NY State White Collar Enforcement for the 21st Century

New York Task Force

Unfortunately, while the federal government has acted vigorously, New York, despite its status as the financial capital of the nation, has done little to adapt its laws to modern white-collar crime. To address this problem, in October 2012, Manhattan District Attorney Cyrus R. Vance, Jr., the President of the District Attorneys Association of the State of New York, launched the New York State White Collar Crime Task Force. See Cyrus R. Vance, Jr., “What is New York Doing About White Collar Crime?” N.Y.L.J., 10/24/2013, at 7. Its mission is to conduct a top-to-bottom examination of the state's fraud and corruption laws, with the goal of making specific recommendations for legislative change.

The Task Force is comprised of state and federal prosecutors, academics, a retired Judge of the New York Court of Appeals, and numerous attorneys in private practice who have extensive backgrounds in federal and state prosecution and defense. Its members have been hearing from experts in various fields, including financial institutions, law enforcement, academics and practitioners. They have sought input from bar leaders, political leaders, and experts in the field of white-collar crime, and are open to additional input from the public. A small sample of the areas that the Task Force is examining is discussed below.

Fraud and Cybercrime

The advent of electronic banking through computers and mobile applications, together with the widespread growth of smart phones and wireless communications, have provided criminals with new platforms and a broader reach for their fraudulent schemes. New York's penal statutes, unfortunately, were drafted decades ago by lawmakers who never contemplated such technologies. As a result, our prosecutors have inadequate tools to combat contemporary crimes.

One glaring example involves the theft of intangible property, such as source code. Financial institutions spend vast amounts of money in the research and development of sophisticated software and other computer programs, which they use not only to secure an edge in the competitive marketplace, but also to run their businesses effectively. Savvy criminals have proven able to steal this type of valuable data through computer intrusions such as hacking, viruses, and phishing schemes. Disgruntled employees have also stolen it the old-fashioned way, through outright theft.

Although the “theft” of such property involves making an unauthorized copy, New York's larceny statutes require that a victim be “deprived” of the actual property ' a physical impossibility. As a result, thefts of valuable computer data cannot be punished as larcenies, relegating courts and prosecutors to laws relating to computer tampering or unauthorized copying of data. The penalties for violating such laws, some of which are misdemeanors, have far less deterrent value.

Similarly, in the area of identity theft, criminals no longer need to possess a physical credit card or hold a paper check to steal property from their victims. A credit card number or checking account number, or even a smart phone photograph of a credit card or a check, gives criminals unauthorized access to their victims' financial accounts. But some New York courts hold that unauthorized possession of a credit card account number, absent possession of the actual card, does not constitute criminal possession of a credit card. This obviously does not comport with modern reality or the goals of the criminal, who only cares about turning an account ' card, check, or otherwise ' into cash.

Of interest to readers of this newsletter, New York's Scheme to Defraud law, enacted in 1974 to attack schemes targeting numerous victims, was patterned after federal mail and wire fraud. But the New York law, last amended in 1983, is much more restrictive. Most significantly, schemes to defraud one victim alone are not actionable, and the penalty for a scheme that obtains, say, $2,000 is the same for one that obtains $2 billion. The Task Force is studying ways to align this potentially useful tool with modern realities, and in particular is examining whether this and other tools to combat fraud against New York's elderly population may be strengthened.

Public and Private Corruption

Both public and private corruption have, unfortunately, been prevalent in New York State in recent years. From bribes accepted by public officials to kickbacks paid to business executives, prosecutors have had their hands full. The Task Force is examining our laws in this area, focusing in particular on language in New York's general bribery and commercial bribery statutes that may be obsolete. For example, although New York's public bribery law is violated when a bribe is merely offered, it paradoxically also requires an illicit “agreement or understanding” between the briber and the recipient in order for the crime to be complete. People v. Tran, 80 N.Y.2d 170 (1992). This exacting element stands in contrast to New York's other bribery laws, including labor bribery, sports bribery and commercial bribery, and the laws of most other jurisdictions, which are subject to the less exacting requirement of an “intent to influence” the actions of the actor. The Task Force is considering a recommendation to overrule Tran with an alternative formulation of the statute.

In private-sector bribery, where federal law is strong, New York's felony commercial bribery law requires not just bribery but also economic harm, an element that is almost unique in the United States. Bribery, however, is about breaches of trust, not theft; its harm is not necessarily quantifiable. The Task Force is studying whether to recommend elimination of this requirement.

Procedure

In the modern era of white-collar crime enforcement, New York's bedrock guarantee of an indictment by a Grand Jury absent hearsay evidence comes at great cost to New York taxpayers, particularly in white-collar prosecutions, which often require the introduction of voluminous business records. Currently, limited business records from financial institutions, telephone companies, and Internet service providers are admissible to a Grand Jury pursuant to a business records affidavit from a records custodian. All other business records, whether from a social media company like Facebook or Twitter, an e-mail provider like Yahoo! or Google, or a non-financial institution, require a live witness to authenticate them.

As crime has gone global, the required records are frequently kept outside the county where the Grand Jury is located, often in California, or even abroad. Although New York's prosecutors strongly believe in the indictment requirement, the Task Force is considering whether broader categories of records should be exempted from authentication by a live witness. This would save millions of dollars each year throughout the state, and would allow many of New York's 62 counties, whose budgets currently restrict them from transporting out-of-state witnesses, to prosecute fraud cases. The Task Force seeks to remedy this and other inefficiencies in New York law, to save taxpayers money and ensure that 21st-century crime does not escape punishment because of 1960s procedures.

Money Laundering

The federal Bank Secrecy Act creates a duty for financial institutions within the United States to report to the federal government cash transactions in excess of ten thousand dollars. Although federal law has for many years criminalized the structuring of transactions to avoid reporting requirements, New York has no analog. The result is that state investigators are either forced to refer the many cases they come across to federal authorities, or, as is more common, leave such charges “on the table.” The Task Force is examining whether New York should join the many other states, including California and Illinois, that have structuring laws, in addition to other provisions that might assist in fighting money laundering.

Conclusion

The commendable work of the federal government notwithstanding, fraud and corruption enforcement are traditionally key aspects of state police power. The Task Force aims to strengthen the tools necessary to fulfill New York's traditional role in this area. It is targeting late-summer 2013 to release its report, and welcomes additional public input.

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Daniel R. Alonso, a member of this newsletter's Board of Editors, is the Chief Assistant District Attorney in New York County and a co-Chair (with Erie County District Attorney Frank A. Sedita, III) of the New York State White Collar Crime Task Force referenced in this article. Michael Sachs is an Assistant District Attorney and Chief of Staff to the Investigation Division in the New York County District Attorney's Office.

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The State of New York has a long and distinguished history of criminal prosecution of white-collar crime. More than a decade before the enactment of the Securities and Exchange Act of 1934, for example, New York passed the Martin Act to attack securities fraud schemes. In the 1930s, Manhattan District Attorney Thomas E. Dewey both prosecuted New York Stock Exchange President Richard Whitney for what was then a massive embezzlement, and conducted the bribery investigation that ultimately led to the federal indictment and incarceration of the Chief Judge of the U.S. Court of Appeals for the Second Circuit. More recently, former District Attorney Robert M. Morgenthau was famous for his enthusiastic attacks on fraud of all kinds.

But over the last several decades, the federal government has moved ahead of New York in attacking the problem of white-collar crime. Congress and other policymakers, prompted by financial scandals too numerous to mention, have joined the fray, enacting new policies, laws, and regulations designed to combat ever-changing scams that are enabled by technological advances and limited only by human ingenuity. In the 1990s, for example, the United States Sentencing Guidelines were criticized as too lenient on fraud crimes. After a five-year study ending in 2001, the Sentencing Commission modified the guidelines to strengthen sentences for financial crimes.

Congress, of course, has enacted dozens of laws over the years, including the Sarbanes-Oxley Act, which, among many other things, created a new Title 18 crime of securities fraud, strengthened obstruction of justice laws, and increased penalties for mail and wire fraud. And the 2009 enactment of the Dodd-Frank Act led the Sentencing Commission once again to amend the guidelines in various ways, including with respect to insider trading.

New York Task Force

Unfortunately, while the federal government has acted vigorously, New York, despite its status as the financial capital of the nation, has done little to adapt its laws to modern white-collar crime. To address this problem, in October 2012, Manhattan District Attorney Cyrus R. Vance, Jr., the President of the District Attorneys Association of the State of New York, launched the New York State White Collar Crime Task Force. See Cyrus R. Vance, Jr., “What is New York Doing About White Collar Crime?” N.Y.L.J., 10/24/2013, at 7. Its mission is to conduct a top-to-bottom examination of the state's fraud and corruption laws, with the goal of making specific recommendations for legislative change.

The Task Force is comprised of state and federal prosecutors, academics, a retired Judge of the New York Court of Appeals, and numerous attorneys in private practice who have extensive backgrounds in federal and state prosecution and defense. Its members have been hearing from experts in various fields, including financial institutions, law enforcement, academics and practitioners. They have sought input from bar leaders, political leaders, and experts in the field of white-collar crime, and are open to additional input from the public. A small sample of the areas that the Task Force is examining is discussed below.

Fraud and Cybercrime

The advent of electronic banking through computers and mobile applications, together with the widespread growth of smart phones and wireless communications, have provided criminals with new platforms and a broader reach for their fraudulent schemes. New York's penal statutes, unfortunately, were drafted decades ago by lawmakers who never contemplated such technologies. As a result, our prosecutors have inadequate tools to combat contemporary crimes.

One glaring example involves the theft of intangible property, such as source code. Financial institutions spend vast amounts of money in the research and development of sophisticated software and other computer programs, which they use not only to secure an edge in the competitive marketplace, but also to run their businesses effectively. Savvy criminals have proven able to steal this type of valuable data through computer intrusions such as hacking, viruses, and phishing schemes. Disgruntled employees have also stolen it the old-fashioned way, through outright theft.

Although the “theft” of such property involves making an unauthorized copy, New York's larceny statutes require that a victim be “deprived” of the actual property ' a physical impossibility. As a result, thefts of valuable computer data cannot be punished as larcenies, relegating courts and prosecutors to laws relating to computer tampering or unauthorized copying of data. The penalties for violating such laws, some of which are misdemeanors, have far less deterrent value.

Similarly, in the area of identity theft, criminals no longer need to possess a physical credit card or hold a paper check to steal property from their victims. A credit card number or checking account number, or even a smart phone photograph of a credit card or a check, gives criminals unauthorized access to their victims' financial accounts. But some New York courts hold that unauthorized possession of a credit card account number, absent possession of the actual card, does not constitute criminal possession of a credit card. This obviously does not comport with modern reality or the goals of the criminal, who only cares about turning an account ' card, check, or otherwise ' into cash.

Of interest to readers of this newsletter, New York's Scheme to Defraud law, enacted in 1974 to attack schemes targeting numerous victims, was patterned after federal mail and wire fraud. But the New York law, last amended in 1983, is much more restrictive. Most significantly, schemes to defraud one victim alone are not actionable, and the penalty for a scheme that obtains, say, $2,000 is the same for one that obtains $2 billion. The Task Force is studying ways to align this potentially useful tool with modern realities, and in particular is examining whether this and other tools to combat fraud against New York's elderly population may be strengthened.

Public and Private Corruption

Both public and private corruption have, unfortunately, been prevalent in New York State in recent years. From bribes accepted by public officials to kickbacks paid to business executives, prosecutors have had their hands full. The Task Force is examining our laws in this area, focusing in particular on language in New York's general bribery and commercial bribery statutes that may be obsolete. For example, although New York's public bribery law is violated when a bribe is merely offered, it paradoxically also requires an illicit “agreement or understanding” between the briber and the recipient in order for the crime to be complete. People v. Tran , 80 N.Y.2d 170 (1992). This exacting element stands in contrast to New York's other bribery laws, including labor bribery, sports bribery and commercial bribery, and the laws of most other jurisdictions, which are subject to the less exacting requirement of an “intent to influence” the actions of the actor. The Task Force is considering a recommendation to overrule Tran with an alternative formulation of the statute.

In private-sector bribery, where federal law is strong, New York's felony commercial bribery law requires not just bribery but also economic harm, an element that is almost unique in the United States. Bribery, however, is about breaches of trust, not theft; its harm is not necessarily quantifiable. The Task Force is studying whether to recommend elimination of this requirement.

Procedure

In the modern era of white-collar crime enforcement, New York's bedrock guarantee of an indictment by a Grand Jury absent hearsay evidence comes at great cost to New York taxpayers, particularly in white-collar prosecutions, which often require the introduction of voluminous business records. Currently, limited business records from financial institutions, telephone companies, and Internet service providers are admissible to a Grand Jury pursuant to a business records affidavit from a records custodian. All other business records, whether from a social media company like Facebook or Twitter, an e-mail provider like Yahoo! or Google, or a non-financial institution, require a live witness to authenticate them.

As crime has gone global, the required records are frequently kept outside the county where the Grand Jury is located, often in California, or even abroad. Although New York's prosecutors strongly believe in the indictment requirement, the Task Force is considering whether broader categories of records should be exempted from authentication by a live witness. This would save millions of dollars each year throughout the state, and would allow many of New York's 62 counties, whose budgets currently restrict them from transporting out-of-state witnesses, to prosecute fraud cases. The Task Force seeks to remedy this and other inefficiencies in New York law, to save taxpayers money and ensure that 21st-century crime does not escape punishment because of 1960s procedures.

Money Laundering

The federal Bank Secrecy Act creates a duty for financial institutions within the United States to report to the federal government cash transactions in excess of ten thousand dollars. Although federal law has for many years criminalized the structuring of transactions to avoid reporting requirements, New York has no analog. The result is that state investigators are either forced to refer the many cases they come across to federal authorities, or, as is more common, leave such charges “on the table.” The Task Force is examining whether New York should join the many other states, including California and Illinois, that have structuring laws, in addition to other provisions that might assist in fighting money laundering.

Conclusion

The commendable work of the federal government notwithstanding, fraud and corruption enforcement are traditionally key aspects of state police power. The Task Force aims to strengthen the tools necessary to fulfill New York's traditional role in this area. It is targeting late-summer 2013 to release its report, and welcomes additional public input.

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Daniel R. Alonso, a member of this newsletter's Board of Editors, is the Chief Assistant District Attorney in New York County and a co-Chair (with Erie County District Attorney Frank A. Sedita, III) of the New York State White Collar Crime Task Force referenced in this article. Michael Sachs is an Assistant District Attorney and Chief of Staff to the Investigation Division in the New York County District Attorney's Office.

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