Understanding White Collar Crime

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Understanding White Collar Crime, Fourth EditionJ. Kelly Strader

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Understanding White Collar Crime

fourth edition

J. Kelly StraderProfessor of Law

Southwestern Law School

Carolina Academic PressDurham, North Carolina

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Copyright © 2017J. Kelly StraderAll Rights Reserved

Library of Congress Cataloging-in-Publication Data

Names: Strader, J. Kelly, author.Title: Understanding white collar crime / J. Kelly Strader.Description: Fourth edition. | Durham, North Carolina : Carolina AcademicPress, LLC, 2017. | Series: Understanding series | Includesbibliographical references and index.

Identifiers: LCCN 2016052050 | ISBN 9781522105121 (alk. paper)Subjects: LCSH: White collar crimes--United States.Classification: LCC KF9350 .S77 2017 | DDC 345.73/0268--dc23LC record available at https://lccn.loc.gov/2016052050

e-ISBN 978-1-52210-513-8

Carolina Academic Press, LLC700 Kent StreetDurham, North Carolina 27701Telephone (919) 489-7486Fax (919) 493-5668www.cap-press.com

Printed in the United States of America

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For Hal

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Contents

Preface xxviiAcknowledgments xxix

Chapter 1 · Introduction to White Collar Crime 3§ 1.01 The Definition of “White Collar Crime” 3§ 1.02 Recurring Issues in White Collar Investigations and Prosecutions 5[A] The Harm Caused by White Collar Crime 5[B] Difficulties in Enforcing White Collar Statutes 6

§ 1.03 Issues of Federalism in White Collar Prosecutions 7[A] Federal and State Overlap 7[B] Federal Jurisdiction 8[C] The Debate Concerning the Federalization of Crimes 8

§ 1.04 Parallel Civil and Administrative Proceedings 9§ 1.05 Issues of Prosecutorial Discretion in White Collar Crime 10§ 1.06 White Collar Crime and the General Criminal Law 12[A] Mens Rea 12[1] Purpose, Knowledge, and Willful Blindness 13[2] Willfulness 14[3] Recklessness and Negligence 15[4] Strict Liability 15

[B] Statutory Construction 15[C] Vicarious Liability 16[D] Inchoate Crimes 16

§ 1.07 Application of Criminal Procedure Principles to White Collar Crime 17

Chapter 2 · Corporate and Individual Liability 19§ 2.01 Introduction 19§ 2.02 The Development of Corporate Criminal Liability 20§ 2.03 Standards for Imputing Liability to Corporations 21[A] Respondeat Superior 21[1] Application in the Federal System 21[2] Elements of Respondeat Superior 21[3] Agents Whose Liability May Be Imputed to the Corporation 22[4] Liability of Successor and Non- Existent Corporations 22

[B] Model Penal Code 23[C] Comparing Respondeat Superior and § 2.07 23

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[D] The Debate over Corporate Criminal Liability 24[E] DOJ Guidelines 24

§ 2.04 Issues Arising under the Model Penal Code 25[A] Legislative Intent to Impose Liability 25[B] Approval by High Managerial Agent 26

§ 2.05 Acting on Behalf of the Corporation 27[A] Model Penal Code vs. Respondeat Superior 27[B] Corporate Compliance Programs and Actions Contrary to Corporate Policy 28

§ 2.06 Acting to Benefit the Corporation 30§ 2.07 Corporate Mens Rea 31[A] Managerial Approval of Criminal Conduct 31[B] Collective Knowledge 32

§ 2.08 Liability of Corporate Officers and Agents 33[A] Scope of Individual Wrongdoers’ Liability 33[B] Strict Liability of Management for Subordinates’ Acts 35

Chapter 3 · Conspiracy 39§ 3.01 Introduction 39[A] Nature of Conspiracy Charges 39[B] Policy Bases 40

§ 3.02 The Federal Conspiracy Statutes 40[A] Types of Federal Conspiracy Statutes 40[B] The Elements of the General Conspiracy Statute — § 371 41[C] The Overt Act 42[D] The Unlawful Object 43

§ 3.03 The Advantage of a Conspiracy Charge 44[A] Joinder 44[B] Venue 44[C] Evidence 44[D] Vicarious Liability — The Pinkerton Rule 45[E] Multiple Punishments 45[F] Statute of Limitations 45

§ 3.04 The Agreement 46[A] Government Agents as Co- Conspirators 47[B] Plurality in the Corporate Context 47[C] Wharton’s Rule 48

§ 3.05 The “Offense” Clause and the “Defraud” Clause 49[A] The “Offense” Clause 49[B] The “Defraud” Clause 50[1] Breadth of the Defraud Clause 50[2] The Federal Government as Victim 50

[C] Relationship between the Offense Clause and the Defraud Clause 51

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§ 3.06 Required Mental State 53[A] Specific Intent 53[B] “Knowledge” vs. “Specific Intent” 54[C] Conscious Avoidance 56[D] Mens Rea and Federal Jurisdiction 57

§ 3.07 Proof of Guilt in a Conspiracy Case 57[A] Level of Required Proof 57[B] Co- Conspirators’ Exception to the Hearsay Rule 58

§ 3.08 The Breadth of the Agreement 59[A] Overview 59[B] Advantages of a Single Trial 60[C] Single Conspiracy vs. Multiple Conspiracies 60[1] Joinder Issues 60[2] The Showing of Prejudice 63[3] Double Jeopardy Issues 64

§ 3.09 Duration and Withdrawal 64[A] Duration of a Conspiracy 64[B] Withdrawal from a Conspiracy 65

§ 3.10 Vicarious Liability — The Pinkerton Doctrine 66[A] The Pinkerton Decision 66[B] The Policy Debate 67[C] Application to White Collar Crimes 67

§ 3.11 Inconsistent Verdicts 68§ 3.12 Duration 69§ 3.13 Withdrawal 70

Chapter 4 · Mail Fraud, Wire Fraud, and Related Offenses 73§ 4.01 Breadth of the Mail and Wire Fraud Statutes 73[A] The Statutes’ Appeal to Prosecutors 73[B] Courts’ Interpretations of the Statutes 75

§ 4.02 Statutory Overview 75[A] Sections 1341 and 1343 75[B] The Elements 76[C] The Inchoate Nature of Mail and Wire Fraud 76[D] Federal Jurisdiction 76[1] Jurisdictional Bases 76[2] Federalism Issues 78

§ 4.03 The Scheme to Defraud 79[A] Intent to Defraud 79[1] The Durland Decision 79[2] Deception Relating to the Economic Bargain 79[3] Literally True and Misleading Statements 80[4] Omissions and Concealment 81[5] Good Faith and Reliance on Counsel Defenses 82

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[B] Materiality 82[1] The Neder Decision 82[2] The “Reasonable Reliance” Issue 82

§ 4.04 The Use of the Mails and Wires 83[A] The “In Furtherance” Requirement 84[1] The Schmuck Rule 84[2] The “Lulling” Rule 86

[B] The “Causation” Requirement 88§ 4.05 Deprivation of Money, Property, or Honest Services 89[A] The “Money or Property” Requirement 89[1] The McNally Decision 89[2] Intangible Property Rights 90[a] Secret Business Information 90[b] Licenses and Permits 92[c] The Right to Control Property Interests 92

[3] Property Interests of Foreign Governments 94[4] The “Convergence” Requirement 94

[B] Section 1346 and the Deprivation of “Honest Services” 97[1] The Adoption and Interpretation of § 1346 97[2] The Skilling Decision 98[3] Questions Post- Skilling 99

§ 4.06 Related Statutes and Crimes 100[A] Bank Fraud 101[1] Statutory Overview 101[2] Statutory Reach 101

[B] Bankruptcy Fraud 103[C] Health Care Fraud 103[D] False Government Claims and Procurement Fraud 104[1] False Claims 104[2] Procurement Fraud 105

Chapter 5 · Securities Fraud 107§ 5.01 Introduction 107§ 5.02 Statutory Overview and Definitions 108[A] Introduction 108[B] The 1933 and 1934 Acts 109[1] The Statutory Scheme 109[2] The Definition of “Security” 109[3] Secondary Liability 109

§ 5.03 Civil Enforcement of the Securities Laws 110[A] The Statutory Provisions 110[B] The Elements 111

§ 5.04 Criminal Enforcement of the Securities Laws 111[A] The Statutory Scheme 111

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[B] The Elements 112[C] The “Willfulness” Requirement 112[1] Definition 112[2] The Level of Proof 113[3] The “Good Faith” Defense and Reliance on Counsel 116

[D] The “No Knowledge” Proviso 116§ 5.05 The Sarbanes- Oxley Act of 2002 117§ 5.06 The Civil/Criminal Overlap 118§ 5.07 Insider Trading 118[A] Introduction 118[B] Policy Bases 119[C] Insider Trading Defined 120[1] Insider Trading Theories 120[2] Elements of Insider Trading 121

[D] The Evolution of the Misappropriation Theory 121[1] The Supreme Court Cases 122[2] The Boundaries of Fiduciary Duties 124[a] Pre- O’Hagan Case Law 124[b] The SEC’s Attempt to Extend the Boundaries of Fiduciary Duties — Rule 10b5- 2 125

[3] The “On the Basis of” Requirement 126[a] The Circuit Split 126[b] SEC Adoption of the “Knowing Possession” Standard — Rule 10b5- 1 127

[E] Tippee Liability 127[1] The Dirks Decision 127[2] The Elements of Tippee Liability 129[a] Proof of Willfulness 129[b] Defining the Benefit 130[c] Intent to Benefit — Misappropriation Theory 131

[F] Trading in Connection with a Tender Offer 132§ 5.08 The “in Connection with” Requirement 134§ 5.09 Materiality 135§ 5.10 Other Offenses 138[A] Stock Parking 138[B] Proxy Statements 139

§ 5.11 Professionals’ Liability 139

Chapter 6 · Computer Crime 141§ 6.01 Introduction 141§ 6.02 Challenges to Law Enforcement 141§ 6.03 The Computer Fraud and Abuse Act 142[A] The Statutory Provisions 142

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[1] Section (a)(1) — Knowing and Willful Theft Involving National Security 142

[2] Section (a)(2) — Intentional Theft of Protected Information 143[3] Section (a)(3) — Intentional Gaining of Access to Government Information 144

[4] Section (a)(4) — Fraud through a Protected Computer 144[5] Section (a)(5)(A)(i) — Intentionally Causing Damage through a Computer Transmission 144

[6] Section (a)(5)(A)(ii) — Recklessly Causing Damage through Unauthorized Access 145

[7] Section (a)(5)(A)(iii) — Causing Damage through Unauthorized Access 145

[8] Subsection (a)(6) — Fraudulent Trafficking in Passwords 146[9] Subsection (a)(7) — Extortion 146

[B] The Sentencing Scheme 146§ 6.04 Prosecuting Computer Crime 147[A] Issues in Cases Brought under the CFAA 147[1] Determining the Required Mens Rea 147[2] Determining the “Thing of Value” 148[3] Defining the Term “Exceeds Authorized Access” 150[4] Determining Covered Losses 150

[B] Issues in Wire Fraud Prosecutions of Computer Crime 151[C] Other Applicable Statutes 152

§ 6.05 International Computer Crime 153§ 6.06 Constitutional and Statutory Constraints 153[A] Search and Seizure Issues 153[B] First Amendment Issues 155

§ 6.07 Civil Actions 156[A] Suits by Internet Service Providers 156[B] Suits by Private Individuals 157

Chapter 7 · Health Care Fraud 159§ 7.01 Overview 159§ 7.02 The Anti- Kickback Statute 159[A] The Elements of the Anti- Kickback Statute 159[1] The Mens Rea Requirement 160[2] The Any Remuneration Requirement 160[3] The Inducement Requirement 160[4] The Referral Requirement 161

[B] Statutory Exceptions and Safe Harbors 162[1] The Employment Exception and Safe Harbor 162[2] The Personal Services and Management Contract Safe Harbor 162

[C] The Use of the AKS as a Basis for FCA Cases 163

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§ 7.03 Administrative Sanctions: Civil Monetary Penalties, Corporate Integrity Agreements, and Exclusion 163[A] Civil Money Penalties — 42 U.S.C. § 1320a- 7a 164[B] Exclusion 164[C] Corporate Integrity Agreements 164

Chapter 8 · Environmental Crimes 165§ 8.01 Introduction 165§ 8.02 Common Issues in Environmental Prosecutions 167[A] Corporate Liability 167[B] Individual Liability and the Responsible Corporate Officer Doctrine 167[C] Mental State 168[D] Overlap of Civil and Criminal Liability 169

§ 8.03 Hazardous Waste — The Resource Conservation and Recovery Act (RCRA) and Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) 170[A] The Statutory Provisions 170[B] Knowing Violations 170[1] Applicability of the Responsible Corporate Officer Doctrine 170[2] Knowledge of Permit Status 171[3] Knowledge of the Nature of the Waste 173

[C] Knowing Endangerment 173[D] Individual Liability 174[E] Corporate Parent Liability 175

§ 8.04 Water Pollution — The Clean Water Act (CWA) and the Refuse Act 176[A] Statutory Scheme 176[B] Discharge from a Point Source under the CWA 176[C] Discharge Under the Refuse Act 178[D] Required Mental State under the CWA and the Refuse Act 178[1] Negligent Acts under the CWA 179[2] Mistake of Law under the CWA 179[3] Mistake of Fact under the CWA 180[4] Strict Liability under the Refuse Act 181[5] Applicability of the Responsible Corporate Officer Doctrine 182

[E] The CWA Permit Requirement 182[F] Knowing Endangerment 183

§ 8.05 Air Pollution — The Clean Air Act (CAA) 183[A] Overview of the CAA 183[B] Definition of “Knowledge” 184[C] Judicial Review 185[D] Double Jeopardy Issues 186

§ 8.06 Enforcement Issues 187[A] Enforcement Bodies 187

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[B] Parallel Proceedings 187[C] Fourth Amendment Issues 188

Chapter 9 · Bribery and Gratuities 189§ 9.01 Introduction 189§ 9.02 Section 201 — Statutory Overview 190[A] Bribery 190[B] Gratuity 191[C] Statutory Definitions 191

§ 9.03 Elements of Bribery and Gratuity under § 201 192[A] Bribery 192[B] Gratuity 192[C] Sentencing 193[D] Comparison of Bribery and Gratuity 193[1] Intent and Quid Pro Quo 193[2] Intent and Timing 194

§ 9.04 Definition of “Something of Value” under § 201 195§ 9.05 Definition of Federal “Public Officials” under § 201 195[A] Employees of Entities Other than the Federal Government 195[B] Participants in the Legislative Process 197

§ 9.06 Definition of “Official Act” under § 201 198[A] The Parties’ Intent 198[B] The Scope of the Public Official’s Duties 199

§ 9.07 Definition of Criminal Intent under § 201 200[A] Bribery 200[B] Gratuity 202

§ 9.08 Federal Program Bribery 203[A] Statutory Overview 203[B] Elements of § 666 204[C] Scope of § 666 205[1] The Connection between the Bribe and Federal Funds 205[2] Bribes and Gratuities 206[3] The Meaning of Federal “Benefits” 207[4] The Meaning of “Agent” 207[5] The Meaning of “Misapplies” 208

§ 9.09 The Foreign Corrupt Practices Act 209[A] Statutory Overview and Elements 209[B] Purpose to Obtain or Retain Business 210[C] Defining “Foreign Official” 211[D] Mens Rea 211[E] International Anti- Bribery Efforts 212

Chapter 10 · Extortion 213§ 10.01 Introduction 213

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§ 10.02 Statutory Overview 214[A] Statutory Background and Definitions 214[B] Elements of Extortion 215[C] Extortion as an Inchoate Crime 215

§ 10.03 Effect on Interstate Commerce 215§ 10.04 Obtaining Property from Another 216§ 10.05 The Required Mens Rea 218§ 10.06 Extortion by the Use of Fear 218§ 10.07 Extortion under Color of Official Right 220[A] “Inducement” in Extortion under Color of Official Right 221[B] The Distinction between Bribery and Extortion under Color of Official Right 223

[C] Distinguishing “Extortion” from Legitimate Campaign Fundraising 224[D] The Quid Pro Quo Requirement 225[1] Does the Quid Pro Quo Requirement Apply Outside the Campaign Contribution Context? 225

[2] Is an Explicit Quid Pro Quo Required, or Is an Implicit Quid Pro Quo Sufficient? 225

§ 10.08 The Travel Act 227

Chapter 11 · False Statements 229§ 11.01 Introduction 229§ 11.02 Statutory Overview 230§ 11.03 The Meaning of “Statement” 231[A] The Scope of § 1001 231[1] Silence 231[2] Implied Statements 232

[B] The “Exculpatory ‘No’” Doctrine 232[C] The Judicial Proceeding Exception 233

§ 11.04 Falsity and Concealment 234[A] Implied Falsity and Concealment 234[B] Literally True or Ambiguous Statements 235[C] Statements Concerning Future Actions 236[D] Documents 236

§ 11.05 Materiality 237§ 11.06 The Required Mens Rea 238[A] Knowledge of Falsity 238[B] Knowledge of Facts Giving Rise to Federal Jurisdiction 238[C] Willfulness and the Intent to Deceive 239

§ 11.07 Jurisdiction 240[A] Statements Made to the Federal Government 240[B] The Definition of “Jurisdiction” 240[C] Statements Made to State and Local Agencies and to Private Parties 241

§ 11.08 Section 1001 and Other Offenses 244

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Chapter 12 · Perjury and False Declarations 247§ 12.01 Introduction 247§ 12.02 The Statutory Provisions 248[A] Introduction 248[B] Elements of § 1621 248[C] Elements of § 1623 249[D] Key Differences between § 1621 and § 1623 249

§ 12.03 The Elements of a Perjury Case 250[A] Oath 250[B] Tribunals and Proceedings 250[C] Falsity 251[1] Literally True or Non- Responsive Answers 251[2] Ambiguous Questions and Answers 252[3] Inconsistent Statements 253

[D] Mens Rea 253[1] Knowledge of Falsity 253[2] Willfulness 254

[E] Materiality 254[F] The “Two- Witness” Rule 255

§ 12.04 The Recantation Defense 257[A] A Comparison of § 1623 and § 1621 257[B] Elements of the Recantation Defense 258[C] Must a Defendant Prove All the Elements to Prevail? 259

§ 12.05 Immunity 260§ 12.06 Vicarious Liability 261[A] Aiding and Abetting 261[B] Subornation of Perjury 261

Chapter 13 · Obstruction of Justice 263§ 13.01 Introduction 263§ 13.02 A Comparison of §§ 1503, 1505, 1510, and 1512 264§ 13.03 The Elements of Obstruction of Justice under §§ 1503–1505 — The Omnibus Clauses 266[A] Actus Reus — The “Endeavor” 266[1] The Breadth of the “Endeavor” to Obstruct 267[a] Interfering with the Production of Documents 267[b] Giving or Encouraging False Testimony 268[c] Making False Statements to Government Agents 269[d] Encouraging a Witness to Assert the Fifth Amendment or Attorney-Client Privilege 269

[e] Threatening Jurors or Court Officers 270[2] The “Nexus” Requirement 271[3] A Deceptive Promise to Commit an Endeavor 273[4] Materiality 273

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[B] The Pending Proceeding under §§ 1503 and 1505 274[1] Court Proceedings 275[2] Grand Jury Proceedings 276[3] Agency and Legislative Proceedings 276

[C] Mens Rea 277[1] The Knowledge Requirement 277[2] “Corrupt” Intent 277

§ 13.04 The Relationship between Obstruction and Perjury 280§ 13.05 Sections 1519 & 1520 281[A] Section 1519 — Destruction of Records in Federal Investigations and Bankruptcy 281

[B] Section 1520 — Destruction of Audit Records 283§ 13.06 Section 1512 — The Witness Tampering Statute 284[A] The Statutory Provision and Elements 284[B] Section 1512(b) — Corrupt Persuasion 285[C] The Misleading Conduct Provision 288[D] Section 1512(c) 288[E] The “Proceeding” Element 289[F] The Nexus Requirement 290[G] The Relationship between the Obstruction Statutes and the Witness Tampering Statute 290

Chapter 14 · Tax Crimes 291§ 14.01 Introduction 291§ 14.02 Tax Evasion 292[A] Statutory Overview and Elements 292[B] Underpayment 292[C] Affirmative Act of Evasion 293

§ 14.03 False Returns 294[A] Statutory Overview and Elements 294[B] Tax Filer and Preparer Liability 295[C] Falsity 296[D] Materiality 297

§ 14.04 Failure to File a Return or Pay Taxes — Statutory Overview and Elements 298

§ 14.05 Mens Rea — Willfulness 299[A] Definition of Willfulness 299[B] Proof of Willfulness 300[C] Defenses 301[1] Good Faith 301[2] Legal Uncertainty 302[3] Reliance on Professional Advice 305

§ 14.06 Methods of Proof 306[A] Direct or Specific Items Method 306

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[B] Indirect Methods 307§ 14.07 The Process of Tax Investigations and Prosecutions 309§ 14.08 Charges Brought in Criminal Tax Cases 310

Chapter 15 · Currency Transaction Reporting Crimes 311§ 15.01 Introduction 311§ 15.02 Statutory Overview 311[A] Introduction 311[B] Section 5313(a) — Filing of CTRs by Domestic Financial Institutions 312[1] The Statute 312[2] The Elements 313

[C] Section 5324(a) — Structuring and Related Crimes in Connection with Financial Institution Transactions 313[1] The Statute 313[2] The Elements of § 5324(a) 314

[D] Section 6050I — Cash Transactions Reporting by Businesses 315[1] The Statute 315[2] The Elements 316

[E] Section 5316 — Transporting Monetary Instruments 317[1] The Statute 317[2] The Elements 317

§ 15.03 Mens Rea Issues in Currency Reporting Cases 318[A] Knowledge of and Intent to Violate the Law 318[B] Collective Knowledge 319[C] Proving Mens Rea 319

§ 15.04 Attorney/Client Issues 320[A] Introduction 320[B] Constitutional Challenges 320[C] Attorney- Client Privilege 320

Chapter 16 · Money Laundering 323§ 16.01 Introduction 323§ 16.02 Statutory Overview 324[A] Domestic Money Laundering — § 1956(a)(1) — Statutory Elements and Definitions 325

[B] International Money Laundering — § 1956(a)(2) 327[1] Statutory Elements and Definitions 327[2] Comparison of § 1956(a)(1) and § 1956(a)(2) 328

[C] Prohibited Monetary Transactions — § 1957 328[D] Comparison of § 1956(a)(1) and § 1957 329

§ 16.03 Proof of the Defendant’s Mental State 330[A] Section 1956 330[1] First Level of Mens Rea — Knowledge that the Transaction Represented Proceeds of Unlawful Activity 330

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[2] Second Level of Mens Rea — Four Possible Theories 332[a] Evidence of a Design to Conceal or Disguise Dirty Money under § 1956(a)(1)(B)(i) and 1956(a)(2)(B)(i) 332

[b] Evidence of Intent to Promote Unlawful Activity under § 1956(a)(1)(A)(i) 335

[B] Section 1957 337[1] The Government’s Theory 337[2] Proof of Knowledge 337

§ 16.04 Proof That the Property Was the Product of Criminal Activity 338[A] Issues Relating to Timing 338[1] Section 1957 338[2] Section 1956 339

[B] Commingling 340[1] Cases under § 1956 340[2] Cases under § 1957 341

[C] “Proceeds”: Net Receipts or Net Profits? 342§ 16.05 The USA Patriot Act 342

Chapter 17 · RICO 345§ 17.01 Introduction 345[A] The RICO Debate 345[B] Department of Justice Guidelines 347[C] Civil RICO 347

§ 17.02 The Structure of the RICO Statute 347[A] Introduction 347[B] Elements and Penalties 348

§ 17.03 Defining the RICO “Theory” 349[A] Subsection 1962(a) 349[B] Subsection 1962(b) 349[C] Subsection 1962(c) 350[D] Subsection 1962(d) — RICO Conspiracy 350

§ 17.04 The Enterprise 352[A] Statutory Definition 352[B] Legitimate vs. Illegitimate Enterprises 352[C] Economic Motive 353[D] Formal Entities as Enterprises 354[E] The “Association-in-Fact” Enterprise 354[1] Interpretations of the Statutory Definition 354[2] The Proof Required for an Association- in-Fact Enterprise 355

[F] Naming the Enterprise as a Defendant 356[1] The Enterprise as a Defendant in Cases Brought under Subsections 1962(a) and (b) 357

[2] The Enterprise as a Defendant in Cases Brought under Subsection 1962(c) 358

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[a] Distinguishing the Enterprise and the Defendant 358[b] Sole Proprietorships as Defendants 358[c] Corporations as Defendants 359

[3] Pleading Issues Arising from the Defendant/Enterprise Distinction 359§ 17.05 The “Operation or Management” Test under § 1962(C) 360[A] The Reves Test 361[B] Applying Reves to Outside Parties 362[C] Applying Reves to Inside Parties 363

§ 17.06 The “Racketeering Activity” 364[A] Introduction 364[B] State Crimes 365[1] Defining the State Law Predicates 365[2] Determining Whether the Facts Support the State Predicate Charge 366

[C] Federal Crimes 367[D] The “Pattern” Requirement 368[1] The Supreme Court’s Test 369[2] Application of the Continuity Requirement 370[3] Application of the Relatedness Requirement 373[4] Summary of the Pattern Requirement 374

§ 17.07 Issues Unique to Civil RICO 374[A] RICO Actions Brought by Private Plaintiffs 375[1] Attempts to Limit Civil RICO: The Sedima Decision 375[2] Standing 376[3] Extraterritoriality 378

[B] Civil RICO Actions Brought by the Government 379§ 17.08 Interstate Commerce 380§ 17.09 Statute of Limitations 380

Chapter 18 · Internal Investigations, Compliance Programs, and Deferred and Non- Prosecution Agreements 383

§ 18.01 Introduction 383§ 18.02 Internal Investigations 383[A] Tactical Considerations 383[B] Attorney- Client Privilege and Related Issues 384[C] The Work Product Doctrine 386[D] Voluntary Disclosures of Documents 387

§ 18.03 Compliance Programs 390[A] Sarbanes- Oxley Act of 2002 390[B] Department of Justice Policies 390[C] Compliance Programs and Corporate Liability 391[D] Compliance Programs and Individual Liability 391

§ 18.04 Deferred and Non-Prosecution Agreements 392

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Chapter 19 · Grand Jury Issues 395§ 19.01 Introduction 395§ 19.02 Composition and Duration of the Grand Jury 396§ 19.03 Purpose of the Grand Jury 396§ 19.04 The Grand Jury’s Investigatory Powers 397[A] The Scope of the Investigation 397[B] Post- Indictment Investigations 399

§ 19.05 Presentation of Exculpatory Evidence 399§ 19.06 Grand Jury Secrecy 401[A] Disclosure of Grand Jury Information to Government Officials 401[B] Disclosure of Grand Jury Materials to Defendants 403[C] Disclosure to Third Parties 403[D] Disclosure to the Press and Public 403[E] Disclosure to Grand Jury Witnesses 404

Chapter 20 · The Right against Compelled Self-Incrimination 405§ 20.01 Introduction 405§ 20.02 The Fifth Amendment Privilege against Self-Incrimination — Compelled Testimony 405

§ 20.03 The Fifth Amendment Privilege against Self-Incrimination — The Compelled Production of Documents 406[A] The Required Records Rule 406[B] The Collective Entity Rule 406[C] The Act of Production Doctrine 407

§ 20.04 Immunity 409

Chapter 21 · Civil Actions, Civil Penalties, and Parallel Proceedings 411§ 21.01 Introduction 411§ 21.02 Parallel State and Federal Proceedings 412§ 21.03 Parallel Agency Proceedings 412§ 21.04 Parallel Proceedings and the Fifth Amendment 413§ 21.05 Parallel Proceedings and Grand Juries 416[A] Immunized Testimony 416[B] Secrecy 417[C] Civil Protective Orders 418[D] Stays 419[E] Deferred Prosecution 419

§ 21.06 Civil Fines 420§ 21.07 Qui Tam Actions 421[A] The False Claims Act 421[B] Qualifying as a Relator 422[1] Direct and Independent Knowledge 422[2] The “Original Source” Exception to the “Public Disclosure” Rule 423[3] Standing 424

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[C] Claims Made to Private Entities 424§ 21.08 Other Sanctions 425

Chapter 22 · Sentencing 427§ 22.01 Introduction 427§ 22.02 Overview of the United States Sentencing Commission and Sentencing Guidelines 429[A] The Sentencing Commission 429[B] The Guidelines 429

§ 22.03 Individual Sentencing under the Guidelines 431[A] Base Level Offense 431[B] Specific Offense Characteristics 431[C] Adjustments 432[D] Multiple Counts 432[E] Acceptance of Responsibility 433[F] Defendant’s Criminal History 433[G] Relevant Conduct 434[H] Sentencing Range 434[I] Fines 435[J] Departures 435[K] Section 3553(a) Factors 436

§ 22.04 Constitutionality of the Guidelines 437[A] Delegation of Authority and Separation of Powers 437[B] The Sixth Amendment Right to a Jury Trial 437[1] The Booker Decision 438[2] Issues Created by Booker 439[a] Plain Error 439[b] Harmless Error 440[c] Reasonableness 440[d] The Standard of Review on Appeal 442[e] Post- Booker Deference to the Guidelines 443[f] Substantial Assistance 443

§ 22.05 Applying the Sentencing Guidelines Post-Booker 444[A] Appellate Review 445[B] Sentencing for Economic Offenses 447

§ 22.06 Organizational Sentencing under the Guidelines 448[A] Overview 448[B] Effect on Organizational Conduct 449[C] Sanctions 450[1] Restitution 450[2] Community Service 450[3] Fines 450

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Chapter 23 · Forfeitures 453§ 23.01 Introduction 453§ 23.02 Civil Forfeiture Proceedings 454[A] Federal Civil Forfeiture Statutes 454[B] Property Seizure Procedures 455[1] Statutory Provisions 455[2] The Burden of Proof and Standing 456

[C] The Scope of Property Subject to Seizure and Forfeiture 457[1] Introduction 457[2] The Substantial Connection Test 457

[D] Third- Party Interests — The “Innocent Owner” Defense 460[E] Assistance of Counsel 460[F] Post- Judgment Awards of Attorneys’ Fees and Fines 460[G] The Effect of the Vesting Provision 461

§ 23.03 Federal Criminal Statutes Providing for the Restraint and Forfeiture of Private Property 462[A] Statutory Forfeiture Provisions 462[B] Statutory Procedures for Restraining Property 463[C] The Scope of Forfeitable Property 463[1] Rule 32.2(b) and the Nexus Requirement 463[2] The Forfeiture Theory 464[3] Proceeds 465[4] Substitute Assets 466[5] Money Judgments 466[6] Apprendi/Booker Issues 467

[D] Rights of Innocent Third Parties 467[E] The Effect of the Vesting Provision 469

§ 23.04 Constitutional Defenses 469[A] Procedural Due Process 469[1] Civil Forfeitures 469[2] Criminal Forfeitures 470

[B] Substantive Due Process — Innocent Owners 471[C] The Eighth Amendment’s Excessive Fines Clause 472[1] Criminal Forfeitures 472[2] Civil Forfeiture 474

[D] Double Jeopardy 474[E] Attorney’s Fees 475

Table of Cases 479Index 501

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Preface

Overview of the Text

This book is primarily intended for students in White Collar Crime, Federal Crim-inal Law, and Corporate Crime classes. The text should also prove useful to practi-tioners, judges, law clerks, and scholars seeking an introduction to and an overviewof the law in this area.

The bulk of this text provides a substantive overview of the principal federal whitecollar crimes. The book also covers the basic principles of criminal law and criminalprocedure necessary to an understanding of white collar crime, and includes chapterson the process of white collar criminal investigations and prosecutions. Finally, thebook covers remedies and penalties, including sentencing and forfeitures.

White collar crime is primarily based upon a complex set of statutes. This bookprovides the texts of the relevant statutes, along with analyses of the statutes’ elementsand requirements. Because many of these statutes are open to varying interpretations,the book also extensively discusses the main cases interpreting the statutes, includinga large number of United States Supreme Court cases. Finally, the book discusses thesignificant policy issues that arise in white collar investigations and prosecutions,such as enforcement barriers and prosecutorial discretion.

Because of the complexity of the subject, a text such as this necessarily condensesa great deal of information. In addition, readers should note that this area of the lawis changing rapidly. For a more extensive discussion of any particular subject, thereader may wish to refer to such sources as White Collar Crime: Business and RegulatoryOffenses (Otto Obermaier et al., eds.) (updated annually), and the Annual Survey ofWhite Collar Crime, published by the American Criminal Law Review.

A Special Request

Any book of this length is bound to contain errors. Those errors are entirely myresponsibility, and I would like to know about all of them. I welcome any commentsyou may have. Please do not hesitate to call ((213) 738- 6753), e- mail (kstrader@swlaw.edu), or write (Southwestern Law School, 3050 Wilshire Boulevard, Los Angeles,CA 90010).

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Acknowledgments

This book would not have been possible without the generous support of theSouthwestern Law School Faculty Development Program. I would also like to thankProfessors Katrice Bridges Copland, Sandra D. Jordan, and Steven Chanenson fortheir contributions to Chapters 7, 21, and 22, respectively. I have received enormoushelp from my many research assistants. Too many pitched in to name them all, buta special thanks to Kara O’Brien and Maxwell Meyering for their invaluable assistance.And thanks to Southwestern Faculty Support Supervisor Angelique Porter and themembers of the Faculty Support staff, especially Neil Bautista, for all their help.Finally, thanks to all of you who have used this book and have given me such helpfulfeedback over the years. I am very grateful.

On a personal note, I would like to thank my partner, Hal, our children, Eleanorand Sam, and their moms, Helen and Marian, for their love and support.

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