Inferring Dishonesty: The Fifth Amendment and Fidelity Coverage
April 01, 2004
Dishonest employees always have posed a problem for businesses. The average business may lose 6% of its annual revenues to employee fraud, and cumulatively the impact of employee theft on the economy is estimated to be $600 billion annually. <i>See</i> Association of Certified Fraud Examiners ("ACFE"), 2002 Report to the Nation on Occupational Fraud & Abuse, at ii, 4 (2002), available at <i>www.cfenet.com/publications/rttn.asp.</i> Although the average loss through employee embezzlement is $25,000, where computerized financial records or transactions are involved, the average loss increases nearly twentyfold. <i>See</i> National White Collar Crime Center, <i>WCC Issue: Embezzlement/Employee Theft,</i> at 2 (2002), available at <i>http://nw3c.org/downloads/Computer_Crime_Weapon.pdf.</i>
Risky Business
March 01, 2004
Third-party facilitators have played a critical role in allowing corporate misconduct to happen," according to Deputy Attorney General James B. Comey, Jr., head of the Justice Department's Corporate Fraud Task Force. Stephen Cutler, Director of Enforcement for the SEC, has warned that financial institutions violate the federal securities laws by "contributing to fraudulent accounting and manipulated financial results" of public companies. In a recent report, the Enron bankruptcy examiner described a financial institution as an "enabler" of violations by Enron's officers. In the Sarbanes-Oxley era, the government is not only rounding up the direct violators, but has also brought aiding-and-abetting charges against companies that entered into certain business transactions with other companies accused of securities violations, even though the alleged abettors themselves filed honest reports with the SEC.
In The Courts
March 01, 2004
Recent cases of interest to you and your practice.
Auditing the Effectiveness of Your AML Program
March 01, 2004
The Federal Reserve Board and the New York Department of Banking have adopted a strict-review standard in their evaluation of the effectiveness of the Anti-Money Laundering (AML) compliance programs of financial institutions. Recent enforcement actions demonstrate that regulators pay particular attention to the effectiveness of Suspicious Activity Reporting (SAR) and Currency Transaction Reporting (CTR) as key components. In addition, an effective audit program must focus on the other essentials: Know Your Customer (KYC), Training, and Testing. How can you be sure that the institution you advise is prepared for a money laundering audit?
Mixed Messages from Justice
March 01, 2004
The very public prosecution of Arthur Anderson LLP demonstrated the willingness of the Department of Justice (DOJ) to bring criminal charges against organizations no matter how large and prominent or how severe the collateral consequences. Under the doctrine of respondeat superior, moreover, the government has breathtakingly broad power to convict an organization based solely on misconduct by even just one employee. So, the reality is that corporate counsel must assess the potential criminal exposure of the entire corporation in nearly every government investigation of an employee. Assessing exposure has, in recent years, involved the factors set forth in the Holder and Thompson memos (June 16, 1999 and Jan. 20, 2003) on the "Principles of Federal Prosecution of Business Organizations." Recent pronouncements by the DOJ, however, cast some doubt on the continued significance of the Thompson Memo and have made it harder to assess a corporation's criminal exposure.
Foreign-Tax Evasion As Mail and Wire Fraud
February 06, 2004
With deficits plaguing the federal budget, prosecutors might be expected to concentrate their efforts on enforcing U.S. tax laws. Yet federal prosecutors have recently brought charges under the mail and wire fraud statutes (18 U.S.C. '' 1341, 1343) in cases involving the evasion of foreign taxes. Foreign governments themselves have brought civil suits under the RICO statute (18 U.S.C. ''1961 et seq.), on the theory that the evasion of foreign taxes constitutes a predicate act of mail or wire fraud. The courts have split on whether this works. Generally, RICO claims by foreign governments have failed. Criminal prosecutions for fraud and money laundering have been upheld by the Second and Fourth Circuits, but rejected by the First Circuit. The issue may soon reach the Supreme Court.
'The Defense Calls ... the Defendant'
February 06, 2004
Most criminal defendants are advised against testifying at trial, but white-collar defendants usually must testify. Since state of mind is a key element in many business crimes, often the most important issue is what the defendant intended in taking (or failing to take) a specific action. The defendant's best hope may be to look jurors in the eye and convince them of his or her innocent state of mind. Besides, jurors tend to think that anyone wrongly accused would take the stand to proclaim his or her innocence.
In The Courts
February 06, 2004
Recent rulings of interest to you and your practice.
