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.
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.
What were you doing Wednesday, November 5, 2014? If you are a staunch Republican, you might have been toasting the election results from the day before, dreamy-eyed and dancing. If you are a staunch Democrat, you might have been scratching your head profusely, thunderstruck and quiet. People across the country were talking politics and policy in a very public way that day. How would the results impact executive actions and legislative initiatives on immigration and healthcare? It seemed as though the democratic process was chugging along. Meanwhile, at the Thurgood Marshall Federal Judiciary Building in D.C., a little-publicized hearing with potentially far-reaching consequences to your privacy rights was taking place.
The hearing was before the Judicial Conference Advisory Committee on Criminal Rules. The topic for discussion was proposed rule changes to the Federal Rules of Criminal Procedure. The Justice Department had requested the regulatory body modify slightly Rule 41(b), which outlines the terms for obtaining a search warrant. So far so boring, right? And what does any of this have to do with you, a law-abiding citizen? No wonder that the hearing captured little attention. But the slight modification that the DoJ requested is nothing to yawn at. It is a rule change that would give federal investigators sweeping powers to access computers and electronic devices not only of their targets but also of anyone else whose online path crosses investigator initiatives. As civil liberties advocates have pointed out: the rule change could pose a serious threat to Fourth Amendment protections and privacy rights.
Last year, the DoJ requested Rule 41(b) be amended to permit courts to issue search warrants allowing remote access searches of computers and other electronic storage media when the location is concealed. The provision would further allow investigators to seize electronically stored information regardless of whether that information is stored within or outside the court’s jurisdiction. The request, especially when you consider how it would be carried out in practice, is a big leap from current procedure. As it currently stands, Rule 41(b) only allows (with limited exceptions) a court to issue a warrant for people or property within the court’s district. In order to keep a check on investigators and investigations, the rules impose this location limitation, among other limitations. The point is to not give investigators free reign to look in on whomever, wherever and whenever they choose; the point is to limit the impact their investigations could have on people’s right to privacy.
Courts and Congress have made it clear that to comply with the Fourth Amendment, a search warrant that involves surreptitious and invasive tactics must meet a number of rigorous safeguards. These safeguards were outlined in the 1960s when wiretapping and bugging developed as the investigative tools of choice. In 1967, the U.S. Supreme Court struck down New York state’s wiretapping law, holding that because electronic eavesdropping “by its very nature…involves an intrusion on privacy that is broad in scope,” it should be allowed only “under the most precise and discriminate circumstances.” Berger v. New York, 388 U.S. 41 (1967). The following year, Congress followed the Court’s cue and outlined those “precise and discriminate circumstances” in the Wiretap Act (a.k.a. Title III of the Omnibus Crime Control and Safe Streets Act of 1968). For a search warrant to be valid, the issuing judge must work through a number of questions to ensure the warrant will be sufficiently circumscribed to meet the Fourth Amendment’s particularity requirement and that it is based upon probable cause. These constraints help to ensure, among other things, that investigators don’t go on fishing expeditions in pursuit of a crime as well as a criminal or that investigators don’t otherwise misuse their ability to peer into the lives of individuals (say to badger someone with a different political affiliation).
Remote access searches of electronic devices are no less invasive than the forms of electronic eavesdropping envisaged in the Wiretap Act. As the Supreme Court recently pronounced in Riley v. California, the search of a modern electronic device such as a smartphone or computer is more intrusive to privacy than even “the most exhaustive search of a house.” 134 S. Ct. 2473, 2491 (2014). The proposed change to Rule 41 could short circuit the procedural safeguards in place and demand we carry out a fiction that somehow remote access searches are not a form of electronic eavesdropping demanding heightened standards (this would be a particularly challenging fiction if you consider that remote access searching could allow investigators to activate a device’s camera or microphone).
While the DoJ’s requested changes would not necessarily override requirements of the Wiretap Act, the Rule 41 amendments could facilitate statutory and constitutional violations. This concern, among a host of others, was well articulated by the American Civil Liberties Union in its comments on the rule change. (If you have the time, it is a worthwhile exercise to review the comments submitted by the ACLU and the Center for Democracy & Technology, among others that outlined the anticipated negative consequences of the proposed rule change.) Chief among the concerns are the risk that investigators’ techniques to gain remote access—such as hyperlinks on public pages (“watering holes”), where users with common interests tend to gather—could subject thousands of non-suspect individuals’ electronic devices to the government’s malware.
It remains to be seen what the Judicial Conference Advisory Committee will decide, whether they choose to rubberstamp the DoJ’s proposed amendments or whether they will stand down and submit the question to public and legislative debate. Considering the DoJ’s request raises significant constitutional questions, we can only hope the Committee recognizes the value of airing the matter before a more public forum where the system of checks and balances remains in place.
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.
When high frequency trading (HFT) first crept into the public consciousness, it related to primarily to the question of whether rapid, computer driven trading posed risks to the safety and stability of the trading markets. Now it appears that HFT may have also been a means for some traders to gain a possible illegal advantage.
High frequency trading involves the use of sophisticated technological tools and computer algorithms to rapidly trade securities. High frequency traders use powerful computing equipment to execute proprietary trading strategies in which they move in and out of positions in seconds or even fractions of a second. While high frequency traders often capture just a fraction of a cent in profit on each trade, they make up for low margins with enormous volume of trades.
High frequency trading is viewed by many as particularly risky. While some participants disagree, the Securities and Exchange Commission and the Commodity Futures Trading Commission issued a report in which their staffs concluded that algorithmic and high frequency trading contributed to the volatility that led to the May 6, 2010 “flash crash.”
More recently, high frequency trading has come under scrutiny by law enforcement. A number of agencies are investigating such practices to determine whether high frequency traders are profiting at the expense of ordinary investors. The Justice Department and the FBI have recently announced investigations, while U.S. securities regulators and the New York Attorney General have said that they have ongoing investigations.
Heightening the recent HFT craze is renowned author Michael Lewis, who recently authored Flash Boys: A Wall Street Revolt. In the book, Lewis claims that computer-driven stock trading has taken over the market at the expense of ‘the little guy’. According to Lewis, Wall Street is rigged by a combination of insiders – stock exchanges, big Wall Street banks and HFT. Lewis claims that HFT’s advantage is so severe that traders are able to predict which stock a common investor wants to buy before he or she can buy it, and drive the price up before the investor can initiate the purchase.
Not everyone is buying the claims Lewis makes in his book. There have been many on record stating that HFT actually does not prey on mom and pop investors. Additionally, many individualsbelieve Lewis’ claims are overblown and that HFT does not provide traders with a huge profitable advantage.
Inevitably, the most pressing question about high frequency trading is whether any such businesses are given an unfair – and illegal – advantage in placing trades. On April 11, three futures traders filed a federal class action lawsuit against CME Group, the owner of the Chicago Mercantile Exchange and the Chicago Board of Trade, claiming that high frequency traders are given an improper advance look at price and market data that permits them to execute trades using the data before other market participants. While the plaintiffs claim that this practice has existed since 2007, CME denies the merits of the allegations.
Between the investigations and this lawsuit (and the others that will certainly follow), it will eventually be determined whether traders with high speed computers benefited improperly over other market participants. Regardless of the merits of these accusations, it is unquestionable that high frequency trading, like all technological advances, poses special challenges to existing rules and laws that will require special consideration and possibly require new rules and regulations.
Fiscal year 2013 marked the fourth consecutive year in which the Department of Justice has recovered at least $2 billion from cases involving charges of healthcare fraud. Make no mistake: these record-setting yields were no accident. The Obama Administration has prioritized busting healthcare fraudsters since it took office, and for good reason. A 2009 analysis by the AHIMA Foundation, estimated that only 3 to 10 percent of healthcare fraud was being identified. To help crackdown, Attorney General Eric Holder and Human Services Secretary Kathleen Sebelius formed the Health Care Fraud Prevention and Enforcement Action Team (HEAT) in 2009.The Government also launched www.stopmedicarefraud.org in an effort to curb ongoing fraud. From January 2009 through the end of the 2013 fiscal year, the Justice Department used the False Claims Act to recover an unprecedented $12.1 billion in federal healthcare dollars.
In this past year alone, DOJ successfully recovered $2.6 billion. More than half of that amount related to alleged false claims for drugs and medical devices under federally insurance health programs, including Medicare, Medicaid and TRICARE.
Many of the DOJ settlements involved allegations that pharmaceutical manufacturers engaged in “off-label marketing” –that is, promoting sales of their drug products for uses other than those for which the Food and Drug Administration (FDA) approved them. A notable “off label” settlement was with Abbott Laboratories, which paid $1.5 billion to resolve allegations that it illegally promoted the drug Depakote to treat agitation and aggression in elderly dementia patients and schizophrenia – neither of which was the use for which the FDA had approved the drug as safe and effective. Abbott’s settlement included $575 million in federal civil recoveries, $225 million in state civil recoveries and nearly $700 million in criminal fines and forfeitures. DOJ also reached a settlement in 2013 with biotech giant Amgen, Inc., which paid $762 million (including $598.5 million in False Claims Act recoveries) over allegations that included promotion of Aranesp, approved to treat anemia, in doses and for purposes not approved by the FDA.
DOJ settlements in the past year also addressed allegations of the manufacture and distribution of adulterated drugs. For example, in May, Ranbaxy USA Inc. paid $505 million, including $237 million in federal civil claims, $118 million in state civil claims and $150 million in criminal fines and forfeitures, due to adulterated drugs from its facilities in India.
Kickbacks were the subject of other DOJ enforcement in 2013. DOJ obtained a $237 million judgment against Tuomey Healthcare System Inc. after a four week trial. Tuomey was accused of violations\ the Stark Law (which prohibits hospitals from submitting Medicare claims for patientsreferredto the hospital by physicians with a prohibited financial relationship with the hospital) and the False Claims act. Tuomey’s appeal is pending; if upheld, the judgment will be the largest in the history of the Stark Law. DOJ’s $26.3 million settlement with Florida dermatologist Steven J. Wasserman M.D., arising from allegations of illegal kickbacks from a pathology lab, was one of the largest with an individual in the history of the False Claims Act.
DOJ Civil Division’s Consumer Protection Branch was likewise active during 2013, obtaining 16 criminal convictions and more than $1.3 billion in criminal fines, forfeitures and disgorgement under the Federal Food, Drug and Cosmetic Act.
These numbers make clear that DOJ continues to view healthcare fraud as a priority. Providers and others who operate in this highly regulated space ignore this law enforcement focus at their peril in 2014.