US DOJ’s renewed focus on individual prosecutions presses limits

In the United States, the Department of Justice (DOJ) is chiefly responsible for prosecuting white-collar crime. While white-collar enforcement significantly declined during the past presidential administration, current DOJ leadership has pledged to take a more aggressive approach. To that end, in September 2022, Deputy US Attorney General Lisa Monaco announced changes to DOJ’s corporate enforcement policies designed ‘to empower our prosecutors, to clear impediments in their way, and to expedite our investigation of individuals.’

In rolling out these changes, embodied in a policy document known as the ‘Monaco Memo,’ the deputy attorney general emphasised that DOJ’s ‘top priority’ for corporate criminal enforcement is ‘going after individuals who commit and profit from corporate crime.’ The Monaco memo restores the policy reflected in the 2015 memo of her predecessor, Deputy Attorney General Sally Yates, requiring corporations to identify all individuals who engaged in the underlying conduct in order to receive ‘cooperation credit’ towards a reduced sentence. The Monaco memo stresses that corporations seeking cooperation credit must disclose all facts about individual misconduct ‘swiftly and without delay,’ and directs prosecutors to expedite investigations, particularly against culpable executives. The memo also underscores the importance of DOJ cooperating with ‘foreign law enforcement partners’ in fighting cross-border corporate crime and instructs prosecutors ‘not [to] be deterred from pursuing appropriate charges just because an individual liable for corporate crime is located outside the United States.’

This assertive approach comes with the understanding that DOJ will not always win. In a speech at a white-collar crime conference, Monaco acknowledged as much, stating, ‘I recognise that cases against corporate executives are among some of the most difficult that the department brings, and that means the government may lose some of those cases. But I have and will continue to make clear to our prosecutors that… the fear of losing should not deter them.’ This approach – especially given that it is aimed at individuals – turns prosecutorial discretion on its head. Electing to press forward with weak or novel criminal charges instead of extending a person the benefit of the doubt when the conduct at issue is not clearly criminal has a dramatic negative effect on the individuals in question even when not convicted.

Indeed, the DOJ’s theories in white-collar cases do not always withstand scrutiny in the courts. This past year saw several high-profile examples of this.

In United States v Connolly, two Deutsche Bank traders, one of whom was based in London, were convicted in New York federal court on federal fraud charges for allegedly manipulating the bank’s LIBOR submissions to the British Banking Association. The proof showed, and the government did not dispute, that the rates submitted were a reasonable estimate of the bank’s anticipated borrowing costs. The government nonetheless took the position that even an accurate and reasonable estimate constitutes fraud if the rates were modified with the purpose of benefiting the bank’s trading positions. On appeal, the Second Circuit Court of Appeals roundly rejected the government’s theory, holding that it improperly dispensed with an essential element of criminal fraud – falsity – and noting that the federal fraud statutes were not designed to punish ‘all acts of wrongdoing or dishonourable practices.’

The Second Circuit also overturned the insider trading convictions of four defendants in United States v Blaszczak. Defendants were convicted based on a scheme to trade healthcare stocks based on confidential information from the US Centers for Medicare and Medicaid Services (CMS). Blaszczak follows the Supreme Court’s decision in Kelly v United States, where the court found that the alleged scheme did not aim to obtain ‘property’ within the meaning of the underlying criminal securities fraud statute. Applying Kelly, the Second Circuit found that the leaked information did not constitute CMS’ ‘property’ or a ‘thing of value’ to support the underlying fraud and theft charges.

Finally, in a case now before the Supreme Court, the DOJ itself recently abandoned the so-called ‘right to control’ theory of property fraud that prosecutors had relied on to secure convictions for decades. The federal mail and wire fraud statutes require that the alleged victim be deprived of ‘money or property.’ Under the right-to-control theory, however, the government need not show that the defendant schemed to harm a traditional property interest; rather, the victim’s ‘right to control’ how its money is spent is itself viewed as a protected property interest. This has had the effect of dramatically diluting the government’s burden of proof in a wide variety of mail and wire fraud prosecutions. When the issue finally reached the Supreme Court, as it did this year in Ciminelli v United States, the DOJ’s solicitor general’s office overruled the longtime position of federal prosecutors and judges in New York and conceded that the ‘right to control’ is not a valid theory of property fraud.

Despite these setbacks, the DOJ continues to push the envelope in its white-collar prosecutions. Violations of US sanctions are now squarely in DOJ’s cross-hairs. In October 2022, a UK national, Graham Bonham-Carter, was arrested for conspiracy to violate US sanctions imposed on Oleg Deripaska, a Russian oligarch. Even though these sanctions are only directed at US persons, the government charges that by allegedly seeking to fund US properties for Deripaska and to repatriate Deripaska’s artwork located in the US through misrepresentations, Bonham-Carter himself violated US sanctions and also committed wire fraud.

In United States v Chastain, the government brought novel ‘insider trading’ charges against an individual who did not trade in the securities markets, but instead allegedly used confidential information of his employer to purchase NFTs before his company featured them on its website. The government’s theory in this case threatens to criminalise all sorts of allegedly improper uses by employees of internal employer information for non-work purposes.

Notably, the government alleges that Chastain earned only about $25,000 from buying and selling the NFTs in question. This is consistent with a trend in which the government has been prosecuting traditional forms of insider trading that generated relatively modest trading profits – roughly $134,000 in one case, a mere $82,000 in another. These prosecutions stand in contrast to historical prosecutions that targeted far more substantial gains.

In short, while the DOJ has made it clear that it will be bringing more white-collar cases and is not afraid to take the risk of losing, the courts are not always accepting of its aggressive and creative legal theories. This dynamic is likely to lead not just to more prosecutions, but to more defendants deciding to fight back and attempting to convince juries and judges that the government has overstepped its bounds.