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What you need to Know and Understand about Mail and Wire Fraud
Written by: Lawrence Hartman
If you’re like most people, you have a general idea that Wire and Mail Fraud exist but otherwise give them little thought as you occasionally see people charged with either one or both in some big scandal reported on Fox News or CNN. ‘That’s just something that happens to other people,’ most people think until, that is, it actually happens to them. And, that’s the thing. Most people have no idea just how easy it is for businesses to run afoul of those laws as part of their standard operating daily routine.
The mail and wire fraud statutes are exceptionally broad, have lengthy statutes of limitations and can lead to sentences of up to 30 years. For that reason, they are a favorite tool of prosecutors, especially when finding it difficult proving the elements of more specific criminal statutes. In fact, some time ago, a federal prosecutor referred to the mail and wire fraud statutes as “our Stradivarius, our Colt 45, our Louisville Slugger … and our true love.” Not everyone shared the prosecutor’s delight, though. Commentators have argued that the statutes “have long provided prosecutors with a means by which to salvage a modest, but dubious, victory from investigations that essentially proved unfruitful.” Federal judges have also expressed concern from time to time, observing that the “mail and wire fraud statutes have ‘been invoked to impose criminal penalties upon a staggeringly broad swath of behavior,’ creating uncertainty in business negotiations and challenges to due process and federalism.” These statutes, moreover, can be made even more amorphous when applying them by accusation of Conspiracy, and can result in exorbitant restitution and forfeiture covering activities well beyond those claimed to be in violation of the law.
For the sake of giving you a better idea of exactly how broad, I’ll note that “a defendant can be convicted under the mail fraud or wire fraud statutes even if she (or her associate) has not personally used the mails or wires. The defendant, or her associate, need only knowingly “cause” something to be delivered by mail (or “private interstate carrier”), or “cause” a use of the wires. The Supreme Court has interpreted such “causing” to include the performance of “an act with knowledge that the use of the mails will follow in the ordinary course of business, or where such use can reasonably be foreseen, even though not actually intended . . . .” The actual mailing can be by an innocent party who is not part of the scheme.” So, as you can see, actual intent to commit a crime is sort of beside the point.
To be perfectly blunt, on any given day, every single bank in the world could be accused of mail and wire Fraud hundreds to thousands of times over. These can arise from simple bank transactions that should have been given more scrutiny, let alone more nefarious transactions. At least that’s what the government can claim. Now, does it happen like that? No, because it would cause total economic pandemonium. However, it doesn’t stop prosecutors from trampling all over your business once they’ve concluded you’ve done something wrong. Sure, they’ll first try to prove the elements of something more specific. However, when they can’t, they’re not shy at all about using mail and wire fraud as their blunt force object to get the results they want to achieve.
For that reason, mail fraud and wire fraud are two of the most commonly charged crimes by federal prosecutors. Both types of fraud are very similar in that they generally require a scheme to defraud the victim of money or property. The main difference between them is the “jurisdictional hook” that allows the Department of Justice to prosecute this conduct as a federal crime. Under the mail fraud statute, the defendant must use the U.S. Postal Service or any private or commercial interstate carrier (like FedEx or UPS) to further the commission of the fraud. In contrast, the wire fraud statute requires the use of an interstate wire transmission such as an email, a fax, a phone call, a text message, or the use of an internet chat room. The differing jurisdictional hooks are a reflection of the different sources of constitutional authority that allowed Congress to enact the mail and wire fraud statutes. The mail fraud statute is a product of Congress’s power to establish post offices and post roads under the Postal Clause, while the wire fraud statute, on the other hand, is an exercise of Congress’s authority under the Commerce Clause. The frequent use of both emails and online financial transactions, however, virtually ensures that in instances where federal investigators can prove one, they can almost assuredly prove both.
However, your liability isn’t capped there. Each and every alleged unlawful transaction can constitute a single charge. So, if you have a client or customer who gets in trouble with the law or whom the government claims you haven’t sufficiently vetted, each and every wire and email conducted with that client, related to the alleged criminal activity, can count as a charge. So, as you can see, charges can theoretically get up into the thousands. Now, while it rarely gets that high (so not as to seem like a theater of the absurd), I’ve seen the government charge dozens as part of their practice of intimidation. It can seem pretty scary knowing you’re potentially up against a sentence of hundreds of years. Their goal is to apply maximum pressure to get you to plead out. After all, 5-10 years originally seems horrific at the outset but becomes abundantly more palatable when walked down from 400.
And, I’ve saved the most outlandish part for last. Courts have repeatedly affirmed that the government doesn’t even need to prove any loss or injury to establish violations of the mail and wire fraud statutes. Yes, you read that correctly, there is no requirement for actual harm. Just some vague notion that the accused intended to defraud someone else.
The mail-fraud statute was first enacted in 1872 to prevent city dwellers from fleecing country residents, according to a 2011 U.S. congressional report. Its cousin, the wire fraud statute, was enacted in 1952 to create mirror charges for more modern communications. The statute has since been used in instances ranging from mob cases to terrorism prosecutions, from indicting Virginia Governor Bod McDonnell in connection with Honest Services fraud to Bernie Madoff for his Ponzi scheme, and from charging Toyota for faulty ignition switches to convicting FIFA officials and corporate executives in an elaborate bribery scheme. Add to that the countless business owners and executives who have been charged in the general course of operations and it soon becomes clear while all companies should give serious concern to Legal Mitigation and Compliance issues in order to minimize their exposure to this huge potential liability.
About the author
Lawrence Hartman, is Columbia Law School graduate and a principal at ComplianceMitigation.com. He has done deals worth hundreds of millions of dollars over his lengthy career as a Wall Street attorney, General Counsel of a publicly traded REIT, internet entrepreneur and international financier. He also, found himself on the other side of the process as a defendant and then inmate, learning all too well that things don’t work how they teach in law school. He served 7-1/2 years utilizing his legal background to gain unique insights and perspectives vital for mitigating criminal legal exposure.