1. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning Chapter 9 Business Crime Its Legal, Ethical, and Global Environment MARIANNE M. JENNINGS 7 th Ed.

2. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 2 What is Business Crime? Corporate Crime, also called ‘White Collar Crime’, occurs because of Economic Pressure on Managers and Employees for Results. Al Dunlap, CEO of Sunbeam charged with federal securities fraud.

3. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 3 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. What is Business Crime?

4. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 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 9.1 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. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 5 Federal Laws White-Collar Kingpin Act. –Federal Law imposes minimum federal mandatory sentences on corporate officers. Sarbanes-Oxley Act (2002). –Criminal penalties increased. –Personal accountability enhanced.

6. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 6 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. Prison sentences for officers and directors. Use traditional criminal statutes. Indictment for common law criminal offenses.

7. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 7 Penalties Case 9.2 United States v. Allegheny Bottling Co. (1989). –How will the corporation be imprisoned? –Can the corporation’s assets be imprisoned?

8. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 8 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.

9. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 9 Penalties Case 9.3 In Re Caremark International, Inc. (1996). –What does the court list as the responsibility of the board. –When would directors be liable for criminal conduct by employees of the corporation.

10. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 10 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.

11. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 11 Business Crime Elements Case 9.4 United States 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?

12. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 12 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.

13. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 13 Theft. –Intent to take property. –Actual taking of property for permanent use. –No authorization to take the property. Embezzlement. –Intent to take property. –Actual taking of property for use, temporary use is still crime. –By person entrusted with property. Examples of Crimes

14. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 14 Criminal Fraud. –Obtaining money, goods, services, or property through false on misleading statements. –Requires intent to defraud. Examples of Crimes

15. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 15 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. Examples of Crimes

16. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 16 State statutes covering computer crime. –Forty-nine states have statutes specifically covering computer crime. –Others use theft statutes or specialized theft statutes (credit card theft). –Copyright protection for computer programs. –Privacy laws. Computer Crime Laws

17. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 17 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. Computer Crime Laws

18. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 18 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). Computer Crime Laws

19. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 19 Computer Crime Laws No Electronic Theft Act. –Passed in 1997, this law outlaws the willful infringement of copyright material worth over $1,000. Economic Espionage Act. –Effective January 1, 1997, this act outlaws stealing trade secrets. RICO.

20. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 20 Computer Crime Laws 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.

21. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 21 Applies to businesses with principal offices in the United States. Requires establishment of internal accounting controls so that bribes are not permitted to flow through easily. Prohibits making, authorizing, or promising a gift to a foreign official with the intent to corrupt. Foreign Corrupt Practices Act

22. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 22 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.

23. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 23 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. Procedural Rights

24. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 24 Case 9.5 Kyllo v. U.S. (2001). –What is the general rule on home searches? –Was the thermal scanning a ‘search’? Case 9.6 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? Procedural Rights

25. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 25 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 Procedural Rights

26. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 26 Procedural Rights Case 9.7 Upjohn Co. v. United States (1980) –What is the difference between work- product privilege and attorney-client privilege? –What advice would you have for someone conducting on internal company investigation?

27. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 27 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). Procedural Rights

28. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 28 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. Procedural Rights

29. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 29 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. Procedural Rights

30. Copyright ©2006 by West Legal Studies in Business A Division of Thomson Learning 30 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. Procedural Rights