1. Its Legal, Ethical & Global Environment 6 th Ed. Its Legal, Ethical & Global Environment 6 th Ed. B U S I N E S S MARIANNE M. JENNINGS Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. Chapter 9 Business Crime

2. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 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.  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 ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 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  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 ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 4 Who is Liable for Business Crime?  Officers and Directors are Liable If they authorized the conduct If they knew about the conduct and did nothing  White-Collar Kingpin Act Federal Law imposes minimum federal mandatory sentences on corporate officers  Officers and Directors are Liable If they authorized the conduct If they knew about the conduct and did nothing  White-Collar Kingpin Act Federal Law imposes minimum federal mandatory sentences on corporate officers

5. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 5  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?  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? Who is Liable for Business Crime?

6. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 6 Penalties for Business Crime  Reformation of 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  Reformation of 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 ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 7 Penalties for Business Crime  Case 9.2 United States v. Allegheny Bottling Co. (1989) How will the corporation be imprisoned? Can the corporation’s assets be imprisoned?  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 ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 8 Penalties for Business Crime  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  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 ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 9 Penalties for Business Crime  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  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 ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 10 Elements of Business Crimes  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  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 ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 11 Elements of Business Crimes  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?  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 ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 12 Elements of Business Crimes  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  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 ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 13  Case 9.5 U.S. v Nelson (1995) Convicted of money laundering What are the elements of money laundering the government had to prove? Did Nelson actually commit a crime?  Case 9.5 U.S. v Nelson (1995) Convicted of money laundering What are the elements of money laundering the government had to prove? Did Nelson actually commit a crime? Elements of Business Crimes

14. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 14 Examples of Business Crimes  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  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

15. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 15  Computer Crime 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  Computer Crime 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 Business Crimes

16. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 16 Examples of Business Crimes  Computer Crime 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 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

17. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 17  Computer Crimes 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 Crimes 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 Examples of Business Crimes

18. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 18  Computer Crime 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) 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  Computer Crime 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) 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 Examples of Business Crimes

19. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 19 Examples of Business Crimes  Criminal Fraud Obtaining money, goods, services, or property through false on misleading statements Requires intent to defraud  Criminal Fraud Obtaining money, goods, services, or property through false on misleading statements Requires intent to defraud

20. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 20 Examples of Business Crimes  Foreign Corrupt Practices Act (FCPA) 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 (FCPA) 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

21. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 21  Foreign Corrupt Practices Act (FCPA) The elements: Instrumentality of interstate commerce must have been used Payment or something of value must have been given Money or item of value is given to foreign official with discretionary authority Purpose of the payment was to get official to act or to keep from acting Payment was made with the idea of assisting the giver’s business  Foreign Corrupt Practices Act (FCPA) The elements: Instrumentality of interstate commerce must have been used Payment or something of value must have been given Money or item of value is given to foreign official with discretionary authority Purpose of the payment was to get official to act or to keep from acting Payment was made with the idea of assisting the giver’s business Examples of Business Crimes

22. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 22 Examples of Business Crimes  Foreign Corrupt Practices Act (FCPA) “Grease payments,” or facilitation payments, are payments to get officials to do their jobs, not to influence outcome, and are not prohibited. Examples: Payment to get a license, payment to get a phone, payment for paper processing, or payment for other utilities  Foreign Corrupt Practices Act (FCPA) “Grease payments,” or facilitation payments, are payments to get officials to do their jobs, not to influence outcome, and are not prohibited. Examples: Payment to get a license, payment to get a phone, payment for paper processing, or payment for other utilities

23. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 23 Examples of Business Crimes  Foreign Corrupt Practices Act (FCPA) Criminal violations of FCPA carry penalties of up to $2,000,000 and ten years imprisonment for individuals Corporate fines are up to $2.5 million per violation Civil violations carry fines of $10,000  Foreign Corrupt Practices Act (FCPA) Criminal violations of FCPA carry penalties of up to $2,000,000 and ten years imprisonment for individuals Corporate fines are up to $2.5 million per violation Civil violations carry fines of $10,000

24. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 24 Examples of Business Crimes  International Business and the FCPA Sometimes use grease payments U.S. trade has actually increased Carefully train and remind employees The Organization for Economic Cooperation and Development (OECD) passed an anti- bribery provisions in December 1997. If this provision is accepted by the 33 member nations FCPA-type prohibitions will become law in those countries  International Business and the FCPA Sometimes use grease payments U.S. trade has actually increased Carefully train and remind employees The Organization for Economic Cooperation and Development (OECD) passed an anti- bribery provisions in December 1997. If this provision is accepted by the 33 member nations FCPA-type prohibitions will become law in those countries

25. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 25 Example of Business Crimes  International Business of FCPA Congress Amended FCPA to implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. This expanded the FCPA’s jurisdiction to include all US citizens and on non- citizens acting within the United States  International Business of FCPA Congress Amended FCPA to implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. This expanded the FCPA’s jurisdiction to include all US citizens and on non- citizens acting within the United States

26. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 26 Examples of Business Crimes  Racketeer Influence and Corrupt Organization Act (RICO) Elements Acquiring an interest in any enterprise with income derived from racketeering Conducting affairs of company involved in racketeering activity Conspiring to do any of the above  Racketeer Influence and Corrupt Organization Act (RICO) Elements Acquiring an interest in any enterprise with income derived from racketeering Conducting affairs of company involved in racketeering activity Conspiring to do any of the above

27. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 27  Racketeer Influence and Corrupt Organization Act (RICO) Pattern of racketeering activity Commission of two racketeering acts in a ten-year period Carries civil and criminal penalties with civil recovery including treble damages Most RICO suits are based on fraud Prosecutors can freeze a business’s assets under a RICO charge Many states have their own RICO statutes  Racketeer Influence and Corrupt Organization Act (RICO) Pattern of racketeering activity Commission of two racketeering acts in a ten-year period Carries civil and criminal penalties with civil recovery including treble damages Most RICO suits are based on fraud Prosecutors can freeze a business’s assets under a RICO charge Many states have their own RICO statutes Examples of Business Crimes

28. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 28  Federal Crimes Violations of federal securities statutes Violations of the Sherman Act Violations of the Internal Revenue Code Violations of the Pure Food and Drug Act Violations of OSHA Violations of Consumer Product Safety laws  State Crimes : Covers criminal fraud Bribes and kickbacks prohibited  Federal Crimes Violations of federal securities statutes Violations of the Sherman Act Violations of the Internal Revenue Code Violations of the Pure Food and Drug Act Violations of OSHA Violations of Consumer Product Safety laws  State Crimes : Covers criminal fraud Bribes and kickbacks prohibited Examples of Business Crimes

29. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 29 Procedural Rights under Criminal Law  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  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

30. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 30 Procedural Rights under Criminal Law  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  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

31. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 31 Procedural Rights under Criminal Law  Case 9.6Dow 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? Who’s right, the majority or the dissent?  Case 9.6Dow 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? Who’s right, the majority or the dissent?

32. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 32 Procedural Rights under Criminal Law  Fifth Amendment Rights Protection against self-incrimination “Taking the Fifth” Given to natural persons - not to corporations Corporate officers can assert it to protect themselves but not corporate records  Fifth Amendment Rights Protection against self-incrimination “Taking the Fifth” Given to natural persons - not to corporations Corporate officers can assert it to protect themselves but not corporate records

33. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 33 Procedural Rights under Criminal Law  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?  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?

34. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 34 Procedural Rights under Criminal Law  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)  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)

35. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 35 Procedural Rights under Criminal Law  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  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

36. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 36 Procedural Rights under Criminal Law  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  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

37. Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved. 37 Procedural Rights under Criminal Law  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  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