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The Arms Export Control Act Withstands Constitutionality Challenge in Ninth Circuit Part II
This blog posting is part II of our analysis of U.S. v. Chi Mak. Part I can be read here.
The Ninth Circuit also disposed of Mak’s claims about jury instructions and deliberation on willfulness, the requisite intent that must be proven beyond a reasonable doubt in criminal prosecutions of the Arms Export Control Act (AECA). The relevant case law in the matter presumably favors the defense.
Accordingly, every criminal defendant has a constitutional right to a “meaningful opportunity to present a complete defense.” California v. Trombetta, 467 U.S. 479, 485 (1984); see also United States v. Stever, 603 F.3d 747, 755 (9th Cir.2010) (grounding right to a meaningful defense in the Fifth and Sixth Amendments). An accused can defend against a charge that requires the Government to prove willfulness by presenting evidence that he did not voluntarily or intentionally violate a known legal duty. Cheek v. United States, 498 U.S. 192, 202–03 (1991).
Also favoring the defense is the fact that circumstantial evidence can be probative of the lack of criminal intent. See United States v. Salameh, 152, F.3d 88, 143 (2d Cir. 1998). Moreover, many of the Circuit Courts of Appeals have held that a criminal defendant has the right to introduce evidence that is not directly relevant to an element of the offense where that evidence might tend to negate the existence of an element of the offense, such as intent or willfulness. United States v. Hurn 368 F.3d 1359, 1364-65 (11th Cir. 2004).
Thus, Mak’s contention that he was unaware of the fact that the “technical data” he was sharing with others was not in the “public domain” would seem to be a constitutionally protected defense. Such a defense would clearly demonstrate that he did not intentionally violate a known legal duty. In fact, Mak introduced legally acceptable circumstantial evidence in the form of expert witnesses demonstrating that he did not know the information was “technical data” and not in the “public domain.” Unfortunately, the court’s jury instructions completely stripped this defense of its persuasiveness. So instead of having the jury deliberate the matter, the court determined the issue for them.
In its jury instructions the court stated the following in number 16:
“You are instructed that the information in the Solid State document and the Q.E.D. document is required for the design, development, production, manufacture, assembly, operation, testing, or modification of defense articles. You must accept this fact as true, regardless of whether you heard any witness testify to the contrary.”
And the following from instructions 20 and 23:
That the government was not required to prove that “the defendant had read, was aware of, or had consulted the specific regulations governing his activities,” and that in “making a determination of whether the defendant had the requisite intent, [the jury] should consider the totality of all relevant circumstances.”
The contention on appeal is that the trial court wrongfully rejected Mak’s recommended jury instruction on willfulness, an instruction that would have given the jury a realistic opportunity to deliberate willfulness with respect to the “public domain” determination it was asked to consider:
“Information which is in the public domain does not constitute technical data and therefore is not subject to the export controls of the United States Munitions List. Even if you determine that any of the items at issue in Counts two, three or four were not in the Public Domain, you the jury must consider whether Mr. Chi Mak believed the items were in the Public Domain in order to determine whether he willfully and knowingly exported defense articles.”
With instruction 16 the trial court shifted the entire debate away from the content of the “technical data” because the court judicially recognized that fact in favor of the Government. The instruction caused even more harm to the defense because it told the jury to totally disregard Mak’s expert witnesses on the issue of technical data and only focus on the whether the information was in the public domain. The cumulative impact of the court’s instructions effectively counseled the jury to disbelieve Mak’s lack of intent, at least on the premise that he did not know the information was “technical data.”
Due to the court’s instructions, the only factual issue left for the jury to deliberate upon was whether the information was in the “public domain.” Although the court’s instructions specifically counsel the jury to disregard a significant part of Mak’s constitutionally recognized willfulness defense, there is no accompanying instruction highlighting for the jury that it could still apply the willfulness defense to the issue of whether the information was in the “public domain.” This harm could have easily been remedied by including Mak’s recommended instructions.
Alas, the only instruction the Ninth Circuit relied upon to dispose of Mak’s claim was the broad catch-all instruction that the jury “should consider the totality of all relevant circumstances.” This, in the Ninth Circuit’s opinion, was enough to undo the severely limiting instructions that harmed the defense in the first place. Sadly, the court seems comfortable with the fact that the jury may have never even fathomed to deliberate upon Mak’s willfulness defense in the context of the “public domain” issue, a limitation of Mak’s constitutionally recognized defense created by the court itself.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
The Arms Export Control Act Withstands Constitutionality Challenge in Ninth Circuit Part 1
On June 21, 2012 a three judge panel of the Ninth Circuit upheld the constitutionality of the Arms Export Control Act (AECA) in United States v. Chi Mak. Mak was ultimately convicted of one count of conspiracy to violate the AECA, two counts of attempting to violate the AECA, and one count of lying to a federal agent.
Mak appealed his conviction, claiming violations of his rights under the First, Fifth, and Sixth Amendments, and the Ex Post Facto Clause. Mak lost on each claim he made, demonstrating the difficulties of calling into question the constitutionality of a statute that pertains to the national security and foreign interests of the United States.
The AECA regulates the export and import of “defense articles” and “defense services” out of and into the United States. 22 U.S.C. § 2778. Section 2778(a) of the AECA authorizes the President: (1) to designate those defense articles and services to be included on the U.S. Munitions List (USML); (2) to require licenses for the export of items on the USML; and (3) to promulgate regulations for the import and export of such items on the USML. Id.
The Directorate of Defense Trade Controls (DDTC), within the United States Department of State, promulgates regulations under the AECA, known as ITAR. 22 C.F.R. § 120–30. ITAR defines the USML, which consists of twenty-one categories of designated defense articles and services that are subject to licensing controls under the AECA. Id. at § 121.1. Unless an exception applies, ITAR requires a license for the export of USML articles and related technical data. 22 C.F.R. §§ 123–125.
Technical data is defined as information which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles. 22 C.F.R. § 120.10(a)(1). This definition excludes any information in the “public domain.”
Mak asserted a First Amendment “vagueness” claim. The basis of Mak’s claim was that the technical information he attempted to export to China was protected speech. Although the AECA is not intended to control the content of “speech,” it does so incidentally. The court disposed of Mak’s First Amendment “vagueness” claim by stating that the restrictions on “technical data” are “content neutral.” Content neutral regulation of speech is permitted under the First Amendment so long as it advances important governmental interests.
In this case, such important interests include the national security and foreign interests of the United States. A munitions list that does not prohibit the export of technical data would be useless because the defense articles could merely be produced overseas.
Of particular concern for defense counsel in Mak’s appeal is his second claim about the jury instructions on “technical data” on the ground that they relieved the Government of its burden of proving that the documents did not fall within the “public domain.” The instructions seem to favor the Government because they are misleading to the jury. The instructions say:
“All technical data is subject to export control. Technical data is information required for the design, development, production, manufacture, assembly, operation, testing, or modification of defense articles. Technical data does not include information in the public domain.” This instruction continues with:
“You are instructed that the information in the Solid State document and the Q.E.D. document is required for the design, development, production, manufacture, assembly, operation, testing, or modification of defense articles. You must accept this fact as true, regardless of whether you heard any witness testify to the contrary.”
Upon reading this instruction it becomes clear that the issue of whether the information was “technical data” was already decided by the court. What’s even more disturbing is the statement that “you must accept this fact as true, regardless of whether you heard any witness testify to the contrary.”
The court disposes of Mak’s claim by relying on another instruction which explains to the jury that if the information was available in the “public domain” that they must acquit Mak on the AECA offenses. Why the court did not require the jury to determine if the information amounted to regulated “technical data” puzzles me. Apparently the Government can simply assert that something is “technical data” and only need to prove that the information was not in the public domain in order to sustain a conviction under the AECA.
Is it so totally inconceivable that something not available in the “public domain” is also not “technical data” that the government need not be required to prove beyond a reasonable doubt that the infomormation actually amounts to “technical data?” It seems unlikely that any corrected instructions would have remedied the situation to such a degree that Mak’s conviction should have been overturned, but the Government should nonetheless be put to the burden of whether the information is in fact “technical data” and not just that it wasn’t in the “public domain.” We will address the additional claims in part II of this post.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Richmond Marketing Company Owner Sentenced for Health Care Kickback Scheme
Lorie Monroe, 51, of Richmond, Virginia, was sentenced yesterday to 37 months in prison, followed by 3 years of supervised release, for conspiracy to receive health care kickbacks, in violation of Title 18, United States Code, Section 371. In addition, Monroe was ordered to pay $545,410.00 in restitution to the Virginia Department of Medical Assistance Services.
The sentence was imposed by United States District Judge Henry E. Hudson. On January 24, 2012, Monroe waived indictment and pled guilty to a one-count information alleging conspiracy to receive health care kickbacks.
The underlying criminal statute that Monroe has been accused of conspiring to commit is 42 U.S.C. § 1320a-7b(b)(1)(A). The statute makes it illegal for a person to solicit or receive kickbacks and other remunerations in return for referring an individual to a person for furnishing or arranging services under a Federal health care program.
According to court documents, Monroe was the owner and operator of Creed Xtreme Marketing Concepts, a.k.a Creed Extreme Marketing (“Creed”), a company located in Glen Allen, Virginia. Sometime prior to December 2008, Monroe and “Individual A” agreed that Creed would serve as a marketing company for “Company 1.” It is not clear who initiated the alleged agreement, but Monroe’s plea indicates that she did not solicit kickbacks but was merely the recipient.
Individual A is the CEO of Company 1. Company 1 was an IIH provider located in the Eastern District of Virginia, which was under contract with Medicaid to provide Intensive In-Home Therapy (IIH) services. IIH services are designed to assist those youth and adolescents who are at risk of being removed from their homes, or are being returned to their homes after removal, because of a significant mental health, behavioral, or emotional issues. Allegedly, Monroe and Individual A verbally agreed that Monroe would receive approximately half of the Medicaid payments for each child Monroe referred to Company 1 for IIH services.
On or about December 2008, Monroe allegedly hired two employees to canvass low income areas, specifically Section 8 housing and subsidized housing projects, in the greater Richmond and Petersburg, Virginia, areas, to find children who were Medicaid beneficiaries to refer to Company 1. Court documents further allege that Company 1 contacted the individuals recruited by Creed, then enrolled many of these Medicaid-eligible children in its IIH program and billed Medicaid for IIH services rendered. Between December 2008 and January 2010, Company 1 allegedly paid Monroe a total of $545,410.00 in kickbacks for recruiting beneficiaries for IIH services.
The court documents do not identify Individual A or Company 1 by name. There may be several reasons for this, but most likely, the government is still building their case against the two and has not issued an indictment as of yet. Monroe’s plea agreement further supports this theory, as part of the plea discusses Monroe’s continued cooperation in the form of potential grand jury testimony, participation in government debriefings, producing documents related to criminal activity, and the inclusion of the possibility of a 5K1.1 and Rule 35(b) downward departure during sentencing.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
South Florida Retiree Pleads Guilty for Failing to Report Assets in Swiss Banks
Wolfgang Roessel of Ft. Lauderdale, Florida, pleaded guilty on Wednesday in the U.S. District Court in the Southern District of Florida to filing a false tax return for 2007, the Justice Department and Internal Revenue Service (IRS) announced.
According to the court documents, Roessel, a U.S. citizen, maintained bank accounts at UBS AG in Switzerland, which he failed to report on his 2002 through 2007 personal income tax returns. He also failed to file a Report of Foreign Bank and Financial Accounts (FBAR) for these same years. In 2002, Roessel opened a UBS numbered investment account in the nominee name of a foreign entity, Neptune Trust, with an opening balance of approximately $4 to $5 million. In around 2004, this account and subaccounts were transferred into the nominee name of another foreign entity, Cyan United, and traded in U.S. and foreign securities. Allegedly, Roessel met with a Swiss banker periodically to discuss the performance of his accounts.
The IRS requires U.S. persons to file an FBAR for every taxable year reporting their interests in foreign financial accounts, if the foreign account is in excess of $10,000 at any one time during the calendar year. According to the IRS, the reporting requirement has been implemented because foreign financial institutions do not follow the same regulations as U.S. banks. Of course, the obvious reason for such a reporting requirement is so that the IRS can tax the funds once they have been reported.
Court records also allege that, dating back to the 1980s and up through the late 2000s, Roessel held accounts at different times at Bank Wegelin and another Swiss bank (Bank A) into which he deposited foreign proceeds from his business, yet which he neither reported on his tax returns nor on the required FBARs. In the early 2000s, the foreign account at Bank A was put into the nominee name of Cyan United. A Swiss money manager made investments on Roessel’s behalf and met with him periodically to discuss the performance of the account. In 2008 and 2009, during which period Roessel was aware of the government’s grand jury investigation into his foreign UBS accounts, he disclosed only the existence of the UBS accounts on his tax returns for those years and did not report the other Swiss account.
In recent years, the IRS has spent more energy investigating and penalizing U.S. citizens that maintain offshore accounts in an effort to subject these accounts to U.S. tax and banking regulations. At one time, holding a large amount of assets in a foreign account, particularly Switzerland, was highly desirable due to the little or no tax that was assessed on the assets. However, as the case against Roessel demonstrates, the maintenance of an offshore account can have financially and criminally devastating consequences if U.S. reporting requirements are not met.
The plea agreement includes a tax loss of $312,802.95 for 2002 through 2007, and an FBAR penalty owing to the U.S. Treasury of $5,750,933.99, which is 50 percent of the 2007 unreported foreign bank accounts year-end balance of over $11 million. Roessel faces a potential maximum prison term of three years and a fine of up to $250,000. A sentencing date has not been set.
This plea comes only a few months after the DOJ’s indictment of Bank Wegelin for allegedly enabling U.S. citizens to avoid U.S. taxes, and a $16 million seizure from Wegelin’s correspondent bank, UBS AG. Roessel’s case may be the tip of the iceberg of the investigation into U.S. citizens with accounts at these banks.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Nine Family Members in Alabama Indicted for Tax Fraud and Identity Theft Conspiracy
Barbara Murry, Douglas Murry, Douglas Murry III, Yolanda Moses, Lee Moses, Veronica Temple, Jeffrey Temple, Almetta Johnson and Courtney Johnson were charged in an indictment by a federal grand jury in the Middle District of Alabama on a variety of counts stemming from an alleged identity theft and tax fraud scheme, according to the Justice Department and the Internal Revenue Service (IRS). The 33-count indictment charges all nine with conspiring to defraud the United States and to commit theft of public funds and with theft of public funds. Barbara Murry, Yolanda Moses and Veronica Temple are also charged with aggravated identity theft. The indictment was unsealed last Friday, May 4.
According to the indictment, all of the individuals are related to each other. Barbara Murry owned and operated B&B Weaving Shop, located in Montgomery, Alabama. B&B Weaving Shop was located in the same building as B&B Tax Service. Barbara Murry’s daughter, Yolanda Moses, owned and operated B&B Tax Service. Between 2006 and 2012, Barbara Murry, Yolanda Moses and Veronica Temple allegedly filed false federal income tax returns with stolen identities and had refunds directly deposited into the bank accounts of their family members and others. According to the government, the bank accounts received at least $1.3 million in false tax refunds.
The specific instances of conduct included in the indictment are limited to deposits made in late 2011, and a majority of the deposits are in the amount of $1,400. This seems to be an odd time of the year to receive tax refunds. Further, the indictment alleges that the conspiracy was ongoing since approximately 2006, yet the deposits all take place in 2011. An indictment does not have to provide specific details of the circumstances giving rise to the case, but an individual has the right to be put on fair notice of the charges against them. The government is either being overly inclusive in the indictment regarding the dates of the alleged conspiracy, or the indictment fails to include everything.
Unfortunately, the indictment does not discuss in detail the government’s theory of the case and fails to connect the dots between the allegations and counts contained therein. The indictment only gives a cursory overview of the alleged scheme but manages to accuse nine family members of conspiring to defraud the IRS by means of identity theft. As this case continues, it will be interesting to hear the government’s foundation for the alleged conspiracy of fraud and identity theft.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Pakistani Citizen Receives Prison Sentence for Alleged Human Smuggling Conspiracy
A Pakistani citizen was sentenced yesterday in the District of Columbia to 31 months in prison on a human smuggling charge. Muhammad Abid Hussain, 27, was sentenced by U.S. District Judge John D. Bates. On January 31, 2012, a federal jury in Washington, D.C., found Hussain guilty of conspiring to encourage and induce an individual to come to the United States unlawfully.
According to the government’s theory of the case, in February and March 2011, Hussain and a co-conspirator conducted a human smuggling operation in Quito, Ecuador, that attempted to smuggle an individual from Pakistan to the United States. No individuals or material were actually smuggled from Pakistan as part of the operation. Hussain was arrested in Miami on March 13, 2011.
Hussain was accused of conspiring to commit 8 U.S.C. 1324, for allegedly encouraging and inducing an alien to illegally come into the United States for financial gain. Hussain and his alleged co-conspirator, Ali Ahmed, never actually smuggled any persons into the U.S., which is why the government only charged him with a conspiracy. The indictment in this case also explains that the charges of conspiracy arose after four undercover sources sought out Hussain and Ahmed in Ecuador. The undercover agents portrayed themselves as members of the Pakistani Taliban (Terik-i-Taliban Pakistan) who were trying to smuggle a person into the United States. Hussain and Ahmed were indicted once the undercover sources got enough to bring a conspiracy charge.
Hussain was acquitted of a second charge of conspiring to provide material support to a foreign terrorist organization relating to the same conduct. This charge was included in a superseding indictment brought against Hussain on December 8, 2011, but clearly the jury did not agree with such an accusation.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
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Six Charged with Scheme to Defraud IRS by Using Deceased Taxpayer Information
A 10-count indictment was unsealed Wednesday charging six people with various offenses related to a scheme to defraud the Internal Revenue Service (IRS) of at least $1.7 million in fraudulently obtained tax returns, often filed in the names of recently deceased taxpayers, according to Justice Department press release released Wednesday.
According to the indictment, between April 15, 2009, to at least August 2011, Muaad Salem, Fahim Sulieman, Hanan Widdi, Najeh Widdi, Hazem Woodi and Daxesj Patel and other unknown co-conspirators allegedly defrauded the United States by filing false and fraudulent tax returns, many in the names of recently deceased taxpayers, and directing refunds to controlled locations in the state of Florida.
The indictment further alleges that the U.S. Treasury checks generated by the false and fraudulent returns would then be sent by the U.S. mail to co-conspirators in Ohio who would sell and distribute the checks for negotiation at various businesses and banking institutions.
The six are also charged with three counts of mail fraud and two counts of aggravated identity theft. In addition to the other charges, Patel is separately charged with two counts of making a false claim against the United States and with making a false statement to law enforcement officials investigating the crimes.
This case contemplates a hybrid of alleged crimes centered around a financial scheme to defraud the IRS. Unknown to most taxpayers, the IRS has its own Criminal Investigation Unit responsible for investigating fraudulent tax crimes. The CI Unit is actually quite substantial, with twenty-six field offices and 2,800 special agents. Investigations are usually targeted at legal source tax crimes, illegal source financial crimes, and counter narcotics and terrorism crimes. The CI Unit works in conjunction with the Justice Department to bring criminal charges against a person or entity once the fraud is substantiated by documentary evidence, usually just by following the paper trail connected to the money.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Two Plead Guilty in Louisiana to Medicare Fraud Scheme
Two Baton Rouge, La., residents have pleaded guilty for their role in a Medicare fraud scheme, which allegedly involved more than $21 million, announced the Department of Justice (DOJ), the Department of Health and Human Services (HHS), the FBI and the Louisiana State Attorney General’s Office.
Henry Jones, the owner of four medical equipment companies, pleaded guilty last Thursday before U.S. District Judge James J. Brady in the Middle District of Louisiana to one count of conspiracy to commit health care fraud and one count of conspiracy to defraud the United States and to pay and receive healthcare kickbacks. Mary Bessie, one of Jones’ co-conspirators, pleaded guilty on January 11, 2012, before Judge Brady to one count of conspiracy to defraud the United States and to pay and receive healthcare kickbacks.
Jones admitted that between 2004 and 2009, he owned and operated four companies that were licensed to supply durable medical equipment (DME) to Medicare beneficiaries. Jones hired patient recruiters to obtain prescriptions for medical equipment that was medically unnecessary. The patient recruiters obtained beneficiary information and then asked the beneficiaries’ primary care physicians for prescriptions for orthotic equipment, power wheelchairs, wheelchair accessories and other medical equipment. When the beneficiaries’ physicians were unwilling to provide medically unnecessary prescriptions, the patient recruiters asked other physicians to write prescriptions based on cursory examinations of the patients. The recruiters then provided the prescriptions to Jones, who billed them to Medicare and paid the recruiters illegal kickbacks for each prescription obtained.
Bessie admitted that from 2004 to 2009, she and her co-conspirators solicited and received kickbacks from Jones in return for medically unnecessary prescriptions for Medicare beneficiaries. From 2004 to 2009, Bessie was paid kickbacks, and Bessie aided and abetted the payment of kickbacks in the form of checks totaling $82,230.
The DOJ press release alludes to the fact that others were involved in the alleged scheme to defraud, but there is no indication how many patient recruiters or physicians were involved. If the scheme involved $21 million dollars, surely others are being investigated. The physicians writing the prescriptions may not face conspiracy charges since it appears they had no knowledge of the scheme, but certainly the other patient recruiters involved will be sought after. Jones and Bessie are most likely supplying additional information to prosecutors as part of their plea agreement in order to get a lower sentence.
Sentencing dates have not yet been set. The maximum prison sentence for each count of conspiracy to commit health care fraud is 10 years. The maximum prison sentence for each count of conspiracy to defraud the United States and to pay and receive health care kickbacks is five years.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Cyber Monday Crackdown
Seizure orders were executed against 150 domain names of commercial websites engaged in the alleged illegal sale and distribution of counterfeit goods and copyrighted works on “Cyber Monday,” on of the busiest online purchasing days of the year. The U.S. agencies involved include the Department of Justice, U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI), the ICE-led National Intellectual Property Rights Coordination Center (IPR Center), and the FBI Washington Field Office.
The 150 seized domains are currently in the custody of the federal government. Visitors to the sites will now find a seizure banner that notifies them that the domain name has been seized by federal authorities and educates them that willful copyright infringement is a federal crime.
According to the Department of Justice press release, federal law enforcement agents made undercover purchases of a host of products, including professional sports jerseys, golf equipment, DVD sets, footwear, handbags and sunglasses, representing a variety of trademarks from online retailers who were suspected of selling counterfeit products. In most cases, the goods were shipped directly into the United States from suppliers in other countries. If the trademark holders confirmed that the purchased products were counterfeit or otherwise illegal, seizure orders for the domain names of the websites that sold the goods and associated websites were obtained from federal magistrate judges.
This particular operation began in 2010 and has since seized 350 domain names, 116 of which have been officially forfeited to the U.S. government. The seizures are largely based on the underlying federal criminal offenses of selling counterfeit goods and copyright infringement.
With the rising trend of purchasing goods online, in addition to the ease of purchasing online and through mobile devices and tablets, the risk of harmful websites has captured the attention of federal authorities. Cyber Monday sales were up 33% as compared to 2010, which demonstrates why federal agents decided to amp up their seizure tactics yesterday.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Source: DOJ Looking to Prosecute Individual Bankers in HSBC Money Laundering Investigation
A source close to the investigation against HSBC Holdings Plc said that the Department of Justice is looking to prosecute individual bankers. “I understand that they are meticulously doing interviews with one primary objective driven by the Justice Department on this case, which is to identify and prosecute any individuals within the bank for which the evidence will support such an action. Prosecuting individuals is their number one priorty,” the source said on condition of anonymity.
The Justice Department initiated the investigation against HSBC because of bulk cash the bank received from money-changing firms in Mexico. Due to its receipt of this bulk cash HSBC is suspected of handling money belonging to the Mexican drug cartels. Although the Mexican drug cartels are a matter of national concern, Justice’s decision to prioritize prosecuting individual bankers may be motivated by another event hitting closer to the Department’s home.
The Justice Department was criticized last August after it reached a deal with Barclays Bank to settle alleged violations of the Trading with the Enemy Act and the International Emergency Economic Powers Act. Barclays violated U.S. sanction programs, and after being unable to determine the culprits internally, was offered a cash settlement deal by the Department. The very judge who approved the settlement said “the public has very little confidence in white collar crime prosecutions. It’s proceedings like these [that raise questions about] fairness and justice . . . People plead guilty to criminal conduct . . . [The Bank] can pay [money] for their justice – that is what the public sees.” The judge characterized the deal as a sweetheart deal and openly criticized Justice as to why no one was ultimately held responsible for the crimes the bank committed. Even Capitol Hill decried the Department of Justice for this deal and lack of individual criminal convictions.
It is with this backdrop of public disbelief, from the judge, Capitol Hill, and the people, that Justice has decided to repair its image by pursuing money laundering prosecutions against individual HSBC bankers. The circumstances surrounding the HSBC investigation may well be signalling the end of the prominent use of deferred prosecution agreements and cash settlements for white collar criminal matters. Given the embarrassment they suffered from their handling of the Barclays case, federal prosecutors may be less willing to accept deals. Prosecutors may instead focus on attaining criminal convictions (with prison time) of the actors involved in white collar criminal cases. A welcomed sign for most, but a dangerous position for some whose culpability is difficult to determine given the often murky line distinguishing legitimate economic activity and white collar crime.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
