Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Archive for the ‘Federal Criminal (Other)’ Category
Aug 12
2016

The E-Rate Honey Pot

Pot is being filled with honey and a drizzler. Oblects are on wooden table.

When you grant access to a $ 4 billion fund and give fund participants relative autonomy in how they use those funds, ne’er-do-wells will sniff their way to the honey pot. Keeping them out can be a challenge. So goes the story of the federally administered Schools and Libraries Program, better known as E-Rate.

Established by the Telecommunications Act of 1996, E-Rate is a federal subsidy that helps schools and libraries–particularly those in disadvantaged areas–pay for telecommunications services (e.g., Internet access). The program runs a $3.9 billion fund today.

Schools and libraries that want to take advantage of E-Rate simply need to follow the program’s bid and approval process. Participants oversee the bidding process and choose their service provider. While participants are required to choose the most cost effective provider, there isn’t much of a check on whether they actually do: they need only self-certify that they chose the most cost effective bid.

E-Rate participant autonomy has been a problem as the program regularly faces allegations of fraud and abuse. These concerns prompted a GAO study and senate hearings in the early 2000s. Former Rep. Jim Greenwood (R-PA) told the New York Times, “You couldn’t invent a way to throw money down the drain that would work any better than this.” After the GAO reported its findings (2004), U.S. Rep. Joe Barton (R-TX), Chairman of the Committee on Energy and Commerce, said, “Unscrupulous vendors … fleeced the program while underserved communities and telephone customers pay the price.” Over the past decade, there have been a number of investigations and enforcement actions, resulting in civil as well as criminal penalties, including jail time for a few program profiteers.

Some noteworthy fleecing includes:

  • Puerto Rico wasted more than $100 million in program funds and its secretary of education was sentenced to three years in prison and fined $4 million.
  • In the Chicago Public School system, some $8.5 million in equipment was stockpiled (better yet, the CPS and E-Rate were essentially paying twice for equipment that was never installed!).
  • A company in the San Francisco Unified School District was required to pay $20.7 million in fines and restitution.

More recently, schools and libraries in the Chicago and New York City areas have been investigated for violating the competitive bidding process and taking E-Rate funds without actually providing E-Rate services. Those investigations are still underway, with dramatic raids last March.

Adding to the temptation for ne’er-do-wells are the millions of dollars left on the table in E-Rate funds each year. According to EducationDive, some $245 million in funds went unclaimed in 2014. It is almost hard to blame profiteers for seeking out what they perceive as free money, especially when they have so much control over the process.

There may be a lot of good intentions behind E-Rate. But in its current form and function, E-Rate is but one more example of a poorly administered federal funds that attract those able to game the system.

Feb 19
2016

FBI Recruits Apple to Help Unlock Your iPhone

Alushta, Russia - October 27, 2015: Woman with headphones holding in the hand iPhone6S Rose Gold. iPhone 6S Rose Gold was created and developed by the Apple inc.

It is a well-known maxim that “bad facts make bad law.”  And as anybody even casually browsing social media this week likely has seen, the incredibly tragic facts surrounding the San Bernadino attacks last December have led to a ruling that jeopardizes the privacy rights of all law-abiding Americans.

First, it is important to clearly understand the ruling.  After the horrific attack in San Bernadino on December 2, 2015, the FBI seized and searched many possessions of shooters Syed Rizwan Farook and Tashfeen Malik in their investigation of the attack.  One item seized was Farook’s Apple iPhone5C.  The iPhone itself was locked and passcode-protected, but the FBI was able to obtain backups from Farook’s iCloud account.  These backups stopped nearly six weeks before the shootings, suggesting that Farook had disabled the automatic feature and that his phone may contain additional information helpful to the investigation.

Under past versions of iOS, the iPhone’s operating system, Apple had been able to pull information off of a locked phone in similar situations.  However, Farook’s iPhone—like all newer models—contains security features that make that impossible.  First, the data on the phone is encrypted with a complex key that is hardwired into the device itself.  This prevents the data from being transferred to another computer (a common step in computer forensics known as “imaging”) in a usable format.  Second, the iPhone itself will not run any software that does not contain a digital “signature” from Apple.  This prevents the FBI from loading its own forensic software onto Farook’s iPhone.  And third, to operate the iPhone requires a numeric passcode; each incorrect passcode will lock out a user for an increasing length of time, and the tenth consecutive incorrect passcode entry will delete all data on the phone irretrievably.  This prevents the FBI from trying to unlock the iPhone without a real risk of losing all of its contents.

As Apple CEO Tim Cook has explained, this system was created deliberately to ensure the security of its users’ personal data against all threats.  Indeed, even Apple itself cannot access its customers’ encrypted data.  This creates a unique problem for the FBI.  It is well-settled that, pursuant to a valid search warrant, a court can order a third party to assist law enforcement agents with a search by providing physical access to equipment, unlocking a door, providing camera footage, or even giving technical assistance with unlocking or accessing software or devices.  And, as the government has acknowledged, Apple has “routinely” provided such assistance when it has had the ability to access the data on an iPhone.

But while courts have required third parties to unlock doors, they have never required them to reverse-engineer a key.  That is what sets this case apart: to assist the government, Apple would have to create something that not only does not exist, but that it deliberately declined to create in the first instance.

On February 16, Assistant U.S. Attorneys in Los Angeles filed an ex parte motion (that is, without providing Apple with notice or a chance to respond) in federal court seeking to require Apple to create a new piece of software that would (1) disable the auto-erase feature triggered by too many failed passcode attempts and (2) eliminate the delays between failed passcode attempts.  In theory, this software is to work only on Farook’s iPhone and no other.  This would allow the FBI to use a computer to simply try all of the possible passcodes in rapid succession in a “brute force” attack on the phone.  That same day, Magistrate Judge Sheri Pym signed what appears to be an unmodified version of the order proposed by the government, ordering Apple to comply or to respond within five business days.

Though Apple has not filed a formal response, CEO Tim Cook already has made waves by publicly stating that Apple will oppose the order.  In a clear and well-written open letter, Cook explains that Apple made the deliberate choice not to build a backdoor into the iPhone because to do so would fatally undermine the encryption measures built in.  He explains that the notion that Apple could create specialized software for Farook’s iPhone only is a myth, and that “[o]nce created, this technique could be used over and over again, on any number of devices.  In the physical world, it would be the equivalent of a master key . . . .”

This has re-ignited the long-standing debate over the proper balance between individual privacy and security (and the debate over whether the two principles truly are opposed to one another).  This is all to the good, but misses a key point: Judge Pym’s order, if it stands, has not only short-circuited this debate, it ignores the resolution that Congress already reached on the issue.

Indeed, a 1994 law known as the Communications Assistance for Law Enforcement Act (“CALEA”) appears to prohibit exactly what the government requested here.  Though CALEA preserved the ability of law enforcement to execute wiretaps after changing technology made that more complicated than physically “tapping” a telephone line, it expressly does not require that information service providers or equipment manufacturers do anything to open their consumers to government searches.  But instead of addressing whether that purpose-built law permits the type of onerous and far-reaching order that was granted here, both the government and the court relied only on the All Writs Act—the two-century-old catch-all statute that judges rely on when ordering parties to unlock doors or turn over security footage.

Though judges frequently must weigh in and issue binding decisions on fiercely contested matters of great importance, they rarely do so with so little explanation, or after such short consideration of the matter.  Indeed, when the government sought an identical order this past October in federal court in Brooklyn, N.Y., Magistrate Judge James Orenstein asked for briefs from Apple, the government, and a group of privacy rights organizations and, four months later, has yet to issue an opinion.  Yet Judge Pym granted a similar order, without any stated justification, the same day that it was sought.

An order that is so far-reaching, so under-explained, and so clearly legally incorrect is deeply concerning.  And yet, but for Apple’s choice to publicize its opposition, this unjustified erosion of our privacy could have happened under the radar and without any way to un-ring the bell.  Fortunately, we appear to have avoided that outcome, and we can hope that Apple’s briefing will give the court the additional legal authority—and the additional time—that it will need to revisit its ruling.

Feb 11
2016

Normandie Casino Operator Pleads Guilty to Charges Stemming from Protection of High-Rollers

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Despite the old saying “the customer is always right,” the law places limits on customer service in the casino industry.  Normandie Casino has found this out the hard way.  The operator of the casino has agreed to plead guilty to charges that it violated anti-money laundering provisions of the Bank Secrecy Act, according to a Department of Justice press release.

Normandie Casino is one of the few remaining family-owned casinos in the country and one of the original card clubs in California.  In the 1980s, the casino expanded its offerings and now features Seven-card Stud, Texas Hold-em, Five-card Draw, Blackjack, Pai Gow Poker, and Super 9, among other games and entertainment.

However, amid all these offerings, it appears the casino failed to consistently observe the banking regulations.  Under the Bank Secrecy Act, casinos are required to take measures to prevent criminals from using the casino for money laundering.  In particular, casinos must report transactions involving more than $10,000 by any one gambler in a 24-hour period.

Under the agreement with the Department of Justice, Normandie Club, which operates Normandie Casino, has agreed to plead guilty to two felony offenses.  In the agreement, Normandie will admit that the casino used independent gambling “promoters” to locate high-rollers.  Once the high-rollers were at the casino, high-level employees would help the high-rollers avoid transaction reporting requirements.  Normandie would use the name of the promoter on the Currency Transaction Report, rather than the high-roller, and also structure the payments to make them appear to fall under the federal transaction reporting requirements.

Normandie has agreed to pay a $500,000 fine per charge, for a total of $1 million, plus the casino will forfeit the nearly $1.4 million it received in 2013 when failing to file accurate Currency Transaction Reports.

While the casino industry runs on making its customers happy, the casino must also do so within the bounds of the law.  Gamblers may seek anonymity, but casinos cannot guarantee this to high-rollers who are making significant transactions.

 

Sep 11
2015

DOJ uses White Collar Prosecution for Election-Season Rabble Rousing

guilty

Beating their chests and breathing fire to rouse the polity, the Department of Justice recently came out with an announcement as earth shattering as the sun rising. The DOJ proclaimed it has adopted new policies to prioritize the prosecution of individuals for white-collar crime.

Deputy Attorney General, Sally Q. Yates, was quoted in the New York Times: “It’s only fair that the people who are responsible for committing those crimes be held accountable. The public needs to have confidence that there is one system of justice and it applies equally regardless of whether that crime occurs on a street corner or in a boardroom.”

What’s the hoped-for public response? Probably something like this: “And the crowd goes wild. Finally, after years of corporate executives sporting Teflon and sliding past investigators, the government is going to put its fist down and make the wrongly rich execs pay for their nefarious acts of fraud, insider trading, embezzling, racketeering, and tax evasion! “

But things look a little different in the actual world of white-collar criminal investigations and defense. In fact, prosecutors from the Southern District of New York and across the country are zealously prosecuting employees accused of white-collar offenses, and their companies are never shy about providing the backup data regulators request.. What’s more, convicted offenders are often subject to penalties far exceeding their crimes, as U.S. District Judge Jed Rakoff noted in the 2012 sentencing of Rajat Gupta.

The fact of the matter is that the DOJ doesn’t need to announce a new policy to go after individuals for white-collar crimes. The reality on the ground is we deal with employees being investigated and indicted all the time.

So why did Washington make the announcement? It sounds more like a PR stunt than anything else. Perhaps the Administration is gearing up for the next election cycle, which includes some obvious key elections. The DOJ wants to have a strong response to public outcries for accountability at the opportune time of impending regime change. In prior election cycles, administrations have taken some sort of hard stance on crime and punishment, whether it is increasing sentencing guidelines or messaging prosecutors about white-collar plea agreements.

From our viewpoint, it’s a little hard to take the DOJ’s new policy announcement at face value. We don’t see any recent motivation (outside PR). However, it’s also true that the wheels of Justice move slowly and this may just be a reflection from public dissatisfaction after the 2008 economic crisis, which saw corporations, but few Wall Street execs, held accountable. Regardless, we see the DOJ’s announcement much ado about nothing.

 

Jun 02
2015

U.S. Justice Department v. FIFA Executives and Others in Bribery Indictment

BUDAPEST, HUNGARY - MARCH 8, 2014: Red card for Julian Jenner of Ferencvaros during MTK Budapest vs. Ferencvaros OTP Bank League football match at Hidegkuti Stadium on March 8, 2014 in Budapest, Hungary.

In an ironic twist, the U.S. Justice Department unsealed a 47-count indictment this morning charging nine present and former officials of the Federation Internationale de Football Association (better known by its acronym, FIFA) and five sports marketing executives with fraud, racketeering, bribery and money laundering. The guilty pleas of four individuals and two entities relating to these same allegations were also unsealed.

The indictment alleges that officials of FIFA, which controls the media and marketing rights to international soccer tournaments worldwide, received bribes totaling more than $150 million in connection with the award of those rights. The defendants also include sports executives alleged to have paid those bribes, and the indictment also charges that intermediaries were used to launder the proceeds of those bribes. The lead charge in the indictment is an alleged violation of the federal Racketeering Influenced and Corrupt Organizations Act (RICO).

At the request of U.S. authorities, Swiss authorities arrested a number of individuals in Zurich this morning where FIFA executives had gathered for the organization’s annual meeting. The indictment was disclosed along with a Swiss investigation into mismanagement and money laundering associated with the award of the 2018 World Cup to Russia and the 2022 World Cup to Qatar. FIFA has stated that the award of those tournaments will not be reconsidered.

The great irony of the indictment is that this is about football – not “American football” but “real” football (what we Americans call “soccer”) – the most popular sport on the planet. From a sports perspective, Americans are still newcomers to the game, though the women’s national team has enjoyed perennial success, the men’s national team has climbed in world rankings, and individual American players are becoming more commonplace on teams in the English Premier League and elsewhere in Europe. It is surely ironic for the U.S. to police a sport that struggles for attention at home.

But on the other hand, it should be no surprise to see a U.S. indictment that seeks to address corruption in FIFA that has been the stuff of rumors for years. The FIFA indictment is another example of how the United States projects not only military power but legal power overseas, using its robust Justice Department and court system to impose on the world the legal standard enshrined in its criminal laws. Given that the case is being prosecuted in the Eastern District of New York – where now-Attorney General Loretta Lynch previously served as the United States Attorney – the case may also signal something about Attorney General Lynch’s approach to such multinational cases.

The Department of Justice presumably justifies this extraterritorial exercise because the defendants include several Americans and because FIFA includes component associations located in the United States; the alleged offenses therefore impact Americans as well as those overseas. To the extent this is true, that seems to be appropriate justification. But another question is how that exercise of power will be perceived outside of the United States. Is the United States helping to solve a problem that has dogged international soccer for years? Or is it meddling in matters that are largely outside of its borders and that should not concern it? As news of this morning’s arrests and the unsealing of the indictment spreads, the world’s reaction may answer those questions.

May 18
2015

Cell Tower Location Data Privacy Decision Reversed

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Last July, we reported on United States v. Davis, an Eleventh Circuit decision in favor of privacy rights. In that case, a three-judge panel held that cell phone users have a reasonable expectation of privacy in their cell phone location data. If the government wants to collect the data, it must first obtain a probable-cause warrant, as required by the Fourth Amendment.

The groundbreaking decision seemed a clear victory for privacy rights, but the victory proved to be ephemeral. Last year, the en banc court agreed to revisit the question and, weeks ago, declared that subscribers do not have a reasonable expectation of privacy in their cell tower location data. As a result, the government can collect such data from third-party service providers if it shows reasonable grounds to believe the information is relevant and material to an ongoing criminal investigation.

In February 2010, defendant Quartavius Davis was convicted on multiple counts for robbery and weapons offenses. Davis appealed on grounds that the trial court admitted cell tower location data that the prosecution had obtained from a cell phone service provider in violation of Davis’ constitutional rights. An Eleventh Circuit panel agreed with Davis. Speaking for the court, Judge Sentelle explained that Davis had a reasonable expectation of privacy in the aggregation of data points reflecting his movement in public and private places. The government’s collection of the data was a warrantless “search” in violation of the Fourth Amendment.

To reach that decision, the panel leaned heavily on a 2012 Supreme Court case called United States v. Jones. In Jones, the Court announced that the government must have a probable-cause warrant before it can place a GPS tracking device on a suspect’s car and monitor his travel on public streets. The Court so held based on a trespass (or physical intrusion) theory. Absent probable cause, the government could not commandeer the suspect’s bumper for purposes of tracking his movement, even if each isolated movement was observable in public. Several Justices went further, suggesting that the same result should obtain even without a trespass. They hinted that location data might be protected because individuals have a reasonable expectation of privacy in the sequence of their movements over time. It was this persuasive but nonbinding privacy theory that guided the Eleventh Circuit’s panel decision.

On rehearing, the en banc court rejected the panel’s approach. The court noted that Davis could prevail only if he showed that a Fourth Amendment “search” occurred and that the search was unreasonable. He could show neither. To demonstrate a search, Davis had to establish a subjective expectation and objective expectation of privacy in his cell tower location data. But this case involved the collection of non-content cell tower data from a third-party provider who collected the information for legitimate business purposes: the records were not Davis’ to withhold. According to the court, Davis had no subjective expectation of privacy in the data because cell phone subscribers know (i) that when making a call, they must transmit their signal to a cell tower within range, (ii) that in doing so, they are disclosing to the provider their general location within a cell tower’s range, and (iii) that the provider keeps records of cell-tower usage. But even if Davis could claim a subjective expectation of privacy, he could not show an objective expectation. In the court’s view, Supreme Court precedent made clear that customers do not have a reasonable expectation of privacy in non-content data voluntarily transmitted to third-party providers. Because there was no “search,” there could be no violation of Davis’ constitutional rights.

The en banc court explained further that Jones did nothing to undermine the third-party doctrine. For one, Jones involved a government trespass on private property. But the records in Davis were not obtained by means of a government trespass or even a search, so Jones did not control. Additionally, Jones involved location data that was first collected by the government in furtherance of a criminal investigation. By contrast, Davis involved location data that was first compiled by a service provider in the ordinary course of business. Simply put, “[t]he judicial system does not engage in monitoring or a search when it compels the production of preexisting documents from a witness.”

Nov 25
2014

The Crisis of New Jersey Courts and the Challenge to Judicial Recall

NJ courts

At the very core of judicial independence is the notion that courts and judges decide matters in accordance with the evidence and legal precedent, independent from political power or outside controls. The question of whether a bipartisan and independent judiciary is still alive and well in New Jersey has been called into question recently, as Governor Christie has been accused of packing the state supreme court with only those judges with whom he asserts his influence and will rule his way.

Since the New Jersey state constitution was ratified in 1947, every sitting state supreme court justice has been re-nominated for tenure by the governor after his or her initial seven-year term, regardless of whether the governor agreed with the justice’s rulings. . . until now. The seat of Justice John Wallace has been vacant since May 2010, after Christie failed to grant him tenure following his initial seven-year term. There is fear that Christie has created a climate in which fair and impartial justices fear for their futures if he doesn’t like a ruling. Some criminal defense lawyers believe that a signal is being unfairly sent to judges that they have to align their decisions with those of Governor Christie in order to seek reappointment, which may be detrimental to their clients’ interests, given that Christie has promised to make New Jersey courts more conservative.

The New Jersey State Bar Association created a task force earlier this year to study this issue of New Jersey judicial independence with a goal of producing a report that will contain recommendations for preserving the independence of the New Jersey judiciary. The task force held four hearings over the past several months and also accepted written comments during the same time period, all on the subject of judicial independence in New Jersey.  It is anticipated that the Task Force will submit its report in the near future.

In the meantime, as a result of this standoff between Governor Christie, a Republican governor looking to nominate judges who will decide his way, and a democratic state Senate, which must confirm all of the Governor’s picks for the bench, a political stalemate has been created. Individual state senators also have the power to block appointments in their home counties – for any reason and without the need to give a reason, although several experts believe that this unwritten custom of “senatorial courtesy” should be abolished. Many blame this practice in part for holding up reasonable negotiations and preventing entire packages of judges from getting through to fill vacancies in the courts. Over the past six decades, senatorial courtesy has become a tool that can and has been used as a bargaining chip in bitter partisan battles.

This fall, the number of sitting judges in New Jersey hit the lowest point in almost 15 years, with rising case backlogs. Several counties in New Jersey face judicial vacancy rates greater than 20%. As a result, parties can sit for months in legal logjam, due to longer wait times and judges who are stretched beyond their capabilities. This can be particularly difficult for people seeking divorce or custody settlements or business disputes or criminal complaints. In August, Governor Christie and the state Senate reached a deal to fill eight such vacancies, which left a whopping 44 judicial vacancies or roughly 10% of the judicial seats in the state.

To help reduce the number of open seats and to keep the case calendar moving, court officials have called back retired judges, as it is a much easier process to call back retirees than the lengthy and cumbersome process of appointing new judges. As of November 6, there were 77 judges in Superior courts who reside on the bench past the mandatory retirement age of 70, alongside 392 active Superior Court judges. However, this practice of calling back retired judges is being challenged before the Supreme Court of New Jersey in State v. Buckner.

The Appellant Buckner was convicted of armed robbery and assault in 2012 and is currently serving a nine-year sentence. He argues that he is entitled to a new trial because the judge who convicted him retired in 2008 at the age of 70 but was recalled the same year. If he is successful in his challenge to judicial recall of judges past mandatory retirement age, the vacancy problem could become much, much worse. On the flip side, a constitutional amendment has been introduced in the New Jersey legislature to raise the mandatory retirement age from 70 to 75, which would help to alleviate some of the need to recall judges.

Some would say that New Jersey courts are at a crisis point.  Partisan bickering and stubbornness must give way to action for the benefit of the millions of New Jerseyans who use the New Jersey court system each year.

Nov 24
2014

Smart is the New Tough: A Changing Approach in America’s War on Drugs, Crime?

Themis 5782

Fact: the United States incarcerates its citizens at the highest rate in the developed world. Indeed—save one small chain of islands, whose entire population is just a fraction of our prison population—the United States’ incarceration rate is the highest on the planet.  And nearly half of our approximately 1.75 million inmates are serving time for nonviolent and/or drug-related offenses.

That is not OK. It is especially disgraceful in instances where poverty is the only factor standing between incarceration and freedom; nowhere is that connection more salient than in the realm of pretrial detention. It seems, however, there may be a light at the end of the tunnel: bail reform—federal and state.

The federal corrections policies—those that prevailed since the birth of the Nixon era’s War on Drugsare beginning to be dismantled. Of course, that’s hardly surprising, given Attorney General Holder’s unabashed stance on over-incarceration: “It’s clear – as we come together today – that too many Americans go to too many prisons for far too long, and for no truly good law enforcement reason.  It’s clear, at a basic level, that 20th-century criminal justice solutions are not adequate to overcome our 21st-century challenges.  And it is well past time to implement common sense changes that will foster safer communities from coast to coast.” But Holder is on his way out, and we cannot know whether his successor(s) will carry his torch forward.

As for the states, this election season a number of them put their approaches to victimless and/or nonviolent crime on the ballot. For example, voters in three states and 56 municipalities (including Washington, D.C.) had an opportunity to weigh in on how/where marijuana use fits into our society. The result: the majority of voters, across party lines, think it’s time for a change. Eight more states have proposed legalization ballot initiatives for 2016.

The decriminalization of low-level drug offences will, undoubtedly, have tangible effects on incarceration rates. But what of those arrested for the plethora of nonviolent—often victimless— crimes that remain on the books? At least one state is taking action…

In New Jersey—a state where just over 5,000 inmates (or 38.5% of the total jail population) are there simply because they are too poor to afford bail—the state legislature set out to address that problem with a companion bill aimed at reducing the prevalence of pre-trial detention.  With its first step, the NJ legislature passed a bill requiring that each defendant be evaluated to determine his/her propensity for recidivism during release, witness intimidation, and flight: low-risk, non-violent defendants shall be released on their own recognizance; those posing a higher-risk will be released subject to certain conditions (i.e., curfews, travel restrictions, and/or electronic monitoring); those posing the greatest risk may be denied bail; and all detained defendants will be entitled to a speedy trial protection. For its second, the legislature voted unanimously to poll the people—via ballot measure—on a constitutional amendment to allow judicial discretion in the pretrial detention of those most dangerous defendants. The Question: “Do you approve amending the Constitution to allow a court to order pretrial detention of a person in a criminal case?” The Answer: Yes. Now, with this tandem effort by lawmakers and voters, the bail reform package is in full effect.

For those whose concern for just policy overcomes the allure of partisan politics, state and local ballot initiatives can offer a keen lens into the hearts and minds of the populace. Although we are reluctant to read too much into the tealeaves (that has pitfalls all its own…), it seems—underneath the partisan gridlock—a sea change may be brewing. Whether this burgeoning trend will bear sustainable fruit—that remains to be seen. In the meantime, we will continue to be encouraged by small wins in the fight for an equitable justice system where socioeconomic status is not fate determinative. Stay tuned.

Sep 24
2014

The Road to True Threats is Paved with Intimidating Intentions

Looking For A Fight

Recently, the Tenth Circuit Court of Appeals considered the dividing line between free speech guarantees and the state’s authority to criminalize threat speech. In United States v. Heineman, the court held that the government must prove specific intent in true-threat cases: to obtain a conviction, prosecutors must prove not just that the defendant intended to communicate a threat, but that he intended for the recipient to feel threatened.

The underlying case was brought against Aaron Heineman, a white supremacist from Utah. Several years ago, he composed a “poem” and e-mailed it to a professor at the University of Utah. The writing addressed the professor by name and opened with the statement, “Come the time of the revolution[,] we will convene to detain you [a]nd slay you . . . .” Fearing for his safety, the professor notified authorities, who traced the e-mail back to Heineman. Heineman was charged with one count of sending an interstate threat in violation of 18 U.S.C. § 875(c).

At trial, Heineman claimed that he suffered from Asperger’s Disorder and, therefore, could not foresee that the professor would feel threatened by the poem. But the trial judge signaled that Heineman could be convicted on proof that he meant to send the communication, regardless of whether he intended a particular result.

After a bench trial, Heineman was convicted based on findings that he knowingly transmitted a communication containing a threat and that his poem was a “true threat” because it would cause a reasonable person to conclude that he intended to cause bodily injury.

On appeal, the Tenth Circuit reversed. Speaking for the court, Circuit Judge Harris Hartz explained that the district court’s “reasonable person” standard was not sufficiently protective of free-speech rights, especially given the Supreme Court’s 2003 decision in Black v. Virginia. In Black, the Court upheld Virginia’s authority to ban cross burnings carried out with the intent to intimidate, but prohibited the state from treating cross burning itself as prima facie evidence of that intent. The Court explained, “‘[T]rue threats’ encompass statements where the speaker means to communicate a serious expression of intent to commit an act of unlawful violence to a particular individual or group of individuals.” The Court continued, “Intimidation . . . is a specific type of ‘true threat’ where a speaker directs a threat to a person or group of persons with the intent of placing the victim in fear of bodily harm or death.”

The Tenth Circuit applied these definitions in Heineman’s case and concluded that, under the First Amendment, he could only be convicted of making a true threat if he intended the professor to feel threatened. In Judge Hartz’s view, when the Black Court said the speaker must “mean[ ] to communicate,” the Court was saying that the speaker must intend to communicate threatening words and to instill fear. Indeed, the plurality in Black criticized the prima facie rule precisely because it failed to distinguish between cross burning for purposes of stoking anger and resentment, on one hand, from cross burning for purposes of threatening or intimidating a victim, on the other. The former was considered protected speech, whereas the latter was proscribable as a “true threat.”

The Tenth Circuit is one of two federal appellate courts to interpret Black as requiring subjective intent. Six others have rejected that approach. One such decision has already made its way to the Supreme Court. By next summer, we should know whether the Tenth Circuit got it right.

Sep 10
2014

More Money, More Problems – Another Billion Dollar Settlement for the DOJ

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This summer BNP Paribas, one of the five largest banks in the world, agreed to a $9 billion settlement with the U.S. Department of Justice. The settlement figure may seem nothing short of economic shock and awe; indeed it was the largest criminal penalty in U.S. history. What could justify such a staggering fine and was the DoJ too heavy-handed in its tactics against the French-based bank?

The $9 billion figure was not created out of thin air. It correlates to the value of transactions that BNPP helped to push through the U.S. financial system on behalf of Sudanese, Cuban and Iranian interests. These countries have been subject to U.S. sanctions under the U.S. International Emergency Economic Powers Act (IEEPA). The sanctions restrict, among other things, trade and investment activities involving the U.S. financial systems, including processing U.S. dollar transactions through the States. BNPP chose to ignore those sanctions. What’s worse, the Statement of Facts that the DoJ published with its press release states that BNPP used cover payments to conceal the transactions it processed through its New York location and other U.S.-based banks. It also removed identifying information about the sanctioned entities and used complicated payment structures in order to prevent the transactions from being blocked when transmitted through the U.S. BNPP helped to finance oil and petrol exports for both Sudan and Iran. And the bank’s involvement in Sudan has been instrumental to the country’s foreign commerce market. All told, BNPP’s actions effectively undermined the U.S. sanctions, opening the U.S. financial system to those countries.

BNPP’s actions justify DoJ prosecution as U.S. authorities certainly have jurisdiction over U.S.-based activities. A stiff penalty also seems in order, given the bank’s blatant disregard for both the legal violations and their ramifications. The DoJ quotes a May 2007 BNPP Paris executive memorandum: “In a context where the International Community puts pressure to bring an end to the dramatic situation in Darfur, no one would understand why BNP Paribas persists [in Sudan] which could be interpreted as supporting the leaders in place.”

But did the DoJ go too far when it imposed $9 billion in sanctions? As of the date of the settlement, the fine more than doubled the enforcement agency’s highest criminal penalty on record. (Of course, big settlements with banks are becoming the norm: the DoJ recently settled with Bank of America for $16.5+ billion and with JP Morgan Chase for $13 billion.) The $9 billion penalty may not have had the desired impact of shock and awe the U.S. may have sought. Instead of being perceived as a show of force with a deterrent effect, some of the international community has reacted with disdain. Not surprisingly, this includes the French, who have been quite vocal about their feelings. The French Foreign Minister, Laurent Fabius, said the fine was an unfair and unilateral decision.” The French Finance Minister Michel Sapin questioned its legality by pointing out that the offending transactions were not illegal under French law.

It is not as though the U.S. is jumping across the pond and punishing a French bank on French soil for activity in France.  The actions in question took place through U.S. markets and therefore make U.S. prosecution justifiable.  But the French finance minister’s statement demonstrates the U.S.’s waning credibility abroad. Sapin did not stop at the BNPP settlement – he went on to question the entire monetary regime based upon the U.S. dollar: “Shouldn’t the euro be more important in the global economy?” The U.S. should not ignore this growing antipathy. Nor should we take for granted our economic or political authority. Examples like this settlement, or the largely resented Foreign Account Tax Compliance Act, may not be seen as a show of force but rather as an act of bullying. As we throw our weight around, others are considering whether the cost of doing business with us is just too high. If we keep it up, we could find ourselves at a table of one.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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