Criminal Law

Business Crime Statutes

Federal Statutes Relating to Business

The major federal statutes relevant to businesses and crime are the Racketeer Influenced and Corrupt Organizations (RICO) Act, the False Claims Act, the Foreign Corrupt Practices Act of 1977, and the Sarbanes-Oxley Act of 2002 (SOX), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The Racketeer Influenced and Corrupt Organizations (RICO) Act is a federal statute that prohibits persons employed by or associated with an organization from engaging in a pattern of racketeering activity, which includes almost all white-collar crimes and acts of violence. The prosecution has two steps to prove a RICO violation. First, the prosecution must show that the defendant committed two or more racketeering acts. Second, the prosecution must show that the defendant carried out these racketeering acts to accomplish at least one of these: investing in or acquiring legitimate businesses with criminal money, maintaining or acquiring businesses through criminal activity, or operating businesses through criminal activity.

The government can prosecute both individuals and organizations for RICO violations. Possible punishment includes fines, incarceration, and forfeiture of property or money. Under RICO, the government, organizations, or individuals can also launch a civil suit against a defendant. A plaintiff (the person or organization bringing the case) can ask for damages and injunctions. If successful, plaintiffs can recover triple damages and attorney fees.

The False Claims Act is a federal statute that allows private citizens to sue employers on behalf of the government for fraud against the government. If successful, the plaintiff may receive up to 25 percent of the amount recovered if the government decides to intervene or up to 30 percent if the government does not. This act also protects people who sue their employers and are retaliated against. In that case, the employer may be held liable to the employee for twice the amount of back pay plus special damages if found guilty of retaliation.

The Foreign Corrupt Practices Act of 1977 (FCPA) is a federal statute that forbids bribing foreign officials. Payments for routine governmental action, such as processing visas or supplying utilities, do not qualify as bribes. All publicly traded companies must keep accurate and detailed records to prevent concealment of bribes. Punishments include large fines, loss of profits earned, and for individuals, up to five years of incarceration.

The Sarbanes-Oxley Act of 2002 (SOX) established new rules for corporate accounting, government oversight, and financial regulations. Congress established the Public Company Accounting Oversight Board to ensure that investors receive accurate and complete financial information. SOX requires auditors—people or organizations who are experts in examining accounting records—to report to the audit committee of the client's board of directors instead of senior management. SOX prohibits accounting firms that provide public auditing from also providing consulting services. It also states that an accounting firm cannot audit a company if a conflict of interest exists, and it requires term limits on audit partners.

Major Criminal Law Statutes

Other federal statutes that regulate business include the Economic Espionage Act of 1996 (EEA), the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act, and the White-Collar Crime Penalty Enhancement Act of 2002 (WCCPA), in addition to various state laws.

The Economic Espionage Act of 1996 (EEA) is a federal statute created to combat the theft of trade secrets. A trade secret is a process, product, method of operation, or compilation of information used in a business that is not known to the public and may give the organization a competitive advantage. Violations of the EEA may result in an injunction and forfeiture of property or money. An injunction is a court order that compels a party to do or refrain from a specific act that threatens or invades the legal right of another. The EEA extends to conduct outside the United States if the offender is a citizen or a permanent resident alien of the United States and an act in furtherance of the offense was committed in the United States. During proceedings under the EEA, courts must preserve the confidentiality of trade secrets.

As an example, in 2014, a federal jury convicted Walter Lian-Heen Liew under the EEA for theft of the chemical company DuPont's recipe that was used to whiten the cream inside Oreos. DuPont's recipe used titanium dioxide, and it took extensive measures to keep this recipe a trade secret. Liew acquired the recipe from an engineer at DuPont and formed a California company to sell titanium dioxide to Chinese companies. Liew sold the recipe for $20 million to Panang Group. Liew was convicted under the EEA and was sentenced to 15 years' imprisonment and was forced to forfeit $27.8 million in profit gained from contracts with numerous companies.

Prosecution and Conviction Rates for White-Collar Crimes Pre-SOX

The Sarbanes-Oxley Act of 2002 and its components were enacted to combat white-collar crime and erase the sentencing disparity between white-collar crimes and street crimes.
The Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act is a federal statute that regulates unsolicited commercial e-mail (UCE) or unsolicited bulk e-mail (UBE). This act applies to promotional e-mails regardless of whether the sender has a preexisting relationship with the recipient. Under this act, commercial e-mail may not have deceptive From, To, Reply To, or Subject headings. It must offer a system to opt out of the communication and promptly honor any requests. It must clearly indicate that the e-mail is an advertisement. It must provide a valid physical return address (no post office box). And it must clearly indicate the nature of pornographic messages. If the sender receives advance permission from the recipient, the sender does not have to meet these requirements.

As an example, in 2003, two individuals were convicted under the CAN-SPAM Act for pornographic spamming that grossed them over $2 million. They had sent millions of unsolicited e-mails with deceptive headings, which contained, in the bodies of the emails, advertisements for various pornography sites. Each e-mail they sent contained extremely explicit pornographic images that were embedded into the e-mail and were automatically shown to anyone who opened the e-mail.

The White-Collar Crime Penalty Enhancement Act of 2002 (WCCPA), a federal statute, seeks to deter white-collar crime by implementing stronger penalties through the Federal Sentencing Guidelines, removing the disproportion between white-collar crime and street crime sentencing. The act increased the maximum prison sentences for mail and wire fraud from 5 years to 20 years. Critics of the WCCPA argue that it had no practical effect because federal judges continue to sentence white-collar crime defendants more leniently than street crime defendants.