High Tech and Investment Fraud - United States Department ... · as part of SSA's Ant i-Fraud Pilot Project, and was detailed to the Criminal Division of the Chicago United States

High Tech andInvestment Fraud

In Honor

This is sue o f the U nited S tates A ttorneys' Bu lletin is

dedicated to Michael C. Messer, a senior attorney at the

Social Security Administration (SSA). Mr. Messer was

appointed a Special Assistant United States Attorney

for the Northern District of Illinois on October 10, 2000

as part of SSA's Anti-Fraud Pilot Project, and was

detailed to the Criminal Division of the Chicago

United States Attorney's Office (USAO). On August 20,

2001, while attending a training conference at the

National Advocacy Center (NAC), he was shot and

killed in an attempted armed robbery while walking

back to the NAC after dinner. Mike was a wonderful

attorney an d colle ague who serve d his ag ency , the U SAO , and h is com mun ity

with dedication and distinction. He is survived by his wife Susan, and their three

children, Elizabeth, Zachary, and Joshua.

Prosecuting Social Security Fraud: Protecting the T rust Fund for Present and

Future Generations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1By John K. Webb

The M ail and Wire Fraud Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . 6By Michael L. Levy

Identity Theft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3By Beth M osko w -Schn oll

Prosecuting Offenses Under the Access Device Statute (18 U.S.C. § 102 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0

By Jonathan J. Rusch

Investigating and Prosecuting Nigerian Fraud . . . . . . . . . . . . . . . . . . . 3 9By Jim Buchanan and Alex J. Grant

Civil and Criminal Remedies for Immigration Related Document Fraud . . 4 8By Jack Perkins

Know the Professional Responsibility Issues that Y ou M ay Confront . . . 5 0By Claudia J. Flynn and Joan L. Goldfrank

Nov ember 2 001

V olu me 4 9

Num ber 6

United StatesDepartment of JusticeExecutive Office for

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In This Issue

NOVEMBER 2001 UNITED STATES ATTORNEYS' BULLET IN 1

Prosecuting Social Security Fraud:Protecting the Trust Fund for Presentand Future GenerationsJohn K. WebbSpecial Assistant United States AttorneyDistrict of Arizona and Central District ofCalifornia

Introduction

When I first arrived in the United StatesAttorney’s Office in Portland, Oregon in 1997, asa Special Assistant United States Attorney on loanfrom the Social Security Adm inistration (SSA),my new best friend (AUSA) in the officegraciously offered to hand over his SocialSecu rity cas es to he lp me get star ted. I do n’t rec allhis exact words, but the phrase "dog cases" comesto mind. He told me repeatedly that prosecutingelderly individ uals w ith limite d reso urces simplyhad no jury app eal.

Even though the AUSA enjoyed watching arookie stumble about, he was a patient andthorough mentor. He enjoys reminiscing abouthow g reen I w as and h ow he saved m y caree r. Idraw pleasure in reminding him just how wronghe w as abo ut the ju ry app eal of S ocial S ecurityfraud cases . My expe rience is that So cial Se curityfraud cases have immediate appeal to both aGrand Jury and a trial jury due to immediate namerecognition. The Social Security nameplate hasdistinctive brand appeal – like an Intel processor,IBM computer, or RCA television. Can you namean A meric an w ho isn ’t awa re wh at Soc ial Sec uritymeans to his or her future? Can you name apolitician who hasn’t uttered the sacred words“Social Security – protect - future”? Two wordsbest describe my ow n experiences with the juryappeal of Social Security fraud cases: “thiefbeware.” I have yet to meet a Grand Jury or trialjury that has exhibited any tolerance for anySocial Security offender, regardless of age,gende r, or disab ility.

So, why are so many of our colleaguesafflicted with prosecutorial reticence when faced

with an agent bearing a prose cution reportdescribing Social Security fraud? Th e answer,most likely, is fear of the unknown. The sheernum ber of bene fits pro gram s offe red by SSA isenough to discourage some prosecutors, who feara protracted learning curve just to get up to speedon Social Security laws. This fear of the unknownis misplaced, however, because most SocialSecurity fraud cases can be prosecuted usingfamilia r fede ral crim inal law statutes foun d inTitle 18, without relying on the two SocialSecur ity felony fraud sta tutes foun d in Title 42 .

This article strives to demystify themisconceptions about the viability of prosecutionof Social Security fraud cases, and discusses theapplication of the Social Security felony fraudstatutes as prosecution tools. The article alsoidentifies additional federal statutes that thegove rnme nt has tradition ally us ed to p rosec utefraud against SSA programs. Specifically, SectionI expla ins wh y Soc ial Sec urity is f requ entlytargeted for frau dulent co nduct. Next, Section IIprov ides an overv iew o f the So cial Se curityfelony f raud sta tutes and their elem ents. Finally,Section III explains the relationship between theSSA felony fraud statutes and various otherfederal criminal statutes found in Title 18 of theUnited States Code.

I. Impact of fraud on Social Security programs

Social Security benefits are essential to theeconomic well-being of millions of Americans.The proof is in the numbers. SSA reported thatabout 152,000,000 people worked and contributedto the SSA trust funds in employ ment or self-employment covered by Social Security programs.See SSA 2001 OASDI Trustees Report . Accordingto the T rustee s’ Re port, th ese ca sh be nefitscom prise o ver 4% of the n ation’ s gros s dom esticproduct. Benefits are paid to about 90% ofAmerican citizens aged 65 or older, and serve as

2 UNITED STATES ATTORNEYS' BULLET IN NOVEMBER 2001

the major source of income for 64% of SocialSecur ity benef iciaries.

Beca use o f the sh eer nu mbe rs of c laima ntsseek ing be nefits f rom o ne or m ore S SA b enefitsprog rams , som e frau d in the system isunavoidable. Moreover, the opportunity for fraudis enhanced because SSA is an agency that has,historically, made extraordinary efforts to ensurethat its pr ogra ms ar e prom ptly av ailable toqualif ied A meric ans. S SA s erves as a life line toman y nee dy A meric ans w ho w ould b e una ble tosurvive without payme nts from one or m orebene fits pro gram s. It is no t surpr ising, th en, tha t inrecent years, Social Security fraud hasincreasingly attracted national attention. In fiscalyear 2001, the Office of the Inspector General(OIG) for the Social Security Administrationopened over nine thousand potential fraud casesnationwide. If current trends continue, hundredsof these cases will ultimately result in federaland/or state convictions for disability fraud,retirement fraud, theft of government property,and/or S ocial Sec urity num ber mis use.

II. Statutory fram ework: the S ocial Securityfraud statutes

One who wrongfully applies for and/orreceives benefits payments under one of theprog rams adm inistere d by S SA m ay be subje ct tocriminal liability under either 42 U.S.C. § 408(a ),or 42 U .S.C. § 13 83a, of the United States Code.The Social Security felony fraud statutes can beused separately, or in concert, with generalFede ral crim inal statu tes fou nd in T itle 18, toprosecute fraud in benefits programs. NeitherTitle 18 nor Title 42 provides the exclusivecriminal remedy for prosecution of SocialSecurity fraud. Indeed, in some instances, Title 18may provide a more suitable remedy forprosec ution.

A. 42 U.S.C. § 408(a) – A Felony ProvisionAimed at T itle II Program Fr aud, DisabilityFraud, and/or SSN M isuse

In 1981, Congress made Social Security frauda felony, punishable by five years in prison and afine up to $5000. (Pub. L. No. 97-123). This wassubsequently increased to ten years in prison and afine up to $10 ,000. T he SS A felo ny fra ud sta tute,42 U.S.C. § 408(a)(1)-(8), contains the Social

Security Act’s primary criminal provisions. Thestatute is comprehensive, carefully spelling outrestraints on fraud by specifying requirements fordisclo sure o f spec ific eve nts, an d iden tifying factsthat affec t the right to p ayme nt of SS A ben efits.

The s tatute is b road ly writte n, and isparaphrased as follows:

Section 408.

Who ever . . .

(2) makes or causes to be made any falsestatement or representation of a material factin any application for any paym ent or for adisability de termina tion . . . or

(3) at any time makes or causes to be madeany false statement or representation of amate rial fac t for us e in de termin ing rig hts topaym ent . . . or

(4) having knowledge of the occurrence ofany event affecting (i) his initial or continuedright to any payment . . . or (ii) the initial orcontinued right to any payment of any otherindividual in whose behalf he has applied foror is rece iving suc h paym ent . . . conceals orfails to disclose such event with an intentfraudulently to secure payment either in agreater amount than is due or when nopayment is authorized, or

(5) having made application to receivepayment . . . for the use and benefit ofanother, and havin g rece ived s uch a paym ent,know ingly a nd w illfully converts such apayment, or any part thereof to a use otherthan for the use and benefit of such otherperson ,. . . or

(6) w illfully, k now ingly, a nd w ith inten t todeceive . . . [SSA] as to his true identity (orthe identity of another person), furnishes orcaus e to be furnis hed, f alse inf orma tion to[SSA with resp ect to earn ings info rmation ]. . .or

(7) fo r the pu rpose of cau sing a n incre ase inany p aym ent . . . w hen n o pay men t isauthoriz ed . . . or for any other purpose–(A)willfully , know ingly, a nd w ith inten t todeceive, uses a social security account numberassigned by . . . [SSA on the basis of false


inform ation] . . . or (B) with intent to deceive,falsely represents a number to be the socialsecu rity acc ount a ssigned by . . . [SSA ] to himor to another person, when in fact suchnumber is not the social security number[assigned by SSA ] or (C) knowingly alters asocial security card . . . or counterfeits a socialsecu rity car d, or p osses ses a s ocial se curitycard or counterfeit card with intent to sell oralter it, or

(8) discloses, uses, or compels the disclosureof the s ocial se curity num ber of any p erson inviolation o f the laws of the U nited State s,

shall be guilty of a felony and if convicted will befined and imprisoned for five years or both.

42 U.S .C. § 408 (a)(1)-( 8) (em phasis a dded) .

Socia l Secu rity frau d case s can b e quitediverse, ranging from clear false statements onbenefit applications to concealment of materialfacts. M ost fra ud inv olving Socia l Secu ritybene fits pro gram s is the r esult o f delibe ratedeception, and arises when an applicant falsifies adocument or record offered as proof of disability,or misrepresents material facts, such as paternity,on an application for benefits. Fraud can also bethe res ult of an omiss ion w hen a bene ficiary failsto report a change in circumstance, or conceals amate rial eve nt. Sign ificant u nrep orted even tsmight include securing a new job, getting married,being incarcerated, or failing to report the death ofa family mem ber wh o is in active benefit sta tus. Atypica l conc ealm ent sce nario involv es a dis abilitybeneficiary who conceals his full-time work fromSSA.

The Third Circuit, in upholding a convictionfor Social Security fraud in a concealment casecharged under 42 U.S.C. § 408(a)(4), identifiedthe following elements:

1. The defendant had knowledge of an eventaffec ting his or her right to r eceiv e or tocontinue to receive payments;

2. The defendant knowingly concealed orfailed to disclose this event to the SocialSecurity Administration;

3. The d efend ant co ncea led or f ailed todisclo se this e vent to the So cial Se curity

Adm inistratio n with the inte nt to fra udule ntlysecure payment of disability benefits in anamount greater than was due him or her orwhen no pay ment w as autho rized. SeeUnited States v. Baumgardner, 85 F.3d 1305,1310-11 (199 6) (setting out the elements for aprosecution under 42 U .S.C. § 408(a)(4)).

With respect to the first element, courts haveconstrued the term “event” broadly to includeessen tially an ything that wo uld aff ect the right topaym ent. Baumgardner, 85 F.3d at 1310-1311;see also United States v. Huckaby, 698 F.2d 915(8th Cir. 1982). The second element is self-evident and straightforward, requiring that thedefen dant m ust kn ow o f the ev ent aff ecting theirright to payment and knowingly conceal it. Thethird element requires that the concealment musthave been "with an intent fraudu lently to securepaym ent ... in an am ount gre ater than was du e."Id.

B. 42 U.S.C. § 1383a – A Felony ProvisionAimed at Prosecuting SSI Fraud

In 19 94, C ongr ess pa ssed th e Soc ial Sec urityIndependence and Program Improvements Act of1994, which increased the penalties for SocialSecurity Supplemen tal Security Income (SSI)fraud. The new amendments specifically providedthat in SSI fraud cases, the offense will bepunishable by a fine as determined under thegeneral criminal fine statutes, and by a prisonterm o f not m ore tha n five y ears, o r both . Thisprovision conformed the specific crime of SSIfraud to the criminal sanctions already found in 42U.S.C . § 408(a ).

SSI is awarded on the basis of financial need,as determined in relation to both “income” and“resources” (as those terms are defined forpurp oses o f the So cial Se curity Act). E ligibilityfor SSI monthly cash benefits depends upon theseverity of the applicant’s condition, and theamount paid to each SSI recipient depends upon:(1) how much other income an individualreceives; (2) the living arrangements of theindividual; and (3) other circumstances that affectan ind ividua l’s fina ncial n eeds . SSA ’s ability toproperly determine a recipient’s continuingeligibility, and the correct monthly benefit duethat recipient, is directly dependent upo n SSA’s


ongoing access to accurate and currentinform ation reg arding th e recipien t.

The S SI felo ny fra ud sta tute is br oadlywritten, and is paraphrased as follows:

§ 1383a. Fraudulent acts; penalties;restitution.

(a) Whoev er–

(1) knowingly and willfully makes or causesto be made any false statement orrepresentation of a material fact in anyapplicatio n for an y bene fit . . .,

(2) at any time knowingly and willfully makesor causes to be made any false statement orrepre senta tions o f a ma terial fa ct for u se indeterm ining r ights to any such b enefit,

(3) having knowledge of the occurrence ofany event affecting (A) his initial or continuedright to any such benefit, or (B) the initial orcontinued right to any such benefit of anyother individual in whose behalf he hasapplie d for o r is rece iving s uch b enefit,conc eals or fails to d isclose such even t withan inte nt frau dulen tly to sec ure su ch be nefiteither in a grea ter am ount o r quan tity than isdue or when no such benefit is authorized, or

(4) having made application to receive anysuch benefit for the use and benefit of anotherand having received it, knowingly andwillfully converts such benefit or any partthereof to a use other than for the use andbenefit o f such o ther pers on,

shall be fined under Title 18, United States Code,impriso ned no t more th an 5 ye ars, or bo th.

42 U.S.C. § 1383 a(a)(1)-(4).

The elements for a conviction under the SSIfelony fraud statute are:

1. The defen dant k now ingly a nd w illfullymade or caused to be made a false statementor representation of a material fact in anapplic ation fo r a ben efit;

2. The defendant knowingly concealed orfailed to disclose this event to the SocialSecurity Administration;

3. The defen dant c once aled o r failed to

disclo se this e vent to the So cial Se curityAdm inistratio n with the inte nt to fra udule ntlyconve rt it to her ow n use.

While there is no case authority setting forth theelem ents fo r 42 U .S.C. § 1383 a(a), th ese ele men tsare similar to those found in Baumgardner, 85F.3d at 1310-11, outlining the elements for 42U.S.C . § 408 (a)(4 ). The statute is intend ed toreach a pers on w ho kn ows th at he o r she ismaking a false statement in the first instance, andthen k now ingly a nd w illfully co ncea ls it. In ef fect,the statute requires disclosure of a specific eventor facts that affect the right to a particularpayment. In other words, not only the event, butthe specific claims or payments, must beidentified.

III. Application of Title 18 to Soc ial Securityfraud cases

The e xisten ce of s pecific crimin al pen alties inthe Social Security Act does not precludeprosecution under more general criminal statutesfound in Title 18. For example, a prosecutor mayfind it ad vanta geou s, in som e circu mstan ces, tocharge an individual who has committed SocialSecu rity frau d und er the m ore ge neral s tatutedealing with conversion/theft of governmentproperty (18 U.S.C. § 641). This statute does notrequire fraud as a necessary element, whereasunde r the So cial Se curity felony fraud statutefraud is a necessary element. Sentencing issuesmight also be a consideration in deciding whetherto charge an individual under Title 18 or Title 42.Restitution is also a consideration that mightdeterm ine w hethe r an ind ividua l is char ged w ithTitle 18 or one of the Social Security felony fraudstatutes , beca use T itle 42 d oes n ot inco rpora teprovisions relating to the Mandatory VictimsRestitution Act of 1996, Pub. L. No. 104-132.Thus, an individual accepting a plea agreementbased on 42 U.S.C. § 408(a)(4) might be orderedto pay signific antly le ss in re stitution to the v ictim(SSA) than someone entering a plea based upon18 U.S .C. § 641 .

Othe r gene ral crim inal statu tes are availa bleand useful in prosecuting Social Security fraudmatters, and may be used in conjunction with, orindependent of, the Social Security felony fraudstatutes. Prosecutors should remember that the


SSA felony statute is not limited in use to SocialSecurity program fraud cases. For example, anindividual using a false Social Security numberwhen filing a fraudulent bankruptcy petition canbe charged with both 18 U.S.C. § 152 and 42U.S.C. § 408(a)(7)(B). Similarly, an individualcharged with identity theft (18 U.S.C. § 1028 (a))can also be charged with Social Security Numbermisuse (42 U.S.C. § 408(a)(7)(B)). In fact, anycrime in which a false Social Security Number hasbeen used to misr epres ent or c once al the id entityof an individual may be charged using 42 U.S.C.§ 408( a)(7)(B ).

The following is a (non-inclusive) list ofgeneral criminal statutes found in Title 18 thatmay prove useful in charging matters involvingSocial Security fraud. Similarly, when charging acase us ing one of the Title 1 8 crimin al statutes, aprovision of 42 U.S.C. § 408(a) might provebenefic ial.

• 18 U.S.C. § 152. Bankruptcy fraud;Concealment of assets; false oaths and claims;

• 18 U.S.C. § 286. Conspiracy to defraud theUnited States with respect to claims;

• 18 U.S.C. § 287. False, fictitious, orfraudulent claims;

• 18 U.S.C. § 371. Conspiracy to defraud orcommit an offense against the United States;

• 18 U.S.C. § 495. Altering, forging, orcounterfeiting documents to receive moneyfrom the Un ited Sta tes, de liberate lysubmitting or passing such documents with anintent to defraud the United States;

• 18 U.S.C. § 506. Altering or counterfeitingthe seal of a United States Agency, or theknowing use or possession of an altered orcoun terfeite d seal;

• 18 U.S.C. § 641. Embezzling, stealing, orconverting a record, money, or anything ofvalue of the United States, or the receiving ofsuch property with the knowledge that it wasembezzled, stolen, or converted;

• 18 U.S.C. § 712. Misusing names or seals ofan agency of the United States on an emblemor insignia to convey a false impression thatthe business represents the United States;

• 18 U .S.C. § 1001 . Kno wing ly and willfullyconcealing a material fact or making a falsestatem ent or r epres entatio n in a m anne r withinthe jurisdiction of a department or agency ofthe United States;

• 18 U.S.C. § 1002 . Possession of false papersto defraud the United States;

• 18 U.S.C. § 1028(a). Knowingly transferringstolen or false identification documents;

• 18 U.S.C. § 1341 . Using the mails for ascheme to defraud;

• 18 U.S.C. § 1342. Use of the mails for anunlawful business, where a false name oraddress is used;

• 18 U.S.C. § 1343 . Using the wires for ascheme to defraud;

• 18 U .S.C. § 1542 . False statem ent inapplic ation a nd us e of a p asspo rt;

• 18 U.S.C. § 1546. Fraud and misuse of visas,permits and other documents;

• 18 U.S.C. § 1621. Perjury;

• 18 U .S.C. § 1622 . Caus ing an other to com mitperjury.

Criminal penalties under the statutes listedabove include substantial fines, restitution, andprison terms ranging from five to twenty years.Each of them has the potential for use in chargingfraud involving Social Security. In manyinstances, the only federal charge available to aprosecutor is misuse of a Social Security number(42 U.S.C. § 408(a)(7)(B)). It is a common felonycom mitted by crim inals w ho try to hide theiridentities or create false documents in concertwith othe r types o f fraud.

Social Security fraud schemes range from thesimple to the elaborate. Some are crimes ofopportunity, while others are well-conceived andcond ucted with m ilitary pr ecision and attentio n todetail. Most involve some form of false statementand fraudulent claim for paym ent, while others areconceived using false identities, multiple SocialSecu rity nu mbe rs, and fictitious injuries or hea lthissues. Remember, the jury will love you forprote cting th eir retire men t.�


ABOUT THE AUTHOR:

�John K. Webb is a Special AssistantUnited States Attorney, detailed to theUnited States Attorney’s Offices for the District ofArizona and the Central District of California bythe Office of the Counsel to the InspectorGeneral/Social Security Administration. He hassuccessfully prosecuted more than 100 casesinvolv ing fra ud in S ocial S ecurity bene fitsprog rams durin g the p ast fou r year s. Prio r to hiscurrent assignments in California and Arizona, heserved as a SAUSA in both the Western Districtof Washington and the District of Oregon.a

The Mail and Wire Fraud StatutesMichael L. LevyAssistant United States AttorneyChief, Computer CrimesEastern District of Pennsylvania

I. Introduction

This article is written to give an overview ofissues that can arise in the prosecution of fraudcases under the mail and wire fraud statutes.Although this article focuses upon mail fraud andwire fraud, the operative words of those statutesshow up in many crimes. Congress has used theterms "sche me a nd artif ice to d efrau d" and "toobtain money and property by means of false andfraudulent pretenses, representations andprom ises" in m any statu tes. E.g., 7 U.S.C. § 60(fraud by commodity trading advisors); 15 U.S.C.§§ 77q (fraudulent interstate securitiestransactions), 78jjj (securities fraud), 80b-6(prohibited transactions by investment advisors),1703 (fraud in interstate land sales); 18 U.S.C.§§ 157 (bankruptcy fraud), 514 (fictitiousobligations), 1031 (major fraud against theUnited States), 1341 (mail fraud), 1343 (wirefraud), 1344 (bank frau d), 1347 (health care

fraud), 2314 (interstate transportation offraudulently obtained property). Consequently,issues discussed in this article may also be mattersof con cern u nder these o ther sta tutes. T he artic leis not intend ed as the final wo rd on the se issues . Ihave written it to alert prosecutors to somerecurring issues under the mail and wire fraudstatutes and to give a starting point for research.The mail and wire fraud statutes are wonderfultools. By criminalizing "fraud" Congress gaveprosecutors a tool far broader than the earliercrimes such as larceny, embezzlement ormisapplication. One former AssistantUnited States Attorney, now a judge, wrote of themail fraud statute that it is "our Stradivarius, ourColt .4 5, our Louis ville Slu gger , our C uisina rt –and ou r true love ." Jed S. R akoff, The Federal

Mail Fraud Statute (Pt.1), 18 Duq. L. Rev. 771(198 0). W ere he writing today , he w ould p roba blyalso ca ll it our T ech 9 and o ur Uz i.


II. A unitary statutory structure

The elements of mail fraud are as follows:

a. The defendant devised or intended to devisea scheme or artifice

1) to defraud, or

2) to obtain money or property by meansof false or fraudulent pretenses, representations orpromises, and

b. for the purpose of executing the scheme orartifice or attempting to do so,

c. the defendant

1) placed in an authorized depository formail matter any matter or thing to be sentor delivered by the Postal Service, or

2) took or received from an authorizeddepository for mail matter any matter orthing, or

3) knowingly caused to be delivered bymail or by any private or commercialinterstate carrier any matter or thing

a. according to the direction thereon;or

b. at the place at which it is directedto be d elivere d by th e pers on to w hom it isaddressed; or

4) deposits or causes to be deposited anymatter or thing whatever to be sent ordelivered by any private or commercialinterstate carrier.

Wire fraud has identical elements, except thatinstead of mailings, there must be a wiretransmission that passes in interstate commerce.The wire fraud statute is based exclusively on theComm erce Clause of the Con stitution, Article I,Section 8, Clause 3. The mail fraud statute looksto the Commerce Clause and the Post OfficeClause, Article I, Section 8, Clause 7. Note thatwhile a mailing may be "for the purpose ofexecu ting the sch eme o r attemp ting to do s o,"wire fraud has no "attempting" language.

Altho ugh th e ma il fraud statute a ppea rs tohave two p rong s and to proh ibit both schem es todefraud and schemes to obtain money andproperty by means of false and fraudulentpretenses, representations and promises, theSupreme Court has held that these are merely twoways of sayin g the sam e thing. McNally v.United States, 483 U.S. 350, 358-59 (1987);Cleveland v. United States, 531 U.S. 12, 17(2000). Both cases po inted out that the statutoryhistory of mail fraud demonstrated that the "falseand fr audu lent" ph rase w as add ed m erely tocodify the result in Durland v. United States, 161U.S. 30 6 (189 6). Durland held that the termscheme to defraud covered not only amisrepresentation as to some existing fact, butalso misrepresentations as to the future. InCleveland the Court said of the possibility ofconstruing the statute to have two independentclauses, "[b]ut we rejected that construction of thestatute [in McN ally], instead concluding that thesecon d phras e simply modifie s the first. . . ."Cleveland, 531 U.S. at 27.

One of the issues not considered byCleveland, which was an issue in United States v.Frankel, 721 F.2d 917 (3d Cir. 1983), is thedistinction between a fraud committed by amaterial omission and one committed by amateria l misrepr esentatio n. Frankel wasconcerned with the deposit of bad checks in achec k-kitin g sch eme . The S upre me C ourt h eld inWilliams v. United States, 458 U.S. 279 (1982 ),that a check is not a statement under 18 U.S.C.§ 1014. Thus, it could not be a "representation"under the fraud statutes. In Frankel the Co urt heldthat the use of a bad check could not beprosecuted under the false representation prong ofthe m ail frau d statu te, bec ause a bad chec k is no t arepresentation. The Frankel Cou rt did cle arlysuggest, however, that such misconduct could beprosecuted under the scheme to defraud prong.Accord , United States v. Rafsky, 803 F.2d 105,107 (3d Cir. 1986). The distinction between thetwo parts of the mail fraud statute is that a schemeto defraud includes material omissions and ascheme by false representations does not. Thedistinction is clearly illustrated by the bank fraudstatute, 18 U.S.C. § 1344. The legislative historyof the bank fraud statute made it clear thatCongress intended for this statute to cover check


kites and to get around the Williams decision.S.Rep. 98-225, at 663-68 (1983). Congressaccomplished this through the same "scheme orartifice" language it had used in the mail fraudstatute. See Unite d State s v. Sch wartz , 899 F.2d243, 247 (3d Cir. 1990 ).

III. Success irrelevant

It is not necessary for the defendant to gain, or forthe scheme to succeed, in order to convict thedefend ant. United States v. Frey, 42 F.3d 795, 800(3d C ir. 199 4); United States v. Williams, 728F.2d 1 402, 1 405 ( 11th C ir. 198 4); United States v.Curtis , 537 F.2d 1091, 109 5 (10th Cir. 1976);United States v. Pollack, 534 F.2d 964, 978 (D.C.Cir. 19 76); Pritchard v. United States, 386 F.2d760, 765-66 (8th Cir. 1967). The victim does nothave to have suffered a loss, because the crimeconsists merely of devising the scheme andexec uting o r attem pting to exec ute it.Unite d State s v. Co pple , 24 F.3d 535, 544 (3d C ir.1994).

IV. Scheme defined

Con gress did no t define "sche me o r artifice todefraud" when it first coined that phrase, nor hasit since. I nstea d that e xpre ssion has tak en on itspresent meaning from 111 years of case law.United States v. Lemire, 720 F.2d 1327, 1335(D.C. Cir. 1983).

"The law does not define fraud; it needs nodefinition; it is as old as falsehood and versable ashuman ingen uity." Weiss v. United States, 122F.2d 675, 681 (5th Cir. 1941 ).

A scheme to defraud is not defined accordingto "technical standards." "The scheme need notbe fraudulent on its face, but must involve somesort of fraudulent misrepresentations or omissionsreasonably calculated to deceive persons ofordinary prudence and compreh ension." Unite d State s v. Pe arlstein , 576 F.2d 531, 535 (3dCir. 1978). See discussion below regarding Nederv. United States, 527 U.S. 1 (1999 ).

V. Intent to defraud is required

Mail fraud is a specific intent crime. Thespec ific inten t requir ed, ho wev er, rela tes on ly tothe intent to defraud. "Under the mail fraudstatute, it must b e sho wn th at the d efend ants

poss essed the req uisite inte nt to de fraud . Proo f isrequired of specific intent and the defendants musteither have devised the fraudulent schemethem selve s, or ha ve w illfully pa rticipate d in itwith kno wledg e of its frau dulent na ture."Pear lstein , 576 F.2d at 537. (Citations omitted)

As the court in United States v. Cusino, 694F.2d 185, 188 (9th Cir. 1982), put it, regarding thewire fraud statute: "The specific intentrequ ireme nt und er 18 U .S.C. § 1343 pertain s tothe scheme to defraud ... not to the causing of wiretransm issions."

The m ail frau d and wire f raud statutes are tobe read in par i mater ia. The principles whichapply to o ne app ly to the oth er. E.g., United Statesv. Tarnapol, 561 F.2d 466, 475 (3d Cir. 1977);United States v. Computer Sciences Corp., 689F.2d 11 81, 118 8 n. 14 (4 th Cir. 198 2), overruledon other grounds, Busby v. Crown Supply, Inc.,896 F .2d 83 3 (4th Cir. 19 90); United States v.Feldman, 711 F.2d 758, 763 n . 1 (7th Cir. 1983);United States v. Lemire, 720 F.2 d 1327 , 1334 n . 6(D.C. C ir. 1983) . See also Carpenter v.United States, 484 U.S. 19, 25 n.6 (1987 ).

Specific intent can be proven bycircumstantial evidence. In the case of a lowerlevel person in a scheme, evidence of continuingpersonal or professional relationships with thearchite cts of th e sche me, e xces sive fin ancia l gainor extravagant expense accounts, and thedefendant's role in the operation (supervisor vs."gofer" ), are relev ant facto rs. Pear lstein , 576 F.2dat 541-42. A specific intent to deceive may befoun d from a mate rial mis statem ent m ade w ithreckles s disrega rd of the f acts. United States v.Boyer, 694 F .2d 58 (3d C ir. 198 2); United Statesv. Hannigan, 27 F.3d 890, 892, n.1 (3d C ir. 1994).

Although "good faith" is the opposite ofhaving an intent to defraud, once the court hasgiven a jury proper instructions on the elements ofthe offense, it is not required to give a furthercharge on goo d faith. United States v. Gross, 961F.2d 1097 (3d C ir. 1992).

VI. Intent to use mails not necessary

It is not necessary that the schemecontemplate the use of the mails as an essentialelem ent, no r is it nec essar y for th e gov ernm ent to


show that the defendant mailed anything, as longas he ca used it to b e mailed . Periera v.United States, 347 U.S. 1 (1954). The defendantdoes not actually have to know that the mails wereused an d, a fortiori, the m ailing d oes n ot hav e tobe willful (devising the scheme is the willful act)."Where one does an act with knowledge that theuse of the mails will follow in the ordinary courseof business, or where such use can reasonably beforeseen, even though not actually intended, thenhe 'causes' the mails to be used." United States v.Periera, 347 U.S. at 8-9.

Wh ere on e dev ises a s chem e wh ich w illinvolve the use of attorneys to make claims andfile law suits, the use of the mails to forwardclaims to insurance carriers and to send pleadingsto opposing counsel is reasonably foreseeable.Unite d State s v. Le bovitz , 669 F.2d 894 (3dCir.19 82); United States v. Sturm, 671 F.2d 749(3d Cir. 1982). Similarly, where one expects apayment from an insurance carrier, the mailing ofa che ck fro m the insura nce c omp any is reaso nablyforesee able. United States v. Tiche, 424 F.Supp.996 (W .D.Pa.), aff'd. mem ., 564 F.2d 90 (3d C ir.1977 ). It is imp ortan t to em phas ize tha t Perieraheld that there are two ways to meet theknowledge requirement of the statute: first, byshowing that the defendant had actual knowledgethat the mails would be used (subjective proo f);or, second, by showing that, regardless of thedefen dant's actua l know ledge , it was r easo nablyforeseeable that the mails would be used(obje ctive p roof) . The s ame stand ard ap plies w ithrespec t to wire fra ud. Unite d State s v. Be ntz, 21F.3d 37, 40 (3d Cir. 1994 ).

VII. The "in furtherance" requirement

The mailing involved must be "in furtherance"of (or in the language of the statute – "for thepurpose of executing") the scheme. The use of themails need not, itself, be an essential element ofthe sch eme . It is eno ugh th at the u se of th e ma ilsmerely furthers the sche me. United States v.Maze , 414 U.S. 395, 400 (19 74).

We do not wish to be understood asintimating that, in order to constitute theoffense, it must be shown that the letters somailed were of a nature calculated to beeffective in carrying out the fraudulent

scheme. It is enough if, having devised ascheme to defraud, the defendant, with a viewof executing it, deposits in the post officeletters, which he thinks may assist in carryingit into effect, although, in the judgment of thejury, they may be absolutely ineffectivetherefor.

Durland v. United States, 161 U.S. 306, 315(189 6); Unite d State s v. Ca rdall , 885 F.2d 656,680 (10th Cir.1989); United States v. F inney, 714F.2d 420, 422-23 (5th Cir. 1983); United States v.Lea, 618 F.2d 426, 430 (7th Cir. 1980);United S tates v. Ad amo, 534 F.2d 31, 36 (3d Cir.1976); United States v. S treet, 529 F.2d 226, 228(6th Cir. 1 976).

Ma ilings w hich a re pur ely inc identa l,howe ver, are n ot cove red. United States v.Tarnapol, 561 F.2d 466 (3d C ir. 1977). InTarnapol the Court held that the regular mailingof invoices which would have occurred anywaywere not mailings "in furtherance." See also,United S tates v. Cr oss, 128 F.3d 145 (3d Cir.1997).

Ma ilings w hich a re don e after the sch eme iscomp leted are n ot cove red. United States v. Maze,414 U.S. 395 (1974). In Maze the Court held thatwhere the defendants used a stolen credit card, themailings of the credit card slips by the merchantto the bank after the sale had been com pleted werenot "in furtherance," because they were done afterthe defendants had completed the scheme. Theyhad gotten what they w anted and did not carewha t the m ercha nt did w ith the c redit ca rd slipafterward. Howe ver, as long as the mailing is partof the e xecu tion of the fra ud, or closely related tothe scheme, a mail fraud charge will lie.United States v. Brown, 583 F.2d 659 (3d C ir.1978).

Thus, two pitfalls to look out for are mailingsdone after the scheme has succeeded and mailingswhich would have been made anyway and whichdid no t furthe r the sc hem e. The re are two w ays inwhich mailings done after the perpetrator hasobtained the money can be in furtherance. Thefirst is in a continuing scheme, where eachmailing furthers the fraud. The second is a lullingletter.


A. Continuing scheme

In Schmuck v. United States, 489 U.S. 705(198 9), the mailin gs of title work to the sta tebureau of motor vehicles to obtain new titles, sentafter the sale of vehicles on which the odom etershad been rolled back, were held to be covered bythe statute, because of the continuing nature of thefraud. This distinguished the case from Mazebecause the deal was not really complete until thepurchaser received the completed new title fromthe state motor vehicle bureau. If the purchaserdid not get the new title, the scheme would havecollapsed.

In United S tates v. M orelli, 169 F.3d 798 (3dCir. 1999), the defendants established a "daisychain" to avoid the payment of the diesel fuelexcise tax. (Diesel fuel and home h eating oil arethe same. The government taxes diesel fuel, butexempts home heating oil from taxation. This taxstructu re req uires c ertifica tions o f the ultim atedisposition of the fuel and the payment of theexcise tax when home heating oil is sold for dieselfuel.) A daisy chain consists of a number ofcompanies that sell the fuel. The conspiratorsdesignate one company to pay the excise tax (the"burn company") and that company fails to do so.There was a series of payments up the chain. Thedefendants argued that any exchanges up thechain befor e the "b urn co mpa ny" w ere no t infurtherance of the fraud, because the fraud did notoccur until the "burn company" failed to pay thetaxes. The Third Circuit held that because theentire program constituted one large ongoingfraud scheme, each wiring furthered the taxscheme and helped to create the proceeds in eachsuccee ding ser ies of tran sactions .

More precisely, each wiring, including thosethat occurred before a particular transaction,mad e it mo re diff icult for the go vern men t todetect the entire fraudulent scheme or anyparticular fraudulent transaction or series oftransa ctions . In sum , the m oney gaine d ineach series of transactions (save the initialone) was the proceeds of wire fraud becausethe money was the proceeds of a fraud thatwas furthered by the prior wirings.

Id. at 807 (footnote omitted).

B. Lulling letters

The second type of post success mailing thatis "in furtherance" is the lulling letter. Letterswhich are sent after the scheme has beencompleted, but which "were designed to lull thevictims into a false sense of security, postponetheir ultimate complaint to the authorities, andtheref ore m ake th e app rehen sion o f the de fend antsless likely th an if no m ailing had taken pla ce,"United States v. Maze, 414 U.S. at 403, aremailings in further ance. See also, United States v.Lane, 474 U .S. 438 (198 6); United States v.Lebo vitz, 669 F.2d 894 (3d C ir. 1982). Letterspromising to repay money to victims can belulling letters, if done to avoid lawsuits andcomplaints which could jeopardize the scheme.Unite d State s v. Otto , 742 F.2d 104 (3d C ir.1984) .

In United States v. Ashman, 979 F .2d 46 9 (7thCir. 1992), brokers on the Chicago Board of Tradeworked together to fix the prices of commoditiesand defeat the open market system. The mailingswere the confirmations of the purchases and saleswhich served as representations that the trades hadbeen exec uted in the op en m arket. T he co urt heldthat these mailings were in furtherance, eventhough the fraud was already completed, becausethey prevented customers from checking whetherthey got the best price available.

VIII. Mailing requirement

It is necessary to prove that the item whichwas sent was, in fact, mailed. With the number ofprivate courier services available today, it is notsufficient to have a witness say that the item was"sent." Such a statement, without furtherclarification, does not meet the mailingrequire ment. United States v. Hart, 693 F.2d 286(3d Cir. 1982). In addition, "[a]lthoughcircumstantial evidence may be used to prove theelements of mailing essential to conviction under§ 1341, reliance upon inferences drawn fromevidence of standard business practice withoutspec ific refe rence to the m ailing in ques tion isinsufficient." United States v. Burks, 867 F.2d795, 797 (3d Cir. 1989). In Burks the testimony ofa secretary that 99% of the items were mailed washeld to be insufficient. The continuing validity ofBurks was called into question by United States v.


Hannigan, 27 F.3d 890 (3d Cir. 1994). BecauseHannigan was not an en banc decisio n, it cou ldnot overrule Burks. In Hannigan, a witness wasable to testify about the specific document andshow that the records of the companydem onstra ted tha t it had b een se nt to the mailroom to be mailed and was not to be picked up.Accordin g to the Cou rt, this cu red the failure inBurks of no t havin g testim ony a bout th e spec ificmailing. However, in Hannigan the witn ess didnot tes tify abo ut ma il room proce dure s and couldnot sa y if som eone had c ome to the m ail room topick up the document. Thus, there was notestimo ny ab out ge neral b usine ss pra ctice w ithrespec t to the ma il room.

In United States v. Cohen, 171 F.3d 796 (3dCir. 1999), the bookkeeper for Butler Foodstestified that after invoices were prepared, theywere placed in envelopes, run through the postalmeter, and put in a United States mail bin whichone o f the de fend ants to ok to th e pos t office in hiscar. She testified that Butler Foods never used anydelive ry me thod o ther tha n the U nited S tates m ailfor any of its invoices, and that the invoices atissue w ere han dled in the norm al man ner. Amanager at the company testified that it wasstandard practice to pick up the invoices in themail bin and drop them off at the post office, andthat he himself did this on occasion. Finally, anacco untan t for the Thriftw ay sto res tes tified tha t itwas n orma l busin ess pr actice for his com pany toreceive Butler Foods' invoices through theUnite d State s mail. T he co urt held that thistestimony provided sufficient evidence that Butlerroutinely delivered its invoices through theUnited States Mails and was sufficient proof ofthe mailing.

For fraud schemes starting after, or continuingafter September 13, 1994, this concern about howan item was sent will be lessened. Congress addedthe words "or deposits or causes to be depositedany matter or thing whatever to be sent ordelive red by any p rivate o r com merc ial inters tatecarrier...." to the mail fraud statute. (P.L. 102-322). The effect of this amendment is to give themail fraud statute two constitutional bases — thePostal clause (Article I, Section 8, Clause 7,"Congress shall have the Power . . . To establishPost Offices and post Roads . . . .") and the

Commerce Clause. (Article I, Section 8, Clause 3,"Con gress shall ha ve the Pow er ... To regula teComm erce . . . among the several States . . . .")This a men dme nt, how ever, will no t solve allprob lems in this are a. Pro secu tors still h ave toprove that the carrier was either the Postal Serviceor som e othe r carrie r whic h is inv olved ininterstate commerce. A person picking up thedocument or the use of some carrier not involvedin interstate commerce will not satisfy even theexpanded mail fraud statute. It is unlikely that thegovernment would have won Hart, Burks orHannigan even with this amendment. In none ofthose cases did the government establish how theitem was delivered. However, since Congressmad e the c rime d elivery by an intersta tecommercial carrier, and not interstate delivery,intrastate deliveries are covered whether the itemwas sent by the Postal Service or by a commercialcarrier. Unite d State s v. Ph otogr amm etric D ataServices, Inc., 259 F. 2d 229, 246-49 (4th Cir.2001); United States v. Marek, 238 F.3d 310, 318(5th Cir. 2 001)(e n banc ), cert. denied __ U.S. __,2001 W L 410327 (10 /1/2001).

It is not necessary that the falserepresentations themselves were transmitted bymail or that the mailings went to or from theintended victim. Periera v. United States 347 U.S.1 (195 4).

IX. The materiality requirement

In Neder v. United States, 527 U.S. 1 (1999),the Supreme Court held that materiality is anelemen t of a sche me to d efraud . Neder involvedthe interpretation of the mail, wire and bank fraudstatutes. The Court held that the term fraud had acommon law meaning that required that themisrepresentation or omission be material. Theamo rpho us lan guag e that so metim es app ears incases must be read in light of this limitation. Forexample, in Unite d State s v. Go ldblatt , 813 F.2d619, 624 (3d Cir. 1987), the court wrote: "Theterm 's chem e to de fraud ,' how ever, is not ca pableof pre cise de finition . Fraud inste ad is m easu red ina particular case by determining whether thescheme demonstrated a departure fromfund ame ntal ho nesty , mora l uprig htnes s or fa irplay and candid dealings in the general life of thecomm unity."


After Neder, there must be some materialmisrepresentation or omission in order to have acrime. Compare , United States v. Frankel, 721F.2d 91 7, 921 (3 d Cir. 19 83)(Slo viter, J.,concurring). This should not be a problem in mostcases. For example, in a bad check case, while thedepos iting of a ch eck is no t a stateme nt, Williamsv. United States, 458 U.S. 279 (1982 );United States v. Frankel, 721 F.2d at 917, thedepositing of a bad check clearly involves amate rial om ission – the failu re of th e dep ositor totell the bank that the check will be dishonored.Thus, Neder should not have any effect upon ourability to charge the cases that we usually charge.

Neder will also have an impact upon o ur juryinstructions. Because materiality is an element offraud, it is a m atter for the jury to de cide. Neder;Unite d State s v. Ga udin , 515 U .S. 506 (1 995). W emust submit a proposed jury instruction on theissue. Gau din stated th at a fals e statem ent ismaterial if it has a "natural tendency to influence,or is capable of influencing, the decision of thedecision -mak ing bod y to wh ich it was a ddress ed."(Internal quotations and citations omitted).Gau din , 515 U.S. at 509.

Nede r, 527 U.S. at 22, quoted the Restatement(Second) of Torts, § 538 (1976) to definemateriality, saying that a matter is material if:

(a) a reasonable man would attachimportance to its existence ornonexistence in determining his choice ofaction in the transaction in question; or

(b) the maker of the representation knowsor has reason to know that its recipientregards or is likely to regard the matter asimportant in determining his choice ofaction , althou gh a re ason able m an w ouldnot so regar d it.

Neder will have no impact upon thetraditional d rafting of fraud ind ictments . Nederonly holds that materiality is an element of fraudand that when we use the term "fraud" in anindictment, we are necessarily alleging theconce pt of ma teriality. Neder does not say that weneed to allege that the misrepresentation oromissio n was m aterial.

Finally, at lea st in theory , United States v.Wells , 519 U.S. 482 (1997) (holding thatmateriality is not an element of 18 U.S.C. § 1014 ),may have an impact upon some chargingdecision s. Wells held that when Congress used theterm "false" in § 1014, it did not include arequ ireme nt of m ateriality . Any false s tatem ent ina loan application is covered by the statute,whe ther the statem ent is m aterial o r not. T hiscould mea n that if th e defe ndan t is char ged w ithdevis ing or exec uting a schem e and artifice toobtain property by means of false (but notfraudulent) representations, materiality is not anelem ent. Th is "cute " draftin g wa s certa inlyimplied in Neder, 527 U.S. at 23 n. 7, but it hasnot ye t been tested in court.

X. Sta tus of victim

The victim's negligence is not a defense.However, there is a debate about whether it wasreasonable for the victim to be deceived. Forexample, the following quotes show one side ofthe arg ume nt:

The v ictim's n eglige nce is n ot a de fense tocriminal conduct. The truth aboutvirtua lly eve ry sch eme to defr aud c ouldbe obtained if the gull were clever anddiligent enough. The truly careful are,perhaps, never defrau ded because they a renot deceived by the artifice. The lawsprotecting against fraud are most neededto protect the careless and the naive fromlupine predators, and they are designedfor that pu rpose.

United States v. Kreimer, 609 F .2d 12 6, 132 (5thCir. 1980).

To the extent that [defendant] is arguingthat the victim was negligent in ignoringJohns' advice and in failing to review theSchedules A, we reject the relevance ofthose allegations, even if true. Theneglig ence of the v ictim in failing todisco ver a f raud ulent s chem e is not adefen se to cr imina l cond uct.

Id. United S tates v. Co yle, 63 F.3d 1239, 1244 (3dCir. 199 5). See also, Unite d State s v. M axwe ll,920 F.2d 1028 , 1036 (D.C. Cir. 1990);United States v. Brien, 617 F.2d 299, 311 (1s t Cir.1980 ); Lemon v. United States, 278 F.2d 369, 373


(9th Cir. 1960). On the other hand, some cases saythat the scheme must be calculated to deceiveperson s of ord inary pr udenc e. E.g., United Statesv. Pea rlstein , 576 F.2d at 535 ("The scheme neednot be fraudulent on its face, but must involvesome sort of fraudulent misrepresentations oromissions reasonably calculated to deceivepersons of ordinary prudence andcom preh ensio n."); United States v. Brown, 79F.3d 1550, 1557 -62 (11th Cir. 1996). InUnited States v. Masten, 170 F .3d 79 0, 795 (7thCir. 1999), the Seventh Circuit explained that thereasonable person an alysis is relevant only wherethe de fend ant cla ims tha t he did not inte nd todeceive anyone. In that special case, thereaso nable perso n stan dard helps a jury todeterm ine if the defen dant h ad the intent todefraud. The facts of the Eleventh Circuit case,Brown, would support this interpretation of thereaso nable perso n requ ireme nt.

Neder's definition of materiality may providesome guidan ce. Neder adopts th e Resta temen t'slanguage that the fraudulent representation oromis sion m ust be such as to de ceive a reas onab leperso n. Ho wev er, if the defen dant k now s that hislistener is relying upon the representation, theneven if a reasonable person would not consider thepoint material, the statement is material. Byanalogy, a scheme has to be such as to deceive areasonable person. Nevertheless, where thedefendant knows that his victim is being taken in,it does not m atter if n o reas onab le pers on w ouldbe dec eived.

XI. Failure to disclose

Neither Neder nor Cleveland changed existinglaw regarding non-disclosure. The courts havelong said that fraud may be fou nd not only wherethere is an affirmative misrepresentation, but alsowhere there has been a deceitful concealment ofmateria l facts. Unite d State s v. Ola tunji , 872 F.2d1161 , 1167 (3d C ir. 198 9); United States v.Pear lstein , 576 F.2d at 535 (3d C ir. 1978);United States v. Bush, 522 F.2d 641, 651 (7th C ir.1975) .

We find no case la w in th is circu it tosubstantiate a claim that the misrepresentationmust be active. Instead, we find that anessential element of mail fraud is that the

defen dant p osses s the sp ecific in tent todefraud, and that the intent to defraud beevidenced in any way, including non-actionon the part of the defendant. Fraud, forpurposes of a mail fraud conviction, may beproved through the defendant's non-action ornon- disclo sure o f mate rial fac ts inten ded tocreate a f alse or fra udulen t represe ntation.

United States v. O'Malley, 707 F.2d 1240, 1247(11th C ir. 1983) . See United States v. Neder, 197F.3d 1122, 1125, 1130 (11th Cir. 1999)(discu ssing Ned er's co ncea lmen t of ma terial fa ctsand affirming the conviction after remand fromthe Supreme Court). The Supreme Court's opinionin Neder specifically referred to fraud as beingcommitted by material misrepresentations oromissio ns. Neder, 527 U.S. at 22 (1999).

XII. Generally no need to cite 18 U.S.C. § 2

Both the mail and wire fraud statutes havetheir ow n cau sing la ngua ge. Re lying u pon th islanguage instead of the "willfully caused"langu age o f 18 U .S.C. § 2, obv iates the need tohave the jury instructed on the issue ofwillfuln ess, w hich c an be com e a pro blem aticissue. See e.g., United States v. Curran, 20 F.3d560 (3d Cir. 1994).

XIII. Single vs. multiple schemes

One should be aware of the danger ofcharging multiple schemes in a single mail fraud.The concept is similar to that of single vs.multip le con spirac ies. A m ail frau d sch eme isdifferent from a conspiracy, however, because aconspiracy requires an agreement, while a fraudsche me o nly req uires th at the d efend antsparticipated in the same scheme, even if they hadno agre emen t. United States v. Camiel, 689 F.2d31, 35 (3d Cir.1982)("A conspiracy requires theexistence of an agreement among the alleged co-cons pirato rs, but th e fede ral ma il fraud statuterequires only that the co-schemers participate in acommo n scheme. Thu s, it is the existence of acommon scheme, and not any agreement amongthe parties to participate in it, that is critical.");United States v. Maker, 751 F.2d 614, 625 n.8 (3dCir. 1984)("a single scheme is shown when theevidence showed 'a common goal, operationscarried out in virtually identical manner, and anoverlapping of participants. . . .'" No requirement


that the entire scheme be planned at the outset, noris the scope of the scheme determined by thedefendant's state of mind at the initial allegedincident of mail fraud. Fact that more than oneinsura nce c omp any d efrau ded d oes n ot ma ke thismultiple schemes.). In Camiel, two differentgrou ps vie d for c ontro l of the P hilade lphiaDemocratic City Committee. One ousted theother. However, at different times, both ran a no-show state job scheme for party loyalists. TheThird Circuit reversed the convictions, holdingthat alth ough the ind ictme nt cha rged alldefendants in one schem e, the schemes wereseparate.

XIV. Withdrawal

As noted above, a conspiracy requires anagreem ent wh ile a schem e does n ot. United Statesv. Bibby, 752 F.2d 1116, 1124 (6th Cir. 1985); Camiel, 689 F .2d at 3 5; United States v. Read,658 F.2d 1225, 1238 (7th Cir.1981). Onecons eque nce o f this dis tinction is that so me c ourtshave held that withdrawal is not a defense to ascheme charge, although it is a defense to acons piracy charg e. The rationa le is that aconspiracy requires an agreement from which onecan withdraw. Since a fraud scheme does notrequire agreement, withdrawal is not possible.Read, 658 F.2d at 1238:

The elements of the offenses are,however, different. The predicate forliability fo r cons piracy is an ag reem ent,and a defen dant is punis hed fo r hismembership in that agreement. Mail andsecurities fraud, on the other hand, punishthe act of using the mails or the securitiesexchanges to further a scheme to defraud.No ag reeme nt is nece ssary. A party's"withdrawal" from a sche me is thereforeno defense to the crime becausemembership in the scheme is not anelem ent of th e offe nse. S piege l is liablefor mail fraud as a principal or as an aiderand abettor, not a conspirator. As an aiderand abettor, Spiegel need not agree to thesche me. H e nee d only assoc iate him selfwith th e crim inal ve nture and p articipa tein it.

But see United States v. Lothian, 976 F.2d 1257,1263 (9th Cir.1992):

Althou gh we find the S eventh Circuit'srationale in Read instruc tive indetermining the proper contours of thewithdrawal defense when a fraudulentsche me is c harg ed, w e do n ot find itentirely applicable to Lothian's offenses.In our view the liability for substantivefraud offen ses is b ased on pa rticipatio n ina frau dulen t schem e, for in this circ uit adefen dant w ho is a " know ing pa rticipan t"in such a scheme is vicariously liable forco-schemers' uses of the mails or wires.[United States v.] Dadanian, 818 F.2d[1443 ] at 1446 [(9th Cir. 1 987, modified,856 F.2d 1391 (1988). Withdrawal endsthe defendant's knowing participation, andtherefore can negate the element of use ofthe mails or wires. At the same time,however, withdrawal will not shield adefendant from liability for uses of themails o f wire s that ar e an in evitab leconsequence of actions taken while aparticipant in the scheme. Thus in Read,for ex amp le, the d efend ant w as liabledespite his resignation because he had"directed the inventory inflation schemewhich largely contributed to the falsestateme nts conta ined in the mailings ....The m ailings ... were an ine vitableconsequence of his actions.

XV. M ultiple counts

Although the statute was designed to punishfrauds, the gist of the offense is the use of themails. United States v. Tarnapol, 561 F.2d 466,471 ( 3d C ir. 197 7); United States v. Brown, 583F.2d 659, 664 (3d Cir. 1978). Thus, each mailingis a separate offense and should be charged in asepara te coun t of the indic tment. Badders v.United States, 240 U .S. 391 (191 6); United Statesv. Ledesma, 632 F.2d 670, 678 (7th Cir. 1980);Unite d State s v. Stu ll, 743 F.2d 439, 444 (6th C ir.1984 ); United States v. Saxton, 691 F.2d 712, 714(5th Cir. 1 982).

XVI. Venue

Mail fraud has its own venue paragraph in 18U.S.C. § 3237(a) which provides:


Any offense involving the use of themails, transportation in interstate orforeign commerce, or the importation ofan object or person into the United Statesis a continuing offense and, except asotherwise provided by enactment ofCongress, may be inquired of andprosecuted in any district from, through,or into whic h suc h com merc e, ma ilmatter, or imported object or personmoves.

In United States v. Brennan, 183 F.3d 139 (2d C ir.1999 ), how ever, the co urt held that this s tatutedoes not apply to the mail fraud statute. The courtheld that the crime is committed by the depositingor the delivery of an item. In Brennan the m ailwas sent from Manhattan in the Southern Districtof New York, but the crime was charged in theEastern District of New York on the theory thatthe mail had been sent out of either Kennedy orLaGuardia airports. Analyzing the history of thestatute and the constitutional venue protections,the court held that venue was not proper in theEaste rn Dis trict.

XVII. The deceived and the defrauded

If the defendant lies to A to get money fromB, is there a violation of the mail fraud statute?The circuits are split on this. In United States v.Blumeyer, 114 F.3d 758 (8th Cir. 1997), thedefendants gave false financial information to thestate's Division of Insurance which allowed thecom pany to rem ain in b usine ss and to avo idclosure due to insolvency. This permitted thecompany to stay open and continue to collectpremiums. The court held that "a defendant whomakes false representations to a regulatory agencyin order to forestall regulatory action thatthreate ns to im pede the de fend ant's sc hem e toobtain money or pro perty from others is guilty of conducting a scheme or artifice ... for obtainingmoney or property by means of false or fraudulentpretenses, representations, or promises." Id. at768. Thus, lying to the government, whichpermitted the defendants to keep the license whichallowed them to collect premiums from the policyholders, was held to be a violation of the statute.The same result was reached in United States v.Cosentino, 869 F.2d 301, 307 (7th C ir. 1989).

In United States v. Lew, 875 F.2d 219, 221(9th Cir. 1989), on the other hand, a lawyer whosubmitted false information to the governmentregarding his immigration clients was chargedwith d efrau ding h is clients of the m oney they p aidfor fees. The court read McNally v. United States,483 U.S. 350 (1987), to require that the intentmust be to obtain money or property from the onewho is dece ived. S ince th e dec eption was m ade tothe government, while the money came from theclients, the court reversed the conviction. InUnited States v. Sawyer, 85 F.3d 713, 734 n.18(1st C ir. 199 6), the court w rote, "I n any even t,Sawyer's deceptive conduct toward Hancock,alone, cannot form the basis of this honestservices fraud conviction. Rather, the allegedvictims of the mail fraud – here, the state and thepublic – mu st be the ones dece ived." This s plitwas n oted m ost rec ently, b ut not re solve d, inUnited States v. Frost, 125 F.3d 346, 360 (6th C ir.1997)(collecting cases).

XVIII. Honest services

The mail fraud statute also covers thedefrauding another of the "intangible right ofhonest services." 18 U.S.C. § 1346. This wasonce referred to as the "loyal and faithfulservices" theory of mail fraud and it had beencons idered a valid mail fr aud th eory for ov er for tyyears. Then the Supreme Court decidedUnite d State s v. M cNally , 483 U.S. 350 (1987 ),and eliminated this theory as a valid basis for amail fraud prosecution. On November 18, 1988,18 U .S.C. § 1346 wen t into eff ect, pa rtiallyrestoring this conc ept. Cleveland v. United States,531 U.S. 12 (2000). Thus, for schemes devisedand completed prior to November 18, 1988, loyaland faithful services is not a valid theory. Forschemes completed prior to that date, anindictment must charge a loss of money orprop erty. L ost inta ngible rights a re not s ufficie nt.However, loss of rights in intangibles whichconstitute p roperty will suffice . United States v.Carpenter, 484 U .S. 19 ( 1987 )(righ t of W allStreet Journal to have information gatheredremain confidential until publication; writer ofJournal’s "Heard on the Street" column gave tipshe ha d gain ed as a repor ter to frie nds to trade inthe market before the information was publishedin the Journal; held while the statute did not


protect the Journal’s intangible right to thewriter’s "loyal and faithful" services, it did protectits right to keep this info rmatio n con fiden tial untilthe Jo urna l was r eady to pub lish it); United Statesv. Zauber, 857 F .2d 13 7 (3d Cir. 19 88). T hisdistinction is important to keep in mind as ascheme may not be an "honest services" scheme(discussed in the following paragraphs), but maystill be a s chem e to de prive som eone of a pr oper tyright.

Even if you c harg e a cas e as an intang iblerights case and it does not fit into the § 1346hone st serv ices ca tegor y, you may still be ab le towin if y ou ca n sho w tha t the sch eme nece ssarilyinvolve d financ ial loss to the v ictim. United Statesv. Asher, 854 F.2d 1483, 149 6 (3d Cir. 1988);Unite d State s v. Pe rholtz , 842 F.2d 343, 365-67(D.C. Cir. 1988); United States v. Richerson, 833F.2d 1 147, 1 156- 57 (5 th Cir. 1 987) ; United Statesv. Wellman, 830 F.2d 1453, 146 1-64 (7th Cir.1987); United States v. Fagan, 821 F.2d 1002,1010, n.6 (5th Cir. 1987).

A. Honest services – public corruption

In the area of public corruption, the honestservices theory has a long and honored history.The defraud clause of the conspiracy statute, 18U.S.C . § 371 , has lo ng be en us ed in p ubliccorruption cases. In discussing the predecessor of§ 371, the Supreme Court said in Hammerschmidtv. United States, 265 U.S. 182, 188 (19 24):

To conspire to defraud the United Statesmeans primarily to cheat the governmentout of property or money, but it alsomeans to interfere with or obstruct one ofits lawful governmental functions bydeceit, craft or trickery, or at least bymeans that are dishonest. It is notnecessary that the government shall besubjected to property or pecuniary loss bythe fra ud, bu t only th at its legitim ateofficial action and purpose shall bedefeated by misrepresentation, chicane, orthe ov errea ching of thos e cha rged withcarrying out the governmental intention.

Applying these concepts, the defraud clausehas been applied to conspiracies to bribecongr essme n, United States v. Johnson, 383 U.S.169 (1966), Agriculture Department officials,

Haas v. Henkel, 216 U.S. 462, 480 (1910), andUnited S tates Attor neys, Glasser v. United States,315 U.S. 60 (1942). However, in McNally v.United States, 483 U.S. 350, 358 n.8 (1987), theCou rt held th at the d efrau d clau se of § 371 isbroader than the defraud concept of mail fraud.

In passing § 1346, Co ngress did not restorethe law completely to its state before McN ally .Rather it only reinstated a "right to honestservices." Cleveland v. United States, 531 U.S. 12,18 (2 000) ("Sign ificantly , Con gress cove red on lythe intangible right of honest services, eventhough federal courts, relying on McN ally , haddismissed for want of any monetary loss to anyvictim, prosecutions under § 1341 for diverseforms of public corruption, including licensingfraud.").

The th eory of honest se rvices in the p ubliccorruption area is based upon the concept that, "Ina democracy, citizens elect public officials to actfor the com mon good . Wh en off icial actio n iscorrupted by secret bribes or kickbacks, theessenc e of the p olitical contra ct is violated ."Unite d State s v. Jain , 93 F.3d 436, 442 (8th C ir.1996 ). Put a nothe r way , "Pub lic offic ialsinher ently o we a f iducia ry du ty to the public tomake governmental decisions in the public's bestinterest." United States v. DeVegter, 198 F.3d1324, 1 338 (1 1th Cir. 19 99).

In the public corruption area, there are severalpre-McN ally cases that are of inter est, for they stillmay be good law after the adoption of § 1346.Cases involving self-dealing, or conflict ofinterest are well illustrated by United States v.Bush, 522 F.2d 641 (7th Cir. 1975), andUnited States v. Keane, 522 F.2d 534 (7th Cir.1975)(the cases were argued on the same day anddecided by the same panel). In Bush a presssecretary to the mayor, in violation of the city’sconflict of interest rules, held an interest in acom pany whic h wa s bidd ing on a city co ntract.He p ushe d me mbe rs of th e adm inistratio n toaward the contract to his company and eitherfailed to disclo se his in terest, o r affirm ativelymisrepresented that he had no interest. He filedfalse disclosure forms with the city. The courtfound that this was an honest services mail fraudsche me. It h eld tha t breac hing a fiducia ry du tyalone is not sufficient, but when combined with a


mate rial mis repre senta tion of interes ts, hiscondu ct constitute d a violatio n. Id. at 647-48.Because the city did suffer a pecuniary injury (thecity could have negotiated a contract in which theprofits which went to the defendant could havebeen retained by the city), it did not opinewhe ther, in the ab senc e of pe cunia ry inju ry, a m ailfraud violation would have been shown.

In Keane a city alderman voted to have thecity compromise liens on property withoutdisclosing to his fellow alderman that he had aninterest in the property. The court held that theactive concealment of his personal financialinterest while voting on the matter was sufficientto show a mail fra ud violatio n. Keane also he ldthat a specific violation of state law is notnecess ary for a mail frau d conv iction. See alsoUnited States v. States, 488 F .2d 76 1, 767 (8thCir. 19 73); United States v. Edwards, 458 F.2d875, 8 80 (5 th Cir. 1 972) ; United States v. Clapps,732 F.2d 1148 (3d Cir. 1984).

There are currently different theories in thepublic corruption area on honest services. Thefirst is set forth in United States v. Sawyer, 85F.3d 713 (1st Cir. 1996), and United States v.Woodward , 149 F.3d 46 (1st Cir. 1988). In thosecases, the First Circuit held that there are twoways to violate the duty of honest services:(1) taking a bribe or gratuity for some officialacts; (2 ) failing to disclo se a co nflict of interes t,resulting in personal gain. Quoting United Statesv. Mandel, 591 F.2 d 1347 , 1362 (4 th Cir.), aff'd inrelevant part en banc, 602 F.2d 653 (4th Cir.1979), the court in Sawy er, 85 F.3d at 724, said:

[T]he fraud involved in the bribery o f apublic official lies in the fact that thepublic officia l is not ex ercisin g hisindependent judgment in passing onofficia l matter s. . . . When a publicofficia l has be en brib ed, he breac hes h isduty of honest, faithful and disinterestedservic e. . . . [T]h e offic ial has b een p aidfor his decisions, perhaps without evenconsidering the merits of the matter. Thus,the pu blic is no t receiv ing w hat it ex pectsand is en titled to, the pu blic official'shonest and faithful service. [Citationsomitted.]

As to undisclosed conflict of interests, the courtsaid, id. at 724:

A pu blic off icial ha s an af firma tive du ty todisclo se ma terial inf orma tion to th e pub licemployer. When an official fails to disclose apersonal interest in a matter over which shehas d ecision-ma king p owe r, the pu blic isdeprived of its right either to disinteresteddecision making itself or, as the case may be,to full disclosure as to the official's potentialmotivation behind an official act. Thus,undisclosed, biased decision making forperso nal ga in, wh ether o r not tan gible lo ss tothe public is shown, constitutes a deprivationof honest services.

Note that with regard to the failure to disclosefraud, one must show a failure to disclose thepersonal interest plus some official action. Itwould appear that the court would not approve amail fraud based solely upon a failure to disclosea con flict of in terest o r paym ent w here th e pub licofficial or employee took no official action. Sucha hold ing w ould lik ely co nflict w ith the p lainlangu age o f the sta tute. In additio n, if a pu blicofficial or employee failed to disclose a conflict(on a required disclosure form, for example), buttook no official action that would implicate anyconflict of interest, such a failure to disclose doesnot seem to meet the materiality requirement ofUnited S tates v. Ne der, 527 U.S. 1 (1999 ).

Thus, there must be an undisclosed conflict ofinterest coupled with some type of official actionthat benefits the defendant. The court was carefulto note that the concept of honest service requiresthe exercise of a discretionary or decision-makingduty. If the public employee takes a tip (gratuity)for doing a completely non-discretionary act (suchas issuing a permit), there is no deprivation ofhonest services, citing United States v. McNeive,536 F.2d 1245 (8th Cir. 1976). In addition, if thepublic employee performs a service which is notan off icial act ( e.g. making an introductionwithout more), there is no dishonest serviceperformed, because the service performed was notpart of a service that was owed to the public,citing Unite d State s v. Ra bbit , 583 F .2d 10 14 (8 thCir. 1978).


Sawyer and Woodward involved theprosecution of a lobbyist for paying, and o f alegislator for taking, gratuities. It is clear that thestate suffered no pecuniary loss in these cases.Nev erthele ss, the b reach of the d uty of hone stywas held to constitute a violation of the mail andwire fraud statutes. The Sawyer-Woodwa rdreaso ning h as bee n acc epted in the E leven thCircuit, see Unite d State s v. Lo pez-L ukis , 102F.3d 1164, 1169 (11th Cir. 1997).

One significant part of the Sawyer-Woodwa rddecisions is that, "[i]n general, proof of a state lawviolation is not required for conviction of honestservices fraud." Sawyer, 85 F.3 d at 72 6. Thisstand s in star k con trast to a nothe r theor y of publiccorru ption h ones t servic es fra ud se t forth inUnited States v. Brumley, 116 F.3d 728 (5th Cir.1997) . Brumley holds that the term "honestservices" is to be defined under state law and,therefore, the government must prove "thatcond uct of a state of ficial br each ed a d utyrespecting the provision of services owed to theofficial’s employer under state law." Id. at 734.Under Brumley's analys is, id. at 734, ". . . if theofficial does all that is required under state law,alleging that the services were not otherwise done'hone stly' do es no t charg e a vio lation o f the m ailfraud statute." "If the employee renders all theservic es his p osition calls fo r, and if these and a llother services rendered by him are just theservic es wh ich w ould b e rend ered b y a tota llyfaithful employee, and if the scheme does notcontemplate otherwise, there has been nodeprivation of honest services." Brumley holdsthat the mail fraud statute does not protect theright o f citizen s to ho nest g over nme nt.

Brumley, which concerned a charge against anexecutive branch employee, also holds that theduty of honest services is owed to the state asemp loyer and n ot to the public in gen eral."Despite its rhetorical ring, the rights of thecitizens to honest government have no purchaseindep ende nt of rig hts an d dutie s locata ble in sta telaw." Id. at 735 . It is unc lear w hat the Eleve nthCircu it wou ld say abou t an elec ted off icial.

The distinction between the Sawyer-Woodward line and Brumley can have significantconsequences for charging. Under the formertheory, it follows that by passing § 1346,

Con gress has uncou pled h ones t servic es ma ilfraud from state law and c reated a fede ral righ t tohones t services . United States v. Sawyer, 239 F.3d31, 41- 42 (1st C ir. 2001) . See also, Badders v.United States, 240 U.S. 391, 393 (1916) ("Theovert act of putting a letter into the post-office ofthe United States is a matter that Congress mayregulate. Whatever the limits to the power, it mayforbid any such acts don e in furtherance of ascheme that it regards as contrary to public policy,whether it can forbid the scheme ornot.")(Citations omitted.) Thus, with the passageof § 1346, there is a statutory duty created byCongress to render honest services. UnderBrumley, this argument is not viable.

One of the c onse quen ces of this un coup ling isthat it is no t nece ssary to rely u pon s tate law tofind th e sou rce of the righ t. Thus , even in a statewhich has no bribery or gratuity statute, if alegislator took a payment to vote on a particularbill or an executive branch employee took moneyfor the exerc ise of h is discr etion, h e wo uld vio latethe federally created right of honest services. If an"in furtherance" wiring or mailing could be found,he could be prosecuted for mail or wire fraud.Similarly, even if a state had no disclosure law,taking a payment from an interested party, failingto disc lose it an d votin g on a mea sure w ouldviolate the right to honest services. It is not yetclear if the Sawyer-Woodwa rd line will g o thisfar. H owever, th e cou rt did em phas ize tha t toviolate the mail fraud statute, on this theory, thegovernment had to prove that the defendant acted"with tw o kind s of inte nt: that sh e inten ded todeprive the public of her honest services, and thatshe inten ded to d eceive th e public. See Sawyer, 85F.3d a t 729; see also Woodward , 145 F.3 d at 55."United States v. Sawyer, 239 F.2d at 40-41.

B. Honest services – private employer

While the right to honest services in thepublic sector is based upon the compact theory ofgovernment, "[e]nforcement of an intangible rightto honest services in the private sector, however,has a much weaker justification becauserelationships in the private sector generally restupon concerns and expectations less ethereal andmore economic than the abstract satisfaction ofreceivin g 'hone st service s' for their o wn sak e."United States v. Frost, 125 F.3d 346, 365 (6th C ir.


1997 ); United States v. deVegter, 198 F.3d 1324,1328 (11th Cir. 1999) ("On the other hand, such astrict duty of loyalty ordinarily is not part ofprivate sector relationships. Most private sectorinteractions do not involve duties of, or rights to,the 'honest services’ of either party.") Generally,these cases involve employer-employeerelationships, although they can also involveoutside contractors. Clearly, a sine qua non of anhonest services case is a duty to provide honestservices. Thus, for example, dishonesty betweenthe salesman and the cus tomer in the sale of aused car is never going to fit under an honestservice s theory .

Because many of the cases speak of the needfor a fiduciary duty, some general agencyprinc iples ar e wo rth no ting. In gene ral,Restatement 2d, Age ncy (hereafter "Restatemen t")§ 1, defines agency as "the fiduciary relationwhich results from the manifestation of consentby one person to another that the other shall act onhis behalf and subject to his control, and consentby the other so to act." "An agent is a fiduciarywith re spec t to ma tters w ithin the scop e of hisagency." Restatement, § 13. Comment (a)prov ides in pertine nt part:

Among the agent's fiduciary duties to theprinc ipal is the duty to acco unt fo r prof itsarising out of th e em ploym ent, the dutynot to act as, or on account of, an adverseparty without the principal's consent, theduty not to compete with the principal onhis own accoun t or for another in mattersrelating to the subject matter of theagen cy, an d the d uty to d eal fair ly withthe principal in all transactions betweenthem.

Restatement, § 387 provides, "Unlessother wise a greed , an ag ent is su bject to a duty tohis principal to act solely for the benefit of theprinc ipal in a ll matter s con necte d with hisagency." Finally, "Unless otherwise agreed, anagen t who mak es a pr ofit in co nnec tion w ithtransactions conducted by him on behalf of theprincipal is under a duty to give such profit to theprincipal." Restatement, § 388. Comment (b) saysthat an agent can retain gratuities, if it is thecustom in the business or if the employer agrees.See United States v. Joselyn, 206 F.3d 144, 149,

154 a nd n.1 0 (1st C ir. 200 0), disc ussing thisconcept in general and no ting that in the case of acorporation, the fact that management hascondoned the practice may not be a defense,because the shareholders of the corporation maynot have agreed.

An agent who acquires confidentialinform ation in the co urse o f hisemployment or in violation of his dutieshas a duty not to use it to the disadvantageof the principal, see § 395. He also has aduty to account for any profits made bythe us e of su ch info rmatio n, altho ugh th isdoes not ha rm the princip al.

Carpenter v. United States, 484 U.S. 19, 27- 28(1987). Citing to an earlier case, the Court stated,"we noted the similar prohibitions of the commonlaw, th at 'eve n in the absen ce of a written contra ct,an employee has a fiduciary obligation to protectconfidential information obtained during thecourse of his employm ent.'" Id. at 27.

While these principles are useful, the violationby an agent of any duty under common law orstatute does not automatically become a crime.Violations of general agency principles, or evenethical principles, do not automatically make amail or w ire fraud case.

Howeve r, these principles provide a necessary(though not a sufficient) basis for understandinghonest services fraud. It is essential that there be aviolation of the principle that no man can servetwo masters, before you can have an honestservices fraud violation. The second master can bean outsider to the relationship (the person whopays a bribe or kickback) or the second master canbe the agen t’s ow n pers onal in terests , whic h he issupposed to subord inate to those of his master. Inthe absence of such a showing, an honest servicesfraud c annot b e prove n.

Generally, the courts use the same standardsfor a private honest services mail fraud as they dofor one involving a public official. That is, thereneeds to be some potential financial benefit to thedishonest employee (either by bribe, kickback oremb ezzle men t), a failu re to dis close this"dishonest" relationship (conflict of interest) andsome realistic potential for harm to theprincipal/employer. For examples of honest


servic es vio lations acco mplis hed b y a failu re todisclose under the bank fraud statute, 18 U.S.C.§ 1344 , see United States v. Harvard, 103 F.3d412 ( 5th Cir . 1997 ); United States v. Mangone,105 F .3d 29 , 31 (1 st Cir.1 997) ; United States v.Pribb le, 127 F.3d 583 (7th Cir.1997). Theadvantage of an honest services bank fraudprosecution against bank em ployees and directorsis that there is no need to find a mailing or wiringthat is "in furth erance ."

United States v. Lemire, 720 F.2d 1327 (D.C.Cir. 19 83), g ives a g ood illu stration of thisconcept. Lemire was an employee of RaytheonCorp., which had a conflict of interest policy andrequired employees to certify annually that theywere in compliance with the policy. Lemire gaveinformation to a bidder seeking to do businesswith R aythe on w hich p ermitte d the b idder toachieve inflated profits, while still submitting thelowest bid on a contract. Lemire got a kickbackfrom the bidder for his efforts. Needless to say,Lemire did not disclose this conflict to Raytheon.The c ourt fir st held that "an intentio nal failu re todisclose a conflict of interest, without more, is notsufficient evidence of the intent to defraud anemployer necessary under the wire fraud statute.There must be something which in the knowledgeor contemplation of the employee poses anindependent business risk to the em ployer." Id. at1337 (citation omitted).

Accordingly, our holding does not removefrom the ambit of wire fraud undisclosedconflicts that, accompanied by activity onthe part of the employee, carry asignificant risk of identifiable harm to theemp loyer apart f rom th e loss o f hisemployee's loyalty and fidelity. So long asthe jury finds the non-disclosure furthers ascheme to abuse the trust of an employerin a m anne r that m akes an ide ntifiableharm to him, apart from the b reach itself,reasonably foreseeable, it may convict theemployee of wire fraud. The crucialdetermination must be w hether the jurycould infer that the defendant mightreasonably have contemplated someconcrete business harm to his employerstemming from his failure to disclose the

conflict along with any other informationrelevant to the transaction.

Id.

In United States v. Sun-Diamond Growers ofCalifo rnia , 138 F.3 d 961 ( D.C. C ir. 1998) , aff’d,526 U.S. 398 (1999), the court held that thepoten tial for d ama ge to th e repu tation o f a pub licrelations firm if an illegal corporate contributionwas discovered was a serious economic risk. Thecourt went on to say that the government does nothave to prove that the defendant intended to causeecon omic harm , only th at he h ad an intent todefra ud. Th e cou rt noted , "But Lemire did not goso far as to say that economic ha rm must be partof the defendant's intent in a private-sector"honest services" case – only that econo mic harmbe w ithin the defen dant's reaso nablecontemplation." Sun Diamond, 138 F.3d at 974.

A slightly different, but more generalizedexpression of the test is found in United States v.deVegter, 198 F.3d 1324, 132 8-29 (11th Cir.1999), discussed more fully below, where thecour t said tha t "the br each of loya lty by a privatesector defendant must in each case contravene –by inherently harming – the purpose of the parties'relationship." This phrasing may be more usefulfor the breach of loyalty by an employee or agentworking for an organization that is not in businessfor pr ofit. Hu rting th e purp ose o f the re lations hipfor dis hone st reas ons sh ould a lso vio late the mailfraud statute.

In United States v. Frost, 125 F .3d 34 6 (6thCir. 1997), the defendants were professors at theUniv ersity o f Ten nesse e, wh o allow ed stu dents topass off material written by others as their ownthesis or dissertation, and who concealed from theoral examination committees that the thesis ordissertation under r eview w as not the student'sown work. The students were employees ofNASA and were involved in the awarding ofgovernment contracts. The professors had sidebusinesses which sought government contracts.The scheme, at its core, involved a swap ofdegrees for govern ment contracts. While the courtupheld the conviction, it placed a strange readingon the hone st serv ices the ory. T he co urt,ostensibly following Lemire, held th at:


The prosecution must prove that theemployee intended to bre ach a fiduciaryduty, and that the employee foresaw orreaso nably shou ld hav e fore seen that hisemployer migh t suffer an economic ha rmas a resu lt of the bre ach.

The c ourt ef fective ly held that the "conc retebusiness harm" requ irement of Lemire, 720 F.2dat 1337, was economic harm. In doing this thecourt recognized that, "Despite the literal terms of§ 134 6, we theref ore ha ve co nstrue d the in tangib leright to honest services in the private sector asultimately dependent upon the property rights ofthe victim." Frost, 125 F .2d at 3 69. Th isconstruction would seem to be at odds with thegene ral prin ciple th at a court "m ust giv e effe ct, ifpossible , to every clause a nd wo rd of a sta tute."Williams v. Taylor, 529 U.S. 362, 364 (20 00);Gade v. National Solid Wastes ManagementAss'n , 505 U.S. 88, 100 (1992). By requiring thatthe employer be defra uded of property, the courteffectively reads § 1346 out of existence. TheSupreme Court has recognized in Cleveland v.United States, 531 U.S. 12 (2000) that Congresspassed § 1346 to partially overrule McN ally ,whic h had held th at the m ail frau d statu teprotected only property.

The court in Frost found that the degreeissued by the University was property and,theref ore, u pheld the co nvictio ns. It is n ot clea r ifthis rationale survives Cleveland v. United States.In Cleveland, the Court held that a license is notproperty under the mail fraud statute as the issuingof a license is part of a state’s regulatory schemeand not property in the hands of the state. Whetherthis rationale will also apply to a degree issued bya university (state owned or private) is unclear.

To avoid considering the "degree as property"issue, the court could have used two differentlines of reasoning. First, as in Sun Diamond, thecourt could have held that the actions of sellingadvanced degrees could have injured thereputation of the University. This would haveaffected the ability of the University to attractstude nts, fac ulty an d gran ts. Thu s, the U niver sitywould have suffered some economic harm as aresult o f this co nduc t.

Second, the court could have held that theconflict of interest went to the core reason that theprofes sors w ere hired by the U niversity. Auniversity hires professors to teach and teststudents and it gives them the authority to grantthe on e tang ible thin g that th e univ ersity o ffers itsstudents – a degree. A professor who "sells"degrees defeats that purpose. U sing the standardarticulated in deVegter – a breach of loyalty thatinherently harms the purpose of the parties'relationship – would cover this situation.

Honest services require that the employeehave the po tential to get som ething of valu e inreturn for depriving his employer of honestservices. The employee must violate the "twomasters" rule, either by serving someo ne else’sinterest or by serving his own to the detriment ofthe em ploye e’s pr incipa l. Com men t a toRestatement § 13 says:

Among the agent's fiduciary duties to theprinc ipal is the duty to acco unt fo r prof itsarising out of th e em ploym ent, the dutynot to act as, or on account of, an adverseparty without the principal's consent, theduty not to compete with the principal onhis own accoun t or for another in mattersrelating to the subject matter of theagen cy, an d the d uty to d eal fair ly withthe principal in all transactions betweenthem.

At its core an "honest services" violation needs aviolation of one of these duties. In Frost, thescheme involved the students helping theprofessors get contracts, while the professorshelped them get their degrees. Thus, theprofessors got something of value for lowering thedegree requirements.

United States v. Czubinski, 106 F.3d 1069 (1stCir. 19 97), d emo nstrate s this pr inciple well.Czubinski was an IRS employee who had accessto the IRS computer system which he wassupposed to use in performing his official duties.However, he also used the system to view the filesof other people, when he had no legitimate reasonto do s o. He did no t transm it this info rmatio n toanyone else and the government had no proof thathe intended to disclose this information to anyoneelse. The court held that the IRS was not


defrauded of property because, althoughinform ation can be prop erty, see Carpenter v.United States, 484 U.S. 19 (1987), either somearticulable harm has to befall the holder of theinformation as a result of the employee ’sactivities, or the person getting the informationhas to make some gainful use of it. Czubinskineither caused harm, nor gained anything. Thecourt also rejected an honest services theory forthree reasons. First, Czubinski "was not bribed orotherwise influenced in any public decision-making capacity. Nor did he embezzle funds. Hedid not receive, nor can it be found that heintended to receive , any tang ible bene fit."Czubinski, 106 F .3d at 1 077. S econ d, the m ailfraud statute is not some means of enforcingpersonnel regulations. Third (sounding likeUnited States v. Brumley, 116 F.3d 728 (5th Cir.1997), but not citing to Brumley), "Although heclearly committed wrongdoing in searchingconfidential information, there is no suggestionthat he failed to carry out his official tasksadequ ately, or inte nded to do so." Id. at 1077.

On the other side of this equation is the issueof harm and ho w tangible it must be. InUnite d State s v. Jain , 93 F.3d 436 (8th Cir. 1996),a doctor took kickbacks from a hospital basedupon patient referrals. The government had noevidence of tangible harm to the pa tients and therewas no claim of unnecessary care or excessivehosp italizatio n. The court d id not d ecide if thiswas a violation of the patients' right to honestservic es, bu t held th at "the e ssenc e of a s chem e todefraud is an intent to harm the victim," id. at 442,and th e patie nt-vic tims su ffere d no h arm. W hilethere was a breach of a duty to disclose thekickbacks, there was no harm.

In United States v. DeVegter, 198 F.3d 1324(11th Cir. 1999), the defendant was hired by acoun ty to ad vise it on which inve stmen t bank er itshould hire as the underwriter for a bondrefunding. The defendant manipulated the processin favor of one investment bank in return formone y. He g ave that b ank co pies of a c ompe titor'sprop osal an d had them analy ze it and help h imwrite his report to tilt the scales of the decision-making process. The court held that "the breach ofloyalty by a private sector defendant must in eachcase contravene – by inherently harming – the

purpose of the parties' relationship." Id. at 1328-29. The court found that "Corrupting the processby which this recommendation was made poses areaso nably fores eeab le risk o f econ omic harm toFulton County because the best underwriter mightnot be recomm ended." Id. at 1331. Note that thecourt said "might not be recom mended." Jainrequ ired ac tual ha rm; DeVegter only required areaso nable possib ility. W hile the injury inDeVegter was economic, the injury in Jain couldhave been phys ical. Kic kbac ks fro m ho spitalscreate a reas onab ly fore seeab le risk th at patie ntswill be h ospita lized th at do n ot nee d treatm ent.Other patients could be sent to a hospital thatwould not be as well equipped to treat thembeca use o f the do ctor's f inanc ial ince ntive. I t isnot possible to harmonize Jain and deVegter.

Where a third party is paying an employee,believing that he is depriving the employer ofhonest services, it does not matter if the payeedoes not ha ve an actua l fiducia ry rela tionsh ip withthe entity defrauded of honest services. Theimportant factor is that the defendant engages in aschem e to depr ive the em ployer o f the em ployee 'shone st serv ices. If that is do ne, the n the sta tute isviolated. United States v. Sancho, 157 F.3d 918,920 (2 d Cir. 19 98)(pe r curiam ), cert. denied, 525U.S. 1 162 ( 1999 ); United States v. Middlemiss,217 F.3d 112, 120 (2d Cir. 2000).

Finally, a prosecutor should be aware of the"sound business judgment rule." A good faith,unconflicted business decision by an employeewill not be second guessed by the courts andcannot be the subject of a mail fraud prosecution.Unite d State s v. D'A mato , 39 F.3d 1249, 1258 (2dCir. 19 94); United States v. Wallach, 935 F.2d445, 464 (2d Cir. 1991). Thus, a case in which abusiness leader has run a business into the ground,causing the shareholders and creditors to losemoney, will be a very difficult one to prove in theabsence of clear proof of a financial conflict ofinteres t.�

ABOUT THE AUTHOR

�Michael L. Levy is an Assistant United StatesAttorney (AUSA) for the Eastern District ofPennsylvania and is currently Chief of theComputer Crimes Division. Previously he served


as Acting United States Attorney, Deputy Chief ofthe Crim inal Divisio n, and F irst Assista nt.

Mr. Levy has been an AUSA since 1990, afterpreviously serving in the same capacity from1980 -83. M r. Lev y also has en gage d in priv atepractice and served as Special Attorney for thePhilade lphia Strike Force.

Mr. Levy is an A djunct faculty member,Jame s E. B easley Scho ol of L aw, T emp leUniversity and has lectured frequently at theNatio nal A dvoc acy C enter in Colum bia, So uthCarolina.

The v iews a nd op inions expre ssed in thisarticle are those of the author only and not theofficia l positio n of the Dep artme nt of Ju stice. T hismemo was originally written for attorneys in theEaste rn Dis trict of P enns ylvan ia and , as a re sult,

the citations may show a particular bent towardthe Th ird Cir cuit. I ha ve tried in ma ny ins tance s toadd citations from other circuits. However, to theexten t that I ha ve no t done so, the citation s shou ldgive a n attorn ey a b eginn ing po int for r esear ch inhis or h er ow n circu it.

I would like to thank Ronald H. Levine, Chiefof the Criminal Division and Ro bert A. Zauzme r,Chief of Ap peals , in my office for the irsuggestions and encouragement. My specialthanks to Assistant United States AttorneyGreg ory A . Paw with w hom I deba ted the meritsof whether, and how, to charge a politicalcorruption case under the m ail fraud statute. Itwas these debates that introduced me to thesubtleties of the honest services mail fraud theorythat is discussed above.a

Identity TheftBeth Moskow-SchnollAssistant United States AttorneyDistrict of Delaware

Identity theft, the misappropriation of anindividual’s personal identification information,has emerged as a significant law enforcement andpublic concern. The Identity Theft Subcommitteeof the Attorney General’s Council on White-Collar Crime is responsible for the developmentof identity theft enforcement policy andcoor dinatio n with the FB I, Trea sury D epartm ent,Secret Service, Postal Inspection Service, FederalTrad e Com missio n, Soc ial Sec urityAdministration and other regulatory and lawenforc emen t agencie s.

Through the Identity Theft Subcommittee, theDepartment has expanded its reach in combatingidentity theft by joining forces with our state andlocal counterparts, including the InternationalAssociation of Chiefs of Police, the NationalSheriffs Association, the National Association ofAttorneys General and the National District

Attorneys Association. The Subcommittee hasorganized and participated in various trainingprog rams and c onfe rence s that dis semin ateinformation on trends, patterns of crimes andenforcement strategies aimed at state and local lawenforcement agencies, which often act as the firstline of de fense in the battle to c urb iden tity theft. In addition, the Subcommittee, chaired by theCriminal Division’s Fraud Section, has beeninstrumental in promoting local and regional taskforce s and work ing gr oups to add ress id entitytheft.

The Subcommittee is interested in learningmore about strategies, including the formation oftask forces and other specialized units, that arebeing used by U nited S tates A ttorneys’ O ffices tocombat identity theft. If your office has developedan identity theft enforcement program, we ask thatyou share your office’s experiences with theSubcommittee by calling the telephone numberlisted below. Additionally, as part of agovernment-wide initiative, United StatesAttorn eys’ O ffices recen tly hav e bee n requ ested to


provide information abou t ongoing identity theftinves tigation s to the F raud Sectio n, wh ich isconducting a survey of all offices to determine thecurrent inventory of identity theft cases.

The Subcommittee and the Fraud Sectionhave prepared resource materials focusing onidentity theft and the related crime of pretext

calling or "pretexting" - - obtaining financial

institution customer information by means of falsepretenses. These materials are currently beingdistribu ted by the W hite-C ollar C rime C ounc iland include a form indictment and m odel jury

instructions for Section 1028(a)(7) offenses,

which also will be available on USA Book. For

additio nal info rmatio n and assista nce o n iden titytheft and pretexting matters, please call the FraudSection at 202-514-0890.

I. An overview of the identity theft problem

In late 1 998 a nd ea rly 19 99, inv estiga tors inthe Army Criminal Investigations Division beganreceiving complaints from high ranking officersthat someone had obtained credit in their names.Unbeknownst to the Army, during the same timeperiod, similar complaints from high rankingofficers were pouring into the criminalinvestigations divisions of the Navy, Air Forceand Marines. Meanwhile, First USA Bank wasuncovering fraudulent accounts and accountapplications in the names of military officers at analarming rate.

When the investigators compared notes, theylearne d that th e hun dreds of fra udule nt acc ountswere related . How had some one m anag ed toobtain the personal information of the officers andthen use that information to apply for credit in theofficers’ names? It turned out to have been all tooeasy.

The perpetrator was not some criminalmastermind, but a petty crook with a fifth gradeeduc ation a nd so me m inima l com puter skillsnamed Lamar Christian. Christian had learned ofthe “sc am” , as he c alled it, th roug h a frie nd of hisin Florida who had shown him a Web site thatconta ined th e nam es, ran ks an d soc ial secu ritynumbers of persons who had been promoted eitherto, or within, the officer ranks of the armed forces.

The information on the Web site had been copiedfrom the Congressional Record where thepromotions had been published.

Using the information downloaded from theWeb site, Christian applied for credit cards via theInternet from Wingspan Bank and First USABank ’s Inte rnet ba nk. H e also a pplied for cre ditvia the Internet from Gateway Computers and thenused the Gateway accounts to purchase co mputersand other electronic equipment. Christian’s co-conspirator, Ronald Stevens, a/k/a “Squeaky”,fenced the items that had been purchased with thefraudu lent cred it to mem bers of h is, e.g. Stev ens',drug organ ization . As S teven s prou dly ad mitted ina misg uided effor t to min imize his inv olvem ent inthe offense, “I am a drug dealer. I don’t knownothing about computers.” With this scheme,Christian and Stevens obtained goods and cashworth several hundred thousand dollars andcompromised the credit and good name of overthree hu ndred military of ficers.

This is only one example of how easily anidentity theft sc hem e can be pe rpetra ted. Y et wh ilethese schem es ma y easily be ex ecute d, their resultscan be devastating. Such sch emes cause m onetaryloss to the financial institutions and aredevastating to the victims whose identities arestolen and whose credit is ruined. Therefore, weneed to understand these schemes and learn whattools we have to combat and prosecute them.

Identity theft cases in the financial institutionrealm primarily involve account takeovers andfraudulent applications. An account takeoveroccu rs wh en so meo ne ob tains a v ictim’s identityinformation and uses it to take over an existingaccount held by the victim, usually by asking thebank to change the address on the account to anaddress under the thief’s control and furtherrequ esting that an additio nal cre dit card be sen t tothe new address. Those who steal identities targetdormant accounts in this type of scheme so thatthe true account holder will not notice that his orher monthly statement has not arrived.

A fraudulent application case occurs whensomeone obtains a victim’s identity informationand uses it to apply for new credit and/or opennew accoun ts. This type of scheme is muc h moreinvidious in that the victim generally does not


learn th at he o r she h as bee n victim ized u ntil theircredit already has been harmed.

Both types of schemes are easily perpetratedbeca use ea ch req uires o nly a fe w ba sicingre dients : (1) so urces of per sona l or iden tityinformation; (2) fraudulent addresses to whichcredit cards and bank statements can be sent; and(3) fake identification in the victim’s name to beused for bank and other in person transactions.While the need for fraudulent addresses andidentification may be obvious, the sources ofaccou nt inform ation ma y not be .

There are myriad sources of personalinformation. In several cases that I haveprosecuted, bank em ployees sold credit cardaccount holders’ person al information to othersfor as little as $1 5 per a ccou nt. Sim ilarly low paidemployees of credit bureaus, doctor’s offices, carrental agencies, and building managementcompanies also have access to customers’ names,social security numbers, dates of birth, andemployment information and have compromisedthis information for a minimal price.

Mail theft, dumpster diving, and pretextcalling are three low tech means of obtainingpersonal information. Theft of mail can rangefrom a person stealing individual credit cards andconvenience che cks out of mailboxes to the theftof entir e ship men ts of m ail. Du mps ter divin g iswhere a person sorts through the trash outside acar rental agency or doctor’s office, etc. andcollects discarded papers containing customers’name s, addre sses, an d social se curity nu mber s.

As exemplified by the Christian case, theInternet can be a source of identity information aswell. While the Web site used by Christian nolonger contains the personal information of theoffice rs, a se arch u sing th e term “socia l secur itynumber” turns up many sites that purport to beable to track d own anyo ne’s s ocial se curitynumber and personal information for a fee. TheInternet also hosts many sites discussing and/oroffer ing fak e ID’ s. An e xam ple is the “Hac tivist”which bills itself as the “Ultimate Fake IDRefere nce Pa ge.”

II. Investigative techniques

Ther e are m any in vestig ative te chniq ues w ithwhich to combat these schemes. First, mostfinan cial institu tions tra ck the “footp rints” o f theiremployees, e.g. they have a record of every timean employee views customer account information.When the b ank learns that certain accounts arefraudulent, their investigators can review the logsto determine if any of the accounts were viewedby the same employee. In this way, the bankhopefully can learn whether one of its employeeswas the point of compromise. In the best casescenario, once identified, the “dirty” bankemployee will agree to cooperate against theperson to who m they sold the in forma tion.

Second, many financial institutions use callerID information to track telephone calls that comein on accounts. A subpoena for the telephonebilling records and subscriber information for thesubje ct telep hone s often prov ides v aluab leinformation as to the identity of the perpetrator ofthe fraud.

Third, in their investigations, many financialinstitutions use “link analysis”, i.e. bankinves tigators enter th e infor matio n perta ining tofraudulent accounts, such as addresses andtelephone numbers, and run a search to determinewhether the accounts are linked. If the financialinstitution does not keep such information, theagen t inves tigating the ca se sho uld be urged toperform the same type of analysis. While some ofthe info rmatio n deriv ed fro m this ty pe of a nalys ismay not lea d to ev idenc e of the defen dant’ s guiltbeyond a reasonable doubt, it is invaluable atsentencing when arguing that the additional linkedaccounts should be included as relevant conductunder U.S. Se ntencing Guide lines M anual § 1B1.3(2000 ).

Fourth, if an account is opened online, youmay be ab le to trac e the email ac coun t used toopen the account. However, for the followingreaso ns, yo ur cha nces of suc cess a re not g reat.One reaso n is that if the IP a ddre ss on th e em ailtransmission was dynamic rather than static, youwill nee d both the da te and time the em ailtransm ission w as rec eived in orde r to con duct atrace. Yet, the majority of financial institutions donot log the date and time of em ail transm issions.


Another reason that e-m ail transmissions areoften difficult to trace is that financial institutionsestimate that over 97% of fraud ulent accounts areopened from free email addresses such as Excite,Hotmail, Juno, Usa.Net and Yahoo. Notsurprisingly, because the services are free, theinformation collected from users is often false. AsExcite’s form response letter to a subpoena states,“I confirm that Excite-mail Services is a freeservice and while Excite reques ts that its userscom plete re gistratio n info rmatio n prio r toreceiving an Excitemail account, Excite does notvalidate the completeness or accuracy of the userdata supply.” The user data supplied in that casestated that the user was O.J. Simpson of 2828Crazy Ass Street with no city or state of residence.

There is at least one benefit to having a caseinvolving computer transmissions. If a search ofthe suspect’s computer occurs, it may revealcookies, e.g. special text files created by aWebsite service and written onto the hard drive ofa Web site visitor. These cookies will provide aroad map of the Web sites visited by the computeruser o n the In ternet.

Finally, perhaps the most valuable techniquefor investigating identity theft cases is the familiaradvice to “follow the money.” In cases involvingcash, the victim financial institution will haverecords of where cash transfers were sent. In casesinvolv ing the purch ases o f goo ds, sh ip-toaddresses can be identified and controlleddeliveries made.

III. Congress’ resp onse to the identity theft

problem

A. The Identity Theft and AssumptionDeterrence Act of 1998

In an effort to address the growing problem of

identity theft, on Octo ber 30 , 1998 , the Ide ntityTheft Act [Pub. L. 105-318] went into effect. The

Act was needed since Section 1028 [“Fraud andrelated activity in connection with identification

documents”] previously addressed only thefraudulent creation, use, or transfer of

identification documents, and not theft or criminaluse of the underlying personal information. The

Act cr imina lizes fra ud in c onne ction w ithunlawful theft and misuse of personal identifying

information itself, regardless of whether it appearsor is used in documents.

Subsection 1028(c)(3), as amended, providesthat the circum stanc es un der w hich a n offe nse w illbe established now include instances in which theprod uction , transf er or u se pro hibited by thissection is in or affects interstate or foreigncommerce; or the means of identification,identification document, false identificationdocu men t or doc ume nt-ma king im plem ent istransported in the mail in the course of theproduction, transfer, possession or use prohibitedby the section. In December 2000, this subsectionwas further amended to include transfers byelectronic means and Subsection 1028(d) wasamended by defining "transfer" to includeselection or placement of such documents orimplements on an online location.

Section 3 of the Act amends 18 U.S.C. §1028by, among other things, adding new Subsection(a)(7). That subsection establishes an offense byanyone who “knowingly transfers or uses, without

lawful authority, a means of identification ofanoth er per son w ith the in tent to c omm it, or to aidor abet, any unlawful activity that constitutes aviolation of Federal law, or that constitutes afelony u nder an y applica ble State o r local law .”

The Act amends the penalty provision ofSubs ection 1028 (b) by exten ding its cove rage to

offenses under new Subsection 1028(a)(7 ).Viola tions o f Sectio n 102 8 are g enera lly sub ject toa fine and imprisonment of up to fifteen years, orboth, with several exceptions. When an individual

commits an offense “that involves the transfer oruse of one or more means of identification if, as a

result of the offense, any individual committingthe offense obtains anything of value aggregating$1,000 or more during any one year period,” 18U.S.C. 1028(b)(1)(D) provides for a penalty ofimpriso nmen t of not m ore than fifteen ye ars, afine or both. Subsection 1028(b)(2)(B) provides

for imprisonment of no t more than three yearsand/or a fine for other offenses under the new

Subsection 1028(a)(7 ). Thus, the Act applies morestringent penalties for identity thefts whose

purpo se is to obta in prope rty.


Subsection 1028(b)(3), as amended, providesthat if the offense is committed to facilitate a drug

trafficking crime, or in connection with a crime ofviolence, or is committed by a person whose prior

conv iction u nder this sec tion ha s beco me fin al,the individual can be subject to a fine or

imprisonment of up to twenty years, or both. TheAct also adds a forfeiture provision under new

Subsection 1028(b)(5) which allows proceedingsto forfeit “any personal property used or intended

to be used to commit the offense.” Subsection1028(g) provides that forfeiture proced ures are

governed by the provisions of Section 413 of theComprehensive Drug Abuse Prevention andControl Act of 1970 (21 U.S.C. §853).

Subsection 1028(d)(4), as amended, defines“means of identification” broadly to include “anynam e or nu mbe r that m ay be used , alone or inconju nction with an y othe r infor matio n, to

identify a specific individual.” It gives severalspec ific exa mple s, such as nam e, soc ial secu ritynumber, date of birth, and government issueddriver’s license, as well as unique biometric data,

such as fing erprin ts, voic e print, retina o r irisimage, or other physical representation. It alsocovers unique electronic identification numbers,and telecommunication identifying information oraccess devices .

Subsection 1028(d)(1), as amended, modifiesthe de finition of “do cum ent-m aking imple men t”

to inclu de co mpu ters an d softw are sp ecifica llyconf igure d or p rimar ily use d for m aking identity

docu men ts. The Act is in tende d to co ver a v arietyof individual identification information that may

be de velop ed in th e futur e and utilized to com mitidentity theft crimes. This subsection was furtheramended in December 2000 to expressly includein the d efinition the term s "tem plate, c omp uter fileand co mpute r disc."

The Act amends Section 1028 by addingSubsection 1028(f), which makes attempts andconspiracies to violate Section 1028 subject to thesame penalties as those prescribed for substantive

offenses under Section 1028.

B. Fraudulent access to financialinformation [Gramm-Leach-Bliley Act of 1999]

In yet another effort to address the problem ofidentity theft, in 1999, Congress passed TheFraudulent Access to Financial Informationsubchapter of the "Gramm-Leach-Bliley Act of1999" (GLBA), 15 U.S.C. §§ 6821-27 whichcontains, among other things, specific prohibitionsagainst obtaining financial institution customerinformation by means of false pretenses (pretextcalling or pretexting) and directs federal bankingregulatory agencies to ensure that financialinstitutio ns ha ve po licies, pr oced ures, a nd co ntrolsin place to prevent the unauthorized disclosure ofcustomer financial information and to deter anddetect fraudulent access to such information.

The GLBA prohibits the making of false,fictitious or fraudulent statements to an officer,employee or agent of a financial institution, or to acusto mer o f a fina ncial in stitution , in an e ffort toobtain, or attempt to obtain "customer informationof a financial institution relating to anotherperson ". 15 U.S .C. § 682 1(a). Financialinstitutions are defined as "any institution engagedin the b usine ss of p rovid ing fin ancia l servic es tocustomers who maintain a credit, deposit, trust, or

other financial account or relationship with theinstitution." Certain financial institutions, such as

brokerage firms, insurance companies, credit cardissuers, etc. are specifically included in the

definition. 15 U.S.C. §6827 (4). "Customerinformation of a financial institution" is defined as

"any information maintained by or for a financialinstitutio n wh ich is de rived from the rela tionsh ip

between the financial institution and a customer ofthe financial institution and is identified with the

customer". 15 U.S.C. § 6 827(2). In addition, the

GLBA prohibits any person from obtaining suchcustomer information by "providing any documentto an officer, employee or agent of a financialinstitution, knowing that the document is forged,coun terfeit, lo st, or sto len, w as fra udule ntlyobtained, or contains a false, fictitious, orfraudulent statement or representation." 15 U.S.C.§ 6821(a)

The GLBA also prohibits anyone fromrequesting a person "to obtain customerinformation of a financial institution, knowing that


the person will obtain, or attempt to obtain, theinformation from the institution in any mannerdescribed in subsection (a)." 15 U.S.C . §6821(b).

These provisions are directed at "pretextcalling", where callers use bits of personalinformation they have obtained from other sourcesto imp erson ate a bank c ustom er, in or der to g ainaccess to that individual’s account information.The caller may use this personal information, suchas the in dividu al’s na me, a ddre ss, soc ial secu ritynumber, or mother’s maiden name, to convince abank’s employee to provide confidential accountinformation. This confidential accountinformation may then b e used in an identity theftscheme, or be sold to debt collection agencies,attorneys, and private investigators.

The G LBA specif ies that it d oes n ot app ly toactions by law enforcement agencies, financialinstitution use in certain circumstances, insuranceinstitutions for investigation of insurance fraud,and co llection actio ns for ch ild suppo rt. 15 U.S.C.§ 6821(c)-(f).

The GLBA provides for a criminal penalty ofimprisonment of not more than five years and afine fo r "[w] hoev er kno wing ly and intentio nallyviolate s, or kn owin gly an d inten tionally attemp tsto violate section 6821...." 15 U.S.C. § 6823(a). Ifa person violates Section 6821 while violatinganother United States law, or as a part of a patternof criminal activity involving more than $100,000in a twelve month period, he is subject to anenha nced fine of twice th e am ount p rovid ed inSection 6823(a) and im prisonment for not mo rethan ten years or both. 15 U.S.C . §6823(b).

The GLBA also requires Federal bankingagencies, the Securities and ExchangeCom missio n, and self reg ulatory org aniza tions toreview regula tions a nd gu ideline s app licable tofinancial institutions under their jurisdiction andpresc ribe su ch rev isions a s may be ne cessa ry toensure that these institutions have in placerequ isite po licies, pr oced ures, a nd co ntrols toprevent the unauthorized disclosure of customerfinancial information and deter and detectactivities prohibited by Section 6821. 15U.S.C.§ 6825. Administrative enforcement by theFederal Trade Co mmission and othe r regulatory

agencies is also provided by the Act. 15 U.S.C.§ 6822.

C. The Sentencing guidelines

Section 4 of the Identity Theft Assumptionand Deterrence Act of 1998 directs the

United States Sentencing Commission to reviewand amend the Sentencing Guidelines to provide

appropriate penalties for each offense underSectio n 102 8. The Com missio n com pleted its

review and issued Sentencing Guidelinesamendments that became effective November 1,2000 . The D epartm ent of J ustice and th e Iden tityTheft Subcommittee assisted the staff of theSentencing Commission in this review.

One such amendment provides for a two levelincrease in the offense level in cases involving,inter a lia, “the unauthorized transfer or use of anymeans of identification unlawfully to produce anyother means of identification” or “the possessionof five or more means of identification thatunlawfully were produced from another means ofidentification or obtained by the use of anothermeans of identification.” U.S. SentencingGuidelines Manual §2F1.1(b)(5) (2000). This newsubsection sets a minimum offense level of twelve.Id.

Another such amendment is the addition ofApplication Note 16 to USSG §2F1.1 which statesthat an upward departure may be warranted “in acase in volvin g unla wfully prod uced or un lawfu llyobtained means of identification . . . if the offenselevel does not adequately address the seriousnessof the offense.” Examples given are where:

(A) The offense caused substantial harmto the victim’s reputation or credit record,or the victim suffered a substantialinconvenience related to repairing thevictim ’s rep utation or a da mag ed cre ditrecord.

(B) An individual whose means ofidentific ation th e defe ndan t used to obta inunlaw ful me ans o f identif ication iserroneously arrested or denied a jobbeca use an arres t recor d has been mad e inthe individ ual’s na me.


(C) The defendant produced or obtainednum erou s mea ns of id entifica tion w ithrespe ct to on e indiv idual a nd es sentia llyassum ed that ind ividual’s id entity.

U.S. Se ntencing Guide lines M anual § 2F1.1(2000), comm ent. (n.16).

IV. Victim notification

Perh aps o ne of th e mo st eno rmou s tasks inprosecuting identity theft cases is the notificationof victims. “Victims” include both the financialinstitutions that suffer monetary losses and thepersons whose identities were stolen. There maybe hu ndre ds of s uch in dividu al victim s and , tomake matters worse, many of them will not knowthat their identities have been stolen until they arenotified by your office. Thus, if you have anidentity theft case, bring your Victim/WitnessCoord inator on board im media tely.

Section 5 of the Identity Theft andAssu mptio n De terren ce Ac t directs the FT C to

establish a procedure to log in and acknowledgereceipt of complaints from individuals who

believe one or more of their means ofidentification have been assumed, stolen, orotherwise unlawfully acquired in violation of theAct, to provide educational materials to theseindivid uals, a nd ref er the c omp laints toappropriate entities, including the three major

nation al cred it repor ting bu reaus and a ppro priatelaw enforcement agencies.

Victims of identity theft should be encouraged

to repo rt their c omp laints to th e FTC for filing inits secure victim database. These victims may

need assistance in determining additional stepsthey s hould take to ame liorate th e dam age to their

credit, reputation, or for other personalconsiderations. Victims should be referred to theFTC for assistance in addressing their problemsand for filing complaints by telephone on theFTC’s toll-free Identity Theft Hotline at 1-877-IDTHEFT (438-4338) or online at

www.consumer.gov/idtheft. The FTC also hasdeveloped a consumer guide for the public on

identity theft, ID Theft, When Bad Things Happento Yo ur Go od N ame , expla ining s teps th at iden tity

theft victims can take to inform credit reportingagencies, credit issuers, law enforcement

authorities, and other agencies of the improper useof their identification information. The guide

provides the public with educational information,includ ing pr even tive m easu res tha t can b e take n to

minim ize the risk of beco ming victim s of ide ntitytheft.

The Criminal Division’s Fraud Section hasprepared a form indictment and mode l juryinstructions for Section 1028(a)(7) offenses, whichwill be available on USA Book.�

ABOUT THE AUTHOR

�Beth Mo skow -Sch noll is an AssistantUnited States Attorney for the District ofDelaware. She is a member of the FinancialCrimes and Identity Theft Working Group in theDistric t of De lawar e, a gro up co mpris ed of f edera l,state, and local law enforcement. Ms. Moskow-Schnoll also is a member of a national workinggroup sponsored by the United States PostalInspection Service and comprised of federal lawenforcement and financial institution fraudinvestigators whose goal it is to develop a bestpractices guide for financial institutions doingbusin ess ov er the I ntern et.a


Prosecuting Offenses Under the AccessDevice Statute (18 U.S.C. § 1029)Jonathan J. RuschSpecial Counsel for Fraud PreventionFraud Section

"Symbols," the theologian Paul Tillich oncewrote , "have one c harac teristic in com mon withsigns; they point beyond themselves to somethingelse." Pau l Tillich, Dyn amic s of Fa ith (1958). Onecharacteristic of modern life is its substantialdependence on symbolic data combinations ofnumbers and letters, as devices that point to andcontr ol acc ess to f unds , credit, a nd oth er valu ablepersonal data. Particularly with the growth ofmail-order, telephone-order, and Internet-relatedsales, many symbolic data (e.g., bank accountnumbers, credit card numbers, personalidentification numbers or "PINs", and computerpasswords) can be easily used in lieu of physicalmec hanis ms, su ch as d oor k eys o r plastic cards , toobtain such access.

These same features, ease of use and lack ofdependence on physical mechanisms, can alsomake it easier for criminals to acquire, transfer,and use credit card and other sy mbolic data for awide range of illegal activities that often spanstate or interna tional b ound aries. A s a res ult,crimes such as telemarketing fraud, Internet fraud,identity theft, and use of "cloned" cell telephoneshave increasingly become concerns for lawenforcement authorities in many countries.

A statu te that ca n be p articula rly use ful inprosecuting criminal ventures of this type is 18U.S.C. § 1029, popularly known as the "accessdevice statute." First enacted in 1984, andamended six times since then, section 1029contains ten separate subsections that definespec ific crim inal off ense s. As th is article willshow , section 102 9 can be a h ighly v ersatilemeans of investigating and prosecuting differentaspects of criminal activity that involve fraud. Ifthe mail fraud statute is, as a former AssistantUnited States Attorney (now a federal judge) putit, "the Colt 45" of white-collar crime prosecutors,

Jed S. R akoff, The F eder al Ma il Frau d Statu te(Part I), 18 DUQ. L. REV. 771(1980), the accessdevice statute may be their Swiss Army knife.

This article will first review some of the keyterms and concepts in section 1029. It will thenaddress each of the substantive offenses in thatsection and examine various sentencing issues thatcan arise in section 1029 prosecutions.

I. Key terms a nd concepts

Befo re turn ing to s pecific offen ses w ithinsection 1029, it is important to understand someof the key terms and concepts that appear in manyof tho se sec tions. T he m ost imp ortan t of thes e isthe term "access device." Subsection 1029(e)(1)defines "access device" broadly as

any card, plate, code, account num ber,electronic serial number, mobile identificationnumber, personal identification number, orother teleco mm unica tions se rvice, e quipm ent,or instrument identifier, or other means ofacco unt ac cess th at can be used, alo ne or inconju nction with an other acce ss dev ice, toobtain money, goods, services, or any otherthing of value, or that can be used to initiate atransfer of funds (other than a transferoriginate d solely b y pape r instrum ent) . . . .

As the terms within this definition make clear,the ge neral a mbit o f sectio n 102 9 exte nds n ot onlyto physical cards or plates bearing accountnumbers, such as credit cards and bank cards, butto any n umbe rs or no nnum eric iden tifiers (e.g.,passwords) that can be used to obtain money orthings of value or to initiate nonpaper transfers offunds.

Appellate courts have ruled that the term"access device" includes things as diverse asvalidated airline tickets (Unite d State s v. Ab ozid ,257 F.3d 191, 195-97 (2d Cir. 2001)); a blankcredit card, where the defendant also possessedcard embossing e quipment and card numbers(United States v. Nguyen, 81 F.3d 912, 914-15


(9th Cir. 1996)); long-distance telephone serviceaccess codes (United States v. Brewer, 835 F.2d550, 553 (5th Cir. 1987)); the num ber of amerc hant a ccou nt at a b ank th at was used toprocess credit card transactions (United States v.Dabbs, 134 F.3d 1071, 107 9 (11th Cir. 1998));and restaurant checks w ith credit card numbersimprinted on them (Unite d State s v. Ca puto , 808F.2d 963, 966 (2d C ir. 1987)).

Two other terms that are directly dependenton the mea ning o f "acc ess de vice" a re "co unter feitaccess device" and "un authoriz ed acc ess dev ice.""Counterfeit access device" is defined as "anyaccess device that is counterfeit, fictitious, altered,or forged, or an identifiable component of anaccess device or a counterfeit access device." 18U.S.C . § 102 9(e)( 2). Th e Fifth and N inth Cir cuitCourts of Appea ls have ruled that the term"counterfeit access device" as used in section1029 enco mpa sses o therw ise legitim ate cre ditcards that are acquired through the submission offalse info rmation . United States v. Soape, 169F.3d 2 57, 26 2-64 (5th C ir. 199 9); United States v.Brannan, 898 F.2d 107, 109 (9th Cir. 1990). TheFifth Circuit also held that long distance telephoneservice access codes fabricated by the defendantcan be "counterfeit" even though those codesmatched valid code numbers in the telephonecomp any’s c ompu ter. Brewer, 835 F.2d at 553-54.Similarly, the United States Court of Appeals forthe Eighth Circuit held that American Expressaccount numbers that the defendant obtained bysurreptitiously accessing the American Expresscomputer system may be considered"unauthorized access de vices." United States v.Taylor, 945 F.2d 1050, 105 1 (8th Cir. 1991).

"Unauthorized access device" is defined as"any access device that is lost, stolen, expired,revo ked, c ance led, or obtain ed w ith inten t todefraud." 18 U.S.C. § 1029(e)(3). TheUnite d State s Cou rt of A ppea ls for th e Elev enthCircuit held that merchant account numbers whicha defendant uses in furtherance of a fraud schemecan be conside red "un authoriz ed acc ess dev ices,"where the merchant bank prohibited the practiceof "factoring" (i.e., a business’s use of another’smerchant accou nt to process credit cardtransactions) and the defendant knew of, andintentiona lly violated, th e bank ’s policy. Dabbs,

134 F.3d at 1080-81. The United States Court ofAppeals for the First Circuit held that the term"unauthorized access device" includes credit cardsthat the defen dant h ad ob tained on he r latefather’s account and proceeded to use after shewas told that the company required a power ofattorney authorizing her to use those accounts.Unite d State s v. Go odch ild, 25 F.3d 55, 60 (1stCir. 1994).

It is important to note that section 1029gene rally ad dress es eac h of the majo r phas es inthe stream of criminal activity that exploits accessdevices, including unlawful acquisition,production, trafficking in, use, and possession ofaccess devices. The term "produce," for example,"includes design, alter, authenticate, duplicate, orassemble." 18 U.S.C. § 1 029(e)(4). The term"traffic" is defined to mean "transfer, or otherwisedispo se of, to anoth er, or o btain c ontro l of withintent to transfer or dispose of." 18 U.S.C.§ 1029(e)(5).

One of the essential elements in proving anysection 1029 offense is that the offense in question"affects interstate or foreign commerce." 18U.S.C. § 1029(a). To date, courts have construedthis requirement expansively to affirm the broadambit of section 1029. The United States Court ofApp eals fo r the N inth Cir cuit he ld that adefen dant’ s illicit pos sessio n of out-of- state cr editcard account numbers is an offense "affectinginterstate or foreign commerce" within themean ing of se ction 102 9. United States v.Rushdan, 870 F.2d 1509, 151 4 (9th Cir. 1989). Ina simila r vein, the Un ited Sta tes Co urt of A ppea lsfor the Sixth C ircuit he ld that a fraud ulent c reditcard transaction affects interstate commerce, forpurposes of section 1029, inasmuch as bankingchannels were used for gaining authorizationappro val of the charge s. Unite d State s v. Sca rtz,838 F.2d 876, 879 (6th Cir. 1988). TheUnite d State s Cou rt of A ppea ls for th e Fou rthCircu it held th at eve n an in terstate teleph one c allby a bank manager to a credit card authorizationcente r conc ernin g the d efend ant’s a ttemp t tosecure a cash advance on a credit card, wassufficient, in and of itself, to establish the effecton interstate commerce under section 1029.United States v. Lee, 818 F .2d 30 2, 305 -06 (4 thCir. 1987). On the other hand, the United States


Court of Appeals for the Third Circuit held thatfailure to allege the interstate commerce elementof a section 1029 violation created a jurisdictionaldefect requiring reversal of the defendan t’sconvic tion. United States v. Spinner, 180 F.3d514, 516 (3d Cir. 1999 ).

II. Substantive offenses

The ten subsections of section 1029 thatdefine criminal offenses fall into three broadcategories: (1) offenses generally concerningfraud and access de vices; (2) offenses morespecifically concerning fraudulent use oftelecommunications instruments and service; and(3) attempts and conspiracies to commit any ofthose offenses. This section of this article will firstexamine the seven subsections under the firstcategory, then turn to the three subsections underthe second category and then the two provisionsunder the third category.

Offenses Concerning Fraud and Access Devices

a. Subsection 1029(a)(1). This subsectionstates th at wh oeve r "kno wing ly and with in tent todefraud produce s, uses, or traffics in one or moreunauthorized access devices" commits a federaloffense if the offense affects interstate or foreigncommerce. This offense does not require proof ofdirect contact between the issuer and thedefrau der. United States v. Jac obow itz, 877 F.2d162, 165-66 (2d C ir. 1989).

b. Subsection 1029(a)(2). This subsectionstates th at wh oeve r "kno wing ly and with in tent todefraud traffics in or uses one or m oreunauthorized access devices during any one-yearperiod, and by such conduct obtains anything ofvalue aggregating $1,000 or more during thatperiod" commits a federal offense if the offenseaffects interstate or foreign commerce. Th e term"one-year period" in this subsection is not limitedto a single calendar year, but includes anycontinuous one-year period within which thedefendant has obtained anything of valueaggregating $1,000 or more.

This offense may apply in a wide range ofcircumstances relating to fraud schemes.Exam ples w ould b e a crim inal wh o take s a cre ditcard receipt from a trash basket at a restaurant, oruses e mail to Intern et user s to per suad e them to

disclose their credit card numbers, and then usesthose numbers to purchase merchandise such ascomputers or other electronic equipment. Anotherexample would be a criminal in a large scale telemarketing or investment scheme who needs amerchant accou nt at a bank to process credit cardcharges, but cannot get one if he were to describehis activity truthfully. He instead uses anotherbusiness’s merchant account to process chargesbut does not disclose to the bank that he is usingthe account without the bank’s authorization orappro val. See Dabbs, 134 F.3d at 1079-81.

One court of appeals held that this offenseestablishes a separate criminal violation for theuse of each unauthorized access device for which$1,000 of value was obtained during the one-yearperiod. In its view, the "one or more" language ofthis sub section wa s mea nt to co ver situ ations inwhich "multiple unauthorized acc ess devices wererequ ired in c onjun ction w ith eac h othe r tocomplete a fraudulent transaction." United Statesv. Ired ia, 866 F.2d 114, 120 (5th Cir. 1989) (percuriam).

c. Subsection 1029(a)(3). This subsectionstates th at wh oeve r "kno wing ly and with in tent todefraud possesses fifteen or more devices whichare counterfeit or unauthorized access devices"com mits a f edera l offen se if the offen se aff ectsinterstate or foreign commerce. This offense mayapply, for example, to a person participating in acredit c ard fr aud s chem e wh o has in hisposs ession fifteen or mo re lost o r stolen creditcards, or credit card numbers obtained frome-commerce websites or emails from consumers.It may also apply to a criminal who obtains 100credit card numbers by “hacking” into a comp uter,and then offers to sell others a list of thosenumbers.

The United States Court of Appeals for theNinth Circuit held that under this offense, theUnited States needs to prove only that theaggregate possession of fifteen or m oreunau thorized ac cess d evice s affe cted in terstatecommerce, and not that each of the access deviceshad an interstate ne xus. United States v. Clayton,108 F.3d 1114, 1118 (9th Cir. 1997). In addition,the Fifth Circuit held that a defendant could beconvicted of possessing fifteen or m oreunauthorized long-distance telephone service


access codes, even though only five of the codeswere working. The Court of Appeals reasoned thatrequiring each code number that the defendantpossessed to be active as a prerequisite forconv iction "w ould s erve a s a disin centiv e to cre ditcard or long-distance telephone companiesimmediately to invalidate stolen or lost numbersto protect themselves." Brewer, 835 F.2d at 554.Two decisions by the United States Court ofAppeals for the Eighth Circuit indicate that thegove rnme nt ma y not a ggre gate se parateposs ession s of fe wer th an fifte en sto len cre ditcards under this offense, but may aggregate fifteenor more unauthorized credit cards, even if thosecards were not used at the same moment in time,so long as the defendant did not dispose of anycard nu mber s after his u nautho rized us e. CompareUnite d State s v. Ru ssell , 908 F.2d 405, 406-07(8th Cir. 1990) with United States v. Farkas, 935F.2d 962, 967 (8th Cir. 1991 ).

d. Subsection 1029(a)(4). This subsectionstates th at wh oeve r "kno wing ly and with in tent todefraud, produces, traffics in, has control orcustody of, or possesses device-makingequipment" commits a federal offense if theoffense affects interstate or foreign commerce.Section 1029 further defines the term "device-mak ing eq uipm ent" as "any e quipm ent,mec hanis m, or im press ion de signe d or p rimar ilyused for m aking an ac cess d evice or a co unter feitaccess device." 18 U.S.C . § 1029(e)(6). One co urtof appeals held that a tumbling cellular telephone,which permits the user to accesstelecommunications services without paying forthem , was n ot "dev ice-m aking equip men t" withinthe meaning of this offense, as the telephone wasdesigned and primarily used to make calls ratherthan to m ake ac cess de vices. United States v.Mor ris, 81 F.3d 131, 134 (11th Cir. 1996). Clonedcell phones and similar or related devices are nowclearly co vered, inter a lia, under subsections1029(a)(7)-(9), as discussed below.

e. Subsection 1029(a)(5). This subsectionstates th at wh oeve r "kno wing ly and with in tent todefraud effects transactions, with 1 or more accessdevic es issu ed to a nothe r pers on or perso ns, toreceive payment or any other thing of valueduring any 1-year period the aggregate value ofwhic h is equ al to or g reater than $ 1,000 " com mits

a federal offense if the offense affects interstate orforeign comm erce. As in subsection 1029 (a)(2),the term "one- year p eriod " in this s ubse ction isnot limited to a single calendar year, but includesany continuous one-year period within which thedefendant has obtained anything of valueaggregating $1,000 or more.

This offense may apply, for example, when acriminal involved in any kind of fraud scheme(such as telemarketing fraud, investment fraud, orcredit protection fraud) persuades a person with avalid credit card number to give the criminal thatcredit card number because the person believesthat he or she will receive something ofsubstantial value in return. It may also apply whena criminal involved in a credit card scheme overthe Inte rnet fr audu lently o btains individ uals’ v alidcredit card numbers and uses them to makepurchases of high value consumer goods frome-commerce W eb sites.

f. Subsection 1029(a)(6). This subsectionstates that whoever

without the authorization of the issuer of theacce ss dev ice, kn owin gly an d with intent todefraud solicits a person for the purpose o f –

(A) offering an access device; or

(B) selling information regarding or anapplication to obtain an access device

com mits a f edera l offen se if the offen se aff ectsinterstate or foreign commerce. This offense mayapply, for example, to persons in a telemarketingor Internet-based fraud scheme who contactconsumers to offer them credit cards, but thenobtain adva nce fe e pay men ts and either f ail toprovide the promised credit cards at all or send theconsumers generic information about applying forcredit cards. In this type of case, it may beimportant to present testimony from the relevantcredit card issuer that the persons solicitingconsumers were not authorized to do so or to usethe name of the issuer or association to which thatissuer belongs (e.g., Visa) in their solicitations.

g. Subsection 1029(a)(10). This subsectionstates that whoever "without the authorization ofthe cre dit card system mem ber or its agen t,knowingly and with intent to defraud causes orarranges for another person to present to the


member o r its agent, for payment, 1 or moreevidences or records of transactions made by anaccess device" commits a federal offense if theoffense affects interstate or foreign commerce.Within this definition, the term "credit cardsystem member" means "a financial institution orother entity that is a member of a credit cardsystem, including an entity, whether affiliatedwith o r identic al to the credit c ard iss uer, th at isthe sole member of a credit card system." 18U.S.C. § 1029(e)(7).

This offense may apply, for example, when acriminal operating a large scale fraud scheme hasused false in form ation a bout h is busin ess to o btaina merchant account from a bank, or uses anexisting account of a legitimate business, so thathe can process credit card charges through thataccount. The criminal then obtains cred it cardnumbers from the victims of his scheme andsubmits those numbers for payment to the bankwhere the merchant account is located. If thefinancial institution that established the merchantaccount did not authorize that account to be usedby telemarketing operations, all transactions thatthe criminal conducts through that merchantaccount may be considered "unauthorized" by thatfinancial institution.

Offenses Relating to Fraud andTelecommunications Instruments and Service

During the early 1990s, several courts ruledthat "cloned" cell phones or satellite televisiondescramblers did not come within the meaning of"acce ss dev ice" in s ection 1029 . Con sequ ently, in1994 and 1998, Congress added three newsubsections to section 1029 to address modified oraltered telecommunications instruments, scanningreceivers, and hardware and software to modify oralter telecommunications instruments.

a. Subsection 1029(a)(7). This subsectionstates th at wh oeve r "kno wing ly and with in tent todefraud uses, produces, traffics in, has custody orcontrol of, or possesses a telecommunicationsinstrum ent tha t has be en m odified or alte red toobtain unauthorized use of telecommunicationsservice" commits a federal offense if the offenseaffec ts inters tate or f oreig n com merc e. W hilesection 1029 does no t specifically define the term"telecommunications instrumen t," that term

clearly extends to both hardwire and cellularteleph ones , and to any o ther ca tegor y of ele ctron icdevic e by w hich s ome one m ay ob tain"telecom munic ations ser vice."

Section 1029 elsewhere defines"telecommunications service" to have the meaninggiven that term in Section 3 of Title I of theCommunications Act of 1934, 47 U.S.C. § 153.18 U.S.C. § 1029(e)(9). Section 3 of the 1934Communications Act defines"telecommunications service" to mean "theoffer ing of teleco mm unica tions fo r a fee directlyto the public, or to such classes of users as to beeffectively available directly to the public,regardless of the facilities used." 47 U.S.C.§ 153(46). Section 3 further defines"telecommunications" as "the transmission,between or among points specified by the user, ofinformation of the user’s choosing, withoutchange in the form or content of the informationas sen t and re ceive d." 47 U.S.C . § 153 (43). T hisoffense may apply, for example, to persons whomak e, distrib ute, or use "c loned " cell ph ones inthe course of a scheme to defraud, such as atelem arketin g frau d sch eme , or in co nnec tion w ithanother criminal enterprise.

b. Subsection 1029(a)(8). This subsectionstates th at wh oeve r "kno wing ly and with in tent todefraud uses, produces, traffics in, has control orcustody of, or possesses a sc anning receiver"com mits a f edera l offen se if the offen se aff ectsinterstate or foreign commerce. As used in thatsubs ection , the term "scan ning r eceiv er" iselsewhere defined in section 1029 as "a device orapparatus that can be used to intercept a wire orelectronic communication in violation of chapter119 (of Title 18 – i.e., Title III of the OmnibusCrim e Con trol and Safe S treets A ct of 19 68) o r tointerce pt an e lectron ic seria l num ber, m obileidentification number, or other identifier of anytelecommunications service, equipment, orinstrument." 18 U.S.C. § 1029 (e)(8).

c. Subsection 1029(a)(9). This subsectionstates that whoever "knowingly uses, produces,traffics in, has control or custody of, or possesseshardware or software, knowing it has beenconfigured to insert or modifytelecommunications identifying informationassociated with or contained in a


telecommunications instrument so that suchinstrum ent m ay be used to obta intelecommunications service withoutauthorization" commits a federal offense if theoffense affects interstate or foreign commerce. Asused within that subsection, the term"teleco mm unica tions id entify ing inf orma tion" iselsew here d efined in sectio n 102 9 as "e lectron icserial number or other number that identifies aspecific telecommunications instrument oraccount, or a specific communication transmittedfrom a telecommunications instrument." 18U.S.C. § 1029(e)(11 ).

Two other provisions of section 1029specifically limit the ambit of subsection1029(a)(9). First, subsection 1029(g)(1) states that"[i]t is not a violation of subsection (a)(9) for anofficer, employee, or agent of, or a personengaged in business with, a facilities-basedcarrier, to engage in conduct (other thantrafficking) otherwise prohibited by thatsubsection for the purpose of protecting theproperty or legal rights of that carrier, unless suchconduct is for the purpose of obtainingtelecommunications service provided by anotherfacilities-based carrier without the authorizationof such carrier." 18 U.S.C. § 102 9(g)(1). The term"facilitie s-bas ed ca rrier" is elsew here d efined insection 1029 as "an entity that ownscom mun ication s trans missio n facilitie s, isresponsible for the operation and maintenance ofthose facilities, and holds an operating licenseissued by the Federal CommunicationsCommission under the authority of title III of theCommunications Act of 1934." 18 U.S.C.§ 1029(e)(10).

Second, subsection 10 29(g)(2) states that "[i]na prosecution for a violation of subsection (a)(9),it is an affirmative defense (which the defendantmust establish by a preponderance of evidence)that the conduct charged was engaged in forresearch or development in connection with alawful p urpose ."

Attempts and Conspiracies Under Section 1029

Subs ection 1029 (b)(1 ) mak es an a ttemp t tocom mit an offen se un der se ction 1 029 s ubjec t tothe same penalties as those which section 1029prescribes for the offense that the defendant

attem pted. S ubse ction 1 029( b)(2) does not cre atea new offense of conspiracy to commit an offenseunder section 1029. The general conspiracyoffense, 18 U.S.C. § 371, should therefore be usedto charge a conspiracy to violate section 1029. Asexplained below, however, subsection 1029(b)(2)defines the maximum penalties for anyone who"is a party to a conspiracy of two or m orepersons" to commit an offense under section1029. 18 U.S.C. § 10 29(b)(2).

Nothing in section 1029 prohibits "anylawfully authorized investigative, protective, orintelligence activity of a law enforcement agencyof the United States, a State, or a politicalsubdivision of a State, or of an intelligence agencyof the United States, or any activity authorizedunder chapter 224 of [title 18 – i.e., protection ofwitnesses]." 18 U.S.C. § 1029(f). This subsectionfurthe r defin es the te rm "S tate" to in clude "a Stateof the United States, the District of Columbia, andany commonwealth, territory, or possession of theUnited States." Id.

III. Sentencing for Section 1029 offenses

Subsection 1029(c) establishes a two-tiersystem of penalties for convictions under section1029 for first and repeat offenders. Subsection1029(c)(1)(A) states that "in the case of an offensethat does not occur after a conviction for anotheroffense under this section," the maximumpunishment for offenses under subsections1029(a)(1), (2), (3), (6), (7), or (10) is ten yearsimprisonment, a fine under Title 18, or both, andthe maximum punishment for offenses undersubsections 1029(a)(4), (5), (8), or (9) is fifteenyears imprisonment, a fine or both. Subsection1029(c)(1)(B) states that "in the case of an offensethat occurs after a conviction for another offenseunder this section," the maximum punishment forall section 1029 offenses is twenty yearsimprisonment, a fine under Title 18, or both.

Whether the section 1029 offense is a first orsubsequent offense, section 1029 also provides forcriminal forfeiture to the United States "of anyperso nal pro perty used or inten ded to be used tocommit the offense." 18 U .S.C. § 1029(c)(1)(C).Forfeiture of property under section 1029,including any seizure and disposition of theproperty and any related administrative and


judicial proceeding, is governed by section 413 ofthe Controlled Substance Act, except forsubsection (c) of that Act. 18 U.S.C. § 102 9(c)(2).

Finally , with re spec t to a co nspira cy tocommit a section 1029 offense, subsection1029 (b)(2 ) states that

[w]hoever is a party to a conspiracy of two ormore persons to commit an offense under[sectio n 102 9], if an y of the parties enga ges inany conduct in furtherance of such offense,shall be fined an amount not greater than theamount provided as the maximum fine forsuch offense under subsection [1029(c)] orimprisoned not longer than one-half theperiod provided as the maximumimprisonment for such offense undersubsection [1029(c)], or both.

This provision will apply in lieu of the generalpunishment provisions in section 371, if the objectof the conspiracy is to violate section 1029.

Under the current version of the United StatesSentencing Guidelines (USSG), the relevantGuideline for all section 1029 offenses is section2F1.1. Under the substantially revised Guidelinesscheduled to take effect November 1, 2001, therelevant Guideline for all section 1029 offenseswill be a new section 2B1 .1, wh ich ess entiallyconsolidates the current theft and fraud Guidelinesunder sections 2B1.1 and 2F1.1, respectively.(Unless otherwise specified, references to theGuid elines in this se ction o f the ar ticle will p ertainto the Guidelines scheduled to take effect onNovember 1. A copy of the Guidelines revisionsis available online athttp://www.ussc.gov/2001guid/congress2001.PDF.

USSG subsection 2B1.1(b)(1), like the currentsection 2F1.1, generally requires a calculation ofloss w ith refe rence to a loss table. W hileprosec utors sh ould no te that the se ction 2B 1.1table contains some differences from the currentsection 2F1.1 table, they also will need to takeinto account special rules that apply in section1029 cases. Application Note 7(F) for USSGsection 2B1.1 sets forth the following special rulesfor stolen and counterfeit credit cards and accessdevices and purloined numbers and codes:

In a case involving any counterfeit accessdevice or unauthorized access device, lossinclud es any unau thorized ch arges mad e withthe counterfeit access device or unauthorizedaccess device and shall be not less than $500per access device. However, if theunauthorized access device is a means oftelecommunications access that identifies aspecific telecommunications instrument ortelecommunications account (including anelectronic serial number/mobile identificationnumber (ESN/MIN pair), and that means wasonly possessed, and not used, during thecommission of the offense, loss shall be notless than $100 per unused means. Forpurp oses o f this su bdivis ion, ‘c ounte rfeitaccess device’ and ‘unauthorized accessdevic e’ hav e the m eanin g give n thos e term s inApplication Note 7(A).

USSG § 2B1.1, Application Note 7(F)(i).

Under Ap plication Note 7(A), the term"unauthorized access device" is defined to havethe meaning given that term in subsection1029(e)(3). The Application Note’s definition of"coun terfeit a ccess devic e," how ever, issignifican tly broad er than se ction 102 9'sdefin ition of that term . Und er Ap plicatio n No te7(A), "counterfeit access device" has the meaninggiven in subsection 1029(e)(2), but also "includesa telecommunications instrument that has beenmodified or altered to obtain unauthorized use oftelecommunications service." The Note defines"telecommunications service" to have the meaninggiven that term in sub section 102 9(e)( 9). Th isbroader definition brings offenses undersubsection 1029(a)(7) within the scope of USSGsection 2B1.1.

In addition to calculating loss under USSGsection 2B1.1(b)(1), prosecutors should considerthe number of access devices involved in thedefendant’s conduct. USSG subsection2B1.1(b)(2) requires app lication of the greater of:(a) a two level enhancement if the offenseinvolv ed m ore tha n ten b ut few er than fiftyvictims, or was committed through massmarketing (e.g., telemarketing or the Internet), or(b) a four level enhancement if the offenseinvolved fifty or more victims. USSG§ 2B1.1(b)(2)(A ), (B).


USSG subsection 2B1.1(b)(9) pertainsspec ifically to section 1029 offen ses. T hissubsection provides an additional two levelenhancement

[i]f the offense involved (A) the possession oruse of any device-making equipment; (B) theproduction or trafficking of any unauthorizedaccess device or counterfeit access device; or(C)(i) the unauthorized transfer or use of anymeans of identification unlawfully to produceor obtain any other means of identification; or(ii) the possession of 5 or more means ofidentification that unlawfully were producedfrom, or obtained by the use of, anothermeans of identification . . . . If the resultingoffense level is less than 12, increase to 12.

USSG § 2B1.1(b)(9)

Application Note 7 has several provisions thathelp to define the ambit of USSG subsection2B1.1(b)(9):

a. Subsection 2B1.1(b)(9)(A). ApplicationNote 7(A) defines the term "device-makingequipment" not only to have the meaning giventhat term in section 1029(e)(6), but also to include"(I) any hardware or software that has beenconfigured as described in [subsection]1029 (a)(9 ); and ( II) a sc annin g rece iver re ferre d toin [subsection] 1029(a)(8)." USSG § 2B1.1,Application Note 7(A). The Note also providesthat the term "scanning receiver" has the meaninggiven tha t term in su bsection 1029( e)(8). Id. Thisbroader definition brings offenses undersubsection 1029(a)(8) and (a)(9) within the scopeof USSG section 2B1.1.

b. Subsection 2B1.1(b)(9)(B). ApplicationNote 7(A) defines the terms "produce" and"production" to include "manufacture, design,alteration, authentication, duplication, orassembly." This definition adds the wo rd"manufacture" to the list of terms used to define"produce" in subsection 1029(e)(4). The terms"counterfeit access device" and "unauthorizedaccess device" are defined as specified above.

c. Subsection 2B1.1(b)(9)(C). Although theterm " mea ns of id entifica tion" is s tatutorilydefined in the identity theft offense (18 U.S.C.§ 1028(a)(7)) rather than the access device statute,section 102 8 defin es "m eans of iden tification " to

includ e the ter m "ac cess d evice " as de fined insubsection 1029(e). This means that each of thebases for enhancement under USSG subsection2B1.1(b)(9) may be applicable in sentencing forsection 102 9 offe nses. H owe ver, A pplica tion N ote7(A) states that "means of identification" has themeaning given that term in sub section 1029(e)(6),with the proviso that "such means of identificationshall b e of an actua l (i.e.,, not fictitious)individual, other than the defendant or a personfor w hose cond uct the defen dant is acco untab leunder § 1B1.3 (Relevant Conduct)." USSG§ 2B1.1, Application Note 7(A ).

Application Note 7 contains four provisionsthat further define the ambit of USSG subsection2B1.1(b)(9)(C)(i). First, Application Note 7(C)states that subsection 2B1.1(b)(9)(C)(i)

applies in a case in which a means ofidentification of an individual other than thedefendant (or a person for whose conduct thedefend ant is acco untable u nder § 1 B1.3(Relevant Conduct)) is used without thatindivid ual’s a uthor ization unlaw fully toproduce or obtain another means ofidentification.

USS G § 2 B1.1 , App lication Note 7(c)( i)

Second, Note 7(C) gives two examples ofconduct to which subsection (b)(9)(C)(i) applies:

(I) A defendant obtains an individual’s nameand social security number from a source(e.g., from a piece of mail taken from theindividual’s mailbox) and obtains a bank loanin that individual’s name. In this example, theaccount number of the bank loan is the othermeans of identification that has been obtainedunlawfully.(II) A defendant obtains an individual’s nameand address from a source (e.g., from adriver’s license in a stolen wallet) and appliesfor, ob tains, and su bseq uently uses a creditcard in that ind ividua l’s nam e. In thisexample, the credit card is the other means ofidentification that has been obtainedunlawfully.

USSG § 2B1 .1, App lication No te 7(C)( ii).

Third, Note 7(C) gives two examples ofcond uct to w hich s ubse ction 2 B1.1 (b)(9 )(C)( i)does not apply:


(I) A defendant uses a credit card from astolen wallet only to make a purchase. In sucha case, the defendant has not used the stolencredit card to obtain another means ofidentification.

(II) A defendant forges a nother individual’ssignature to cash a stolen check. Forginganother individual’s signature is notproducing another means of identification.

USSG § 2B1.1, Application Note 7(C )(iii).

Application Note 7(D) states that subsection2B1.1(b)(9)(C)(ii) "applies in any case in whichthe offense involved the possess ion of 5 or moremeans of identification that unlawfully wereproduced or obtained, regardless of the number ofindividuals in whose name (or other identifyinginformation) the means of identification were soproduced or so obtained." USSG § 2B1.1,Application Note 7 (D).

Finally, Application Note 15 lists three factorsthat a se ntenc ing co urt ma y con sider indeterm ining w hethe r an up ward depa rture iswarranted in a case involving access devices orunlawfully produced or unlawfully obtainedmeans of identification:

(I) The offense caused substantial harm to thevictim’s reputation or credit record, or thevictim suffered a substantial inconveniencerelated to repairing the victim’s reputation ordamaged credit record.

(II) An individual whose means ofidentific ation th e defe ndan t used to obta inunlaw ful me ans o f identif ication iserroneously arrested or denied a job becausean arrest record has been made in thatindividual’s name.

(III) The defendant produced or obtainednumerous means of identification with respectto one individual and essentially assumed thatindividual’s identity.

USSG § 2B1.1, Application Note 15(A )(vii).

IV. Conclusion

Sectio n 102 9 has far m ore tha n sym bolicvalue in prosecuting a wide variety of criminalconduct, whether or not fraud is the principalobject of that conduct. The broad scope andvariety of the offenses in that section make it oneof the more versatile statutes for use in white-collar crime and other prosecutions.�

ABOUT THE AUTHOR

�Jonathan J. Rusch is Special Counsel forFraud Prevention in the Fraud Section of theCriminal Division. His responsibilities includecoord ination of the Intern et Fraud Initiative, aDep artme nt-wid e initiativ e estab lished in 199 9 toimpro ve the Dep artme nt's ab ilities to co mba t allforms of Internet fraud. He also serves as Chair ofthe Interagency Telemarketing and Internet FraudWorking Group. Mr. Rusch is an AdjunctProfessor of Law at Georgetown University LawCenter, where he teaches courses on GlobalCybercrime Law and International andComparative Law of Cyberspace, and has writtenseveral law review articles on various aspects ofcyberspace law. He received the AttorneyGen eral's A ward for D istingu ished Serv ice in1995.a


Investigating and Prosecuting NigerianFraudJim BuchananAssistant United States AttorneySouthern District of Texas

Alex J. GrantTrial AttorneyCriminal Division, Fraud Section

Introduction

During the last twenty years, organized crimeelem ents w ith ties to N igeria h ave c ome todominate crime emanating from West Africa.These criminal groups, also known as NigerianCrime Enterprises (NCE's), have become adept atexecuting transnational criminal activities,including fraud schemes directed to theUnited States. See Combating InternationalAfrican Crime: Hearing Before Subcomm. onAfrica of Ho use C omm . on In t'l Rel. (July 15,1998) (statement of Tho mas Kneir, FBI) availa blein 1998 WL 400598 [hereinafter Kneir Statement];Impact of Data-Sharing on National Security:Hea ring B efore Subc omm . on N at'l Sec ., Vet.Affairs & Int'l R el. of Ho use C omm . on G ovt.Reform (July 24, 2001) (statement of BruceTownsend , United States Secret Service),availa ble in 2001 WL 870378 [hereinafterTownsend Statement].

Nigeria is the largest country in Africa andboasts a population of 100 million people, a richdiver sity of la ngua ges, c ustom s, and ethnicgroups, as well as large oil and gas reserves.However, since gaining full independence fromGreat Britain in 1960, Nigeria has been plaguedby long periods of military rule, and consequently,weak democratic institutions, including an oftenineffectiv e and c orrupt c ourt sys tem. See U.S.Dept. of State, Bureau of African Affairs,Back grou nd N ote: N igeria (August 2000) (visitedSept. 12, 2001)http://www.state.gov/r/pa/bgn/index.cfm?docid=2836> [hereinafter Back grou nd N ote];International Crime in Africa: Hearing Before the

Africa Subcomm. on African Organized Crime ofHou se Co m. on Int'l Re l. (July 15, 1998)(stateme nt of Jack A. Blum ), availa ble in 1998WL 40 3633 [hereinafter Blum Statement] (noting"non existen t crimin al justice system s"); Situationin Africa: Hearing Before Subcomm. on AfricanAffairs of Sen ate Co mm. on Fo r. Rel. (May 15,1996) (statement of Jean Herskovits, Prof. ofHistory ), availa ble in 1996 WL 387276[hereinafter Herskovits Statement]. While mostNigerians are law-abiding people, a yearly percapita incom e of $3 00, co mbin ed w ithgovernmental institutions lacking legitimacy, have

helped to spaw n organ ized crim e of all type s. SeeBackground Note; Blum Statement;Herskovits Statement.

The United States is Nigeria's largest tradingpartner, and not surprisingly, is the frequent targetof drug smuggling and fraudulent schemes byNCE's. NCE's perpetrating fraudulent schemeshave proven to be sophisticated and elusive foes.Ther e is no tr ue org anize d crim e struc ture as isfound in more traditional organized crimeinves tigation s, altho ugh N igerian s do a ssocia tealong trib al lines. See Combating InternationalAfrican Crime: Hearing Before Subcomm. onAfrica of Ho use C omm . on In t'l Rel. (July 15,1998) (statement of Phil W illiams, Director, Ctr.for Int'l Sec. Studies, Univ. of Pittsburgh)available in 1998 WL 400575 [hereinafterWilliams Statement]. This association is often oneof convenience, and many times, the linesbetween the groups are blurred. There are no clearlines of authority or communication, and triballines ar e cros sed w ith regu larity w hen it is


convenient and profitable. Taken together, thesefactors make for an investigator's nightmare. Theusual organized crime inve stigative techniques aredifficu lt, if not im poss ible, to im plem ent inNigerian cases.

In light of these challenges, federal lawenforcement agencies and the Department ofJustice have developed specific policy initiativesand have devoted significant resources during thepast few years to combating Nigerian fraudschemes and other types of Nigerian organizedcrime. Part I of this article outlines the mostprevalent kinds of Nigerian fraud sc hemes. Part IIdescribes the multi-agency Nigerian CrimeInitiative (NCI), which attempts to provide theinfrastructure necessary for investigators andprosecutors to pursue individual cases. Finally,Part III reports on recent cases from theUnited States Attorney's Office for the SouthernDistrict of Texas and the Houston Area FraudTask Force. The cases suggest how these successstories might be replicated elsewhere.

I. Types of Nigerian fraud schemes

According to the Secret Service, one quarterof the major fraud scams it investigates nowinvolve Nigerians. Described as brazen andbrilliant, these scams result in the loss of hundredsof millions of dollars each year worldwide. Thefavorite target of these scam artists is theUnited States. In the past few years, a significantpercentage of the total loss from Nigerian fraudhas occurred in the United States, and the amountof loss is ex pected to continu e to grow . SeeTownsend Statement. The frauds take on manyform s inclu ding d ubiou s busin ess de als withadvance fees, insurance scams, health care fraud,credit c ard fr aud, b ank fr aud, a nd ide ntity the ft.

A. Advance fee/"419" fraud

The most notorious of Nigerian scams is theadvanced fee fraud scheme known as the "419"scheme, named after a statute in the Nigeriancriminal code. This fraud typically begins with anunsolicited letter or e-mail. The communicationpurports to be from a Nigerian official or ex-official, a doctor or a tribal chief. The letters areaddr essed perso nally to a pote ntial vic timexplaining that a "mutual business associate" hassuggested that the writer contact the addressee

confidentially. The letter requests the recipient’sassista nce in transf erring large s ums of mo ney inexchange for a percentage. The letter almostalways represents that: 1) there is a large sum ofmoney, known only to the writer, waiting to bepaid out of the government coffers as a result ofaccounting shenanigans or over invoicing; 2) thewriter is a member of the Nigerian government orthe Nigerian military trying to move the moneyout of Nigeria but needs help from abroad; 3) thewriter is willing to share the money with therecipient who provides assistance; and 4) secrecyis an ab solute mus t beca use o ther co rrupt o fficialswould seize the money for themselves if theyknew of its existence. The amounts representedare usually in the area of $35 million but may beas much as $75 million. In return for the help ofthe addressee, the writer promises anywhere from20% to 30% of the total. In other words, theaddr essee is offe red $7 -10 m illion for very littleeffort and virtually no risk.

The v ast ma jority o f these letters a nd e-m ailsarrivin g in the United States are pr omp tlydeposited into actual or virtual wastebaskets.Hundreds more are forwarded to the United StatesPostal Service, the F.B.I., or the Secret Service.Some times, ho weve r, the croo ks get luc ky. Avictim respo nds w ith a tiny nibble and th e hoo k isset. The Nigerians are masters of this game and goto great lengths to convince the victim of thelegitimacy of the plan. Many times a"disinterested" third party, usually from aEuropean nation, is introduced to lend an air oflegitimacy. Sometimes, an important soundinginstitution becomes a part of the plan.

After a number of communications and anappr opria te am ount o f time, th e Nig erian w illreport that the money is finally available fortransfer. Unfortunately, some unforeseen problemarises , and th e adv ance paym ent of f ees isnecessary to clear the final hurdle. This is theessence of the fraud. Sometimes, anothergovernment official "finds out about the plan" andhush mon ey is ne eded to bribe him. O ther tim es, itis a transfer fee, or shipping insurance, or "points"for the financial institution or middle man. If thevictim send s the m oney , similar roadb locks willcontinue to pop up until the victim is out ofmoney or realizes he has been duped.


B. "Black Money" scheme

A recent variation on the Advance Feescheme is know n as the "black money " scheme. Inthis variation, the millions of dollars in thepossession of the writer have been defaced bygovernment officials with a chemical which hasturned the bills black (a precaution to keep themoney safe from thieves or corrupt officials), orby some sort of industrial accident. The writer canhave the m oney shipp ed to th e victim if the vic timagrees to front the cash necessary to purchase thechemical to cleanse the money. The writer agreesto send a representative to meet the victim anddemonstrate the cleansing process. At themeeting, the representative demonstrates theprocess by "cleaning" several one hundred dollarbills with what he claims is the last of thechemical. He then pressures the victim to paymoney for storage fees, shipping fees, and more ofthe chemicals to clean the remaining millions ofdollars.

Unfortunately, the victims of these 419schemes typically do not report the crime becausethey are embarrassed by their naivete and feelpersonally humiliated. Some even feel they maybe crim inally lia ble as a result o f theirinvolvement in the scheme.

C. Access device fraud

Another Nigerian scheme involves accessdevice fraud, usually in connection with severalother federal criminal violations. The fraudtypically begins with the leasing of a commercialmail box (usually in a false name). By searchingdumpsters or rifling through mailboxes at anapartm ent co mple x, the N igerian thief ca n obta infifteen to twenty credit card offers in a matter ofminutes. Using the name of the true addressee, butchanging the address to his newly acquiredcommercial postal box, the crook applies forhundreds of credit cards each day. Once the cardsbegin to arrive, the fraud grows exponentially.Cash advanc es are obtained. Credit cardconvenience checks are used to open bankaccounts and investment accounts. Checks drawnon the fraudulently opened bank accounts are usedto pay down the credit card bills. Even though thechecks are fraudulent, the credit card companiesare required to give immediate credit on the

account. This allows the thief to obtain even mo recash advances a nd open mo re bank accoun ts. Ifinvestment accounts are use d, the accounts areopened with fraudulent items. Once funded, theNigerian or his recruit forwards a wire transferorde r direc ting the inves tmen t com pany toforw ard the fund s to a ba nk ac coun t unde r hiscontrol.

D. Identity fraud and credit card fraud

One credit card is never enough, nor is oneidentity. The typical Nigerian fraud schemeinvolves multiple identities, several postal boxes,many bank accounts, and, recently, more than onecity. To further decrease his visibility, theNige rian re cruits y oung Ame ricans to partic ipatein the scams. The lure of fat wallets and expensiveautomobiles is more than enough to encourage theminimum wage earner to take a chance. With alittle coaching, the recruit becomes adept atopening bank ac counts and mo ving the money. Ifcaught, the recruit feigns ignorance or has acanned story about his wallet being stolen.

The Internet has increased the opportunitiesfor the Nige rian cr imina l while d ecrea sing h isexposure. Using computer programs, groups ofNige rians h ave ro utinely been able to obtain listsof credit card numbers issued by credit cardcompanies operating in international commerce.The card numbers are issued through foreignbanks to customers who are residents of GreatBritain, Germany, or other European countries.By fax or phone, the Nigerians use the stolencredit card numbers to orde r expensive com putersor computer parts from small dealers in theUnite d State s. The buye r prov ides th e stolen creditcard number in payment of the purchase. Mostpurchases are successful because neither thecardholder nor the credit card company realizesthat the card number has been compromised. Thepurchases are shipped to coconspirators in theUnited States who repackage the products andship them to various cities in Europe or to Lagos,Nigeria.

It is not unusual for the Nigerian to open asmall retail business such as a clothing resale shopor import/export business. Naturally, to becomecom petitive in our c apitalist s ociety , a sma llbusinessman must agree to accept credit cards for


paym ent. In the ca se of s ome Nige rian sm allbusinessmen, the credit card merchant accountbecomes merely another tool of fraud. Stolen andcounterfeit credit cards are routinely "swiped"through the point of sale terminal, eachtransaction representing what would appear to thecredit card company to be a large purchase. Thefunds are forwarded from the credit card companyto the N igerian ’s me rchan t acco unt to c omp letethe transaction. In reality, no transaction or sale ofmerchandise took place because there was neverany inventory of goods to be sold. Investigationusua lly sho ws tha t the Nig erian b usine ssma n, hisfriends, and relatives acquired by theft and othermeans, a number of credit card numbers and re-encoded the information onto magnetic strips onthe back of plastic blanks. The blank card s areswiped through the termina l during business hoursin order to avoid scrutiny.

E. Bank fraud

Bank fraud scams orchestrated with stolen andcounterfeit checks also comprise a large part ofthe Nigerian fraud repertoire. Armed with acomputer, scanner, desk top publishing program,color printer, and basic computer know how, theNige rian fr auds ter can print co rpora te che cks inany dollar amount w ith an authorizing signaturethat is virtually identical to the original. Byrecru iting co cons pirato rs and open ing m ultipleaccounts, including some in assumed businessnames, an enterprising Nigerian fraudster canoper ate with out fea r of ge tting ca ught.

It is not unusual for a Nigerian fraudperpetrator to recruit a bank insider to provideaccount information. Em ployees in a bank’scustomer service department usually have accessto all cu stom er acc ounts via co mpu ter in or der toassist customers who have questions orcomplaints about their accounts. Once theemployee finds an account with a large balance,the account information is compromised andforwarded to the Nigerian. Armed with theessen tial acco unt inf orma tion, the Nige rian pr intschecks or issues wire transfer orders directing thebank to transfer large sums into accounts underthe control of the Nigerian. Sometimes two orthree wire transfers are used to insulate theNigerian from the transaction.

II. Resources and policy initiatives

A. Nigerian Crime Initiative (NCI)

The N igerian Crim e Initiativ e was launc hed incompliance with the 1995 Presidential DecisionDirective 42 (PDD-42), which was aimed atcombating international organized crime andwhich directed agencies to collaborate with eachother and foreign governments in order to fightinternational organized crime more effectively.See Townsend Statement. In kee ping w ith thismission, the NCI has helped to develop: (1) aninteragency working g roup in order to shareinform ation a nd he lp ma ke po licy, (2 ) the A nti-Drug Network (ADNET) computer system forcollecting and tracking data relating to Nigeriancrime, and (3) Interagency Nigerian OrganizedCrime Task Forces (INOCTF), which are locatedin cities where Nigerian crime is more prevalentand investigate local Nigerian Crime Enterprises.See id.; Impact of Data-Sharing on NationalSecur ity: Hear ing Befo re Sub comm . on Na t'l Sec.,Vet. A ffairs & Int'l Re l. of Ho use C omm . on G ovt.Reform (July 24, 2001) (statement of Bruce C.Swar tz, Depu ty Asst. A ttorney G eneral), availa blein 2001 W L 846011 [he reinafter Swa rtzStatement].

1. NCI Working Group

The NCI working group brings togetherrepresentatives of every important federal lawenforcement agency as well as the Department ofJustice and the Department of State. The NCIincludes the Federal Bureau of Investigation(FBI), Drug En forcement Ad ministration (DEA),Immigration and N aturalization Service (INS),National Drug Intelligence Center (NDIC), U.S.Customs Service (USCS), U.S. Secret Service,Financial Crimes Enforc ement Netwo rk(FINCEN), IRS - Criminal Investigation Division(IRS-CID), U.S. Marshals Service (USMS), U.S.Postal Inspection Service (USPIS), Department ofDefense/Defense Information Systems Agency(DIS A). B ecau se Nig erian o rgan ized c rime issoph isticated and m ultiface ted, the respo nse to itmust draw upon all of the resources of the FederalGovernment, working in concert. The workinggroup helps to pool information among the lawenforcement agencies by discussing the latestissues and ensuring that ADNET is a useful tool


for investigators and prosecutors. The workinggrou p track s the tim elines s of da ta entry , and iteducates users on how to use ADNET effectively.

The working group develops policies andplans to combat international Nigerian crime bysupporting the task forces. It helps to select taskforce cities and assures that the task force citiescarry out the mission of the NCI. The workinggroup also addresses policy issues, such asprivacy and discovery in criminal cases.

2. ADNET

ADNET is a computer network with powerfulcapa bilities fo r the sto rage a nd retr ieval o f dataconcerning Nigerian crim e. ADNE T is a securesystem and can be accessed through dedicatedADN ET term inals in the ta sk force cities. SeeTownsend Statement. In conjunction with theworking group, an outside private contractortrains and provides support to investigatorswork ing N igerian crime cases . ADN ET te rmina lsare also located in Lagos, Nigeria and Accra,Gha na, so that da ta can be ac cesse d clos e tosources of much of the Nigerian crime activities.

Several federal law enforcement agenciescontribute and access ADNET data. In the last twoyears the number of records in the NCI databasehas increased dramatically, making the network apoten tially va luable resou rce to la w en force men t.Some of this data consists of informationcollected from prior criminal investigations,includ ing alia ses us ed by perso ns inv olved inNigerian criminal activities.

3. Interagency Nigerian Organized CrimeTask Forces

The Interagency Nigerian Organized CrimeTask Forces (INOCTF) consist of several lawenforcement agencies in a number ofUnited States cities where NCE activity has beenparticular ly trouble some . INOC TF targ et NCE 'sand investigate Nigerian crime, includingNigerian fraud schem es, in a coordinated manne r.As no ted ab ove, ta sk for ce cities have acce ss toADNET terminals, so that data from other citiescan be used in investigations. The coordinatedNCI approach expects that through informationsharing, investigators can spot connectionsbetween different types of Nigerian criminal

activity. Ind eed, ex perienc e has sh own th at NCE 'srarely enga ge in o ne typ e of cr imina l activity tothe exclu sion of a ll others. See Swartz Statement.

The predecessors to the INOCTF were theSecr et Serv ice task force s alrea dy in p lace tocounter Nigerian crime. Under the NCI, the SecretServ ice task force s wer e trans form ed intomultiagency task forces, but the Secret Servicecontinues to host the task forces. This has allowedthe NCI to tap into expertise that has beendevelo ped by the Secr et Servic e since th e 1980 'sin areas such as access device fraud.

B. United States Secret Service website andFinancial Crimes Division

The United States Secret Service wasdesignated in 1998 by the Attorney General as thelead investigative agency for Nigerian crime.Through the Secret Service Internet website, andits Financial Crimes Division in its Washingtonheadquarters, the Secret Service acts as a centralrepository for complaints about Nigerian fraud.The internet address is http://www.treas.gov/usss[hereinafter Secr et Serv ice W eb Site ]. The mostcommonly reported scheme is the Advance Feescam, described in Part I. The Secret Servicereceives hundreds of reports of solicitations on adaily bas is conce rning N igerian fr aud. SeeElectronic Fraud & Identity Theft: HearingBefor e Sub com m. on Fin. Se rv. & T ech. o f Sena teComm. on Banking, Housing & U rban Affairs,(Sept. 16, 1997) (statement of Dana Brown, U.S.Secret Service) available in 1997 WL 572487[hereinafter Brown Statement]. Victims ofNigerian fraud can make a report to the SecretService through the website, through the mail, orby telephone. The Secret Service web site servesas an example for an other compone nt of the NCI,namely public education. It informs potentialvictims of the warning signs of an advance feescheme and advises them to avoid these "too goodto be true" offers.

The Secret Service compiles all of thecom plaints it receiv es rela ting to N igerian fraud inan investigative database. Where the victim hassuffered financial loss, the Secret Service initiatesan inve stigation. F or simp le solicitations , i.e.,where the recipient has not fallen for the scam andhas not sustained financial loss, the Secret Service


will save the information for future cases. Thedatabase helps to link victims of the sameperpetrator, since the fraudster always sends outnumerous solicitations and attempts to hook asmany victims as possible w ith the same offer.Proof of these multiple victims is powerfuleviden ce in dem onstrating a defen dant'sfraud ulent in tent.

III. R ecen t case s and analy sis

A number of Nigerian cases have beensuccessfully prosecuted in the Southern District ofTexas as a result of aggressive investigation bythe Houston Area Fraud Task Force. The taskforce is comprised of representatives from anumber of federal and local law enforcementagencies including the Secret Service, the FBI, theImmigration and Naturalization Service, thePostal Inspection Service, the Houston PoliceDepartment, the Harris County Sheriff’s Office,the Texas Rangers, the State Department, and theDrug Enforcement Administration. Thecombination of expertise and assets provided bythe representatives of these agencies allows forrapid respo nse to ongo ing fra ud sc hem es as w ellas the ability to work through complicated, long-term fraud investigations.

A. United States v. Okonkwo

After several attempts to arrest Nigeriansperpetrating 419 schemes, the Houston task forceattained its first success in June 2000 with thearrest of John Okonkwo, Jerome Okwudi, andKingsley Ireke. This case combined elements ofboth the advance fee and the black moneyschemes. The case began in March 2000 whenRuss ell Bur ris, a N ew M exico real es tatesalesman, responded to an email from "Joy Anan"who purported to live in Cotonou, Republic ofBenin. Anan advised that she had been left a largesum of money by her late husband who had beenkilled in West Africa. Between April 1, 2000 andJune 14, 2000, Burris, Anan, and an associate ofAnan, exchanged emails over the Internetregarding Anan’s desire to have Burris act as amanager/investor for the $15,500,000 left byAnan's late husband. If Burris agreed to be themanager and travel to Cotonou to receive theappointment, he would receive a 5% fee.

Burris received a fax from "Koffi Biyah" ofTrans-World Security Company in Cotonouconfirming the information provided by Anan andrequesting that Burris pay $2,500 to open a"special domiciliary account" and $24,50 0 for a"Telegraphic Transfer Clearance Certificate." Thefax stated that the funds were necessary to effectthe transfer of the money to an account of Burris’specification. When Burris requested furtherexplanation, he was advised by fax that the moneywas n eede d to ex pedite the tran sfer p roces s and tobuy the proper “bank ing perm it.”

Burris began to receive email communicationsfrom "Kite Anan" who purported to be the son ofJoy A nan. K ite Ana n told B urris th at he w ouldneed to send $24,0 00 to B iyah a s soon as possibleto expedite the transaction and that he would needto bring $2,500 with him to Benin to open theaccount. Burris also received a fax from Biyahconfirming the need for Burris to send the moneyso tha t the fun ds co uld be releas ed fro m the vaultof Tra ns-W orld S ecurity . Wh en Bu rris ref used totravel to Africa, Kite Anan stated that the$15,5 00,00 0 cou ld be p laced with a T rans- Wo rldSecu rity age nt in Ch icago so that th e dea l couldbe co nsum mate d in the United States . Burr iswou ld pay all trans fer an d han dling c harg es inChicago.

On June 14, 2000, Burris received a fax fromthe "Debt Reconciliation Committee" in Houston,Texas referencing the $15,500,000 and requestingthat Burris come to Houston to sign the finalrelease documents for the transfer of the money.The fax stated that Burris would have to pay an$18,000 processing fee and $5,000 for insurancebefore the fund s could b e release d.

On June 19, 2000, Burris, with Secret ServiceAgent Tonya Cook posing as his wife, "arrived"in Houston and w ere met by a limousine driver.They were taken to the Marriott Hotel where aroom had been prepared with audio and videoequipment to record any subsequent meetings.One hour later, three individuals arrived and twomen, dressed in full tribal regalia, went up to theroom while the third staye d near th e vehicle .

The two men who went to the room stated thatthey were in possession of $15,500,000 that wasbeing kept at a different location. They stated that


the money had been defaced with some sort ofchem ical an d nee ded to be cleaned befor e it cou ldbe taken to a bank. They requested the $23,000 bepaid immediately. Burris gave the two Nigerians$5,000 in cash and a check in the amount of$18,000. HAFTF agents burst into the room andarrested them.

The third Nigerian was arres ted downstairsand his car was impounded and inventoried.Inside a brief case, agen ts foun d an e nvelo pe w iththe name Russell Burris written on it. There wasalso a piece of paper with five other names andassociated telephone numbers along with variousdollar amounts written on it. By contacting theindividuals, agents found that each of them hadpaid between $15,000 and $25,000 to thedefendants.

All three Nigerians were charged andconv icted o f cons piracy and in ducin g ano ther totravel in interstate commerce in furtherance of ascheme to defraud. Crm. No. H-00-4777 (S.D.Tex. 2000.) The videotape proved to becom pelling evide nce a nd he lped to induc e allthree d efend ants to plead guilty. O konk wo a nd histwo codefendants received sentences ranging fromeight to twen ty-on e mo nths. W hen th ey co mple tetheir stay at the Bureau of Prisons, they will bereleased to the INS for deportation proceedings.

B. Unite d State s v. Ok iti

A second successful investigation of a 419scheme began in February 2001. The task forcewas contacted by Lawrence Siler, a businessmanin Portland, Oregon. Siler told the task force that

he had been contacted by a group of Nigeriansrequesting that Siler invest a large sum of money

on their b ehalf.

In September 2000, Mr. Siler received a lettervia facsim ile entitled "A bacha Family Estate."

The letter outlined a business proposal in which

Dr. Maryam Abacha requested that Siler receive$25.6 million from her to invest in theUnited States. The letter indicated that the fundswere the res ult of so me d eal be tween her latehusband and a Russian firm. After the Nigerian

government revoked her license to own afinancial or oil company, Abacha had removedthe funds and packaged it into two trunks.

Because of the oppression of the Nigeriangovernmen t, she supposedly was look ing for a

way to sneak th e mon ey out o f Nigeria quickly.

Mr. S iler resp onde d to the letter via ema il,requ esting that the trunk s of m oney be sen t to him

in Portland. A series of faxes and emails followedwith Abacha insisting that Siler travel to Europeto receive the money and pay shipping andinsuran ce costs . Siler refus ed.

In December 2000, Abacha advised that the

mon ey w ould b e in Ho uston with a f amilyrepresentative named Mohammed and that Siler

shou ld con tact M oham med to ma ke arr ange men tsto obtain the trunks containing the money. FromDecember 2000 through March 2001, severaltelephone calls were placed and recorded between

Siler and Moh amm ed.

On March 11, 2001, Siler arrived in Houstonand met with task force members. Agents wired a

room at the Marriott Hotel and waited forMo ham med to arriv e. Sec ret Ser vice A gent A licia

Broussard posed as Siler’s secretary."Mohammed" arrived at the hotel bringing twolarge bags with him. In the room, he opened thebags and told Siler that they contained $6 million

each . Inside the bags we re num erou s indiv iduallywrapped stacks of money. The money wasstamp ed w ith the in itials "U .N." A ccord ing toMohammed, the "U.N." stamp meant that themon ey w as fro m the United Nation s and couldonly be used overseas. A special chemical was

necessary, according to Mohammed, to clean themoney. Mohammed then removed two hundred

dollar bills from one of the stacks and cleaned theinitials with a small amount of liquid. He stated

that he needed $23,000 to purchase additionalchemicals to clean the rest of the money. Afterreceiving the money, agents arrested Mohammedand identified him as Victor Okiti. The suitcases

were found to contain numerous stacks of cutpape r whic h had coun terfeit h undr ed do llar billson top and b ottom of eac h stack . The o nlylegitimate currency in the bags were the hundred

dollar bills M oham med had w ashe d dur ing hisdemonstration.


A search warra nt executed at Okiti’sresidence revealed m ore suitcases and more

counterfeit money. Ok iti was charged with wirefraud and possessing counterfeit currency. In the

face of videotaped evidence of his crimes, he pledguilty to the charges. Despite the fact that this was

a "no loss" case, Okiti received a sentence ofthirty-th ree m onths in priso n, after whic h he w ill

be deported. Crm. No. H-01-261 (S.D. Tex.2001).

C. United States v. Nwachukwu

Com bining his ban k frau d sch eme withreligion, "Pastor" Christian Nwachukwu engagedin fraud for several years. The investigation beganwhen a local bank contacted members of the taskforce concerning the deposit of counterfeit checksdrawn against accounts at foreign banks.Worthless checks totaling thousands of dollarsdrawn against a closed account at a London bank

had been deposited to the Bank United account ofTy Scearce. Because bank personnel handled thedeposited checks as normal items instead ofsending them for collection, Scearce’s account

was immediately credited and the fundsrepresented by the check s were withdrawn beforethe chec ks wer e returne d from Great B ritain.

The ac count h older, Ty Scearc e, stated that

she had been introduced to "Pastor" ChristianNwachukwu by a friend. Nwachukwu hadexplained to her that depositing checks in heraccount would help his ministry. She agreed andwas supposed to receive $4,000 from the deposits.Her cooperation allowed agents to record herconv ersatio ns with Nwa chuk wu a nd led to hisarres t. As he was b eing a rreste d, Nw achu kwu toldan agent that the banks were at fault for notverify ing the chec ks be fore r eleasin g the m oney tohim. T he de fend ant late r mov ed to su ppre ss thisincriminating statement, claiming that he nevermade it and that law enforcement agents hadbeaten him. Nwachukwu testified on his ownbehalf at trial and repeated these allegations,which were refuted by a large number ofgove rnme nt witn esses who were in a po sition toobserve the injuries caused by the alleged beatingand who saw none of the injuries claimed by thedefen dant.

Subsequent investigation revealed thatNwachukwu had convinced several other youngfema les to op en ac coun ts in their nam es for hisuse. All of them had been duped into believingthey were somehow assisting his ministry, and thedefendant took advantage of this trust by using theaccounts to execute his fraudulent scheme, as hedid with Ty Searce's bank account. In addition,INS records revealed that Nwachukwu hadentere d the U nited S tates on a stude nt visa toenroll at a ministry school in Tennessee. He wasrefused enrollment when his application wasfound to contain several false statements.

Nwachukwu was convicted of bank fraud and

mon ey lau nder ing by a jury w hich re jected hisclaim of mistreatment by law enforcement agents.He is currently awaiting sentencing with theSentencing Guidelines placing his sentence in the

range of 87-108 months. Crm. No. H-00-781

(S.D. Tex. 2000).

D. Challenges in Prosecuting NigerianFraud Cases

The successes achieved in Houston can beattributed to the commitment of the variousagencies in the task force, the cooperation of thebanks and credit card industry, and theUnited States Attorney's office dedicating aprosecutor to coordinate the prosecution of thesecases. Much remains to be done, however, andsignificant hurdles must be overcom e beforelasting success against Nigerian fraud can beachieved.

The transnational quality of these casespresents the most fundamental difficulty.Perp etrator s mee t with the ir victim s, if at allposs ible, in N igeria. I f a victim travels to Nig eriato obtain the pot of gold promised by thefraudster, not only does the victim face physicaldanger or death, but finding and arresting theperpetrator is extremely difficult, if notimpos sible. See Combating International AfricanCrime: Hearing Before Subcomm. on Africa ofHou se Co mm. on In t'l Rel. (July 15, 1998)(statement of Edward Markey, U.S.Representative) available in 1998 WL 400600[hereinafter Markey Statement] (reporting that 15foreign businessmen and two United States


citizen s hav e bee n mu rdere d in N igeria inconne ction with 419 sc heme s).

Obtaining evidence from Nigeria is anunce rtain en terpris e bec ause it has be en rar elytried, an d a M utual L egal A ssistan ce Tr eaty(MLAT) is not yet in force. Extradition offugitives from Nigeria has been difficult, in partbecause the country is just emerg ing from militaryrule and lacks a well established judicial processfor the re turn of fu gitives. See Niger ian W hiteCollar Crime: Hearing Before Subcomm. onAfrica of Ho use C omm . on In t'l Rel. (Sept. 16,1998 ) (statem ent of M ark R ichard , Dep uty A sst.Attorney General) available in 1996 WL 517475[hereinafter Richard Statement] ("Nige ria'sresponse to U.S. extradition requests has beenvery uneven and unreliable"). However, theDepartment of Justice's Office of InternationalAffairs (OIA) is currently engaged in a dialoguewith Nigerian officials about improving theextradition process, and OIA encouragesprose cutor s to sub mit fre sh ex tradition reque sts inorder to move this dialogue forward. The FraudSection has produced a monograph entitled"Prosecuting Nigerian Advance Fee Fraud" whichdiscusses the issues of collecting foreign evidenceand ex tradition in m ore dep th.

Fortunately, when members of NCE's decideto come to the United States, the prospects forsuccess change dramatically, as demonstrated bythe recent Houston cases. In Okonkwo,investigators with the Houston task force w ereable to set up a sting operation where the fraudstercould be videotaped making his false promises.The agents in Okonkwo also ob tained valua bledocumentary evidence from a search of one of thecoconspirators namely, a piece of paper with thenam es of o ther vic tims. T his typ e of ev idenc e ispowerful proof of a defendant's scheme and intentto defrau d. It also im pacts the defend ant'ssentence under the Sentencing Guidelines asrelevan t condu ct.

Even when Nigerian fraudsters travel to theUnite d State s and "smo king g un" ev idenc e isobtained, it is difficult to do lasting damage to theNCE itself. Leaders of the NCE tend not to travelto the United States and meet victims. This taskoften is left to low-level members of theorganization, and the prosecution of the crime

boss es is fru strated by the prob lems in volve d inobtaining evidence and extradition from Nigeria.Moreover, because NCE's tend to organize aroundtribal relationships, it is difficult to infiltrate anNCE with an undercover agent who does notbelong to the requisite tribe. These difficultiespresent investigators and prosecutors with asubstantial and continuing challenge in the fightagain st Nige rian fr aud. T opplin g NC E's w illrequire greater assistance from foreigngovernments and the use of innovativeinves tigative techn iques by law enfor cem ent.

IV. Conclusion

While Nigerian fraud schemes are pervasiveand h ave b een a ided b y the g rowth of the I ntern et,they remain for the most part, brazen and almosttransparently fraudulent. These repetitious andseemingly outlandish scam s continue to lureUnited States citizens looking to strike it rich.Investigating and prosecuting Nigerian fraud in acoordinated fashion, as demonstrated by therecen t cases in Ho uston , can b e don e succ essfu llywith cooperative victim-witnesses and stingoperations. Once victims come forward and thefull sco pe of th e defe ndan t's crim inal be havio r isrevealed, the fraudulent nature of the transactionsengineered by the defendant is readily grasped bya jury. Achieving greater success against Nigerianfraud will require continued interagencycollaboration, public education, and greaterinternational cooperation.�

ABOUT THE AUTHORS

�Jim Buchanan A car eer pr osec utor, JimBuchanan was an Assistant District Attorney forHarris County, (Hou ston) Texas for eleven ye arsand has been an Assistant United States Attorneysince 1993. As an AUSA, he has served as awhite collar c rimes prose cutor and is c urren tlyassigned to the Organized Crime Strike Force. Hereceived the Director’s Award in 1998 forsupe rior pe rform ance by an AUS A for hisprose cution of insu rance /health care f raud inSouth Texas. In 1999, Mr. Buchanan was namedas the coordinator for the Attorney G eneral’sNigerian Organized Crime Strategy in theSouthern District of Texas. He served as thechairman of the Government Lawyer’s Section of


the State Bar of Texas in 1999 - 2000. He hastaugh t local law enfor cem ent an d priv ateinvestigators, and has lectured on prosecutingorganized criminal activity in Romania. Anexperienced trial attorney, Mr. Buchanan has beenlead prosecutor in over 100 jury trials.

Alex J. Grant has been a trial attorney with theCriminal Division's Fraud Section since 1999 andserved as a Special Assistant U.S. Attorney at the

Distric t of Co lumb ia U.S . Attorn ey's o ffice in

2000. He is the Fraud Section's representative onthe Nigerian Crime Initiative's Working Group.Prior to joining the government, Mr. Grantworked in private practice for nearly three ye arswhere he concentrated on complex civil andappellate litigation. Mr. Grant has publishedarticles on a variety of topics in newspapers andlaw reviews.a

Civil and Criminal Remedies forImmigration Related Document Fraud

Jack PerkinsChief Administrative Hearing OfficerExecutive Office for Immigration Review

Federal prosecutors should be reminded thatan alternative to criminal prosecution ofimmigration related document fraud exists. Thatalternative, enacted as § 274C of the Immigrationand Nationality Act (INA) by the Immigration Actof 19 90, w as exp ande d in sco pe by ame ndm entsmade by the Illegal Immigration Reform andImmigrant Resp onsibility Act of 1996 (IIRIRA).(P.L. 104-208, Sept. 30, 1996 , 110 Stat. 3009).These provisions were codified at 8 U.S.C.§ 1324c.

Crim inal pro vision s dealin g withimmigration-related document fraud include 18U.S.C. §§1426, 1542, 1543, 1544 and 1546; aswell as statutes of more general application, suchas 18 U.S.C. §§ 1001 and 1028. The INS GeneralCounsel’s Office has also taken the position that§274C(a) can also be used in add ition to criminalprosecution, i.e., that the double jeopardy clausewould not be violated by such a course of action.In a 1998 memorandum to all Regional andDistrict INS Counsels, the General Counsel forINS interpreted Hudson v. United States, 522 U.S.93 (1997) as rendering the Double JeopardyClause not app licable to § 2 74C c ivil cases.

A class action lawsuit entitled Walters v.Reno, 145 F.3 d. 1032 (9th Cir. 1 998), cert.denied, 526 U .S. 100 3 (19 99), e ffectiv elysuspended enforcement of § 274C before theexpa nded 1996 versio n of the statute w ent intoeffect. However, the Walters case has beensettled, so the Immigration and NaturalizationService is free to resume enforcement of § 274C.

The specific provisions of § 274C are asfollows:

(a) Activities Prohibited

It is unla wful f or any perso n or en tityknowingly–

(1) to forge, counterfeit, alter, or falsely makeany document for the purpose of satisfying arequ ireme nt of this Act or obtain a ben efitunde r this A ct,

(2) to use, attempt to use, possess, obtain,accept, or receive or to provide any forged,counterfeit, altered, or falsely made documentin order to satisfy any requirement of this Actor to ob tain a b enefit u nder this Ac t,

(3) to use or attempt to use or to provide orattem pt to pro vide a ny do cum ent law fullyissued to or with respect to a person other thanthe possessor (including a deceasedindividual) for the purpose of satisfying a


requ ireme nt of this Act or obtain ing a b enefitunde r this A ct,

(4) to accept or receive or to provide anydocu men t lawfu lly issue d to or w ith resp ect toa person other than the possessor (including adeceased individual) for the purpose ofcomplying with section 274A(b) or obtaininga benefit under this Act, or

(5) to p repar e, file, or assist a nothe r inpreparing or filing, any application forbenefits under this Act, or any documentrequired under this Act, or any documentsubmitted in connection with such applicationor document, with knowledge or in recklessdisregard of the fact that such application ordocu men t was f alsely mad e or, in w hole o r inpart, does not relate to the person on whosebehalf it was or is being submitted, or

(6)(A) to present before boarding a commoncarrier for the purpose of coming to theUnited States a document which relates to thealien’s eligibility to enter the United States,and

(6)(B) to fail to present such document to animm igration office r upo n arriv al at aUnited S tates port o f entry.

Subsections § 274C(a)(5) and (6) were addedby the IIR IRA a mend ments.

The te rm “f alsely mak e,” as u sed in§ 274C(a), is defined at § 274C(f). Thatsubsection, also added to the statute by theIIRIRA amendm ents, states:

(f) Falsely Make

For purposes of this section, the term“falsely make” means to prepare orprov ide an applic ation o r docu men t withknowledge or in reckless disregard of thefact that the application or documentcontains a false, fictitious, or fraudulentstatement or material representation, orhas no basis in law or fact, or otherwisefails to state a fact which is material to thepurpo se for w hich it wa s subm itted.

Other IIRIRA amendments to § 274C includethe following criminal penalties:

(e) Criminal Penalties for Failure to DiscloseRole as Document Preparer

(1) Whoever, in any matter within thejurisdiction of the Service, knowingly andwillfully fails to disclose, conceals, orcovers up the fact that they have, onbehalf of any person and for a fee or otherremu neratio n, pre pared or ass isted inpreparing an application which wasfalsely made (as defined in subs ection (f))for im migra tion be nefits, s hall be fined inaccordance with title 18, United StatesCode, imprisoned for not more than 5years, or both, and prohibited frompreparing or assisting in preparing,whether or not for a fee or otherremuneration, any other such application.

(2) Whoev er, having been conv icted of aviolation of paragraph (1), knowingly andwillfully prepares or assists in preparingan ap plicatio n for im migra tion be nefitspursuant to this Act, or the regulationspromulgated thereunder, whether or notfor a fee or other remuneration andregar dless o f whe ther in a ny m atter w ithinthe jurisdiction of the Service, shall befined in accordance with title 18,United States Code, imprisoned for notmore than 15 years, or both, andproh ibited fr om p repar ing or assistin g inprepar ing any other su ch app lication.

Because § 274C(e) requires proof of twoadditional elements to establish a false making,that is willfully concealing the false making andperforming the act for a fee or other remuneration,its utility to prosecutors seems debatable.However, there is the advantage of having theterm “ falsely mak e” clea rly def ined in the statu teitself at § 274C(f). Whether the term “falsely make” includes providing false information on aform has been the subject of controversy in thecase law . See e.g ., Moskal v. United States, 498U.S. 103 (1990) and United States v. Merklinger,16 F.3d. 670 (6th Cir. 1994).�

ABOUT THE AUTHOR

�Jack E. Perkins was appointed ChiefAdministrative Hearing Officer in January 1990.


He served as Acting Deputy Director of the

Executive Office for Immigration Review fromMarch to August 2001 while continuing to serve

as Chief Administrative Hearing Officer. Much ofMr. Perkins's professional career has been spentserving in various positions within the Departmentof Justice including Deputy Assistant Attorney

Gen eral, O ffice o f Leg islative A ffairs, 1 986 to

1990; legislative counsel and staff attorney, Officeof Legislative Affairs, 1976 to 1985; staff

attorney, Criminal Division, 1974 to 1976 and1972 to 1973; and assistant U.S. attorney,Northe rn District o f Californ ia, 1973 to 1974 . a

Know the Professional ResponsibilityIssues that You May Confront Claudia J. FlynnDirector, PRAO

Joan L. GoldfrankSenior Legal Advisor, PRAO

I. Introduction

In conducting investigations and prosecutionsinvolving allegations of fraudulent conduct, thereare numerous professional responsibility issuesthat a Department attorney may confront. Many ofthese issues become more difficult to resolvewhen the investigation involves corporations andtheir employees. A corpo rate attorney may assertthat he repre sents th e corp oration and all of itsemployees. Employees may be represented byindivid ual co unse l in add ition to th e corp orateattorney. Typically, there are parallel civil andcriminal government investigations, and parallelprivate c ivil law suits o r qui tam actions.

Because advice from the ProfessionalResp onsib ility Ad visory Offic e is pro vided onlyto Department attorneys and is otherwiseconf identia l, the follo wing discu ssion simplyidentifies issues but does not analyze them. Eachissue must be analyzed under the relevant attorneyconduct rules. Although some professionalresponsibility issues are easy to resolve, others aremore difficult, requiring more analysis andconsultation. There is case law and ethics opinionsthat provide guidance in analyzing these issues. Inthat regard, you are advised to contact youroffice’s or component’s Professional

Responsibility Officer (PRO) when there is anissue and, if appropriate, to contact the PRAO at202-514-045 8 or on e-mail at PRA O, DOJ. Inmost circumstances, you should contact your PROin the first instance. There is a PRAO website onthe D epartm ent’s in tranet:http://10 .173.2 .12/pr ao/ind ex.htm l.

II. Which rules of p rofessional responsibilitygovern

The first step is to determine which rules ofprofe ssional resp onsib ility gov ern yo ur con duct.Each state, including your state(s) of licensure,has adopted its own rules of professionalresponsibility. Each federal district court hasadop ted, by local co urt rule , the rule s app licable topractice in that jurisdiction. Some federal districtcourts simply incorporate the rules adopted by thestate in which the court sits; others adopt a versionof the state rules; others adopt the ABA ModelRules or Co de; an d still others ha ve ad opted theirown rules. The substance of the various rules ofprofessional responsibility may conflict. In thatcase, a c hoice o f law an alysis is req uired. SeeABA Mod el Rule 8 .5; 28 C.F .R. Part 7 7.

III. Contact with represented persons

Every set of attorney conduct rules includes aprovision governing the issue of a law yer’scommunicating with a represented individual. Therules vary in text and interpretation fromjurisdiction to jurisdiction. It is important that therelevant rule be analyzed in a given circumstanceto determine whether a co ntact is proper.


The A meric an Ba r Ass ociatio n M odel R ule4.2 provides:

In representing a client, a lawyer shall notcommunicate about the subject of therepresentation with a person the lawyerknows to be represented by anotherlawyer in the matter, unless the lawyerhas th e con sent o f the oth er law yer or isauthorized by law to do so.

In add ition, A BA M odel R ule 8.4 (a) pr ohibitsan attorney from violating the rules through theacts of another. Therefore, nonattorneys, includingagents, working on the case with a Departmentattorney may not engage in a contact with arepre sente d pers on w hen th e attorn ey co uld no t.

Each word or phrase of the contact rule raisesdifferent issues. We suggest you read three ABAformal opinions for background: ABA FormalOpinion 95-396; ABA Formal Opinion 95-390;and ABA Formal Opinion 91-359. The followingsets forth recurring issues.

• How does a Department attorney knowwhe n an in dividu al or an entity isrepresented by a lawyer? If you know thatan entity is generally represented doesthat representation amount to knowledgethat the entity is represented on thesubje ct ma tter abo ut wh ich yo u wa nt tocommunicate with it? Does theDepartment attorney have an affirmativeobliga tion to a sk if he or the e ntity isrepresented by a lawyer? When is theattorney/client relationship over?

• Does the rule apply only after a formalproceeding has been commenced? Doesthe rule apply to represented witnesses?

• What is considered a “communication”?A communication involves oral andwritten conta ct.

• The rule prohibits a lawyer fromcommunicating with a represented personabout the subject of the representation. Itdoes not govern communications with arepresented person co ncerning mattersoutside the representation. Whatconstitutes the subject of therepresentation?

• Wh ere the re are paralle l crimin al and civilinvestigations regarding the samefraudulent activities but only oneinvestigation is known by the representedindividual or organization, is therepresented person considered representedin both investigations for purposes of thecontact rule?

• Where the represented person is anorganization such as a corporation, whichemployees are considered represented bythe organization’s attorney? Comment [4]to Model Rule 4.2 states that there arethree c atego ries of perso ns co nside red tobe represented by the org anization’sattorney: 1) persons having managerialresponsibility on behalf of theorganization; 2) persons whose act oromis sion in conn ection with the ma tter inrepresentation may be imputed to theorganization for purposes of civil orcriminal liability; and 3) persons whosestatement may constitute an admission onthe part o f the orga nization.

• Does an organization’s attorney representpercipient witnesses?

• Are former employees represented by theorganization’s attorney? Are anorganization’s consultants or independentcontractors represented by theorganization’s attorney?

• If a pa rent co rpora tion is re prese nted inthe subject matter, is a subsidiarycompany deemed also to be representedfor purposes of the contact rule?

• Is there a conflict of interest for theorga nizatio n’s atto rney to repr esen t boththe organization and a given em ployee? Ifso, the Dep artme nt attorn ey sh ouldconsider raising this issue with theorga nizatio n’s atto rney , and p erhap s witha court, seeking that attorney’swithdrawal of representation of theindividual employee. PRAO can assistyou in drafting a letter or a motion.

• What should you do when a clientcontacts you without his or her lawye r’s


consent? It is the attorney’s consent to thecom mun ication that is re quire d. This ruleis different from that governing who canwaive the attorney/client privilege. Theattorney/client privilege belongs to theclient, and thus only the client can waiveit. Pursuant to the contact rule, only thelawyer can conse nt to a direct contact of areprese nted pe rson.

• If an e mplo yee h as ind ividua l coun sel, isconsent by the individual counselsufficient for purposes of obtaininglawyer consent under the contact rule? Oris consent of the organization’s counselalso required?

• What does the phrase “authorized by law”mea n? It m ay inc lude: 1 ) a spe cificstatute; 2) a c ourt ord er; or 3) c ase law . Acommunication with a represented personmade pursua nt to formal discoveryprocedures or judicial or administrativeprocess in accordance with the orders ofthe rules of the tribunal is “authorized bylaw.”

• When can an investigator or cooperatingwitness communicate with a representedperson? What do you do with informationan investigator obtained through contactwith a represented person when suchcontact may have b een improper?

• Can you direct an agent, a cooperatingwitness or an informant to engage in anundercover contact, including consensualmonitoring, with a represented person oran employee of a representedorganization?

IV. O bligat ion no t to us e a m etho d to o btainevidence in violation of a third party’s legalrights

ABA Model Rule 4.4 provides that a lawyershall not use a method of obtaining evidence thatviolates the legal rights of another. For example,when communicating with a witness (including aform er em ploye e), yo u can not as k the w itness todisclose information that is protected by a legalprivilege or a con tractual ag reeme nt.

• Can you use materials provided to you byan employee of a represented organizationthat belong to the organization and not theemployee?

• What do you do with materials providedto you by the emp loyee that are clearlymarked “attorney/client privileged”?

V. Conclusion

The r ules o f prof ession al resp onsib ilitygovern every phase of an investigation andlitigation or prosecution. The rules address howyou should deal with the opposing party, theopposing counsel, witnesses and potentialwitnesses, and the court. You should be mindfulthat some of the rules of professionalresponsibility go beyond the requirements of theConstitution.�

ABOUT THE AUTHORS

�Claudia J. Flynn became an AssistantUnited States Attorney for the District of NewJersey in 1984 and, in 1989, Deputy Chief of thatOffice's Criminal Division. Ms. Flynn left theUnited States Attorney's Office in 1992 to becomean Associate Independent Counsel at the Office ofIndependent Counsel (Adams), which conductedthe investigation and prosecutions relating theHUD scandal of the 1980s. She returned to theUnite d State s Attor ney's Offic e in Ne w Jer sey in1994 as Chief of the Criminal Division. In 1996,she left New Jersey for the Department of Justicein Washington, D.C., where she acted as Chief ofStaff to the Assistant Attorney General, CriminalDivision (February 1996 to September 1997); asSenior Counsel to the Director, Executive Officefor U nited S tates A ttorneys (Se ptem ber 19 97 toJanuary 2000); and as Director of the ProfessionalResp onsib ility Ad visory Offic e (Jan uary 2000 tothe present).

Joan L. Goldfrank presently is a Senior LegalAdvisor in the United States Department ofJustice's Professional Responsibility AdvisoryOffice, which provides advice to Departmentattorneys re gard ing pr ofess ional re spon sibilityissues. She has been with the Department since1994, when she joined the Office of ProfessionalResponsibility to investigate allegations of


misconduct against Department attorneys. Shebecame Senior Attorney for ProfessionalResp onsib ility in the Envir onm ent an d Na tural Resources Division in 1997. For nine years priorto joining the Department, Ms. Goldfrank was theExecutive Attorney for the D.C. Board onProfessional Responsibility, an arm of the Districtof Columbia Court of Appeals responsible for theadm inistratio n of the attorne y disc ipline s ystem inthe District of Columbia.

She frequently conducts training sessions onprofessional responsibility issues for theDepartment, other government agencies, and barassociations. She teaches legal ethics as anadjun ct prof essor for V ermo nt Law Scho ol.a


NOTES



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High Tech and Investment Fraud - United States Department ... · as part of SSA's Ant i-Fraud Pilot Project, and was detailed to the Criminal Division of the Chicago United States