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White Collar Crime And Intent

1.     “I didn’t think this was illegal.”
The level of proof of the mental state (“mens rea”, or guilty mind) the government must prove to convict someone accused of a white collar crime varies greatly depending on the crime charged.  In general, the defense of white collar crimes falls into two broad categories: crimes where the government must prove a lie or other wrongful intent and crimes where the government does not need to prove a lie or wrongful intent.  Where intent must be proved, either specific or general intent is required depending on the crime charged.[1]  Lawyers often describe offenses as having general or specific intent, which require the defendant to have performed a specific act with the intent to cause a particular result.  In cases involving a general intent, the government must prove the accused meant to do an act prohibited by law (“actus reus”, or guilty act).  Strict liability crimes do not require the government to prove the accused had a particular mental state.

2.     Examples of Federal Specific Intent Crimes
Bankruptcy fraud (18 U.S.C. § 152(9)[2], mail fraud (18 U.S.C. § 1341), honest services (bribe or “kickback”) fraud (18 U.S.C. §§ 1341 and 1346), wire fraud (18 U.S.C. § 1343), bank fraud (18 U.S.C. § 1344), health care fraud (18 U.S.C. § 1347)[3], and securities fraud (18 U.S.C. § 1349) to name a few, are crimes requiring the government to prove specific intent.[4]  An excerpt from the Ninth Circuit Manual of Model Criminal Jury Instructions provides the following elements that the government is required to prove beyond a reasonable doubt:

First, the defendant knowingly [participated in] [devised] [intended to devise] a scheme or plan to defraud, or a scheme or plan for obtaining money or property by means of false or fraudulent pretenses, representations, or promises;[5]

Second, the statements made or facts omitted as part of the scheme were material; that is, they had a natural tendency to influence, or were capable of influencing, a person to part with money or property;

Third, the defendant acted with the intent to defraud; that is, the intent to deceive or cheat; and

Fourth, the defendant used, or caused to be used, the mails to carry out or attempt to carry out an essential part of the scheme.

9th Cir. Model Crim. Jury Inst. No. 8.121 (2010) (emphasis added).  As the highlighted portions of the instructions reveal, the government must prove both the intent to participate in a scheme as well as the intent deceive or cheat.

An example of the Supreme Court turning a general intent crime into a specific intent crime (the opposite of the current trend) is Skilling v. United States, 130 S. Ct. 2896 (2010).  In Skilling the Supreme Court considered whether a conviction of “honest services wire fraud” could stand without proof of a bribe or intent to defraud.  The government’s theory was that Skilling had defrauded Enron’s investors by misrepresenting the company’s financial health.  Id. at 2935.  The Supreme Court reversed, holding that an honest services fraud conviction required more than a general intent to deceive; rather, it required a specific intent to defraud or receive a bribe.  Id. at 2934.  Skilling demonstrates the existence of a defense that existed if the crime charged required a specific intent (“I did not intend to defraud”) versus the unavailability of that defense if the crime charged required only proof of general intent.

Noteworthy corporate cases involving federal fraud schemes include: Adelphia Communications, Arthur Anderson, Credit Suisse First Boston, Enron, Health South, ImClone Systems, Martha Stewart Living Omnimedia, Qwest Communications, and Worldcom.  See Mark Jickling and Paul H. Janov, Criminal Charges in Corporate Scandals, CRS Report for Congress (Dec. 5, 2003).

Intent may be proven with circumstantial evidence. 

A variety of circumstantial evidence has been held relevant to infer fraudulent intent.  Intent may be inferred from evidence that the defendant attempted to conceal activity.  Intent to defraud may be inferred from the defendant’s misrepresentations, knowledge of a false statement as well as whether the defendant profited or converted money to his own use.

United States v. Prows, 118 F.3d 686, 692 (10th Cir. 1997), quoting Kathleen Flavin & Kathleen Corrigan, Eleventh Survey of White Collar Crime: Mail Fraud and Wire Fraud, 33 Am. Crim. L. Rev. 861, 869-70 (1996).

3.     Examples of General Intent Crimes

General intent crimes are less commonly found in white collar cases because they permit reckless and negligent conduct.  Examples include battery, assault, negligent homicide, and kidnapping.   However, proof of general intent is permissible for some white collar offenses.  Lowering the intent requirement makes defending general intent crimes more difficult.  For example, the Patient Protection and Affordable Care Act of 2014, as amended by the Health Care and Education Reconciliation Act of 2010 (“ACA”), lowers the intent requirement for certain health care crimes to a “general intent to deceive.”[6]  As others have observed, the general trend is towards the enactment of statutes that criminalize conduct without “adequate mens rea requirements and are vague in defining the conduct that they criminalize.”[7]

4.     Examples of Strict Liability Crimes

“Strict criminal liability . . . is simply liability in the absence of intention, belief, recklessness, or negligence.”   Kenneth W. Simons, When is Strict Liability Just, 87 J. Crim. L. & Criminology 1075 (1996-1997).   Prototypical examples of strict liability crimes are possession offenses and statutory rape.  Disturbingly, some white collar crimes appear to have no intent requirement at all, meaning the commission of an act (even if done innocently) can result in criminal conviction.  General categories of strict liability crimes include public welfare offenses[8] and public safety offenses.[9]  A particularly troublesome feature of strict liability environmental crimes is the presence of complicated regulatory and administrative requirements that impose criminal penalties even when compliance is difficult for the average person to fully understand.

The U.S. Supreme Court provided an example of the essence of strict liability crime in United States v. Park, 421 U.S. 658 (1975).  Here, the chief executive officer of Acme Markets was charged with violating 21 U.S.C. § 331(k) the Food, Drug, and Cosmetic Act (“FDCA”) because the company shipped and stored “adulterated” food products as they were stored in a rodent-infested warehouse.  Id. at 660.  The Supreme Court reinstated the defendant’s convictions even though the jury instructions omitted the requirement of “wrongful action”, noting:

Cases under the Federal Food and Drugs Act of 1906 reflected the view both that knowledge or intent were not required to be proved in prosecutions under its criminal provisions, and that responsible corporate agents could be subjected to the liability thereby imposed. See,e.g.United States v. Mayfield, 177 F. 765 (ND Ala. 1910).  Moreover, the principle had been recognized that a corporate agent, through whose act, default, or omission the corporation committed a crime, was himself guilty individually of that crime. The principle had been applied whether or not the crime required “consciousness of wrongdoing,” and it had been applied not only to those corporate agents who themselves committed the criminal act, but also to those who by virtue of their managerial positions or other similar relation to the actor could be deemed responsible for its commission.

Id. at 670.

An example of a public welfare offense in the context of environmental laws can be found in United States v. Weitzenhoff, 35 F. 3d 1275 (9th Cir. 1993).  Here, the defendants oversaw a sewage treatment plant in Honolulu, Hawaii, and believed that they were allowed to discharge waste under their permit in response to particular problems at the plant.  On appeal, the Ninth Circuit affirmed the convictions, holding that the Clean Water Act is a “public welfare statute” under which the defendants could be convicted even if they thought they were acting within the law.  Id. at 1286.

In a case involving the Ocean Dumping Act, a company dumped large quantities of scrap metal and debris from barges ruined by Hurricane Hugo in the ocean more than twelve miles from shore because vessels were required to display a placard indicating that it was illegal to dump within that proximity of land.  United States v. West Indies Transport, Inc., 127 F.3d 299, 313-314 (3d Cir. 1997).   The company believed it was permitted to dump these materials outside the coastal zone, and were permitted to make this argument at trial; however, the court did not provide an entrapment by estoppel instruction and the defendants were convicted at trial, and the conviction was affirmed on appeal.  Id. at 314.  In other words, the company was strictly liable even though it patterned its conduct based on a reasonable inference from the placards.

There are numerous other examples of the “strict liability” or “weak mens rea” white collar crimes.  The Ninth Circuit expressed concern in a prosecution for transporting and storing hazardous waste, stating that, “[r]emoving the knowledge requirement would criminalize innocent conduct, such as that of a transporter who relied in good faith upon a recipient’s fraudulent certificate.”  United States v. Speach, 968 F.2d 795, 796 (9th Cir. 1992).  The analysis considered the Hoflin case, and suggested that as the director of the public works, defendant Hoflin “was in the best possible position to know that the facility lacked a permit, and it was not unreasonable to put such a defendant at risk for failing to ascertain accurately the permit status of the very facility with which he was connected.”  Id. at 797 (emphasis added), citing United States v. Hoflin, 880 F.2d 1033 (9th Cir. 1989), cert. denied , 493 U.S. 1083 (1990); see also United States v. Hayes Intern. Corp., 786 F. 2d 1499, 1503 (11th Cir. 1986) (“As the Supreme Court has explained, it is completely fair and reasonable to charge those who choose to operate in such areas [hazardous waste] with knowledge of the regulatory provisions.”)  Despite the expressed concern, those cases all affirmed the lower intent requirement.

The difficulty with strict liability crimes, much like tax crimes, is that highly specialized knowledge is often required to understand the complex regulations.  The Supreme Court, in a dissenting opinion from United States v.International Chemical, 402 U.S. 558 (1971) raises the concern that a layperson deserves to be judged by a different standard than the “regulated community” in the context of hazardous waste.

“Today’s decision will have little practical impact upon the prosecution of interstate motor carriers or institutional shippers. For interstate motor carriers are members of a regulated industry, and their officers, agents, and employees are required by law to be conversant with the regulations in question.  As a practical matter, therefore, they are under a species of absolute liability for violation of the regulations despite the “knowingly” requirement.  . . . Likewise, prosecution of regular shippers for violations of the regulations could hardly be impeded by the “knowingly” requirement, for triers of fact would have no difficulty whatever in inferring knowledge on the part of those whose business it is to know, despite their protestations to the contrary.  The only real impact of this decision will be upon the casual shipper, who might be any man, woman, or child in the Nation. A person who had never heard of the regulation might make a single shipment of an article covered by it in the course of a lifetime.  It would be wholly natural for him to assume that he could deliver the article to the common carrier and depend upon the carrier to see that it was properly labeled and that the shipping papers were in order. Yet today’s decision holds that a person who does just that is guilty of a criminal offense punishable by a year in prison. This seems to me a perversion of the purpose of criminal law.”

Int’l Minerals & Chem. Corp.supra, at 568-569 (Stewart, J., dissenting) (emphasis added).

Although environmental statutes generally impose strict liability for civil violations, criminal violations still require proof of some mens rea.  SeeStaples v. United States, 511 U.S. 600, 605 (1994) (“the existence of a mens rea is the rule of, rather than the exception to, the principles of Anglo-American criminal jurisprudence”) (alterations, quotation marks, and citation omitted)); see alsoUnited States v. Ahmad, 101 F.3d 386, 391 (5th Cir. 1996) (criminal violations of Clean Water Act (CWA), which are felonies punishable by substantial terms of imprisonment, are not “public welfare offenses” for which no mens rea is required).  To obtain a felony conviction under the CWA, the government must prove a knowing violation, see 33 U.S.C. 1319(c)(2)(A), and the defendant’s knowledge must be proven with respect to each and every element of the offense.  United States v. Wilson, 133 F.3d 251, 262 (4th Cir. 1997) (“[T]he Clean Water Act . . . requires the government to prove the defendant’s knowledge of facts meeting each essential element of the substantive offense”).  However, the Supreme Court interpreted “knowing” in United States v. International Minerals and Chemical Corporation, 402 U.S. 558 (1971) to mean knowledge of the facts, or specifically that the transporter knew the cargo contained corrosive materials and knew the shipment crossed state lines.  Id. at 565.  By contrast, the Supreme Court limited the application of the public welfare doctrine in Liparota v. United States, 471 U.S. 419 (1985), requiring that the defendant had some knowledge that he acquired food stamps in a manner unauthorized by statute or regulation.  Id. at 433-434.   Seemingly, the conduct in Liparota was deemed not sufficiently serious to the interests of the public to eliminate the mens rea requirement.

© 2014 Knut S. Johnson & Emerson Wheat.  May not be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law.

[1] The Ninth Circuit avoids providing a generic definition of general and specific intent, electing instead to define the intent required for the particular charged crime.  9th Cir. Model Crim. Jury Inst. No. 5.4 (2010).

[2]Seee.g.United States v. Edwards, 595 F.3d 1004 (9th Cir. 2010) (government appeal of sentence in case charging bankruptcy fraud and making false statements to a bank).

[3]Seee.g.United States v. Ruff, 535 F.3d 999 (9th Cir. 2008) (government appeal of sentence in case charging health care fraud).

[4] Not every federal jurisdiction requires a specific intent to defraud.   See United States v.

Paradies, 98 F.3d 1266, 1285 (11th Cir. 1996) (“In mail fraud cases, the government need only prove that the defendant had the intent to deceive, and ignorance of the law is no defense.”).

[5] “[T]he intended deprivation under § 1343 need not be a permanent “taking away” of money or property. One can intentionally “deprive” another of property while at the same time intending to restore it at a later date.”   United States v. Treadwell, 593 F.3d 990, 996 (9th Cir. 2010).

[6]See, Elizabeth R. Sheyn, Toward a Specific Intent Requirement in White Collar Statutes: How Patient Protection and Affordable Care Act of 2010 Sheds Light on the “General Intent Revolution,” 64 Fla. L. Rev. 449, 472 (2102).

[7]Id. at 467, quoting Brian W. Walsh & Tiffany M. Joslyn, Without Intent: How Congress Is Eroding The Criminal Intent Requirement In Federal Law, at X (2010), available at /wp-content/uploads/sites/1778/2015/11/WithoutIntentReport.pdf.

[8]Seee.g.United States v. Balint, 258 U.S. 250 (1922) (selling derivatives of coca leaves and opium despite lack of proof of knowledge of these precursors); United States v. Dotterweich, 320 U.S. 277 (1943) (corporate officer convicted of drug company distributing misbranded drugs despite lack of proof of personal knowledge).

[9]Seee.g.United States v. Freed, 401 U.S. 601, 609 (1971) (possessing unregistered hand grenades because a reasonable person would expect this to be an illegal act).

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