In the USA, both federal law and state laws define and prohibit crimes. US law classifies crimes as felonies or misdemeanours. A third category of offences punishable only by fine, civil penalty or forfeiture, rather than imprisonment, includes petty crimes – sometimes referred to as violations, infractions, petty offences or petty misdemeanours. There are different classifications of felonies and misdemeanours based on the seriousness and severity of the offence.
Felonies are the most serious offences. Both property crimes and crimes against persons can be felonies. Any crime punishable by over a year in prison is a felony, but not all felonies result in imprisonment. Punishments for felonies can range from fines or limited time in prison to life without parole or death.
To prove a criminal offence, prosecutors generally must establish proof beyond a reasonable doubt of an act or omission (actus reus) and a culpable state of mind (mens rea). The mental state required for conviction varies by statute. For example, prosecutors may need to prove that a defendant acted purposely, knowingly, recklessly or negligently, depending on the offence charged. Some categories of crimes are strict-liability offences requiring no mens rea showing, including some regulatory offences.
Attempts to commit crimes carry criminal liability. Typically, a prosecutor must prove that the accused intended to commit the crime and knowingly took a substantial step, beyond mere preparation, in furtherance of the attempt.
Most offences have statute of limitations periods. Many federal criminal offences have five-year limitations periods, but certain securities and tax crimes have six-year periods and certain fraud and embezzlement crimes have ten-year periods. A few serious crimes have no limitations period.
Statute of limitations periods normally begin to run when the crime is “complete”, which occurs when the last element of the crime is satisfied. For “continuing crimes” that do not occur at a discrete time, such as conspiracy, the statute of limitations period may not begin to run until the criminal conduct stops. Limitations periods may be paused – or tolled – in certain circumstances.
Federal courts and some agencies may punish defendants for criminal acts that occur outside of US territory. Extraterritorial reach is permitted when a federal statute expressly states that it applies to conduct outside the USA. There is a presumption against extraterritorial application of US law, so the statute must clearly apply to any extraterritorial conduct charged. Alternatively, extraterritorial conduct can be punished if a statute protects the US government, rather than private persons. In addition, criminal conduct that involves seemingly minor contact with US territory, such as processing financial payments through the US banking system or the use of US wires, can be sufficient to invoke territorial jurisdiction, even where most of the conduct was extraterritorial.
Courts have at times construed US statutes to bring cases against defendants who commit offences abroad, particularly through the Foreign Corrupt Practices Act (FCPA) 15 U.S.C. §§ 78dd-1 et seq. Extraterritorial application of many US laws remains unsettled, however. While the United States Department of Justice (DOJ) takes an expansive view of its mandate under federal laws such as the FCPA, courts have limited the extraterritorial application of other criminal statutes.
Federal criminal statutes with extraterritorial applications include the FCPA (15 U.S.C. § 78dd-1-3 et seq), money laundering (18 U.S.C. § 1956), wire fraud (18 U.S.C. § 1343), conspiracy (18 U.S.C. § 371), false statements (18 U.S.C. § 1001), securities law violations, and the Racketeer Influenced and Corrupt Organizations Act (RICO) (18 U.S.C. § 1961 et seq).
Criminal liability can apply to individuals and legal entities, which are treated as “legal persons” under the law. Individuals and entities may be liable for the same offence, but a separate case must be made against each individual and against the entity. Individual managers and directors are not liable for offences committed by their entities. In some circumstances, directors and officers of an entity may be liable for misconduct of the entity’s agents if they failed to exercise their authority to prevent it.
Under the doctrine of respondeat superior, an entity is liable for the acts of its directors, officers, employees and agents that are both committed within the scope of their employment and at least partially motivated by an intent to benefit the entity. Entities are responsible for the actions of their employees that meet these conditions even if the actions violated the express policies or instructions of the entity. Knowledge of individual directors, managers, employees or agents can be imputed collectively to the entity as a whole. A parent entity is liable for the acts of its subsidiary if the parent exercises sufficient control over the subsidiary. Liability flows from a subsidiary if the parent treats the subsidiary as an extension of itself, rather than a separate entity.
In the context of mergers, the surviving entity is responsible for the predecessors’ liabilities. In cases of acquisition, a successor entity does not always assume the liabilities of the acquired entity. Courts consider several factors in determining whether a successor entity can be held responsible for the acquired entity’s liabilities. Those factors include whether there was an express assumption of liabilities, whether the transfer was legitimate or a legal fiction, whether the buyer is a mere continuation of the seller and whether the buyer continues essentially the same work as the seller.
DOJ policy generally favours prosecuting individuals as well as legal entities in cases of corporate wrongdoing. The government prosecutes entities in order to address crimes typically exclusive to entities, such as environmental crime, and to encourage a culture of legal compliance. Because knowledge of many directors, managers and employees can be imputed to the entity under the collective knowledge doctrine, it is often easier to prove a culpable mental state for an entity than for an individual.
When deciding whether to criminally prosecute entities, the DOJ weighs a variety of factors set forth in the Principles of Federal Prosecution of Business Organizations, also known as the “Filip Factors”, including the entity’s co-operation with the investigation, voluntary disclosure of wrongdoing, remedial efforts and the possible harms to non-culpable third parties (such as employees, shareholders or the public) when deciding whether to prosecute entities.
The Crime Victims’ Rights Act (CVRA), 18 U.S.C. § 3771, provides that victims of federal crimes have the “right to full and timely restitution as provided in law” 18 U.S.C. § 3771(a)(6). The Mandatory Victims Restitution Act (MVRA), 18 U.S.C. § 3663A, requires a sentencing judge to award full restitution to victims of crimes against property, such as wire fraud, mail fraud and many financial crimes. The MVRA applies if the individual or entity suffering the loss is a “victim” that is “directly and proximately harmed as a result” of the crime and did not play a part in the commission of the crime.
Some statues explicitly provide for damages for victims. RICO (18 U.S.C. § 1961), for example, provides that any person injured may sue in federal district court to recover treble damages, as well as legal costs and attorneys’ fees.
Below is a summary of recent developments and cases in US white-collar law.
In Van Buren v United States (2021), the Supreme Court narrowed the scope of liability under the Computer Fraud and Abuse Act of 1986, 18 U.S.C. § 1030(a)(2), holding that a person “exceeds authori[s]ed access” when he accesses a computer with authorisation but then obtains information in particular areas of the computer – such as files, folders or databases – that are off-limits to him. The Court rejected a broader reading advanced by the government that the statute – one of the most important cybercrime statutes – prohibits accessing information for improper purposes, even where the individual had authority to access the information for proper purposes.
As in years past, the past 12 months reflected a sustained level of federal criminal enforcement actions, including 13 corporate resolutions by the U.S. Department of Justice’s Criminal Division Fraud Section, of which eight related to the Foreign Corrupt Practices Act. Total global monetary amounts payable to enforcement authorities totalled USD4.4 billion for those 13 actions. In addition, the Antitrust Division filed its first criminal prosecution for an alleged employee non-solicitation agreement, as well as a wage-fixing indictment and several noteworthy criminal cases.
On 3 July 2020, the DOJ and SEC published the second edition of a Resource Guide to the U.S. Foreign Corrupt Practices Act (FCPA Resource Guide), a joint consolidated manual setting forth both authorities’ guidance regarding the FCPA. Before the most recent edition, the FCPA Resource Guide had not been revised in nearly eight years. The new edition reflects updates on, among other things, the definition of a “foreign official”, the scope of the term "agent" as it relates to corporate liability, matters relevant to successor liability in the mergers and acquisitions context, and the scope of the SEC’s disgorgement power.
On 8 October 2019, the DOJ issued a memorandum entitled “Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty”, which provides guidance to prosecutors on how to evaluate requests by corporate defendants for a reduction in fines based on an inability to pay.
On the subject of a corporate defendant’s request to pay a reduced fine, the memorandum, signed by then Assistant Attorney General (AAG) Brian Benczkowski, states that before the DOJ will consider a claim of inability to pay, the corporate defendant and DOJ must first agree to the form of criminal resolution (a guilty plea, deferred prosecution agreement or non-prosecution agreement), as well as the appropriate baseline criminal financial penalty. The memorandum also sets forth factors to consider in evaluating a corporate defendant’s stated inability to pay a criminal fine.
In October 2018, the DOJ issued revised guidance on the use of corporate compliance monitors as a condition in plea agreements, deferred prosecution agreements and non-prosecution agreements. The guidance, also signed by then AAG Benczkowski, prohibits imposing corporate monitors as a punishment and sets forth a cost-benefit analysis framework for deciding when a monitor is appropriate, as well as the proper scope of monitorship.
In May 2019, the DOJ announced new formal guidance for co-operation credit for defendants in civil False Claims Act (FCA) investigations, defining the types of conduct the DOJ will recognise as co-operation and the credit a defendant can receive for that co-operation in the context of monetary settlements. The guidance recognises three types of co-operation:
The amount of credit that the DOJ will provide will be highly discretionary.
In April 2019, the DOJ announced new guidance regarding how it will evaluate the adequacy and effectiveness of an entity’s compliance programme. The guidance focuses on three fundamental questions, as listed below.
In April 2019, the DOJ issued a revised FCPA Corporate Enforcement Policy. The policy directs that entities who voluntarily disclose possible wrongdoing, co-operate fully with investigators, and take timely and appropriate remedial action may qualify for credit or additional benefits, including declination in certain circumstances.
The Supreme Court decided Lagos v United States, 138 S.Ct. 1684 (2018), in which it held that legal fees and other costs that are associated with a victim company’s independent investigation of misconduct, which ultimately results in criminal convictions, are not recoverable under the MVRA. The MVRA only reimburses costs resulting from co-operation with government investigations and prosecutions, not internal investigations or civil proceedings. Even if the internal investigation is prompted by a government investigation, the associated legal fees and expenses are not recoverable as restitution under the MVRA.
Both federal and state governments can investigate, prosecute and enforce laws related to white-collar offences.
Federal, white-collar offences are investigated by a variety of governmental agencies. Civil investigations and enforcement actions may be initiated by, among others, civil attorneys at the DOJ, the SEC, the Commodity Futures Trading Commission, the Federal Reserve Bank, the Federal Trade Commission (FTC), the Office of Foreign Assets Control, the Environmental Protection Agency and the Internal Revenue Service (IRS). All federal criminal offences are investigated and prosecuted through the DOJ, often in partnership with other agencies. Both civil and criminal federal cases are heard by federal courts. Some administrative actions are litigated within the agencies themselves, with the possibility of appeal to the federal courts.
States have a parallel set of criminal and civil laws and their own courts to hear cases. State prosecutors’ offices, often called state's attorneys or district attorneys, bring cases based on offences within their jurisdiction. State investigation and enforcement regimes for non-criminal offences vary by state, but most have a series of state investigative agencies and a state Attorney General, who acts as chief legal officer for the state.
Investigations may be initiated by agencies or prosecutors whenever they have reason to believe that an offence has been committed within their jurisdiction. Regulatory agencies each possess their own set of standards for initiating investigations, which are based on their authorising statues and their respective enforcement manuals. Investigations vary in formality. For example, the SEC’s Division of Enforcement, which investigates and prosecutes wrongdoing under federal securities laws, may investigate through a relatively informal process, known as a “matter under inquiry” or a formal investigative order. The less formal “matter under inquiry” investigation often arises from an entity’s self-reporting of possible misconduct or in response to media publicity of possible misconduct, and it may lead to a formal investigation.
Civil investigations begin when a regulatory agency, such as the SEC, begins exploring a civil claim against a defendant. Criminal investigations are initiated by agencies working in partnership with the DOJ, often through the United States Attorney’s Office. In cases with possible civil and criminal claims, the DOJ encourages joint investigations with civil regulatory agencies – known as parallel proceedings – to facilitate information-sharing between civil and criminal investigators.
In both civil and criminal investigations, the government can conduct voluntary interviews, make informal requests for information and issue subpoenas for the production of evidence on both investigation targets and third parties. Although it is possible to seek to quash a subpoena in court as overbroad, companies and individuals often negotiate with the government to narrow the scope and type of documentation sought. In federal civil cases, one form of information-gathering is a civil investigative demand requiring the production of specified information.
In criminal investigations, the government may use a grand jury to issue subpoenas that compel the production of documents or testimony and may obtain search warrants. Warrants can be used to search particular places, such as offices or databases, and to seize documents. In order to obtain a warrant, investigators must make a showing of probable cause that the stated offence has been committed and evidence of that offence is located in a certain place to an authorising judge.
The government can compel people to submit to questioning in limited circumstances. During a voluntary interview, the interviewee has no obligation to answer questions. A person responding to a grand jury subpoena for testimony must appear but may consult with his or her attorney outside the presence of the grand jury before answering questions. Persons may always refuse to answer a question if an answer would tend to incriminate that person but may not refuse to answer questions that would tend only to incriminate an entity or another person.
In federal cases, the DOJ favours co-ordination among criminal and civil investigations, known as “parallel proceedings”, so that information can be shared where permitted.
While not always technically required, internal investigations allow entities to identify and explain problems to the government. Internal investigations are also used to demonstrate a commitment to compliance and reform that can justify leniency from the state. The existence and adequacy of internal investigations is one factor considered by the federal government when deciding whether to charge entities. For this reason and others, including the applicability of attorney-client privilege in the USA, careful attention needs to be paid to the structuring and execution of internal investigations.
Managers and directors of an entity must often promptly investigate possible wrongdoing to fulfil their legal and fiduciary obligations. For example, statutes such as the Sarbanes-Oxley Act require entities to establish procedures for employees to report possible wrongdoing to company leaders. Reports of possible violations by employee “whistle-blowers” should trigger an investigative response. Failing to investigate reports of possible misconduct can subject both the leadership of an entity and the entity itself to liability.
DOJ co-ordination with foreign counterparts has increased in recent years, particularly with respect to enforcement of the FCPA. The USA has Mutual Legal Assistance Treaties with many other countries, allowing prosecutors and regulators to share information and investigative work across borders. The USA also has extradition agreements with a number of other countries, but the terms of each agreement vary. For example, the USA and the European Union (EU) allow extradition for all crimes that are punishable in both jurisdictions.
Prosecutors have broad discretion in choosing whom to prosecute and which charges to bring. That said, both the DOJ and the SEC provide their attorneys with guidance to govern the decision-making process when bringing cases. Prosecutors are also bound by general ethics rules as well as additional requirements to support charges with probable cause and refrain from abusing their discretion.
In corporate cases, prosecutors weigh various culpability factors pursuant to the DOJ guidance entitled the "Principles of Federal Prosecution of Business Organizations", including:
These factors are often known as the “Filip Factors”.
Prosecutors may charge by indictment, information or by complaint. Criminal indictments must be approved by a grand jury – which nearly always approve prosecutors’ requests. Criminal complaints must set forth adequate probable cause for a charge and be signed by a judge. Complaints provide authority for an arrest but must be followed by an information or indictment within a set period. For felony violations, a defendant has a waivable right under the Constitution to indictment by a grand jury.
Deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) may be used for both individuals and entities. Increasingly, prosecutors use DPAs and NPAs in corporate criminal cases. Negotiation for DPAs and NPAs takes place between the prosecution and the defendant. For federal criminal cases, the DOJ provides guidance on when DPAs and NPAs may be used, though individual prosecutors and their supervisors have great latitude to pursue DPAs and NPAs and to craft the terms of the agreements. Courts must sometimes offer nominal approval of DPAs but tend to have very limited involvement.
With DPAs, charges are filed in court but deferred during an agreed period when the defendant must meet specific conditions. Conditions may include an acknowledgment of wrongdoing, co-operation in ongoing investigation (including of culpable individuals), establishment of a corporate monitor to supervise a defendant’s compliance, ongoing reporting obligations, fines and penalties or business reforms. At the close of the probationary period, if the prosecutor determines that the defendant satisfactorily met the DPA terms, he or she will dismiss the outstanding charges. DPAs typically grant prosecutors significant oversight of and leverage over entities, and entities often employ internal or third-party investigators to collect compliance information and report to the government.
With NPAs, which are less common than DPAs, prosecutors agree not to file charges, subject to the defendant’s compliance for a period of time with the terms of the NPA. NPA terms are typically similar to DPA terms, generally including an admission of wrongdoing, compliance requirements going forward or fines and penalties, in exchange for not pursuing charges.
Plea agreements allow defendants, both individual and corporate, to acknowledge wrongdoing voluntarily in exchange for lesser penalties or convictions on potentially reduced charges. Plea agreements also offer organisations and individuals predictability in outcomes and penalties that trials do not. Defendants may plead to one type of charge in exchange for the dismissal of other types of charges or of other counts of the same charge. Defendants also may plead guilty without receiving reduced charges in exchange for a recommendation from prosecutors for a reduced sentence. Sentencing recommendations from prosecutors are not binding on courts, however, and all sentences are determined by a judge. For these and other reasons, plea agreements (as opposed to trials) are commonly used to resolve criminal cases in the USA.
At the federal level, plea agreement procedures are governed by Rule 11 of the Federal Rules of Criminal Procedure. A defendant must admit to sufficient facts to prove each element of the crime to which he or she is pleading, as well as the crime itself.
Plea agreement policy varies among prosecutors’ offices, though all federal prosecutors are guided by ethical and policy guidance promulgated by the DOJ. In addition, federal and state prosecutors follow common charging and plea practices established for their various offices, which tend to be recorded in confidential internal guidance.
In addition to the crimes described further below, RICO, 18 U.S.C. § 1961 et seq, criminalises conduct that is part of a “pattern of racketeering activity” to carry out the goals of an enterprise. “Racketeering activity” includes fraud and obstruction of law enforcement. Individual officers and employees can be liable under RICO.
RICO cases may be brought civilly or criminally. Individuals face imprisonment of up to 20 years, a USD250,000 fine and forfeiture of any property derived from the unlawful activity. Defendants also face treble damages and attorney’s fees in civil cases.
Both federal and state law prohibit domestic bribery, but state laws vary by jurisdiction. The general federal bribery statute punishes giving or receiving anything of value to or from a public official to influence official acts (18 U.S.C. § 201(b)). Prosecutors must prove that defendant gave, offered or promised something of value to someone who was a public official and that defendant had corrupt intent to influence an official act. The key to a successful prosecution is showing a quid pro quo – that the thing of value was given in exchange for the official act. Direct evidence of a quid pro quo is not required. Courts construe “public official” and “thing of value” broadly.
A similar law prohibits bribery of many state and local officials. Specifically, it prohibits bribing agents of an organisation, state or local government, or agency with anything of value worth at least USD5,000 when the subject organisation receives at least USD10,000 in federal programme funds annually (18 U.S.C. § 666). No federal funds need to be implicated in the bribery for a § 666 conviction. The statute provides a safe harbour for bona fide salary, wages, fees or other compensation from the usual course of business (18 U.S.C. § 666(c)).
The FCPA criminalises bribery of foreign officials. A prosecutor must prove that the defendant made a payment, offer or promise to pay anything of value:
The FCPA applies to US citizens, to all “issuers” which register securities in the USA or are required to file reports with the SEC, to entities organised under federal or state law within the USA, to entities with their principal place of business in the USA and to anyone who takes actions in furtherance of an FCPA violation while within the USA.
There is no de minimis defence to an FCPA violation, and a bribe need not actually be paid. The mere offer of payment incurs liability. There is a limited safe harbour for “facilitation” payments, which merely encourage a government official to perform a routine governmental action such as processing visas or scheduling inspections.
The SEC investigates and brings civil enforcement actions under the FCPA, and the DOJ brings criminal prosecutions. The SEC can seek civil monetary penalties from entities of up to USD500,000 and of individuals of up to USD100,000 per violation, or more depending on the gain to the defendant from the violation. Individuals face imprisonment of up to five years and criminal fines up to USD100,000, or twice the intended gain. Individuals’ fines may not be paid by the culpable entity. Individuals and entities also can be civilly fined USD10,000. Entities may be fined criminally up to USD2 million per violation, or twice the gross gain from the offence or the loss to another person.
A “wilful” FCPA violation in a criminal case carries a fine of up to USD25 million for entities or USD5 million for individuals. Individuals face imprisonment of up to 20 years. Violations must be knowing for criminal liability. FCPA violations also may trigger exclusion from federal programmes or suspension or debarment within the securities industry.
Bribery of foreign non-governmental officials is also prohibited under the Travel Act, 18 U.S.C. § 1952, which criminalises interstate travel or foreign commerce or using interstate facilities, such as the mail, in furtherance of an unlawful activity.
The FCPA contains “books and records” provisions that compel accurate accounting. These provisions apply to US citizens, nationals and residents, and to all publicly held “issuers” – as defined under the Securities and Exchange Act of 1934, 15 U.S.C. § 78c(a)(8) – who file reports with the SEC or register securities with the SEC.
The books and records provisions require entities to keep accurate records and to create internal accounting controls to reasonably verify financial statements. The Sarbanes-Oxley Act requires officers to certify the integrity of company financial statements and to assess internal controls.
As described above in 3.2 Bribery, Influence Peddling and Related Offences, the SEC investigates and brings civil enforcement actions under the FCPA, and the DOJ brings criminal prosecutions.
Federal law prohibits corporate insiders from using material and non-public information to their advantage or passing that information to outsiders, known as “tipping”. Both the giver and the receiver of the information are liable.
The SEC holds authority under Section 10(b) of the Exchange Act and Rule 10b-5 to bring a civil action for insider trading for injunctive relief and disgorgement of profits. In addition, the Insider Trading Sanctions Act and Insider Trading and Securities Fraud Enforcement Act, 15 U.S.C. § 78u et seq, allows the SEC to seek civil penalties of up to three times the profits gained from insider trading.
Private persons who traded at the same time and in the same securities as defendants can also bring an insider trading case under Section 20A of the Exchange Act.
Under Section 32(a) of the Exchange Act, insider trading defendants face criminal fines of up to USD5 million for individuals and 20 years of imprisonment. Entities, who are liable as controlling persons for their employees, face fines of up to USD25 million.
Under the Internal Revenue Code, there are 15 criminal statutes concerning omission, evasion and false statements regarding the filing and paying of taxes (IRC § 7201-7216 (1988)). Criminal enforcement of the tax code is accomplished through the Internal Revenue Service’s criminal investigations unit and the Tax Division at the Department of Justice; IRS civil actions can proceed at the same time as a criminal investigation.
The elements of tax evasion under 26 U.S.C. § 7201 are wilfulness, existence of a tax deficiency and an affirmative act constituting an evasion or attempted evasion of the tax. The government bears the burden of proving, beyond a reasonable doubt, all elements of tax evasion. Filing a false return or failing to file a return can constitute evasion if the acts were wilful and the result was tax evasion. Making a false statement to an IRS agent or concealment of assets can also be charged as tax evasion. Participation in the filing of a bankruptcy petition containing false statements of indebtedness, and thereby intentionally stalling tax collection, can also be punished as attempted tax evasion. Conviction results in a fine of up to USD100,000 (USD500,000 in the case of a corporation), or imprisonment of not more than five years, or both, together with the costs of prosecution.
Assistance with False Returns
A person is guilty of a felony under I.R.C. § 7206(1) if the person wilfully makes and subscribes to a tax return, verified by a written declaration that is made under penalties of perjury, that he or she does not believe to be true and correct as to every material matter.
Those convicted are subject to fines of not more than USD100,000 (USD500,000 in the case of a corporation), or imprisonment of not more than three years, or both, together with the costs of prosecution (26 U.S.C. § 7206).
Concealment of Assets
A person is guilty of concealing assets under I.R.C. 7206(2) if the defendant wilfully aided, assisted, procured, counselled, advised or caused the preparation and presentation of a return that was fraudulent or false as to a material matter. To convict, the government must prove the defendant acted with specific intent to defraud the government in the enforcement of its tax laws. Those convicted are subject to fines of not more than USD100,000 (USD500,000 in the case of a corporation), or imprisonment of not more than three years, or both, together with the costs of prosecution (26 U.S.C. § 7206).
As noted in 3.2 Bribery, Influence Peddling and Related Offences, the FCPA establishes mandatory record-keeping and internal accounting practices for publicly held companies and all corporations that have a class of securities registered or that are required to file reports to the SEC (15 U.S.C. § 78m(b)(2)). Companies that issue securities must “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer” (15 U.S.C. § 78m(b)(2)(A)). “Reasonable detail” means “such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs” (15 U.S.C. § 78m(b)(7)).
The FCPA additionally requires that issuers maintain a system of internal accounting controls that provide reasonable assurance that transactions are authorised by management and recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles (15 U.S.C. § 78m(b)(2)(B)). Under FCPA internal accounting rules, issuers are also required to maintain accountability for assets, including restricting access to assets unless authorised by management (15 U.S.C. § 78m(b)(2)(B)). Finally, issuers must have internal controls adequate to make sure recorded assets are compared with the existing assets at reasonable intervals and that appropriate action is taken with respect to any differences (15 U.S.C. § 78m(b)(2)(B)(iv)).
An issuer must act knowingly to violate the statute. The FCPA imposes criminal liability for internal controls failures only when the party knowingly circumvents or knowingly fails to implement a system of internal accounting controls, or knowingly falsifies books or records (15 U.S.C. § 78m(b)(5)).
The SEC has two additional rules to aid in enforcement of FCPA record-keeping provisions: that no person shall directly or indirectly falsify any book, record, or account and that officers and directors of issuers are prohibited from making material misrepresentations or omissions in the preparation of reports (17 C.F.R. § 240.13b2-1; 17 C.F.R. § 240.13b2-2).
Individuals who wilfully violate the FCPA face a maximum fine of USD5 million or imprisonment of not more than 20 years, or both; organisations that wilfully violate the FCPA face fines up to USD25 million (15 U.S.C. § 78ff(a)).
Under the Sarbanes-Oxley Act, it is a felony to knowingly execute or attempt to execute a “scheme or artifice to defraud any person in connection with any security of” a reporting company under the Exchange Act. The penalty for violations of the law is a fine and imprisonment of not more than 25 years.
The Sarbanes-Oxley Act also requires that financial statements be filed periodically with the Securities and Exchange Commission, and that the submissions be accompanied by written certifications from the company’s CEO and CFO (18 U.S.C. § 1350). The penalties under this provision for CEOs and CFOs who certify statements knowing that the periodic report violates the requirements are fines of up to USD1 million and imprisonment for ten years. In addition, if the conduct is found to be wilful, the maximum fine is increased to USD5 million and the prison term is increased to up to 20 years (18 U.S.C. § 1350).
Other Financial Fraud
A variety of financial or accounting frauds may be prosecuted federally as instances of mail, wire or bank fraud. The mail fraud statute, 18 U.S.C. 1341, prohibits using the mail to execute a scheme intended to defraud others. Similarly, the wire fraud statute, 18 U.S.C. 1343, prohibits making an interstate telephone call or electronic communication, including a transfer of funds, in furtherance of a scheme to defraud. The federal bank fraud statute, 18 U.S.C. 1344, criminalises executing a scheme to defraud a financial institution insured by the Federal Deposit Insurance Corporation or to obtain any assets under the control of such an institution. Mail, wire or bank fraud violators must knowingly devise a scheme to defraud others through materially false or fraudulent pretences, representations or promises and act with the intent to defraud.
Individuals who violate the mail or wire fraud statutes face up to 20 years’ imprisonment and a USD250,000 fine, and organisations face up to a USD500,000 fine, for each charged mailing or wire. Mail, wire and bank fraud violators face 30 years’ imprisonment and a USD1 million fine if the fraud affected a financial institution.
The Antitrust Division of the DOJ enforces federal criminal competition laws and has taken an increasingly aggressive stance. Fines for antitrust violations continue to grow.
The Sherman Act
The Sherman Act covers anti-competitive agreements to restrain trade, including price-fixing, market allocation and bid rigging, regardless of whether violators had anti-competitive intent. Sherman Act violations consist of an agreement to fix prices that unreasonably restrains competition and affects interstate commerce (15 U.S.C. § 1). These types of conduct are per se illegal, and violators face fines up to USD100 million for corporations or USD1 million for individuals, or imprisonment of up to ten years, or both. The DOJ, state attorneys general and private parties can also bring civil actions and win damages for three times the injuries sustained.
The Sherman Act also prohibits unreasonable restraints on competition, though such conduct is generally addressed in the civil realm. For example, sharing competitive information, tying arrangements (where the availability of one item is conditioned upon the agreement to purchase another item) or exclusive dealing arrangements (where a buyer or seller agrees to sell to, or purchase from, only one particular buyer or seller). These practices are all evaluated for reasonableness under the Act.
Finally, Section 2 of the Sherman Act prohibits monopolising trade or commerce among states or with other countries (15 U.S.C. § 2). The elements of a Section 2 violation are possession of or attempt to possess monopoly power in the relevant market and wilfully acquiring or maintaining that power, as opposed to growth resulting from a superior product, business strategy or historic accident.
The Clayton Act
The Clayton Act is enforceable by both the DOJ, which enforces it through civil actions in federal courts, and the FTC, which primarily enforces the Act through administrative proceedings before the agency itself (15 U.S.C. §§ 21, 25, & 53(b)). The FTC can also seek injunctive relief in federal court.
The Clayton Act prohibits a seller from discriminating in price between purchasers of goods of similar quality when it may result in substantial competitive injury or make promotional payments or services available only to some customers (15 U.S.C. § 13a). Violators face fines of USD5,000 and imprisonment of a year. The DOJ has not actively enforced it.
Section 7 of the Clayton Act prohibits any merger or acquisition that will result in substantially less competition or a monopoly within a relevant market (15 U.S.C. § 18). The DOJ and FTC are both authorised to enforce Section 7, and private parties may also seek injunctive relief against a transaction that would result in a Section 7 violation (15 U.S.C. § 26).
Federally, the FTC’s Bureau of Consumer Protection regulates business practices including advertising and financial practices, data security, high-tech fraud and telemarketing. The FTC investigates and brings civil actions against violators, and also co-ordinates with DOJ and state prosecutors to bring criminal suits.
The Consumer Financial Protection Bureau, the Food and Drug Administration and the DOJ also enforce various consumer protection laws, including the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Gramm-Leach-Bliley Act and the Food, Drug and Cosmetic Act.
Within states, state attorneys general prosecute consumer fraud violations under a variety of state laws. Many states have adopted the Uniform Deceptive Trade Practices Act, which prohibits fraudulent business practices and misleading advertising.
Federal cyber, computer and privacy laws include the following.
The Computer Fraud and Abuse Act, 18 U.S.C. § 1030, prohibits intentionally obtaining access to computers “without authorisation” or by “exceeding authorised access” with the intent to defraud, cause damage or to extort. Sanctions include up to ten years’ imprisonment and a USD250,000 fine.
The Stored Communications Act, 18 U.S.C. § 2701, prohibits intentionally accessing email or voicemail without authorisation or in a way that exceeded authorised access. Sanctions include up to five years’ imprisonment and a USD250,000 fine, or ten years for subsequent offences.
Wire Fraud, 18 U.S.C. § 1343, prohibits schemes to defraud that use wire, radio or television communication. Prosecutors may charge other computer fraud violations (which have similar elements) under § 1343 due to its higher penalties, including fines up to USD1 million and imprisonment for up to 30 years if the fraud affects a financial institution.
The Wiretap Act, 18 U.S.C. § 2511, prohibits intentionally intercepting or endeavouring to intercept communications without consent from the speaker. Violators face a USD250,000 fine and up to five years’ imprisonment.
Theft of Trade Secrets, 18 U.S.C. § 1832, prohibits the theft of trade secrets and the knowing possession or use of stolen trade secrets. Violating organisations are subject to fines of up to USD5 million or three times the value of the stolen trade secret. Related criminal laws prohibit economic espionage, 18 U.S.C. § 1831, and the wilful infringement of copyright for the purpose of commercial advantage or private financial gain (17 U.S.C. 506(a) and 18 U.S.C. § 2319).
The Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury enforces economic and trade sanctions against countries, entities and individuals who engage in certain prohibited transactions. Prohibited transactions are designated based on US foreign policy or national security interests. For example, the OFAC sanctions the transfer of assets to, or trade with, certain countries, and it maintains a list of “blocked” persons with whom US entities or individuals cannot conduct any business. The OFAC can take administrative actions such as licence denial, impose a civil monetary penalty for violations and refer violations for possible criminal prosecution.
Smuggling and other importation violations are crimes under 18 U.S.C. §§ 541, 542, 544 and 545. Smuggling is knowingly and clandestinely bringing goods into the USA with the intent to defraud the government by failing properly to declare the goods. Prosecutors must prove intent for a smuggling conviction. The punishment for smuggling is a fine of up to USD250,000 and imprisonment of up to 20 years. In addition, the defendant forfeits the merchandise smuggled, or its value.
Illegal importation is importing goods into the USA in knowing violation of any law. Convictions for illegal importation require prosecutors to prove defendants’ knowledge of the consequences of their actions, and carry sentences of up to two years’ imprisonment and a USD250,000 fine.
Defendants can incur liability for both concealment and an underlying offence. State and federal laws criminalise efforts to conceal wrongdoing improperly, which generally are referred to as obstruction of justice.
Under federal law, 18 U.S.C. § 1503 punishes corrupt attempts to obstruct “due administration of justice” in connection with a pending judicial proceeding. Violators face up to ten years’ imprisonment and a USD250,000 fine.
Similarly, 18 U.S.C. § 1505 punishes attempts to impede the “due and proper administration of the law” in any proceeding before an agency, department or committee of the USA, including Congress. Violators face up to five years’ imprisonment, or eight years' in terrorism cases, and a USD250,000 fine.
Even when not charged separately, prosecutors and regulators consider efforts to conceal wrongdoing aggravating factors for charging and sentencing.
Federal law prohibits making false statements to the government, including by misleading misrepresentations (18 U.S.C. § 1001). The government must prove that the defendant made a statement or representation:
Courts may fine guilty parties USD250,000 and imprison them for up to five years, or up to eight years in terrorism cases.
When a person or entity has a duty to disclose facts, such as to maintain accuracy on a government form, a failure to disclose such facts can be a basis for liability.
Both state and federal courts recognise liability for aiding and abetting, although state laws may vary from federal law. A director, officer or employee of a corporation incurs liability for aiding and abetting the commission of a corporate crime. Under federal law, anyone who “aids, abets, counsels, commands, induces or procures” the commission of an offence is punishable in the same manner and to the same extent as the principal actor (18 U.S.C. § 2(a)).
The Money Laundering Crimes Act, 18 U.S.C. §§ 1956 and 1957, criminalises money laundering. Prosecutors must show that:
The penalty is up to 20 years in prison, a fine of up to USD500,000 or twice the value of the property involved, and the mandatory forfeiture of property involved in the offence or traceable to the offence, or of substitute assets (18 U.S.C. § 982(a)(1) & (b)(2)).
Under § 1957, persons are liable who knowingly engage in monetary transactions:
Violators face up to ten years' imprisonment and a fine of not more than twice the amount of the criminally derived property involved in the transaction (18 U.S.C. § 1957).
In addition, financial institutions have obligations under the Bank Secrecy Act and related regulations (“Anti-Money Laundering rules”) to help detect and report suspicious activity. Specifically, financial institutions must file a currency transaction report for transactions involving more than USD10,000. Courts may punish individuals for structuring transactions to evade the USD10,000 reporting requirement.
Financial institutions must also establish effective programmes to combat money laundering. The Department of the Treasury uses enforcement actions to ensure compliance with the Bank Secrecy Act. The criminal penalty for a wilful violation of the Bank Secrecy Act is a fine of up to USD250,000, and imprisonment for up to five years. A higher penalty may apply if the violation occurs with another crime or as part of a pattern of illegal activity.
Common defences to white-collar crimes include the following.
An effective compliance programme is not a defence to criminal charges, but agencies view an effective compliance programme as a mitigating factor weighing against prosecution or enforcement actions.
No industry or sector is exempt from compliance with white-collar crime-related laws. Exceptions to white-collar offences exist under statute-specific provisions. For example, the FCPA contains an exception for so-called "grease payments" used to expedite or secure the performance of routine governmental actions (15 USC § 78dd-1(b)). Courts and regulators narrowly construe the exception, however, and payments typically involve small amounts. No de minimis exceptions exist under the FCPA or other white-collar fraud statutes.
Voluntary self-disclosure and meaningful co-operation with investigators are considered mitigating factors by agencies and prosecutors. Other common leniency measures include remediation efforts, mitigation of possible harm, restitution and reform (including changes in internal polices). Payment of restitution in advance of enforcement action also demonstrates a corporation’s acceptance of responsibility.
Whistle-blowers have express protection against retaliation by their employers under several statutes relevant to white-collar offences, including: the False Claims Act (FCA), 31 U.S.C. § 3730(h); the Sarbanes-Oxley Act, 8 U.S.C. § 1514A; and the Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 U.S.C. § 78u-6.
Under the FCA, an employer may not take an adverse employment action against an employee for providing a tip to a regulator or for assisting in a regulatory investigation. Under the Sarbanes-Oxley Act, whistle-blowers may even pursue reinstatement, back pay and other compensation from the Department of Labor.
The identity of a whistle-blower is also protected by statute. For example, under the Dodd-Frank Act, the SEC may not disclose information that could reasonably be expected to reveal the identity of a whistle-blower except in limited circumstances.
Large financial incentives exist for whistle-blowers to report white-collar offences. The SEC Office of the Whistleblower awards whistle-blowers for SEC and DOJ actions 10% to 30% of proceeds in cases where more than USD1 million is recovered by the government. The FCA provides for awards between 15% to 30% of the proceeds of the action or settlement of the claim.
Typically, whistle-blowers are protected by companies through specific whistle-blower policies or company ethics codes in the following ways.
The government has the burden of proof for criminal offences and must prove each element of a crime beyond a reasonable doubt. There is a presumption of innocence in all criminal cases.
In civil cases and administrative proceedings, plaintiffs have the burden of proof and generally must show the validity of their claims by a preponderance of the evidence, meaning that a fact is more likely than not. In some administrative proceedings, plaintiffs must establish substantial evidence of their claims.
Defendants have the burden of proving any affirmative defences, usually by clear and convincing evidence or preponderance of the evidence.
For both individual and institutional defendants in federal criminal courts, the guidelines of the United States Sentencing Commission provide a uniform framework for recommending sentences and fines. Each offence has a pre-determined level. Judges weigh aggravating and mitigating factors, including an individual defendant’s criminal history, to calculate a recommended sentencing range or fine. Chapter eight of the guidelines sets forth the rules for punishing organisational defendants. Restitution for identifiable victims is mandatory.
The guidelines shape federal judges’ sentencing decisions, but they are not binding and judges may vary from the guidelines range. In particular, judges are directed under 18 U.S.C. § 3553 to consider for each individual defendant:
For institutional defendants, the guidelines set forth culpability factors that determine appropriate multipliers applied to a base fine for determining an applicable fine range.
For DPAs, courts must sometimes offer nominal approval, but their review is generally very limited. Courts are not involved in approving NPAs. In determining the appropriate resolution of a case involving a business organisation, prosecutors are required to consider the Principles of Federal Prosecution of Business Organizations – often known as the “Filip Factors” – and to consider such factors including the seriousness of the crime, the involvement of senior company officials, voluntary disclosure, co-operation, remediation, the adequacy of compliance programmes, collateral consequences and various other considerations.