Business owners and managers want to increase value with job performance. Similarly, investigators will want to distinguish themselves on the job by building cases that lead to findings of culpability or guilt. With that in mind, leaders should develop an understanding of the following charges that investigators or prosecutors may bring:
the company and management can be held liable for conspiracy, regardless of whether the fraud actually culminated. To prove a conspiracy existed, prosecutors must identify the elements of the offense—like a conversation to deceive consumers. Then, they must show that the participants engaged in an overt act, like designing a marketing brochure. The deception does not have to take place—only the effort to deceive. Those actions can lead to a conviction for conspiracy on any fraud charge, as many people in prison have learned.
Sadly, a well-intentioned effort at damage control can lead to charges of a cover-up. We know one person who enjoyed fishing and regularly caught fish without checking or worrying about the limits. The Coast Guard stopped him for a random check. An officer spotted the captain throwing fish overboard in an attempt to cover up a catch of under-sized fish. The Coast Guard pressured the captain to provide evidence against the owner or face charges for aiding and abetting.
Investigators may bring charges for aiding and abetting for any number of reasons, including shredding or destroying corporate documents. A good compliance program can shield a leader from such charges, especially if they train regularly on the importance of compliance.
When investigators or prosecutors believe that a witness has willfully tried to block the investigation, they may bring charges for obstruction of justice. For example, providing false statements or tampering with or destroying evidence—even before an investigation begins—can lead to criminal charges.
We got a chance to know a media mogul who once controlled the world’s third-largest English-language newspaper empire, which published more than 300 newspapers including The Daily Telegraph (UK), Chicago Sun-Times (U.S.), The Jerusalem Post (Israel), National Post (Canada). He was world renowned and even anointed a Lord by the Queen of England.
His title didn’t keep him from getting charged with 8 counts of fraud for a payment of $5.5 million that allegedly unjustly enriched him. While fighting those charges, he removed 13 boxes of documents from his office, which were merely copies of documents he’d already handed over to the SEC. That action led to additional charges for obstruction of justice. The media mogul appealed and beat the original charges; yet he still had to serve 37 months of the original 78-month sentence because of the obstruction of justice charges.
In some instances, management and the company can even be held liable for failure to prevent a wrongful action, such as in instances of “public welfare” and certain regulatory offenses.
One such instance involved the sale and distribution of tainted eggs and salmonella, leading to criminal liability for the father and son in charge of the company, even though they were not directly involved with day-to-day quality control procedures.
Honest Services fraud has led many people into the crosshairs of an investigation and to prison. Politicians and corporate executives perform duties that can be interpreted as favors on any given day. Voting for a particular bit of legislation, for example, or developing a corporate complex in a specific area. Certain people stand to benefit from these decisions and if any of them can be reverse-engineered back to a vote or decision, that can spell potential trouble.
A person who legally controls another person or entity (and it need not be complete control) can be held jointly and severally liable (i.e. responsible for the actions) for the wrongful acts of the controlled person/entity.
We know a former executive of a publicly traded corporation. His company made an acquisition and he delegated material aspects of the merger to several other high-level executives to deal with the details. When the CEO signed and attested to documents filed with the SEC, he exposed himself to criminal liability. Later, prosecutors charged the CEO and other executives for not recognizing possible warning flags and relying on assurances by subordinates. The government claimed the CEO signed off on financial statements in “reckless disregard” of the truth of their contents. The conviction resulted in a fine of $1 million and a 10-year sentence.
The examples above show the risk exposure for corporate fraud. To minimize exposure to such risks, we encourage regular training on best practices for compliance at every level of the organization.