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Crimes That Harm Business (And Their Customers)
Businesses must deal with four major crimes: larceny, fraud, arson, and embezzlement.
Larceny is the trespassory taking of personal property with the intent to steal.
Fraud refers to a variety of crimes, all of which involve the deception of another person for the
purpose of obtaining money or property. Types of fraud include wire and mail fraud, insurance fraud,
Internet fraud, auctions, identity theft, and phishing.
Arson is the malicious use of fire or explosives to damage or destroy real estate or personal property.
Embezzlement is the fraudulent conversion of property already in the defendant’s possession.
Hacking is the gaining of unauthorized access to a computer system. Hacking is a crime under the
federal Computer Fraud and Abuse Act of 1986 (CFAA).1
Courts are now in the process of figuring out how to interpret the CFAA. In the following case, a
former employee clearly violated his company’s policies, but did he commit a crime? You be the judge.
You Be The Judge: United States v, Nosal2
Facts: David Nosal worked for an executive search firm, Korn/Ferry (K/F). Shortly after he left the
company to start a competing business, he convinced some of his former colleagues to log into the
company’s confidential database and give him customer names and contact information. K/F had
authorized the employees to access the database, but not to disclose confidential client information to
outsiders.
The government charged Nosal with aiding and abetting his former colleagues in violating a provision of
the CFAA that prohibits employees from exceeding their authorized access to a computer with intent to
defraud. The trial court granted Nosal’s motion to dismiss. The government appealed.
You Be the Judge: Did Nosal commit a crime when he aided and abetted others in violating a
workplace policy on computer use?
Argument for the Defendant: This provision of the CFAA can mean one of two things: (1) either it is
a crime to access unauthorized data or, (2) in a more expansive view, it can apply to anyone who is
legally entitled to access data, but who then uses this data in an unauthorized manner. That is what
happened here. The K/F employees were authorized to access the confidential database, but they were
not permitted to send it to Nosal.
Congress enacted the CFAA primarily to address the growing problem of computer hacking, i.e.,
“intentionally trespassing into someone else’s computer files.” But, under the government’s view,
everyone who
uses a computer in violation of company policy, which may well include
everyone who
uses a computer, would be a criminal.
According to the government, if an employer keeps certain
information
in a separate database that can be viewed on a computer screen, but not copied or
downloaded and an employee copies the information to a thumb drive, he could be charged with a
crime.
The computer gives employees new ways to procrastinate, by g-chatting with friends, playing games,
shopping or watching sports highlights. Such activities are routinely prohibited by many computer-use
policies. Under the broad interpretation of the CFAA, such minor violations would become federal
crimes. While it is unlikely that you will be prosecuted for watching cat videos on your work computer,
you could be. How will an employee know the difference between a minor personal use and a criminal
act?
Employees who call family members from their work phones will become criminals if they send an
email instead. They can read the sports section of USA Today at work, but they’d better not visit
1 18 U.S.C. Section 1030.
2 676 F.3d 854 United States Court of Appeals for the Ninth Circuit, 2012.
ESPN.com. And Sudoku enthusiasts should stick to printed puzzles, because visiting
www.dailysudoku.com from their work computers might give them more than enough time to hone their
Sudoku skills behind bars.
Facebook prohibits its users from sharing login information. Are we going to cart every violator off to
prison? The terms of service on dating websites prohibit inaccurate or misleading information. If you
describe yourself as “tall, dark and handsome,” when you are actually short and homely, could you end
up wearing a handsome orange prison jumpsuit?
Argument for the Government: This statute explicitly requires an intent to commit fraud. Therefore,
it has nothing to do with reading ESPN.com, playing Sudoku, checking email, or fibbing on dating
sites. Instead, the K/F employees knowingly exceeded their ac
cess to a protected company computer
and they did so with an intent to defraud.
This distinction is not complicated. A bank teller is entitled to access money for legitimate bank
ing
purposes, but not to take the bank’s money for himself. A new car buyer may be entitled to
take a
vehicle around the block on a test drive but not to drive it to Mexico on a drug run.
Holding: Judgment for Nosal.
Question: What does CFAA stand for?
Question: What is hacking?
Crimes Committed by Business
A corporation can be found guilty of a crime based on the conduct of any of its agents, who include
anyone undertaking work on behalf of the corporation. An agent can be a corporate officer, an
accountant hired to audit a statement, a sales clerk, or almost any other person performing a job at the
company’s request.
If an agent commits a criminal act within the scope of his employment and with the intent to benefit
the corporation, the company is liable. This means that the agent himself must first be guilty.
Making False Statements
It is illegal to make false statements or engage in a cover up during any dealings with the United States
government.
Workplace Crimes
The most important statute regulating the workplace is the federal Occupational Safety and Health Act
of 1970 (OSHA), which sets safety standards for many industries.
RICO
The Racketeer Influenced and Corrupt Organizations Act (RICO) is one of the most powerful and
controversial statutes ever written. Congress passed the law primarily to prevent gangsters from taking
money they earned illegally and investing it in legitimate businesses.
What does that mean in English? It is a two-step process to prove that a person or an organization has
violated RICO.
• The prosecutor must show that the defendant committed two or more racketeering acts, which are
any of a long list of specified crimes: embezzlement, arson, mail fraud, wire fraud, and so forth. Thus,
if a gangster ordered a building torched in January and then burned a second building in October, that
would be two racketeering acts. If a stockbroker told two customers that Bronx Gold Mines was a
promising stock, when she knew that it was worthless, that would be two racketeering acts.
• The prosecutor must then show that the defendant used these racketeering acts to accomplish one
of the three purposes listed above. If the gangster committed two arsons and then used the insurance
payments to buy a dry cleaning business, that would violate RICO. If the stockbroker gave fraudulent
advice and used the commissions to buy advertising for her firm, that would violate RICO.
Money Laundering
Money laundering consists of taking the proceeds of certain criminal acts and either (1) using the
money to promote crime, or (2) attempting to conceal the source of the money.
Money Laundering Cases and Prosecutorial Ethics
Federal prosecutors have sharply increased the number of people they charge with money laundering.
Because more people are funneling drug money out of the country? Not necessarily, argue defense
lawyers. They say that prosecutors are now routinely adding on money laundering charges to cases
that used to be routine fraud cases. For example, a medical supply company bills the federal
government for prosthetic devices that it never delivered. Formerly, that would have been a simple
Medicare fraud case. Today, though, it is likely to be a Medicare fraud and money laundering case.
Prosecutors in such a case argue that the money obtained illegally from the federal government is used
to invest in and maintain a legitimate business, and that is money laundering. If the medical supply
company uses money obtained from fraudulent bills to pay the rent on its company headquarters, it has
laundered the money.
What is the big deal? Time in prison. A simple fraud conviction typically results in a sentence of five
years or less; a money laundering conviction can increase the penalty to 20 years in prison. In
addition, a prosecutor who tacks on a money laundering charge puts extra pressure on the defendant to
plea bargain, because the penalty for a conviction could be so high.
Defense lawyers claim that this practice is unethical, in that Congress intended stiff money laundering
penalties for big-time drug dealers who gravely damage our country by importing harmful substances.
A small business dealer who cheats once or twice should not be treated like a drug kingpin.
Prosecutors respond that they are ethically required to charge the most serious provable crime, and that
Congress wrote the money laundering statute broadly in order to discourage all fraud, not just
drug-related offenses.
Foreign Corrupt Practices Act
Under the Foreign Corrupt Practices Act (FCPA), it is illegal for any employee or agent of a U.S.
company (and some foreign companies) to give anything of value to any foreign official for purposes of
influencing an official decision (unless the payment was merely intended to facilitate a routine
governmental action.)
Additional Case: United States v. Kennard3
Facts: The reverend Abraham Kennard bilked hundreds of churches out of millions of dollars through
a phony grant scheme. Abraham created the Network International Investment Corporation and then
approached churches and other nonprofits with an offer: for every $3,000 in membership fees that an
organization paid to the Network, the Network would award $500,000 in grants. Abraham told
investors that the grants were possible because he had secured wealthy investors who would provide
financing, and that the Network expected to earn a profit from its Christian resorts. More than 1,600
churches and other nonprofits paid Abraham over $8.7 million.
Abraham deposited the money into an escrow account in the name of his lawyer, and then
transferred the money into another account in the name of Promotional Times International, Ltd., which
was controlled by Abraham’s brother Laboyce Kennard.
3 472 F.3d 851, 11th Circuit Court of Appeals, 2006.
The investors never received their money and Abraham was found guilty of various crimes.
Laboyce was found guilty of money laundering. He appealed, arguing there was insufficient proof that
he knowingly laundered money.
Issue: Was there sufficient evidence that Laboyce knowingly laundered money?
Holding: Yes, conviction affirmed. Laboyce claims that there was not enough evidence for a jury to
find beyond a reasonable doubt either the existence of a criminal agreement or his knowing
participation in it.
To convict Laboyce on the money laundering conspiracy charge, the prosecution had to prove that
some agreement existed to launder the proceeds of Abraham’s fraud scheme, and that Laboyce
knowingly participated in that agreement. The extent of Laboyce’s knowledge of the details in the
conspiracy does not matter if the prosecution can show that he knew the essential objectives of the
conspiracy.
There was sufficient evidence to prove that Laboyce knowingly participated in the agreement
to launder the proceeds from Abraham’s fraud. Laboyce set up the Promotional account and made
large deposits to that account of cashier’s checks from Abraham and checks drawn on the escrow
account. Laboyce made most of the withdrawals from the Promotional account including cashier’s
checks made payable to Abraham.
Laboyce was also involved in Network events. For example: Laboyce went with Abraham to a
Network meeting in Charlotte, North Caroline at which Abraham gave Network members fake checks
instead of the promised grant money; Laboyce videotaped Abraham at a fake groundbreaking ceremony
for a Network resort which was used to hold off member complaints; Laboyce “worked security” at a
Network meeting where Abraham told the members their grants would be delayed again; and Laboyce
was present at a meeting where Abraham told him that an FBI investigation of the Network led to a
seizure of the escrow account.
This evidence, according to the court, was enough for a jury to find beyond a reasonable doubt that
Laboyce knowingly participated in the conspiracy to launder the proceeds of the fraud.
Question: What is money laundering?
Question: How did the money laundering occur here?
Answer: Payments received from members based on a fraudulent investment scheme was passed
Question: If Laboyce did not commit the fraud, what crime did he commit?
Question: How is that different than money laundering?
Punishing a Corporation
Fines
The most common punishment for a corporation is a fine. This makes sense in that the purpose of a
business is to earn a profit, and a fine, theoretically, hurts. But most fines are modest by the present
standards of corporate wealth.
Compliance Programs
The Federal Sentencing Guidelines are the detailed rules that judges must follow when sentencing
defendants convicted of crimes in federal court. The guidelines instruct judges to determine whether, at
the time of the crime, the corporation had in place a serious compliance program, that is, a plan to
prevent and detect criminal conduct at all levels of the company.
Multiple Choice Questions
1. In a criminal case, which statement is true?
(a) The prosecution must prove the government’s case by a preponderance of the evidence.
(b) The criminal defendant is entitled to a lawyer even if she cannot afford to pay for it herself.
(c) The police are never allowed to question the accused without a lawyer present.
(d) All federal crimes are felonies.
2. The police are not required to obtain a warrant before conducting a search if:
(a) a reliable informant has told them they will find evidence of a crime in a particular location.
(b) they have a warrant for part of a property and another section of the property is in plain view.
(c) they see someone on the street who could possibly have committed a criminal act.
(d) someone living on the property has consented to the search.
3. Under the exclusionary rule, which statement is true?
(a) Evidence must be excluded from trial if the search warrant is defective, even if the police
believed at the time of the search that it was valid.
(b) The prosecution cannot use any evidence the police found at the site of the illegal search but it
can use any evidence the police discover elsewhere as a result of the illegal search.
(c) Any statements a defendant makes after arrest are inadmissible if the police do not read him his
Miranda rights.
(d) If a conviction is overturned because of the exclusionary rule, the prosecution is not allowed to
retry the defendant.
4. Henry asks his girlfriend, Alina, to drive his car to the repair shop. She drives his car all right—to
Las Vegas, where she hits the slots. Alina has committed:
(a) fraud
(b) embezzlement
(c) larceny
(d) a RICO violation
5. Which of the following elements is required for a RICO conviction?
(a) Investment in a legitimate business
(b) Two or more criminal acts
(c) Maintaining or acquiring businesses through criminal activity
(d) Operating a business through criminal activity
Case Questions
1. You Be the Judge: WRITING PROBLEM. An undercover drug informant learned
from a mutual friend that Philip Friedman “knew where to get marijuana.” The informant asked
Friedman three times to get him some marijuana, and Friedman agreed after the third request.
Shortly thereafter Friedman sold the informant a small amount of the drug. The informant later
offered to sell Friedman three pounds of marijuana. They negotiated the price and then made the
sale. Friedman was tried for trafficking in drugs. He argued entrapment. Was Friedman entrapped?
Argument for Friedman: The undercover agent had to ask three times before Friedman sold him a
small amount of drugs. A real drug dealer, predisposed to commit the crime, leaps at an opportunity
to sell. If the government spends time and money luring innocent people into the commission of
crimes, all of us are the losers. Argument for the Government: Government officials suspected
Friedman of being a sophisticated drug dealer, and they were right. When he had a chance to buy
three pounds, a quantity only a dealer would purchase, he not only did so, but bargained with skill,
showing a working knowledge of the business. Friedman was not entrapped—he was caught.
Answer: Friedman argued entrapment, claiming that there was no evidence of his predisposition to
traffic in drugs. The Alabama Supreme Court ruled against him. The court noted that Friedman
admitted to occasional use of marijuana, that he had been able quickly to locate marijuana to resell
to the agent, and that he showed a sophisticated knowledge of the drug when bargaining over the
price of three pounds. The court held that there was no evidence of entrapment. Friedman v. State,
654 So.2d 50, 1994 Ala. Crim. App. LEXIS 179 (1994).
2. Conley owned video poker machines. Although they are outlawed in Pennsylvania, he placed them
in bars and clubs. He used profits from the machines to buy more machines. Is he guilty of money
laundering?
3. Karin made illegal firearm purchases at a gun show. At her trial, she alleged that she had
committed this crime because her boyfriend had threatened to harm her and her two daughters if
she did not. Her lawyer asked the judge to instruct the jury that the prosecution had an obligation
to prove beyond a reasonable doubt that Karin had acted freely. Instead, the judge told the jury that
Karin had the burden of proving duress by a preponderance of the evidence. Who is correct?
4. Shawn was caught stealing letters from mailboxes. After pleading guilty, he was sentenced to two
months’ in prison and three years’ supervised release. One of the supervised release conditions
required him to stand outside a post office for eight hours wearing a signboard stating, “I stole
mail. This is my punishment.” He appealed this requirement on the grounds that it constituted cruel
and unusual punishment. Do you agree?
5. While driving his SUV, George Xinos struck and killed a pedestrian. He then fled the scene of the
crime. A year later, the police downloaded information from his car’s onboard computer which they
were able to use to convict him of the crime. Should this information have been admissible at trial?
Answer: A California court ruled that Xinos did have a reasonable expectation of privacy and the
6. While conducting a valid search of a computer for evidence of a murder, a police officer discovered
child pornography. Is that evidence admissible, even though the warrant was limited to a search
relating to the murder?
7. Police arrested Hank on a warrant issued in a neighboring county. When they searched him, the
police found drugs and a gun. Only later did the police discover that when they had used the
warrant, it was not valid because it had been recalled months earlier. The notice of recall had not
been entered into the database. Should the evidence of drugs and a gun be suppressed under the
exclusionary rule?
Discussion Questions
1. Under British law, a police officer must now say the following to a suspect placed under arrest:
“You do not have to say anything. But if you do not mention now something which you later use in
your defense, the court may decide that your failure to mention it now strengthens the case against
you. A record will be made of anything you say and it may be given in evidence if you are brought
to trial.” What is the goal of this British law? What does a police officer in the United States have
to say, and what difference does it make at the time of an arrest? Which approach is better?
2. ETHICS You are a prosecutor who think it is possible that Naonka, in her role as CEO of a
brokerage firm, has stolen money from her customers, many of whom are not well-off. If you
charge her and her company with RICO violations, you know that she is likely to plea bargain
because otherwise her assets and those of the company may be frozen by the court. As part of the
plea bargain, you might be able to get her to disclose evidence about other people who might have
taken part in this criminal activity. But you do not have any hard evidence at this point. Would such
an indictment be ethical? Do the ends justify the means? Is it worth it to harm Naonka for the
chance of protecting thousands of innocent investors?
3. An informant bought drugs from Dorian. The police obtained a search warrant to search Dorian’s
house. But before they acted on the warrant, they sent the informant back to try again. This time,
Dorian said he did not have any drugs. The police then acted on the warrant and searched his
house. Did the police have probable cause?
4. Van is brought to the police station for questioning about a shooting at a mall. The police read him
his Miranda rights. For the rest of the three-hour interrogation, he remains silent except for a few
one word responses. Has he waived his right to remain silent? Can those few words be used against
him in court?
Answer: In Berghuis v. Thompkins,130 S. Ct. 2250, the Supreme Court ruled (5-4) that to maintain
5. Officer Trottier stopped Marie Winfield for driving 20 miles over the speed limit. He then became
suspicious because her son would not make eye contact and she was eating a Powerbar in a
“hurried manner.” The officer asked for and Winfield granted him permission to search her car.
During the search, he found a letter, which he read. Has he committed an illegal search?
6. Mickle pleaded guilty to rape. The judge sentenced him to prison for five years and also ordered
that he undergo a vasectomy. Was this cruel and unusual punishment?
Answer: The appeals court ruled that this sentence was cruel and unusual. Although the operation
7. Ramona Fricosu was indicted on charges of real estate fraud. During a legal search of her home, the
police found a computer with encrypted files. Would it be a violation of her Fifth Amendment right
against self-incrimination to force her to unencrypt these files?
Answer: The courts are divided on this topic. This court did order Fricosu to unencrypt the files on
8. Suppose two people are living together: the suspect and a tenant. If the tenant consents to a police
search of the premises, then the police are not required to first obtain a warrant. What if the
suspect and the tenant disagree, with the tenant granting permission while the suspect forbids the
police to enter? Should the police be required to obtain a warrant before searching? Or what if the
suspect denies permission to enter but the police go back later and the tenant consents?
Answer: In the first situation, the S. Ct. ruled that if the suspect is standing there and denies
9. Hiring relatives of foreign officials for no-show jobs is a violation of the FCPA. But what about
hiring children of government officials into real jobs? Is that also a violation? The U.S. government
is investigating JPMorgan Chase & Co.’s practice of hiring the children of top Chinese officials in
Hong Kong. What are the rules in this situation? What should they be?
Answer: According to the WSJ, “Factors that would help a company fend off bribery inquiries
would include proof that there was a vacant position to start with (as opposed to the company
