection with the
purchase of a security.37
Thus, the importance of
intent, as contrasted with the facts of admitted occurrences or
acts, places a premium on both the prosecution and the defense to
elicit every minute scrap of evidence that might be available.
In such necessary zeal there is a tremendous cost in
man-hours, expenses, and emotion to prepare a white-collar criminal
case for trial. There
is rarely a point for the prosecution when it has enough evidence
for its prima facie case or for rebuttal of anticipated defenses.
In major cases, therefore, the indictments tend to
become lengthy, with numerous counts, and some critics make the
point that major white-collar criminal cases tend to be
over-prepared and over investigated by the prosecution.
If this is the case, the preparation stems from the
prosecutor’s concern that he has no way of knowing in advance what
quantum of evidence will be sufficient.
In a major white-collar criminal prosecution, there may be no
realistic limit to the evidence, since either the prosecutor or the
defense might just as
easily find and use 5,000 relevant documents as fifty relevant
documents, in contrast to common crimes in which the nature and
amount of relevant admissible evidence is more circumscribed by the
nature of the criminal acts involved. 38
When one examines the issues
in such cases, and given the lack of natural boundaries with respect
to the quantity of admissible and relevant evidence, one can
understand the potentials of delay in the pretrial period and the
drawn out nature of the trials that follow.
There are innumerable sub-issues that are properly the
subject of extensive pretrial motions.
While the outlines of permissible discovery are drawn by the
judge, weeks or months may be consumed in the arduous work of
examining and considering documents that may be produced.
These documents will, in turn, be a starting point for
further motion practice to protect the interests of the corporate or
individual defendant in a white-collar criminal prosecution.
Thus, intricate and involved cases trigger maximum
utilization of procedural potential for further delay, and each step
in the cycle energizes and justifies further steps.
A seasoned defense counsel can fully protect a client by
requesting time to properly examine all the relevant documents, and
the resulting delay can have a deadly effect on orderly prosecutions
PLEAS AND PLEA BARGAINING
As previously stated, the
facts of a white-collar criminal prosecution are not in dispute as
much as they are in a common criminal prosecution.
The major focus of the prosecution is the criminal intent of
the parties involved. The
time-consuming investigation required by all parties, the desire of
the corporate defendant to put the case behind it as soon as
possible, and the usual thorough investigation by federal agencies
all dictate that pleas and plea bargaining be entered into as soon
as possible. Certain
objectives are attempted by the prosecutor’s office with regard to
pleas. From the
defendant's point of view, other objectives are attempted and
include the following:
-
As in all plea bargaining, to restrict the punishment by
pleading to lesser offenses or lesser included offenses.
-
As in all plea bargaining, to restrict the punishment by
pleading to the smallest possible number of counts.
-
By minimizing the number of counts
to which guilty pleas are entered, to establish the basis for a
defense argument on sentencing aimed at narrowing the scope of the
overall conduct for which the judge will mete out punishment.
-
By minimizing the number of counts,
to limit the extent to which the defendant may be civilly liable to
the victims of the criminal conduct.
-
By seeking permission to enter a
nolo contendere plea, to eliminate civil consequences that might
flow from a guilty plea.
-
By seeking permission to enter a
nolo contendere plea, to deter the court from imposing a severe
sentence.40
While the traditional
doctrine is that the nolo contenders plea is the same as the guilty
plea for sentencing purposes, it is plain that the courts regard
government acquiescence or nominal objection to the proffer of a
nolo contenders plea as a downgrading of the importance or true
criminal impact of the acts charged in the indictment or
information. If the
prosecutor generally objects, overriding of such an objective on by
the court would generally be followed by a light or only nominal
sentence.
In
many instances, prosecutors are offered pleas to crimes not charged
in the indictments in order to reduce criminal exposure.
For example, a bankruptcy trustee might embezzle funds (a
violation of 18 U.S.C. Section 153, punishable by five years in
prison); and a plea bargain may be entered into pleading guilty to
an information under 18 U.S.C. Section 154 charging that the trustee
refused to permit inspection of his records, an offense punishable
by a $500 fine and forfeiture of his office.
No blanket judgment can be made about bargaining for pleas to
lesser-included offenses or to pleas reflecting acts not charged in
an indictment. Each
case must be viewed on its merits.41
SENTENCING
A general impression is that “the more serious the
white-collar crime, the less serious the sentence.” Along the same
lines is the folk myth that if one steals, it’s better to steal
big. This may be borne
out in the gentle treatment that E. F. Hutton got in July 1985.
Hutton pleaded guilty to a fraud that bilked some 400 banks
out of more than $8 million between 1980 and 1982.
In a settlement with the government, Hutton agreed to pay a
fine and court costs totaling $2.75 million and to repay the banks
the money they lost. No
individuals, however, were prosecuted, even though the Justice
Department admitted that ten people were primarily responsible for
this scheme “in a criminal sense.”42
Generally speaking, a judge has two objectives in
sentencing policy: deterrence and punishment.
With those objectives in mind, defense counsel can easily
argue that a defendant with no record has been severely punished by
the criminal charges having been brought against him because, in the
business and social milieus in which arrestees or people without
records operate, convictions are almost unknown and there is no
likelihood of recidivism. Restitution and victim assistance are also considerations of
the courts.43
Prior
to the enactment of the Sentencing Reform Act of 1984, the judiciary
had wide discretion in imposing a sentence, which often led to a
gross disparity of sentences imposed on offenders.
The Sentencing Reform Act of 1984 was enacted in an effort to
minimize judicial discretion, while at the same time to maximize
certainty and consistency in sentencing.
NEW SENTENCING GUIDELINES
The new Federal Sentencing
Guidelines became effective on November 1, 1987, and have already
been invalidated by several federal judges.
These cases have started up the appellate process with the U.
S. Supreme Court to determine the final resolution.
If the guidelines are
upheld, the major changes in sentencing will include (I) parole
elimination the guideline sentence will be served; (2) good time
credit will be diminished, and (3) the sentence imposed must comport
to the guidelines unless “there exists an aggravating or
mitigating circumstance of a kind, or to a degree, not adequate by
taking into consideration by the Sentencing Commission in
formulating the guidelines that should result in a sentence
different from that described.”44 Thus, the Federal
Sentencing Guidelines will radically change how a defendant is
sentenced and the length of time imprisoned.
Rule 32 of the Federal Rules
of Criminal Procedure describes the procedures for sentencing in
federal courts. Before
imposing sentence, the court must allow defense counsel the
opportunity to speak on behalf of the client and allow the defendant
the opportunity to make a statement and to present evidence in
mitigation of punishment. A
government attorney also has the right to address the court.
The sentence must be imposed without unreasonable delay.
At the time of sentencing, the judge must state the reasons
for imposition of a particular sentence.
When sentence is imposed, the defendant has the right and
responsibility to be present.
Additionally, before
sentence is imposed or probation granted, Rule 32 also requires the
United States Probation Service to prepare a presentence
investigation and report its findings to the court.
The presentence report must describe the criminal record of
the defendant as well as his background, financial condition, and
other circumstances that affect his behavior.
Although the sentencing judge may rely on other facts in
determining the defendant's sentence, the judge frequently relies
heavily on the presentence report.
Defense counsel, at the minimum, should verify all facts that
appear in the presentence report.
The
vast majority of cases require defense counsel to prepare a separate
report to be submitted to the court.
The defense presentence report is often called a sentencing
memorandum. The court
is greatly assisted by the inclusion in the sentencing of excerpts
of letters of recommendation already forwarded to the court that | 
