Federal criminal law in Texas and around the country deals with fraudulent acts that cross state lines, affect interstate commerce, or target or otherwise affect specific federal programs. Common charges in federal fraud cases involve the alleged use of mail or electronic communications in furtherance of a fraudulent scheme—these are known as mail fraud and wire fraud, respectively. Certain federal statutes apply to specific types of fraudulent activities, in which case prosecutors may pursue general fraud charges and charges under a specific statute. This was the case in a recent prosecution of a doctor for wire fraud, violations of the Anti-Kickback Statute and the Travel Act, and conspiracy to violate both of those statutes. United States v. Savino, No. 2:16-cr-00582, indictment (D.N.J., Dec. 20, 2016). In late 2017, a jury convicted the defendant on all 10 charges in the indictment.

The federal Anti-Kickback Statute addresses bribery in federal health care programs like Medicare and Medicaid. It prohibits soliciting or receiving anything of value in exchange for referring patients to any business “for which payment may be made in whole or in part under a Federal health care program.” 42 U.S.C. § 1320a-7b(b)(1)(A). Penalties may include a fine of up to $25,000 and up to five years in prison. The statute also covers the other side of such a transaction, making it a comparable offense to “offer[] or pay[] any remuneration” for making a referral. Id. at § 1320a-7b(b)(2)(A). The Fifth Circuit has held that “inducement…to refer patients” only needs to be one purpose of the payment, instead of the sole purpose, to constitute a violation of the statute. United States v. Davis, 132 F.3d 1092, 1094 (5th Cir. 1998).

The International Travel Act of 1961, or simply the Travel Act, prohibits the use of U.S. mail, or of interstate or international travel, in furtherance of criminal offenses related to racketeering. In other words, the act of traveling itself becomes criminal if the purpose of said travel is to commit a certain other offense, and the person commits or attempts to commit that offense upon arrival. The offenses include “distribut[ing] the proceeds of any unlawful activity” and otherwise participating in “the promotion, management, establishment, or carrying on, of any unlawful activity.” 18 U.S.C. §§ 1952(a)(1), (3). Penalties can include up to five years in prison, possibly not counting penalties for the underlying offense.

The Fifth and Fourteenth Amendments to the U.S. Constitution state that the government may not “deprive any person of life, liberty, or property, without due process of law.” Federal law enforcement officials are bound by the Fifth Amendment’s Due Process Clause, while the Fourteenth Amendment extends it to state and local officials. The provision regarding “deprivation of liberty” protects the rights of individuals arrested and taken into custody, generally giving them the right to see a judge, request bail, and make other challenges to their detention. The Fifth Circuit Court of Appeals, whose jurisdiction includes Texas federal crimes, ruled last year that a county sheriff violated a woman’s Fourteenth Amendment due process rights by holding her for 96 days—more than three months—before allowing her to go before a judge. Jauch v. Choctaw Cty., et al., No. 16-60690, slip op. (5th Cir., Oct. 24, 2017). The case involved a civil lawsuit for deprivation of civil rights under 42 U.S.C. § 1983, but the holding affects future arrests in Texas and other Fifth Circuit states.

The courts have identified two main forms of due process. Procedural due process requires the government to notify a person of the charges against them, and to give them the opportunity to respond. Substantive due process is far more abstract and controversial. It protects various individual rights, including the rights identified in the First through Tenth and Fourteenth Amendments to the Constitution, the right to participate in “political processes,” and the rights of “discrete and insular minorities.” United States v. Carolene Products Co., 304 U.S. 144, 152 note 4 (1938). The U.S. Supreme Court has cited substantive due process in decisions finding that the government may not infringe upon certain rights not expressly identified in the Constitution, such as the right to privacy. See, e.g. Griswold v. Connecticut, 381 U.S. 479 (1965); Roe v. Wade, 410 U.S. 113 (1973); Lawrence v. Texas, 539 U.S. 558 (2003).

According to the Fifth Circuit’s opinion in Jauch, a grand jury indicted the plaintiff for the sale of a Schedule IV controlled substance in January 2012. The indictment was based on “the word of a confidential informant.” Jauch, slip op. at 1. A capias warrant was issued on the same day in Choctaw County, Mississippi. The plaintiff was pulled over for a traffic infraction that April, and she was taken into custody because of the capias. She reportedly cleared the traffic offenses within days, but she was told by the sheriff that she could not see a judge “until August when the next term of the Circuit Court commenced.” Id. at 2. She remained in custody for 96 days. Several months later, the prosecutor moved to dismiss all of the charges, and no one has since disputed “that [the plaintiff] was innocent all along.” Id.

While a small number of states around the country have removed most legal restrictions on marijuana, Texas continues to classify it as a controlled substance. Beyond penalties under Texas drug crime law, marijuana use can result in professional sanctions, especially when a person’s career requires state licensure. State professional licensing boards require licensees to follow certain ethical or disciplinary rules. Last year, a Texas administrative law judge (ALJ) made an unusual recommendation in a case involving a teacher facing a license suspension for admitted marijuana use. The ALJ recommended that the teacher face no discipline because the alleged offense occurred in Colorado, where marijuana use is not illegal. Tex. Educ. Agency v. Roland, SOAH Docket No. 701-16-4719.EC, prop. dec. (Tex. SOAH, Jan. 10, 2017). The Texas Education Agency (TEA) ultimately decided not to pursue disciplinary proceedings.Under Texas law, the offense of possession of marijuana ranges from a Class B misdemeanor, for possession of no more than two ounces, to a felony punishable by life imprisonment if the amount exceeds 2,000 pounds. Tex. Health & Safety Code § 481.121. In Colorado, voters approved Amendment 64 in 2012, which amended the state constitution to make “marijuana…legal for persons twenty-one years of age or older.” Col. Const. Art. XVIII, § 16.

Teachers in Texas must have an “educator certificate” issued by the State Board for Educator Certification. Maintaining this certificate requires compliance with the Texas Educators’ Code of Ethics (COE). The complaint in Roland alleged violations of Standards 1.7 and 1.10 of the COE, which require that educators “comply with state regulations, written local school board policies, and other state and federal laws;” and that they “be of good moral character and be worthy to instruct or supervise the youth of this state.” 19 Tex. Admin. Code §§ 247.2(1)(G), (J). Other professional codes of conduct make more specific mention of drug laws. Physicians licensed in Texas, for example, may be subject to disciplinary proceedings for offenses involving “substance abuse or substance diversion…whether or not there is a complaint, indictment, or conviction.” 22 Tex. Admin. Code § 190.8(2)(R)(xii).

In 2015, the respondent in Roland was working for a public high school in El Paso, Texas. A former school district employee reportedly sent several emails to district administrators that February, alleging that another teacher was selling drugs. The emails provided a list of names, including the respondent’s, with no specific allegations against them.

Civil asset forfeiture is a controversial law enforcement practice throughout the country. In many jurisdictions, it allows police to seize property that they allege is connected to criminal activity, even if the owner has not been convicted of a crime. Federal law enforcement officials often cooperate with state and local officials and then split the forfeiture proceeds in a process known as “adoption.” During the Obama administration, the U.S. Department of Justice (DOJ) limited the use of federal adoption, but the new Attorney General (AG) reversed this policy earlier this year. This led to an amendment to the 2018 federal spending bill in the U.S. House of Representatives, sponsored by a diverse bipartisan group of legislators, denying funding to the DOJ for forfeiture-related activities barred under President Obama. The House approved the amendment and passed the entire bill, which now awaits action in the Senate. An effort to reform Texas criminal statutes regarding asset forfeiture earlier this year was not successful.

The idea behind asset forfeiture is to deprive criminals of the proceeds of their crimes, but in practice it often involves the seizure of property with little due process. Under federal law, civil forfeiture allows the government to take title to seized property without an underlying criminal conviction. 18 U.S.C. § 981. The owner of the property is typically not named as a party in a civil forfeiture case. Instead, it is treated as an in rem proceeding. Texas law also allows civil forfeiture and states that civil pleading rules apply. Tex. Code Crim. Proc. Art. 59.05(a). A bill introduced during the 2017 Texas legislative session, S.B. 380, would have required a criminal conviction in forfeiture cases, but the bill never advanced out of committee.

Federal adoption procedures allow the federal government to reimburse local law enforcement for the cost of forfeiture proceedings and to split the proceeds from forfeiture cases with local agencies. 28 U.S.C. § 524(c). This has allegedly led to situations in which state and local law enforcement officials in jurisdictions with strict laws limiting asset forfeiture can operate under more lenient federal forfeiture procedures.

Cybersecurity has become an issue of national importance in recent years as people entrust more and more personal information to various companies, and as other companies compile massive amounts of personal information from various sources. Businesses that maintain databases of personal information must take reasonable measures to keep this information secure, and they must also disclose cybersecurity breaches to affected people or the general public. In early September 2017, a major credit reporting agency (CRA) disclosed a hack that potentially compromised millions of people’s personal data several months earlier. The Department of Justice (DOJ) has reportedly opened an investigation into several of the CRA’s executives for alleged actions between the time the company learned of the breach and the time it announced it to the public. The investigation does not concern the breach itself but allegations that the executives sold stock in the company because of the anticipated impact of the announcement on the stock price. This is also known, in both federal and Texas white-collar criminal laws, as insider trading.Federal securities statutes do not identify “insider trading” as a distinct offense. The Securities Exchange Act of 1934 prohibits the use of “manipulative and deceptive devices” in connection with publicly traded securities, including stocks. 15 U.S.C. § 78j. The Securities and Exchange Commission (SEC) expounds on this provision in its regulations. Rule 10b5-1 states that it is a manipulative and deceptive device to buy or sell a publicly traded security “on the basis of material nonpublic information.” 17 C.F.R. § 240.10b5-1(a). Willful violations of these provisions by an individual can result in a fine of up to $5 million and a prison sentence of up to 20 years, 15 U.S.C. § 78ff(a), but the burden of proof for the state is substantial.

The CRA, Equifax, is one of the main agencies in the U.S. that collect and compile consumer credit information, using this information to generate credit reports and credit scores. The company reportedly experienced a massive cybersecurity attack between May and July 2017. During this time, hackers obtained personal information, including names, addresses, and Social Security numbers, for about 143 million people. (For the sake of scale, this is somewhat less than half the total population of the United States, or about equal to the population of Russia.) The company reportedly learned of the hack in late July but did not announce it to the public until early September.

After the announcement of the hack, Equifax’s share price reportedly dropped by more than a third over several weeks. Federal securities regulators apparently noticed, through regulatory filings, that several executives at the CRA had sold some of their stock in the company before the announcement. Specifically, they are investigating allegations that three executives sold $1.8 million worth of stock outside of any scheduled plans for stock trades.

The term “white collar crime” refers to a wide range of offenses involving financial and commercial activities. Many federal statutes dealing with financial regulations have both civil and criminal enforcement provisions. This means that the government can bring a civil lawsuit, which could result in penalties and damages, or a criminal prosecution, which could result in a fine and a prison sentence. Antitrust law deals with monopolistic and other anticompetitive practices by businesses. Most federal antitrust cases involve civil enforcement, but one statute allows criminal prosecution by the Department of Justice (DOJ). An online retail company recently pleaded guilty to criminal antitrust violations in a Texas white collar prosecution. United States v. Zaappaaz, Inc., No. 4:17-cr-00477, information (S.D. Tex., Aug. 7, 2017). Its president also pleaded guilty to a similar charge. United States v. Makanojiya, No. 4:17-cr-00478, information (S.D. Tex., Aug. 7, 2017).

The Sherman Antitrust Act of 1890 was the first major federal statute addressing anticompetitive business practices. It prohibits contracts and conspiracies “in restraint of trade or commerce” across state lines. 15 U.S.C. § 1. The purpose of this statute, according to the Supreme Court, “is to protect the public from the failure of the market” by prohibiting “conduct which unfairly tends to destroy competition itself.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993). Criminal penalties may include up to 10 years in prison. Congress has amended the statute over the years to increase the monetary penalties. Originally, the law provided for a fine of up to $5,000. Since 2004, the maximum penalty has been $100 million for a corporation, or $1 million for an individual or an organization other than a corporation. Additionally, private parties may be able to file civil lawsuits for antitrust violations that directly caused them harm.

The corporate defendant is a Texas corporation that sells “customized promotional products, including wristbands and lanyards,” through several websites. Zaappaaz, information at 1. The government alleged that the defendant conspired with other e-commerce businesses involved in the sale of similar products “to suppress and eliminate competition by fixing and maintaining prices.” Id. at 2. The defendant allegedly made these agreements at in-person meetings or in communications through text messaging and social media platforms. This occurred from approximately October 2014 until about June 2016. The information in Makanojiya makes almost identical allegations against that defendant, identifying him as the president and director of the corporate defendant.

Individuals and businesses that work in the financial sector may be subject to a wide range of statutes at the federal and state levels. These laws can impose both civil and criminal penalties for actions ranging from overt malfeasance to failure to keep up with record-keeping requirements. They have national reach, meaning they could apply to someone on Wall Street as well as individuals in Texas. Criminal prosecutions for alleged financial crimes often require the government to meet a difficult burden of proof regarding a defendant’s state of mind, such as intentional or willful action. Regulators sometimes pursue civil actions, with their lower burden of proof, instead of criminal ones. They may also offer incentives, of a sort, to potential defendants to encourage them to cooperate with investigations. The U.S. Department of Justice (DOJ) recently announced a settlement with a financial company accused of violating the Banking Secrecy Act (BSA). The company’s “extensive remedial measures” reportedly led the DOJ to enter into a non-prosecution agreement, resulting in penalties that were possibly less than what the company might have faced had the case gone to court.

The BSA effectively enlists certain businesses to assist in federal law enforcement, tax, regulatory, and counter-terrorism efforts. See 31 U.S.C. § 5311. It primarily applies to “financial institutions,” which it defines very broadly to include federally insured banks, securities brokers, investment banks, insurance companies, finance companies, vehicle dealers, casinos, and other businesses “whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters.” Id. at § 5312(a)(2). Money laundering is an area of particular focus, since financial institutions are often an essential component of that process. The statute requires financial institutions “to report any suspicious transaction relevant to a possible violation of law or regulation.” Id. at § 5318(g). This is commonly known as a “suspicious activity report” (SAR).

The company involved in the DOJ investigation operates a money services business that allows customers to send money abroad. This fits within the BSA’s definition of a “financial institution,” since it involves the “transmission of funds.” Id. at § 5312(a)(2)(R). The DOJ alleged that the company failed to maintain an “anti-money laundering compliance program” (AML) in accordance with the BSA. It claimed that the company processed over 30 million “remittance transactions,” totaling over $8.8 billion, between the U.S. and Mexico from 2007 to about 2012. The company’s own monitoring system, according to the DOJ, alerted on more than 18,000 transactions during that time. The company allegedly failed to investigate all but about 10 of those alerts, and it only submitted nine SARs. The DOJ maintained that these failures were “willful.”

“Theft” is one of the most foundational offenses in criminal law, encompassing a wide range of alleged violations of other people’s property rights. The simplest definition of theft is taking someone else’s property without the owner’s consent. Each element of that definition, however, can be profoundly complicated, depending on the circumstances. Which sorts of acts constitute “taking” something? How should the law define the owner’s “consent” or lack thereof? State theft laws cover a wide range of acts. Texas has consolidated almost all Texas theft offenses under a single section of the Penal Code, but many states still have multiple theft offenses on the books. State prosecutors in Maine, for example, recently brought charges of “theft by deception” against a woman accused of obtaining more than $10,000 in donations by falsely claiming to have advanced breast cancer.

Criminal offenses that fall under the general legal category of “theft” include larceny, shoplifting, embezzlement, and false pretenses. The offense of “theft by deception,” under Maine law, involves “obtain[ing] or exercis[ing] control over property of another as a result of deception and with intent to deprive the other person of the property.” 17-A Me. Rev. Stat. § 354(1)(A). The statute defines “deception” as “an impression that is false and that the person does not believe to be true,” which a person “creates,” “reinforces,” or “fails to correct.” Id. at § 354(2).

In Texas, the consolidated “theft” statute includes multiple offenses previously defined separately, including “theft by false pretext.” Tex. Pen. Code § 31.02. Finding the equivalent of the Maine statute requires examining various definitions. “Theft” consists of “unlawfully appropriat[ing] property with intent to deprive the owner of property.” Id. at § 31.03(a). “Unlawful” appropriation of property can occur when the person does not have “the owner’s effective consent.” Id. at § 31.03(b)(1). “Effective consent” excludes consent that was “induced by deception or coercion.” Id. at § 31.01(3)(A). Finally, the definition of “deception” is similar to the one found in Maine. Id. at § 31.01(1).

The border search exception to the Fourth Amendment’s warrant requirement allows law enforcement officers at or near a national border, such as the U.S.-Mexico border in Texas, to search people and their personal effects without a warrant. In some situations, police might not even need a reasonable suspicion of federal or Texas criminal or immigration violations. Courts have placed some limits on the border search exception, but the question of whether law enforcement officers at the border can search the contents of electronic devices without a warrant remains unsettled on a national level. Many electronic devices have considerable storage capacity, leading to concerns over not only individual privacy but also professional and commercial privacy issues like trade secrets. Proposed legislation, and at least one lawsuit, are seeking to place limits on border searches of laptop computers, smartphones, and other devices.

Courts have long held that travelers at the U.S. border have a lessened expectation of privacy. One of the few courts to address the question of electronic devices held that the warrantless search of a person’s laptop did not violate the Fourth Amendment because the search did not cause “exceptional damage” to the computer, nor was the search conducted in a “particularly offensive manner.” United States v. Arnold, 533 F. 3d 1003, 1009 (9th Cir. 2008). The Ninth Circuit limited that ruling several years later, holding that a reasonable suspicion is required for the forensic examination of electronic devices in some cases. United States v. Cotterman, 709 F.3d 952 (9th Cir. 2013) (en banc).

Proposed legislation in Congress has sought to protect individuals at the border from warrantless searches of electronic devices. The Travelers’ Privacy Protection Act of 2008, which did not become law, stated that “laptops and similar electronic devices” are different from other personal effects, since they “can contain the equivalent of a full library of information about a person, including medical records, financial records,…and privileged work product.” S.3612 § 2(4) (110th Cong., Sep. 26, 2008). The bill established strict requirements regarding suspicion, limited how searches could be conducted, and set restrictions on the use and retention of information obtained.

The Fourth Amendment prohibits police from conducting warrantless searches and seizures. Over the past century or so, courts have found that police may conduct a search or seize property without a warrant under certain circumstances, provided that they have probable cause to believe that they will find evidence directly related to criminal activity. Technological advances have also required ongoing challenges to the Fourth Amendment’s warrant requirement. The use of digital tracking evidence has recently posed many challenges for defendants, prosecutors, and courts. The U.S. Supreme Court heard oral arguments in late 2017 in a case challenging the use of cell phone location data by police without a warrant. The court is likely to issue a decision in Carpenter v. United States in the summer of 2018, which may affect Texas criminal cases moving forward.

An individual must have a “reasonable expectation of privacy” for the Fourth Amendment’s warrant requirement to apply. See Katz v. United States, 389 U.S. 347 (1967). When an individual voluntarily discloses information to a third party, courts have generally held that they no longer have a reasonable expectation of privacy in that information. This is known as the “third-party doctrine.” For example, the Supreme Court held that the warrantless use of a pen register to record the phone numbers dialed from a telephone was not a “search” under the Fourth Amendment, since the telephone company would receive and keep records of those numbers. Smith v. Maryland, 442 U.S. 735 (1979).

The Carpenter case questions whether certain uses of telecommunications technology involve a genuinely voluntary disclosure. In Smith, the court treated dialing a telephone number as the voluntary disclosure of information. Almost any sort of electronic communication, however, requires “disclosing” information to the telecommunications provider. This raises questions about how voluntary such a disclosure could be. The only alternative would be to limit all communications to in-person conversation, which is not exactly practical in the 21st century.

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