1. Chapter 8 Business Crime
Marianne M. Jennings
BUSINESS
Its Legal, Ethical, and Global Environment
9th Ed.
Chapter 8 Business Crime

2. What is Business Crime?
Corporate Crime, Also Called ‘White Collar Crime’, Occurs Because of Economic Pressure on Managers and Employees for Results
Jeffrey Skilling CEO of Enron, and Andrew Fastow, CFO, Charged With Federal Securities Fraud

3. What is Business Crime? Intra-Business Crime (90%)
Stealing from employers
High cost of insurance and security
Includes thefts and kickbacks
Inter-Business Crime
Stealing from competitors
Acting illegally to gain a competitive advantage
Electronic eavesdropping
Federal violations—securities, campaign laws, antitrust

4. Liability for Crimes Officers and Directors are Liable
If they authorized the conduct, or
If they knew about the conduct and did nothing
Case 8.1 United States v. Park (1975)
What standard of liability did the instruction given by the judge impose?
Is Mr. Park guilty of a criminal violation?
What does this case say about a manager’s responsibility?

5. Federal Laws
Boesky and Milken: the Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)
Savings and Loan Crisis: The “white-collar kingpin” law
Enron et al.: Sarbanes-Oxley
Subprime crisis: the Financial Services Reform Act, also known as the Dodd-Frank Wall Street Reform and Consumer Protection Act

6. Federal Laws White-Collar Kingpin Act Sarbanes-Oxley Act (2002)
Federal Law imposes minimum federal mandatory sentences on corporate officers
Sarbanes-Oxley Act (2002)
Criminal penalties increased
Personal accountability enhanced

7. Federal Laws Honest services fraud
Action by an officer that deprives the shareholders of that officer’s honest services
Following Skilling v. U.S., require proof of bribery, conflicts, or corruption to be a charge for a corporate officer

8. Penalties for Business Crime
ACT
Internal Revenue Code
26 U.S.C. 7201
Sherman Act (antitrust)
15 U.S.C. 1
Sarbanes-Oxley
15 U.S.C. §1512
(document destruction, concealment, alteration, mutilation during pending civil or criminal investigation)
PENALTIES
$100,000 ($500,000 for corporations) and/or 5 years
For evasion (plus costs of prosecution as well as penalties and assessments: 5-50%)
$350,000 and/or 3 years
$10,000,000 for corporations
Injunctions
Divestiture
20 years plus fines

9. Penalties for Business Crime
Sarbanes-Oxley
(certification of financial statements)
1933 Securities Act
15 U.S.C. 77x (as amended by Sarbanes-Oxley)
Securities and Exchange Act of 1934
15 U.S.C. 78ff
Clean Air Act
42 U.S.C. 7413
$1,000,000 and/or 10 years
If willful: $5,000,000 and 20 years
Officers who earn bonuses based on falsified financial statements must forfeit them
$100,000 and/or 10 years
$5,000,000 and/or 20 years
$25,000,000 for corporations
Civil penalties in addition of up to three times profit made or $1,000,000, whichever is greater
$1,000,000 and/or 5 years

10. Penalties for Business Crime
Clean Water Act
33 U.S.C. 1319
Occupational Health Safety Act
29 U.S.C. 666
Consumer Product Safety Act
15 U.S.C. 2070
For negligent violations: $25,000/day and/or 1 year
For knowing violations: $50,000/day and/or 3 years
For second violations: $100,000/day and/or 6 years
For false statements in reports, plans, or records: $10,000/day and/or 2 years
Willful violation causing death: $70,000 and/or 1 year; minimum of $5,000 per willful violation
Giving advance notice of inspection: $1,000 and/or 6 months
False statements or representations: $10,000 and/or 6 months
$50,000 and/or 1 year
Tampering: up to $500,000 and/or 10 years

11. Penalties Reforming Criminal Penalties
Concerned that they are directed at “natural” persons and not “corporate” persons
Alternatives:
Placing penalties as a percentage of company profits
Monitors
Prison sentences for officers and directors
Use traditional criminal statutes
Indictment for common law criminal offenses

12. Penalties Case 8.2 United States v. Allegheny Bottling Co. (1989)
How will the corporation be imprisoned?
Can the corporation’s assets be imprisoned?
Shame punishment

13. Penalties Corporate Sentencing Guidelines
Developed by U.S. Sentencing Commission
Sentences for officers increase if crime prevention methods are not in place at the corporation
Avoiding penalties:
Written crime prevention program
Officers assigned responsibility for enforcement
Screen employees
Training programs and written materials
Prevention and detection of crime processes

14. Tips For Following The Law
Businesses should learn the following from the basic principles of the sentencing guidelines:
Have a code of ethics in place
Conduct training on the code of ethics
Have a company hot line and ombudsperson for employees to utilize anonymously in reporting violations
Protect employees who report violations
Investigate all allegations regardless of their sources
Report all violations immediately and voluntarily
Offer restitution to affected parties
Cooperate and negotiate with regulators
Admit your mistakes and shortcomings
Be forthright and public with your code of ethics

15. Business Crime Elements
Criminal Intent—Scienter or Mens Rea
State of mind required to commit a crime
For corporations—prove intention on behalf of directors
To prosecute, must show individual intent
Can establish by showing their knowledge of actions and failure to object

16. Business Crime Elements
Case U.S. v Ahmad (1996)
What is the difference between knowledge of the law and knowledge of the conduct?
Why is Ahmed’s testimony that he thought he was discharging water significant?

17. Business Crime Elements
Actus Reus—The Act of the Crime
Intent alone is not a crime; the act must be committed
The required conduct described for each crime
Sometimes a failure to act may constitute a crime—for example, failure to pay taxes

18. Examples of Crimes Theft Embezzlement Intent to take property
Actual taking of property for permanent use
No authorization to take the property
Embezzlement
Actual taking of property for use, temporary use is still crime
By person entrusted with property

19. Examples of Crimes Categories of Computer Crime:
Unauthorized use of computers or computer time
Alteration or destruction of computers, files, programs, or data
Entering fraudulent records or data
Use of computers to convert ownership of funds, financial instruments, property, services, or data
Sample crimes and terminology: Salami technique, Scavenging and Wiretapping

20. Computer Crime Laws International Conventions on Computer Crime
Berne and Paris Conventions Allow Copyright Protections for Computer Programs and Software
Fifty-Nine Countries are Members of One or More of the Conventions

21. Computer Crime Laws Federal Statutes Covering Computer Crimes
Copyright Act provides protections for computer programs
Fair Credit Reporting Act
Counterfeit Access Device and Computer Fraud and Abuse Act (CADCFA)

22. Computer Crime Laws No Electronic Theft Act Economic Espionage Act
Passed in 1997, this law outlaws the willful infringement of copyright material worth over $1,000
Economic Espionage Act
Outlaws stealing trade secrets in any way
Cyberbullying
Used to be prosecuted using other statutes; now a specific crime

23. Examples of Crimes Criminal Fraud
Obtaining money, goods, services, or property through false on misleading statements
Requires intent to defraud

24. RICO Pattern of racketeering activity
Must have at least 2 consecutive violations
Offenses that qualify as predicate offenses include pornography, murder, kidnapping, bribery, extortion, fraud, etc.

25. USA Patriot Act Business Crimes and the USA Patriot Act
Prior to 2001: Money Laundering Control Act
Post 2001: USA Patriot Act amended Money Laundering Control Act and Bank Secrecy Act
Cannot contract with terrorist groups or funnel cash to them for services (Chiquita Consider)

26. Procedural Rights Fourth Amendment Rights: Privacy amendment
Search warrant procedures
Must be based on probable cause
Must be issued by a disinterested magistrate
If searches are done improperly, evidence is inadmissible at trial

27. Procedural Rights Fourth Amendment Rights:
Exceptions to warrant requirement
Records are being destroyed
“Plain view” exception
Records in possession of a third party
Can recover them
Third party cannot assert Fourth Amendment rights—must be record owners

28. Procedural Rights Case 8.4 City of Ontario v. Quon (2010)
What is the general rule on access to your social networking at work?
Was the review of the texts a search? Valid?

29. Procedural Rights Case 8.5 Dow Chemical Co. v. United States (1986)
– What significance is the fact that Dow’s plant could be seen from the air?
– What objections does the dissent raise to the decision?

30. Procedural Rights Fifth Amendment Rights:
Protection against self-incrimination
Given to natural persons - not to corporations
Corporate officers can assert it to protect themselves but not corporate records

31. Procedural Rights Fifth Amendment Rights Miranda warnings:
Given when individual is in “custody”
“Custody” means inability to leave—not necessarily jail
Right to attorney; right to silence—notice of evidentiary use of statements
Under recent attack, consider United States v. Dickerson, 166 F.3d 667 (4th Cir. 1999)

32. Criminal Proceedings

33. Procedural Rights Due Process Protections of Fifth Amendment
Warrant or warrantless arrest begins process
Warrant—you have committed crime and they look for you
Warrantless—you are arrested at the scene
Initial appearance
Required within short period (24 hours)
Charges explained
Bail terms set; amount; or released on own recognizance

34. Procedural Rights Due Process Protections of Fifth Amendment:
Preliminary hearing or grand jury
Hearing—information issued; defendant is present and can cross-examine witnesses
Grand jury—indictment; secret proceedings
Arraignment:
Plea is entered
Trial date is set

35. Procedural Rights Due Process Protections of Fifth Amendment:
Discovery: Mandatory disclosure of witnesses and evidence
Pretrial conference: Try to settle some issues if possible
Omnibus hearing: Challenge evidence admissibility
Trial
Appeal