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Tuesday, October 2, 2012

Staying Out of Jail When Business Becomes A Crime

When the government is increasingly populated by lawmakers and bureaucrats who hate capitalism and genuinely believe that business owners are criminals somehow "taking" things away from others, your liberty depends on your strategy for staying out of jail. Here is my latest piece, first printed on the Financial Policy Council's website earlier this afternoon.  The full article appears below.

Strategies For Staying Out of Jail In An Age of Criminalized Business, by Eric Dixon


The two worst things our government can do to someone are to conscript him for military service, and deprive him of his liberty.

Losing or being threatened with loss of liberty is an ordeal increasingly suffered by average, law-abiding Americans.  We have become a nation of "No," of the ever-present threat of criminal prosecution -- even, perversely enough, in an era of "yes" and permissiveness on someone else's dime.  The routine trip to the doctor's office comes with the warning that "false statements" on the insurance form can result in prosecution.  Anything you do that involves either your receipt of money, or ever-growing duties and responsibilities owed to customers, lenders, clients or the general public, now comes with the risk of being suspected, investigated and accused of a "crime."  As I detail later in this article, your "crime" may not be a substantive violation of the law but rather just a disputed interpretation of what you said -- or intended to say -- where your word goes against the word of the government agent whose credibility juries often assume to be impeccable.

This trend places our entrepreneurial, managerial, ownership and professional classes at the greatest risk.  There is a perfect storm of adverse crosswinds that converge to create this danger.  First, no one in America is more vulnerable to these type of accusations than the business community, as illustrated by the Department of Justice's statement that "business fraud" (in various forms) "remains one of the highest priorities" of the Department's Criminal Investigations Division.1  This subset of America is the most envied and targeted for "justice" --schadenfraude masquerading as "fairness."2 It is hard to imagine a greater disincentive to educational and professional achievement -- or a greater reward for sloth and envy.  This is clearly not a social or governmental attitude that made this nation great, or will allow it to enjoy an economic resurgence.
 
America's entrepreneurial One Percent suffers from a legally uncertain future, where yesterday's permissible behavior may become tomorrow's crime.  This group is increasingly viewed by "the street" with suspicion, envy and condemnation, and such emotions are fueled and encouraged by many in the public sector.  This legal uncertainty, coupled with growing condemnation, strongly deters productive, wealth-creating investment and encourages (if not requires) survivalist tendencies to hoard, secrete wealth in physical assets (e.g., precious metals, real estate) or even flee overseas.  Today, America's most productive classes must wonder what tomorrow holds, whether they will be free, or even where they will be.

On the premise that "the government" can and should control our behavior, legislators pass laws,  bureaucrats create new regulations, and government lawyers and judges have expanded their interpretation. As "legal" activity increasingly becomes "criminal," the risk of arbitrary, targeted government intimidation, investigation, prosecution and imprisonment grows with no check in sight.  Worse, emerging forces are pushing us towards prosecutions "for show" and not "for cause." Both populist political movements,3 and journalists question why more corporate executives have not been jailed, and demand more prosecutions.4   However, these cries ignore one critical fact: the number of financial crime prosecutions only reflects cases in which the charges actually brought involve the elements of financial fraud (e.g., securities fraud, bank fraud).  This number omits the cases brought when businesspeople are targeted, and any pretextual charge is used for a prosecution.  These are charges brought when evidence is insufficient for the target (that is, a person considered to be a putative defendant in a yet-to-be-brought criminal indictment) of an investigation to be charged with any business-related crime.  Justice Department statistics do not reflect the true extent to which the business community is targeted for investigation and intimidation, because they are engaged in business, or to which its members are charged with any non-business crime such as false statements, failing to file required tax forms, conspiracy or misprision (the failure to report an act which one allegedly knows to be a crime) when evidence of substantive criminality cannot be found.  When the ends justify the means, any criminal charge will suffice. The true scope of this problem may not be measurable at all, but can be indicated somewhat through cataloguing and examining each and every "white collar" criminal case brought by authorities (a mammoth project in which the author is presently engaged). Finally, these statistics also do not measure the many who are investigated but never charged.

As a business owner or someone with a high public profile, your livelihood may be affected by or depend on your credibility and reputation. This means when the government starts "investigating" you (i.e., looking for evidence to support , you are vulnerable to the popular (and incorrect) notion that silence is evidence of guilt.  The government will exploit this notion to pressure you to talk.  In an age of government "leaks" and totally irresponsible social media and the destruction of basic privacy, reputational threats pose an immediate risk of lasting financial harm to targets in the public eye.

Consider the case of former New Jersey state Assemblyman and Consumer Affairs Director Joseph Doria.  FBI agents raided his home one morning in July 2009 as part of the legendary Bid Rig corruption investigation. In full view of reporters and photographers, who undoubtedly received prior and improper notice of the raid, agents carried out cardboard boxes from Doria's home.  The implication of guilt was clear, the press fueled immediate corruption rumors and Doria swiftly resigned (under pressure from then-New Jersey Governor Jon Corzine) his state cabinet position. Only years later was it revealed that the boxes contained -- nothing but air. They were empty. The boxes were part of an apparent ruse, with no logical purpose other than to make Doria seem guilty.5  The reputational harm was done.

Once the government has made you its "mark," you must choose: Remain silent, and be thought a crook? Or speak, and remove the obstacle to investigators and prosecutors who have preordained your guilt and want to find (or create) evidence to support their conclusion?  If you talk, their trap can be sprung at any time. Once that happens, your freedom and future may depend more on the integrity of the agents investigating you instead of anything you actually say.  Business leaders like Martha Stewart have served jail time for nothing more than a false statement charge when evidence did not include any video or audio recording but only the notes of FBI agents interviewing her and recorded in a "302 report."6  You see, if and when you talk, the "evidence" against you will be the official record of what you say, and this means the FBI's 302 report. So If government agents come knocking, think twice about saying anything. Even if your lawyer is present (and certainly if he or she is not).  And particularly when you are innocent.  No one wants to lose his innocence and become presumptively guilty after talking (and totally vulnerable to being charged or pressured), no matter what you really say or what you have done.  Any conversation you have with any federal employee creates some risk of criminal prosecution which is greater than if you stay silent.  After all, remaining silent is the best defense against being charged with a false statement crime.7
 
You might think there's no problem with answering a few seemingly innocuous questions.  You may think you can talk your way out of any suspicion.  Don't do it! That could end up being the mistake of your lifetime.  But also know this: The authorities rarely have real questions. They are talking to you to size you up, measure your mental strength and whether they can intimidate or break you.  These trap interviews, with accusations in the form of questions, are designed to create discrepancies between your answers and other evidence they have, sometimes for the very purpose of creating proof for a false statements charge.  You may assume there can't be misunderstandings because there's a tape and you're willing to be taped.  Police departments routinely record interrogations and even traffic stops (although this is done much more to protect the police from misconduct allegations and potentially ruinous civil rights litigation).  But the Federal Bureau of Investigation has a policy against recording interviews of targets and subjects (that is, potential witnesses and defendants) of investigations.8  Why? Because without a tape-recording of what you actually said, it's much easier to be charged with a false statement. It's your word against the aforementioned FBI 302 report. Now, how do you plead?

Parsing the FBI's rationale for this policy reveals motives that should terrify achievers in our nation.  The FBI justifies its no-recording policy by claiming "the presence of recording equipment may interfere with and undermine the successful rapport-building interview technique which the FBI practices" and "perfectly lawful and acceptable interviewing techniques do not always come across in recorded fashion to lay persons as proper means of obtaining information from defendants."9 The FBI does acknowledge "there are many situations in which recording a subject's interview would be prudent," but suggests recordings be made in so-called positive instances such as "where and when it will further the investigation and the subsequent prosecution."10 (Emphasis added.) Despite the ability to use recorded interviews to exonerate people and thereby reallocate scarce resources to pursue other wrongdoers, the FBI believes recorded interviews are useful only to prove guilt.  The federal government thereby shows a depraved indifference towards those whom it has wrongfully convicted, wrongfully prosecuted or wrongfully harassed people.  It even supports an inference that the government is willing to investigate, prosecute and jail people whom it knows are innocent. In an age where business owners, managers and investors are increasingly envied, despised and targeted for ruin by those with dark political or personal antipathies, such government powers can be fearsome indeed.

What's an innocent person to do?  You need to recognize that although Government is Authority, your misplaced trust, your childish hope that Authority is both Fair and Benevolent, will be as rational -- and as risky -- as a blind roll of the dice.  As a successful, mature, rational adult, an achiever -- a Grown-up, for heavens' sake --  you must reject the easy way out of Obedience to The (Nanny) State As Mommy.  You must beat the impulse to surrender to your fears of confronting injustice in an imperfect world in which you must fight for your very freedom, the right to be left alone.  If you don't, you allow others to make the most critical decision for your future, and in every real sense, to control you.  Freedom requires you to fight.  This is part of the price for our freedom. 
 
In an era of increased visibility of financial crimes, a broadening of what business practices are termed criminal, and growing public demands for "accountability" of the business community, there is a surprisingly easy and cheap policy solution.  Federal legislation mandating that investigators and prosecutors tape-record all interrogations will be an inexpensive, cost-effective means of guarding against miscarriages of justice and entirely mistaken criminal indictments of innocent people.  Allowing hard-to-refute tapings of interrogations will remove the parade of false statements prosecutions and allow the authorities -- who always complain about scarce resources for investigations, compliance and monitoring -- the ability to recoup and redeploy resources towards criminal investigations involving violence and public safety: terrorism, weapons and narcotics offenses. 

Footnotes: 

1.  Federal Bureau of Investigation - Financial Crimes Report 2010-2011, available at http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011.

2.  This sentiment was demonstrated by the comment made by President Barack Obama to the chief executive officers of the nation's thirteen largest banks that, "My administration is the only thing standing between you and the pitchforks," ABC News report, April 3, 2009, available at http://abcnews.go.com/blogs/politics/2009/04/obama-to-banker/.

3.  The call for more criminal prosecutions of "Wall Street" is one of the most common demands voiced by the leftist and somewhat anarchist protest movement calling itself "Occupy Wall Street." See Bob Cesca, "Occupy Wall Street Isn't Anti-Corporation, It's Anti-Corporate Crime," Huffington Post, Oct. 27, 2011, available at http://www.huffingtonpost.com/bob-cesca/occupy-wall-street-isnt-a_b_1034418.html.

4.  Alex Klein, "How The Government Failed to Fix Wall Street," The Daily Beast, Oct. 1, 2012, available at http://www.thedailybeast.com/articles/2012/10/01/how-the-government-failed-to-fix-wall-street.html.

5.  Ted Sherman and Josh Margolin, "The Jersey Sting," (St. Martin's Press, 2011), at 287-290. 

6.  See Indictment, U.S. v. Martha Stewart, Peter Bacanovic, S1-03-Cr-717 (MGC), Southern District of New York, June 4, 2003 (four count indictment of Stewart). The 302 report is the Federal Bureau of Investigation's Form for Reporting Information That May Become Testimony (FD-302), memorializing the statements by a witness, subject or target of an investigation being questioned by federal agents.  See House of Representatives Report 112-546, Resolution Recommending That the House of Representatives Find Eric H. Holder, Jr.,  Attorney General, U.S. Department of Justice, In Contempt of Congress for Refusal to Comply With A Subpoena Duly Issued By The Committee on Oversight And Government Reform, at 16 ("Pursuant to the Committee's investigation, the Justice Department produced FBI reports of witness interviews, commonly referred to as `302s.'"), available at http://www.gpo.gov/fdsys/pkg/CRPT-112hrpt546/pdf/CRPT-112hrpt546.pdf.

7.  The statute at issue, Section 1001(a) of the United States Code, Title 18 (18 USC 1001), provides as follows:
(a) Except as otherwise provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully—
(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact;
(2) makes any materially false, fictitious, or fraudulent statement or representation; or
(3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;
shall be fined under this title, imprisoned not more than 5 years or, if the offense involves international or domestic terrorism (as defined in section 2331), imprisoned not more than 8 years, or both. If the matter relates to an offense under chapter 109A, 109B, 110, or 117, or section 1591, then the term of imprisonment imposed under this section shall be not more than 8 years.
8.  "Electronic Recording of Confessions and Witness Interviews," Memorandum dated March 23, 2006 by Federal Bureau of Investigation, Office of the General Counsel (the "2006 FBI Memorandum"), available at http://www.nytimes.com/packages/pdf/national/20070402_FBI_Memo.pdf (reaffirming that existing policy against recording interviews would remain);  see also Harvey Silverglate, "Constructing Truth: the FBI's (non)recording policy," July 27, 2011, available at http://www.forbes.com/sites/harveysilverglate/2011/07/27/constructing-truth-the-fbis-nonrecording-policy/.

9.  2006 FBI Memorandum at 3.

10.  2006 FBI Memorandum at 3.

11. See Note 7.


Eric Dixon is a New York investigative and corporate lawyer who handles legal, business and strategic matters for business, political and individual clients.

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