CRIMINAL LAW AND
BUSINESS
Chapter 5
Meiners, Ringleb & Edwards
The Legal Environment of Business, 12th Edition
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CHAPTER ISSUES
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Crime and Crime Categories
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Crimes & Elements of Crimes
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Defenses & Constitutional Rights
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Evidence
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Prosecution Process

White Collar Crime

Sentencing Guidelines and Compliance
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Crime: Positive or negative action that violates a penal law

Not civil law

Act against a state or federal government or even local
government

Congress and state legislatures decide the criminality of actions –
mostly statutory

Governments determine punishments

Seen more and more in the business context

Computer and technology have created new versions of old
criminal laws

e.g. Unauthorized entry into computer systems is the new version of
the old “breaking and entering” laws
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CRIME CATEGORIES
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Felonies more serious than misdemeanors
Classifications (Class A, Class B) and degrees (first degree, second
degree) denote seriousness of criminal charge
Violent crimes – murder, manslaughter
Non-violent victim crimes – vehicle theft, burglaries
Victimless crimes – possession of illegal drugs
White collar crimes – embezzlement, bribery, fraud
Punishment depends on the category under which a person is convicted

Some crimes punished by death
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Imprisonment/Fines
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Unable to own a firearm
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Removal from public office

Disqualified from holding office or voting
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CRIMES AND ELEMENTS OF CRIMES
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Government agencies decide who will be charged with a crime.
Prosecutors receive reports of alleged crime, & results of investigation.
Prosecutors then decide whether or not to bring charges.
Not all claims of criminal activity are investigated.
Politics & personal preference may come into play in decisions by
prosecutors.
Process is not perfect.
Criminal negligence: “a degree of carelessness amounting to a culpable
disregard of rights and safety of others”
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Example: Drunk driver drives wrong way down highway and kills a person in
an accident
Requirements for prosecution and conviction:
 Actus reus – the guilty act
 Mens rea – criminal intent
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CONSTITUTIONAL RIGHT: FIFTH AMENDMENT

Miranda Rights must be read if a person is accused of
or held in suspicion of a crime

Right to remain silent (under the 5th Amendment)

Statements made can be used as evidence against you in
court
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Right to be represented by counsel

If accused cannot afford an attorney, one will be provided by
the court
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CASE
COMMONWEALTH V. ANGELO TODESCA CORP.
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Gauthier, a truck driver, drove dump truck full of asphalt for Angelo
Todesca to a highway construction site near a busy intersection.
Police officer directing traffic was run over and killed as Gauthier backed
up to deliver asphalt. Back-up horn on the truck was not working.
Gauthier and his employer, Todesca, knew horn wasn’t working – Violation
of company safety procedures.
Gauthier was charged with various driving offences. He paid a fine and
had driving privileges restricted.
Commonwealth of MA charged Todesca w/vehicular homicide.
Jury convicted company and fined $2,500.
Appeals court reversed the conviction.
Commonwealth appealed.
Commonwealth must prove the individual whose conduct was used to
charge corporation with a crime was placed in the position by the
corporation.
(Continued)
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CASE
COMMONWEALTH V. ANGELO TODESCA CORP.
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To prove corporation is guilty of criminal offense, must prove:
 (1) individual committed a criminal offense;
 (2) at the time of committing offense, person “was engaged in some
particular corporate business”; and
 (3) individual had authority to act for corporation on its behalf to
carry out particular business when offences occurred
Defendant said corporation can’t be involved in motor vehicle homicide
since “corporation” cannot “operate” a vehicle.
HELD: Judgment of trial court affirmed.
Because corporation is not a living person, can only act through its
agents. Liability is therefore vicarious
Otherwise corporations would never be liable for any crime.
Corporations can be held criminally liable for acts performed by
employees “within the scope of their employment” and “on behalf of the
corporation”.
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DEFENSES
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Raise doubts in jurors’ minds through alibi
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Presents other evidence that crime was not committed
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Affirmative Defenses: Even if prosecution’s claims are true, other facts
prevent the claims from constituting the crime.
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Intoxication and insanity (rarely successful).
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Improper procedure in the criminal prosecution
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Statute of Limitations runs (time varies by crime)
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Unsolved murders – statute of limitations may never end
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Statute of limitations can “toll”, to stop the running of time (e.g. if
criminal flees country to avoid prosecution)
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Action was justifiable, i.e. self defense with reasonable force
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Self-defense in violent crimes cases (use of force justifiable to protect
oneself against another)
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Entrapment (Law enforcement sets a trap to lure someone into
committing a crime he/she had no intention of committing
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This can be tricky as a defense.
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EVIDENCE
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Strict standards for gathering and presentation at trial
 Evidence was handled properly; called “chain of custody”
If improperly obtained or presented, evidence is excluded (under
procedural due process); Called the exclusionary rule
 4th Amendment protection
 May be referred to as “fruit of the poisonous tree”
Authorities may
 Search property
 Seize documents and other physical items
Warrants are usually needed for search of property, persons, or
seizure of property.
Warrant issued by a judge or magistrate
 There is a “hot pursuit” exception.
Law enforcement officials must show probable cause to a judge to
obtain a warrant.
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CASE
UNITED STATES V. YOUNG
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Under IRS regulations gasoline/diesel fuel may be sold tax free if for marina use.
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Marinas sell tax-free fuel by obtaining a “647 certificate” from the IRS. Young
obtained a certificate for his marina.
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IRS believed he never used fuel for marina purposes, he sold it in cash deals to
truck stops and service stations that should have paid federal taxes on the fuel.
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IRS also believed Young shipped illegal money he made by Federal Express.
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FedEx agreed to let the IRS x-ray packages shipped by Young.
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Found large amounts of cash inside.
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Based on x-rays, IRS obtained a warrant to seize and open Young’s packages –
indeed they contained the suspected cash
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At trial, Young moved to suppress the evidence
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Said that IRS did not originally obtain a warrant to x-ray FedEx packages.
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Trial court rejected Young’s motion
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He was convicted.
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He appealed the trial court’s decision.
(Continued)
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CASE
UNITED STATES V. YOUNG
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HELD: Judgment affirmed.
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No reasonable person expects to retain privacy after signing an
air bill warning of carrier’s authorization to inspect packages.
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FedEx told customers (1) do not ship cash, and (2) we may open
and inspect your packages at our option.
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Because of this, Young had no expectation of privacy of packages
being x-rayed by IRS agents with FedEx permission.
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Young assumed risk that FedEx might consent to a search.
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No offense to Young’s 4th Amendment rights.
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PROSECUTION PROCESS
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Occurs when prosecuting attorney has enough
evidence to make criminal charges
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Will be either a misdemeanor or felony
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In some cases, a grand jury will review a potential
felony case.
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If grand jury determines probable cause, usually it will
issue an indictment against the accused.
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Accused is placed under arrest based on a warrant.
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In non-violent matters, accused must turn herself in, rather than be
taken into custody by the police.
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Suspect is booked at police station, photographed, finger printed and
searched.
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Chance given to the accused to contact an attorney.
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Arraignment – court appearance of the accused (either before a judge
or magistrate).
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Accused may plead guilty, nolo contendere (no contest) or innocent.
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Judge may release accused or require bail, and will set a court date.
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Violent criminals, or those who court fears might flee before trial are
held without bail, or bail is set very, very high.
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Sometimes defendants plea bargain – allows matter to be settled under
court supervision.
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Defendant pleas guilty to charges or lesser charge or pleads no contest in
exchange for agreed punishment.
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Civil Law Purpose: To reduce surprises
 Both sides must turn over anything requested by other side
Criminal Law Purpose: Parties do their own investigations
 Disclose only subset of what is found to the other side prior to trial
Law enforcement may be conducting investigation that defendant
knows nothing about.
Under Constitution, prosecution must disclose any exculpatory
evidence
 Evidence which might show defendant is not guilty
 The choice to disclose left up to prosecutions lawyers
Defendant in criminal case has no obligation to disclose to
prosecution evidence showing guilt
 5th Amendment protects defendants
Before criminal trial, prosecution & defense exchange witness and
exhibits lists.
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TRIAL
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TRIAL: If matter goes to trial, government attorney (often district
attorney) presents prosecution’s case.
Defendant must be found guilty “beyond a reasonable doubt”.
If jury finds defendant innocent – end of matter.
Double jeopardy prevents a defendant from being tried a 2nd time for
same crime.
If jury can’t agree on verdict, there is a mistrial, and prosecutor will
decide whether to proceed again.
If guilty, there may be
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Prison time
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Jail time
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Probation
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Fines
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Restitution to victim
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WHITE COLLAR CRIME
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1939 reputed origination of term: “Crime committed by
a person of respectability and high social status in the
course of his occupation.”
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Criminal activity for financial advantage occurring in
business.
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FBI estimates such crimes create $1/3 trillion in losses
each year.
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Most cases are against individuals; corporations may
also be prosecuted.
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WHITE COLLAR CRIME
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Antitrust: Violation under the Sherman Act and Clayton Act.
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Prison terms involved in price fixing and anti-competitive practices
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Bankruptcy Fraud: Person or corporation hides or lies about
assets in bankruptcy proceeding (also applies to creditors giving
false information or illegal pressure to bankruptcy petitioners).
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Bribery: Offer or taking of money, goods, services, etc. to influence
official actions or decisions.
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Counterfeiting: Copying of genuine items without authorization –
money, designer clothing, other products.
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Credit Card Fraud: Unauthorized use of a credit card.
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WHITE COLLAR CRIME
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Computer and Internet Fraud:
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Credit card fraud involving a computer/internet
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Unauthorized access to financial accounts
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Unauthorized use of computers and computer files
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Sabotage of computers
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Economic Espionage: Theft or misappropriation of valuable
business information, such as a trade secret.
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Embezzlement: Person in position of trust takes money or
property for his/her own use.
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WHITE COLLAR CRIME
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Environmental Law Violations: Federal (EPA) and state laws
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Data fraud cases, e.g. private laboratories submit false environmental
data
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Hazardous waste dumping
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Ocean dumping by cruise ships
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Oil spills
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International smuggling of CFC’s
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Illegal handling of hazardous substances (pesticides, asbestos, etc.)
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EPA averages 300 criminal prosecutions per year--150-200 years of
prison and jail time.
Financial Fraud: Regulation of banks and financial institutions
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Firms and employees subject to criminal liability
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Fraud in loans, financial documents, mortgages, etc.
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WHITE COLLAR CRIME
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Government Fraud: Governs contracts with public agencies
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Billing for goods not delivered
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Double billing
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Inferior goods
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Government payment programs
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Farm subsidies
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Public housing
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Educational programs
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Healthcare Fraud: Over-billing and scams by hospitals, doctors
ambulance services, laboratories, pharmacies, extended care
facilities
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Insider Trading: Person trades a security while in possession of
material, non-public information.
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WHITE COLLAR CRIME
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Insurance Fraud: Insurance companies commit fraud,
charging higher rates than allowed by state regulators.
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Policy holders lie about condition of property to get lower rates.
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Policy holders pad their claims to get more money.
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Mail Fraud: Sending of fraudulent materials through
U.S. Postal Service or using the U.S. Postal Service to
communicate fraudulent activities.
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Money Laundering: Hiding the truth about the origins of
money, especially illegal activities.
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Obligation to report income even from illegal income for tax
purposes.
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INTERNATIONAL PERSPECTIVE
“MULTINATIONAL EMPLOYERS AND CRIMINAL CHARGES ABROAD”
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When people work in another nation, they are subject to its laws and
procedures.
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Sometimes also subject to their own nation’s laws as well
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(i.e. U.S. applies its laws against bribery by U.S. citizens outside U.S.)
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Experience of Rio Tinto – global mining and resource company with
headquarters in London and Melbourne.
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It is supplier of iron ore to China – has many Chinese and Non-Chinese
employees working in China.
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Four Rio Tinto employees in Shanghai arrested, accused of taking bribes
and stealing commercial secrets.
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Tried and convicted – received sentences ranging from 7-14 years.
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All four (3 Chinese Nationals and 1 Australian) confessed crimes.
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Criminal trials in China are held secret.
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Australian Prime Minister complained about lack of transparency.
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Was rebuked by Chinese Ministry of Foreign Affairs for not respecting
Chinese law & making “irresponsible comments”.
(Continued)
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INTERNATIONAL PERSPECTIVE
“MULTINATIONAL EMPLOYERS AND CRIMINAL CHARGES ABROAD”
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Agreement signed in 1999, allows Australian representative to sit in on
legal proceedings in China. However, no Australian official was allowed
into the courtroom until day the verdicts were announced.
Defendants had lawyers, but would not speak to media.
Details of alleged bribes were provided when verdicts read – no
evidence made public.
Damage to Chinese steel industry: Said to be 1.02 Billion Yuan ($150
Million) because judge said actions of defendants “put the Chinese
steel industry into a powerless position.”
Investigation by Rio Tinto found no evidence of bribes but the four men
were fired when convicted and actions termed “deplorable”.
Company did not want to “irritate” the Chinese government.
Firms doing business abroad must realize that laws can be quite
different in other countries.
If foreign citizens working in those countries become involved in
criminal proceeds – home country can do little to help.
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WHITE COLLAR CRIME
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Racketeer Influenced and Corrupt Organizations (RICO) Act
 Originally an extra weapon against organized crime, esp. Mafia.
 Racketeering originally meant activities, such as bribery or extortion.
 Modern meaning: broadened the term to include activities such as
mail fraud, etc.
 Successful RICO claim receives triple actual damages + attorneys’
fees through civil claims
 Now mail and wire fraud included as crimes under RICO
 Government can seek injunction seizing defendant’s assets,
preventing their transfer or require defendant to post a performance
bond.
 Government may press for imprisonment for criminal violations.
 Complicated and unpredictable area of the law
 Rarely applied to Mafia
 Is now used in suits against persons, businesses, political protest
groups and terrorist organizations
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CASE
BRIDGE V. PHOENIX BOND & INDEMNITY CO.

Cook County, Illinois holds public auctions for tax liens on delinquent
taxpayers’ properties. County requires buyers to submit bids in their own
names. Cannot use “agents, employees or other related entities” to submit
bids for same property by disguising the real bidder.

Phoenix Bond and others compete to buy tax liens.
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Phoenix and others sued Bridge for fraudulently getting tax liens by filing
false documents.
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Plaintiffs lost possible tax lien purchases.

Claimed defendants violated RICO through racketeering involving mail
fraud by sending false documents related to tax lien purchases.

District court dismissed RICO claims. Held that plaintiffs were not protected
by mail fraud statute since scam was not directed at them.

If there was a scam, it was directed at County & property owners (not
plaintiffs) and they could have a cause of action.

Appeals court reversed in favor of plaintiffs.

Defendants appealed.
(Continued)
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CASE
BRIDGE V. PHOENIX BOND & INDEMNITY CO.
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HELD: Judgment of Court of Appeals affirmed in plaintiff’s favor.

Plaintiff asserting RICO claim based on mail fraud need not show
that it relied on defendants alleged misrepresentations.

The basis of the mail fraud is a mailing that furthers a scheme to
defraud – even if the mailing does not contain false information.
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Here, mail was used to submit false attestations of compliance with
the Bidder Rule to the County.
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RICO is strictly construed.
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Congress must make changes, but Court will not make
interpretations to the statute and change RICO’s strict outcome.

Plaintiff may assert RICO claims.
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WHITE COLLAR CRIME
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Internal Fraud:
• Many small businesses don’t know they are defrauded
• Study shows1/4 of companies with fewer than 100 employees
suffered from check tampering where company checks used for
improper purposes
• 21% suffered from skimming - when cash is taken before it is
recorded on the books
• Rigging Payroll/Falsifying Reimbursement Expenses (i.e. travel)
are common
Securities Fraud: Different kinds
 Insider trading gets a lot of press
 Market rigging
 Theft from accounts of clients of securities firms
 See chapter on Securities Regulation
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WHITE COLLAR CRIME
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Tax Evasion:
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Failure to file tax returns
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Failure to report income
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Overstatement of expenses
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Not reporting illegal income

IRS devotes significant resources to track down
violators – jurisdiction can be international, i.e. Swiss
bank accounts

See Issue Spotter “Internal Fraud”

See “Your Laptop Is An Open Book”
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CYBER LAW
“YOUR LAPTOP IS AN OPEN BOOK”

Arnold arrived at LA International
Airport from the Philippines

Two executives from BAE Systems
(large British defense & aerospace
company) handed laptops seized at
the border

U.S. Customs officer asked him to
turn on his laptop

One icon said “Kodak Pictures”
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All data was copied from them

Officer opened folder; found child
pornography
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Arnold was indicted for felony of
transporting child pornography
Justice Dept. said action was
consistent with its intensified
investigations into foreign corrupt
payments
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He protested that evidence was
improperly obtained

Individuals were not under suspicion

Government simply wanted to see
info. on the computers

Similar rules apply to smart phones
and electronic devises in
international business travel


Federal Appeals Court HELD:
Evidence could be used
“Reasonable suspicion” is not needed
for customs officers to search laptops
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WHITE COLLAR CRIME
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Telephone & Telemarketing Fraud: Any scheme to
defraud using the telephone as means of
communication with victims
• Trying to persuade them to send money to scheme
• Solicits people to buy goods and services, invest
money or donate to bogus charitable causes

Fraud on the Internet: Is essentially the same as
telephone & telemarketing fraud
• Chat rooms, e-mail, message boards or Web sites
presenting fraudulent solicitations to victims
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WHITE COLLAR CRIME
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Wire Fraud: Any electronic communication involved in illegal
activities (much like mail fraud & telephone/internet fraud)

Traditionally would have been subject only to state prosecution

Now basis for federal prosecution

There is a sweeping nature to the statutes seen in cases

Includes “a scheme or artifice to deprive another of the right to
honest services”


Refers to bribery or kickbacks, not rather vague failure to
provide “honest services.”
Pasquantino v. U.S.: American bought liquor in U.S. and
smuggled it into Canada for resale, avoiding high Canadian
taxes. Since electronic communications were used that
originated in the U.S., two people sent to prison for 5 years each.
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BUSINESS IMPLICATIONS FROM MONEY LAUNDERING
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Example of obligations created in normal business operations
$1 to $2 trillion laundered worldwide each year
Money laundering is taking proceeds of criminal activities (i.e.
drug smuggling) & transforming cash in the appearance of
legitimate business.
Doesn’t attract law enforcement attention
Tony Soprano Example
 Tony Soprano earns $1 million from loan sharking and
drug dealing
 He creates Soprano Coin Laundry, Inc.
 Deposits cash into corporate bank account as income
from laundry
 Pays himself a salary
 Looks like legitimate income
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ELEMENTS OF CONTROL WITHIN BUSINESS
OPERATIONS

Anti-money Laundering Measures (“AML Measures”)

Regulations making money laundering more difficult

Soprano’s banks must comply with federal regulations,
reporting, etc.

Require financial organizations to use Know Your
Customer (KYC) or Customer Due Diligence (CDD)
Programs

Track It Down: Tracing asset flows – large cash
transactions are suspect

Who Is Up to What?: Reporting suspicious transactions
– cash deposited over certain amounts ($10,000)
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CONSEQUENCES FOR NON-COMPLIANCE

Failure to File suspicious activity report

Civil/criminal penalties, or both

Civil penalties – willful violation of reporting
requirements

Civil penalties can be up to the greater of the amount
involved in a transaction

Willful violations may lead to criminal penalties

Fines up to $250,000 or 5 years in prison
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SENTENCING GUIDELINES AND COMPLIANCE
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Controversial aspect of federal criminal law
Congress mandated that courts be given clear rules about imposing
sentences for criminal law violations.
Sentencing Commission created a list of factors to consider for each
conviction.
Punishment is reduced under the Sentencing Guidelines when company
has a program in place to ensure problems won’t happen again.
DOJ has Guidelines for effective compliance programs.
Some companies have traditional accounting and financial reporting to
audit committees.
Other companies hire an outsider to be on the compliance committee.
Companies have whistleblower hotlines to encourage anonymous tips.
Some European countries, such as France, prohibit hotlines saying
person accused of impropriety has right to know who complained.
Supreme Court HELD: Guidelines are advisory, not mandatory, for
judges to use, but judges are expected follow them closely.
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CASE
UNITED STATES V. ALLMENDINGER
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Allmendinger, Oncale and others ran investment scam.
$100 million losses on 800 investors
Misrepresented what they were selling; pocketed lots of cash rather than
investing it
When federal investigators began to poke around, Allmendinger began to
hide assets.
Ringleaders were indicted by grand jury: Mail Fraud, Money Laundering
& Securities Fraud
Court ordered them to freeze all accounts.
Allmendinger didn’t; transferred more money to secret accounts.
After convictions, judge imposed sentences based on Sentencing
Guideline measures.
Due to size of loss, lack of cooperation with investigators by
Allmendinger, and hiding his money, he was given a 45-year sentence.
Oncale was given a 10-year sentence.
(Continued)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CASE
UNITED STATES V. ALLMENDINGER
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Appeals Court will consider whether district court committed significant
procedural error in calculating guideline range and explaining sentence.
If in error, sentence will be vacated and remanded for resentencing. If it
did not, then appeals court will consider if sentence imposed was
“substantively reasonable” under the “abuse of discretion” standard.
Allmendinger was similarly situated to co-conspirator Oncale in
approach to them by government, but were different in their responses
to the government investigations.
District court gave lengthy explanation for the sentence imposed and
reasons for selecting sentence it did.
Oncale was confronted by the gov’t early in the investigation. Admitted
culpability and immediately agreed to plead guilty. He liquidated his
assets; gave them to the govt. and cooperated extensively
Allmendinger refused to accept responsibility for his actions. Hid cash in
violation of restraining order, lived lavish lifestyle with the money, oney in
violation of the restraining order, attempted to flee right before the trial.
HELD: No error in Allmendinger’s convictions and sentence
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.