WHITE COLLAR CRIME: A U.S. PERSPECTIVE BY SARAH JANE HUGHES REYJAVIK, ICELAND JUNE 14, 2007 Copyright Sarah Jane Hughes 2007 All Rights Reserved.

Basic Questions How do companies prevent white collar crimes? How do they detect white collar crimes? How do they investigate them? How and how well can companies recover? What help do prosecutors give companies? How long do investigations and prosecutions take? What happens when managers or directors (board members) are involved?

Standards of Liability U.S. Criminal Law requires an act (“actus reus”) and a mental component (“mens rea” or criminal intent). A few statutes, such as food safety statutes, impose “strict liability” where no mental component is required. These standards include: –Purpose and knowledge –Willfulness –Recklessness and negligence –Strict liability. Liability may be assigned in “vicarious liability” cases and also for “inchoate crimes.”

Preventing White Collar Crimes U.S. law protects companies that develop, implement, and audit programs to prevent white collar crimes. Some laws, such as the USA Patriot Act, require companies to develop, implement, and audit compliance and detection programs – such as anti-money laundering programs and customer identification programs for firms that qualify as “financial institutions.”

Detecting Crimes U.S. companies should perform audits and pay attention to signs of trouble. Prompt attention to signs or reports of trouble is important.

Investigating Crimes inside Companies Rights of the company employer and the shareholders differ from employees, officers, and directors who may be accused of violating laws. Generally, different lawyers represent the company as an entity and the individuals. Some companies pay for the employees’ lawyers in these cases.

How do Companies Recover? How well do companies recover? Recovery depends on whether the primary damage is financial or reputational. If financial, the company may have some insurance. Or, it may be able to recover in a civil case from the person who obtained the benefit – by tracing and seizing assets until they are returned, or recovering them from a bank or other constructive fiduciary or accomplice. If reputational, recovery is difficult. Enron and Arthur Anderson are examples of companies that did not recover. Tyco and Worldcom did better, but Worldcom decided to change its name to help it recover faster.

What Help Do Prosecutors Give Companies? Very little. The most successful recoveries are by state Attorneys General, the Securities and Exchange Commission, and the Federal Trade Commission (where I prosecuted cases for 15 years) suing on behalf of groups of consumers.

What Happens When Managers and Directors Are Involved? Cases may be more difficult to investigate. Cases often are more difficult to settle, as opposed to going to trial. Reputational injury is greater in most cases. Legal standards for holding the company as well as the individuals liable change, as described above.

Conclusion Increasing public attention on white collar crimes, particularly those involving capital markets. Little understanding by the general public of what is involved in prosecutions for prosecutors and defendants.