Objectives
- Assess the concept and complexities of multi-jurisdictional investigations
- Evaluate the relationship between institutions seeking civil solutions and institutions seeking criminal prosecution
- Describe techniques used in the investigation of white collar criminal activity
Introduction
Investigation of white collar crime calls for imagination, patience, and clear understanding and appreciation of the range of possible approaches which can be employed in the investigative process. All of the skills required in more conventional investigations will be called for, plus other skills, but even conventional techniques will have to be employed with different emphases.
It will not always be easy to focus directly on a specific criminal act and to go after evidence bearing upon it. The investigator is far more likely to observe a pattern of general criminal activity which will be subject to attack in a number of its aspects. For example, a merchandising scheme could give rise to federal mail or wire fraud charges, to the use of state statutes dealing with larceny or false pretenses, local laws involving licenses to solicit, or federal or state income tax or revenue collection laws. In addition, even where a criminal investigatory focus is possible in the early stages of an investigation, the investigator must realize that for a variety of reasons the prosecutor may decline to criminally prosecute. This is not to suggest that an investigator’s time was misspent, for his investigation may bear fruit through (1) governmental civil or administrative litigation to stop the wrongful, fraudulent activity, (2)initiating civil action to achieve restitution for white-collar crime victims, (3) laying the groundwork for private action by victims, and (4) educating the public to the frauds being investigated, for example, contributing to crime prevention and deterrence.
The approach of the investigator, whether he or she is in a police department, a prosecutor’s office, a state attorney general’s office, a local consumer protection office, or a private agency must therefore be geared to gathering of information which will be useful in achieving remedies in addition to that which is the primary goal of the investigating agency. The additional remedy may be more or less severe than the primary remedy. Some examples:
- A police investigation of an auto repair fraud may not yield evidence which convinces the prosecutor that he can show guilt beyond a reasonable doubt. But the prosecutor may have enough evidence to meet a civil burden of proof and thus commence civil action or may refer the case to the state attorney general’s office or a municipal consumer protection office for civil action to protect victims or for appropriate injunctive action.
- A local municipal consumer protection office which is primarily engaged in mediating complaints by consumers against merchants may, in the course of gathering facts to support its mediation/restitution efforts, develop evidence which indicates a potential for criminal prosecution and refer its evidence and findings to an investigating or prosecuting agency which has criminal jurisdiction.
Beyond all this, the white collar crime investigator must realize that the “crime” being investigated will not have a clear beginning and end, in the same way that there is a clear beginning and end to a specific assault, or burglary. White collar crimes are usually schemes which operate over periods of time. Thus the evidence which is gathered may well be the missing piece of the investigative jig-saw puzzle that the same or some other investigator confronts in the future, so the investigation may be a success even if no remedy is invoked, just so long as it is done thoroughly, expertly, and with proper regard for the presentation and later retrievability of the evidence which has been gathered.
The techniques of investigation discussed here cannot, therefore, be viewed as a group of tools to be rigidly applied to parts of the job of investigating white collar crime, but rather as an inventory of perspectives which will (1) help to identify what evidence should be gathered, (2) show the different ways in which investigators can better accomplish conventional investigative tasks when working in this field, and (3) be a roadmap and guide for the analysis and organization of evidence for maximum attractiveness and utility to prosecutors or other litigators. How such techniques are employed will vary, of course, depending on the nature of the case and the manner in which the case is brought to the attention of the investigating agency, and the character/mission/resources of the investigating agency.
The special distinguishing features of white collar crime investigation stem from the fact that white collar crimes are usually hidden or disguised within the framework of apparently legitimate undertakings (the crimes are not obvious to the victims as would be the case in robbery, burglary, homicide, etc.). Investigators of white collar crime are required from the outset to direct their efforts toward determining whether a crime has in fact been committed and whether there might be legal evidence to support a prosecution. They must therefore not only become adept at the application of general investigation techniques such as handling victim complaints, interviewing, interrogation, finding documents and public records, finding expert assistance for specialized technical areas, and preparing a package for the district attorney; they must also develop the special techniques which will enable them to identify and develop the evidence which proves that a violation has been committed rather than that certain specific acts were committed.
This chapter first discussed the special relevance and importance of shaping the investigation to bring together proof of the elements of white collar crime. It then goes on to outline the ways in Which general techniques of investigation can best be employed in white collar crime cases to develop proof related to these elements. The principles underlying these approaches should be generally valid regardless of the particular jurisdiction or its specific statutes.
It is important to note, however, that the total proficiency of the investigator, for example, the investigator’s ability to avoid wasting time and effort on a hopeless case, to avoid fruitless investigative steps, to innovate, and to build a sense of professional confidence, demands continual supplementing of these fundamentals by self examination of what succeeds and what fails. First, then, we turn to examination of the elements of white collar crime.
THE ELEMENTS OF WHITE COLLAR CRIME
One of the characteristics which most distinguishes investigation of white collar crime from that of traditional crimes is the necessity for the investigator to establish the intent and underlying motives of the subject by placing together jigsaw puzzle pieces of apparently legitimate activities to add up to a picture of illegitimacy, rather than by a simple showing of one event which by itself flatly demonstrates wrongful intent. For the most part, within the broad frame of references associated with legitimate undertakings in private and government organizations, the intent and motivation of the subjects of investigation tend to be obscure and confusing.
It would be helpful, of course, for the investigator to have a thorough knowledge of every kind of white collar crime, and the ways in which they have been investigated and prosecuted. The field of white collar crime is, however, too large and too varied for investigators, or prosecutors, to fully possess and utilize all such experience. Furthermore, the investigator will not always find an obvious and definitive legal theory to rely upon when he starts on a case. Definitions of specific white collar crimes will also vary from one jurisdiction to another.
The absence of such legal certainty need not be an excuse for inaction. Thorough knowledge of all technical points of law affecting white collar crime is not an essential prerequisite for successful white collar crime investigation. What is essential is a clear understanding of the basic elements which can tell us whether or not a white collar crime has occurred. Once there is such understanding of the elements, the investigator will focus on what wrongs were done, and how they were done, rather than on statutory definitions of crimes.
Investigators should not be locked into any rigid legal framework of definitions with respect to white collar crime violations. They must, however, understand and maintain an awareness of the almost universal existence of a set of elements common to all white collar crime, which were discussed in Chapter I of this book. They are:
- Intent to commit a wrongful act or to achieve a purpose inconsistent with law or public policy
- Disguise of purpose — falsities and misrepresentations employed to accomplish the scheme
- Reliance by the offender on the ignorance or carelessness of the victim
- Voluntary Victim Action to assist the offender
- Concealment of the crime
If the right mix of these elements is present, there is a high probability that there is a white collar criminal violation and a parallel civil remedy. However, though these elements will almost always be present in a white collar crime scheme, it is not necessary that there be evidence on every one of them to support a criminal or civil case. Each element should, however, be considered in deciding on the scope and nature of the investigation.
It does not matter what type of white collar crime, what level of sophistication or what type of victim the case involves. It may be an investor who is induced to purchase shares in a fraudulent oil-drilling venture; a businessman who pays a fee to a promoter to obtain a loan which is never forthcoming; a retired person who is induced to buy worthless desert land; a consumer who responds to false advertising; the public who unknowingly are paying excessive fees because of the establishment of a monopoly in a public service industry such as garbage collection; or persons seeking to improve their income who are induced to invest savings to become distributors of products when in actuality the only way to make money is to induce others to become distributors. The crimes can be as different as antitrust violations and bank embezzlement, or tax fraud and ordering merchandise with no intention to pay. When a set of circumstances can be reconstructed by the investigator which strongly supports the conclusion that certain combinations of the above elements exist, there is a high likelihood that a prosecutable violation exists. We therefore now turn to these individual elements and discuss them in turn.
Criminal Intent
For an investigation to result in a prosecutable case there must be adequate evidence that the subject of the investigation intended to commit the wrongful acts with which he is charged. This is customarily shown by gathering evidence from witnesses and documents which prove that the subject knew he was involved in wrongful activity or that the circumstances are such that any contrary conclusion lacks credibility.
There are a number of ways of doing this, the most common of which are to show that the subject:
- Could have had no legitimate motive for the activities in which he was engaged
- Repeatedly engaged in the same or similar activity, of an apparently wrongful nature
- Made conflicting statements
- Systematically organized the dissemination of misleading information
- Made admissions
- Acted to impede investigation of the offense
- Made statements he or she clearly knew to be false.
The last, made statements he or she clearly knew to be false, will be discussed at length in a following section entitled misrepresentation and disguise; the others are considered here.
Activity Inconsistent with Legitimate Intent
Subjects of investigation will often argue that they are respectable, legitimate businessmen, professionals, or citizens who acted in good faith and never intended to violate any laws. The investigator should consider every possibility which may show the subject’s activity may have had some legitimate purpose. If there is sufficiently persuasive evidence that there was such a legitimate purpose, the subjects will have a defense which may make prosecution and conviction impossible, or unjust. Conversely, if their activities can be shown to have been performed in bad faith, for example, with intent to defraud, a court or jury will seriously question any other defenses, and the subjects will be less likely to risk cross examination by taking the witness stand in their own defense.
Recognizing that white collar crime suspects will often be prepared to defend their activities by seizing on every possible argument which could show they were operating in good faith (although foolishly, unwisely, sloppily, or incompetently) the investigator must continually consider in detail what explanations the subjects of the investigation will offer in defense of their specifically questionable activities. Such an analysis will be a guide to the search for evidence which will cut off avenues of escape in much the same way that an alibi is handled when it is checked out in investigation of a common crime. Eliminating the possibility of a legitimate explanation of the subject’s activity will thus increase the probability of ultimate conviction and heighten the prosecutor’s willingness to accept and actively prosecute the case which has been prepared by the investigator.
In white collar crime cases legitimacy or illegitimacy of a subject’s activity can often be determined simply by comparing the suspected activities to regular business practices. In many cases, the investigator will be dealing with normal and understandable business and personal transactions, or at least with transactions that can be analyzed by experts (who can usually be consulted by the investigator) to determine whether the suspect’s explanations are consistent with legitimate ends. Let us consider a number of specific examples:
- A lawyer uses money entrusted to him by a client. He had placed the money in his own personal bank account, and in his defense now claims he spent it accidentally because he was confused as to what was his and what was the client’s.
- This argument will clearly lack credibility. Attorneys’ state canons of ethics clearly provide that lawyers who hold moneys for their clients should not mix clients’ moneys with their own, but should deposit such funds in special and separate bank accounts. There could have been no legitimate reason for mixing these funds in the first place.
- A used car dealer rolls back the odometer in a car offered for sale. There is no explanation for such an action which cannot possibly be consistent with honest dealing. In this instance, as in other examples discussed here, the activity which is not explainable in legitimate terms is related to the subject of MISREPRESENTATIONS, which is discussed later. The distinction to be kept in mind is that the rolling back of the odometer is the unexplainable activity which shows the criminal intention of the subject, while the offer for sale of a car with an altered odometer reading is the misrepresentation.
- A manufacturer wishes to sell merchandise to a department store. At the same time that he sells a large order to the store’s purchasing agent, he draws cash out of his business bank account, charging it to miscellaneous cash expenses. He then goes to an automobile dealership with the purchasing agent who selects a car. The manufacturer makes the $1,000 down payment for him. No loan security in the car is retained by the manufacturer, nor does he take a promissory note. When charged with commercial bribery, the manufacturer is hardly in any position to legitimize the transaction. He might say that he was “making a personal loan to a friend,” but such a story is suspicious based on comparison to normal business and loan transactions. The cases are matters of degree. Thus, if the manufacturer bought the buyer an expensive lunch, or sent him a bottle of whiskey at Christmas, it would be explainable as being in line with some common perceptions of normal business. Standards will differ, based on time and place, customs of the industry, etc.
- A store owner buys merchandise on credit at a cost of $50,000. Shortly after delivery, he sells the merchandise for $20,000 in cash, and a promissory note for $35,000. The buyer picks up the merchandise and is never heard from again. The store owner goes bankrupt. When charged with bankruptcy fraud, The buyer claims he cannot locate the purchaser, and that he lost the $20,000 at a gambling casino. This strange transaction, for example, the acceptance of a $35,000 note from a stranger who can neither be identified nor located is relatively unexplainable in normal business terms and may, with other evidence, contribute to a successful prosecution.
- A welfare recipient applies for and receives duplicate benefits under a real name and also under a false name. There can be no legitimate reason for one person receiving duplicate benefits.
The above examples are straightforward and may be read to imply that the techniques for determining legitimacy are relatively simple. They are not. The investigator must understand that actual cases are not always so clearcut. Techniques to be followed may range from the very simple to those which could be quite time consuming and complex.
For example if, in the bankruptcy fraud example above, the storeowner is a food wholesaler who bought the merchandise at a cost of $50,000 on credit, payable at the rate of $10,000 per month, and then sold it for $55,000 payable to him at the rate of $11,000 per month, this would indicate that at the end of 5 months he would make $5,000 profit. But for 3 or 4 months the wholesaler receives no payment but does receive letters purporting to be from the buyer indicating that the merchandise received was damaged or in some way not in accord with what was expected. Letters are exchanged, and over that 5 months period the wholesaler receives a total of $20,000 in payment, does not pay anything to his creditors, or at most makes a token payment, seems lethargic in taking any action, and then goes bankrupt.
These transactions raise questions. But in order to demonstrate that they are not explainable in normal business terms the investigator must probe below the surface. He should certainly be suspicious and should follow up, for example, if the allegedly damaged merchandise consisted of canned goods, guaranteed by the canner, and the wholesaler made no claim against the canner when he was denied payment for merchandise shipped.
An investigator may have to consult with experts depending upon the particular kind of business activity under investigation. In cases involving intricate financial transactions, for example, an accountant could help an investigator to determine whether a particular transaction made sense in legitimate business terms. Similarly, a state bank examiner could help an investigator understand intricate banking transactions. Investigators should not dismiss out-of-hand the possibility that businessmen may sometimes act incompetently or irrationally, rather than with wrongful intent. Experts can help in this area, but here as in any other criminal investigations motives should be considered in trying to determine what the subject was actually doing.
Consideration whether or not there are possible legitimate explanations for questionable activities on the parts of subjects of investigation is also important because it is common in a white collar crime investigation to defer interrogation of the subject until close to the conclusion of the investigator’s work, and often to totally refrain from such interrogation.
In summary, the investigator in a white collar crime case should carefully analyze possible motives for the transactions which are at the core of the alleged violations (as in any other criminal investigation) as well as other transactions in which the subject may have participated. In addition to countering potential defenses (white collar crime alibis), such consideration and related investigation will prevent misallocation of investigative and prosecution resources and/or a highly publicized but later embarrassing indictment because of the failure of an investigator to understand the legitimate reason for an activity which on its face appeared to be suspicious.
Repetitious Wrongful Activity
As emphasized in the previous sub-section, the white collar crime investigator must continually consider what explanations the subject of an investigation will offer in defense of specific questionable activities. A common defense or explanation to an accusation of wrongdoing is for the suspect to claim that a false representation was a “mistake,” an unintentional slip of the tongue or the pen. Although the commission of a single wrongful act is sufficient in theory to bring a violator within the jurisdiction of a criminal statute, as a practical matter, a single instance of wrongful behavior will in many white collar crime cases not be sufficient to support a finding of the necessary criminal intent. To counter such a claim by the suspect, the investigator must try to develop evidence that the suspect made the same, or similar, “mistakes” repeatedly. One of the principal means of establishing the required element of intent (and often to prove that a fraud was in fact committed) is to demonstrate that misrepresentations, use of false pretenses, and promises made by the suspects were not limited to a single instance.
The investigator, through either victim/witness statements, witness/non-victim statements or through undercover operations should seek evidence of similar misrepresentations repetitively made to the same victim, to other victims, and to non-victims. The investigator should also seek evidence concerning the previous history of the suspect. Such evidence may be used to support the conclusion that the same misrepresentations were made in other situations and that fraudulent activities were not limited to this one instance. By expanding the number of instances, it may be possible to charge a broader scheme.
Before a jury may infer fraudulent intent from the commission of an act, it must be proved that the act was committed. The investigator must therefore anticipate that the subject will very readily seek to deny the testimony of a single complainant, or a small number, who quote him or describe what he did. For example, an individual complainant’s statement that a salesperson made certain representations about a product may catch the attention of an investigator but it will not prove to a jury that the representation was in fact made. Statements from several persons that the salesperson made the same representation to them will tend to give credibility to the testimony of each that the representation was in fact made. If dozens of complaints are received, the investigator may need no further evidence to prove that the statement in question was made. If the investigator has only a few complaints with which to begin his investigation, additional corroborating evidence may be required. The investigator’s objective is to acquire more and more corroboration that wrongful acts of the suspect are not unique or limited to a single incident.
Some specific guidelines for acquiring evidence of repetitious fraudulent activity include the following:
The investigator should maintain contact with the complainant, locate other victims and witnesses and interview all of them to determine:
- Whether false or misleading statements were made repeatedly or only once during the course of a presentation, a single misrepresentation made during some course of questionable conduct may prove nothing more than that the misstatement was made. In contrast, misstatements made repeatedly to the same audience is evidence which will better support a prosecution because repetition is inconsistent with accidental misstatement.
- Whether the statements were made repeatedly to different individuals, audiences, or gatherings, this is even stronger evidence of fraud than above. When an investigator receives several complaints, to verify the repetitiousness of the misrepresentations he can verify that the various complainants heard the false statements at different times, and repeated episodes will support the conclusion that misrepresentations were made pursuant to a plan.
- Whether they know of any others who might have been victimized.
- Whether they know of any others who attended the same or similar gatherings.
- Whether they know how the suspect got their name — if the answer to this question is no, the investigator might obtain leads by following up with detailed questions regarding the interviewee’s employment, memberships, education, military background, hobbies, etc.
From these questions he may deduce common characteristics among certain of the complainants which will help him find more victims and others who were solicited but did not become victims who can verify that the false statements were made. Some of the major possibilities are that the suspect used mailing lists, club rosters, school enrollment lists, or similar sources to obtain the names of potential victims.
Another method of corroborating the statements of a small number of initial victim/witnesses is to seek statements from persons who were witnesses to the suspect’s acts but were not victimized. Statements from non-victims can be particularly useful in the following ways:
- They add to the number of witness accounts of a suspected fraudulent transaction;
- Their evidence might be weighed more heavily by a jury because they have no apparent selfish motivations;
- Individual non-victims may have been frustrating targets for subjects being investigated. Under such circumstances it is not unknown for fraud artists to redouble their efforts to persuade, by recourse to additional and perhaps more readily disprovable false statements, or statements inconsistent with those made to others; and
- The investigator can improve his understanding of the scheme if he knows the reason that these witnesses were not victimized.
As an example of how the investigator can improve his understanding, the non-victim may have known at the time that some of the suspect’s representations were false, or at least suspect. The non-victim may have asked some specific questions which elicited answers that made him suspicious. How the non-victim came to the conclusions which prevented his becoming a victim may help the investigator to discover new aspects of the fraud. Similarly, the non-victim may not have known at the time the suspect made his representations that they were false, but may have discovered this during the course of an investigation which he, his attorney, financial manager, broker, or banker conducted. The fruits of financial or other investigations made by others can be very useful to an investigator. Such a prior investigation may include evidence of the falsity of some of the suspect’s statements, useful information about the suspect himself, and also information about variations in modi-operandi at different times in the course of execution of the criminal scene.
Complaints may also be obtained from other agencies, public and private, which have some relationship to the activities under investigation. This would be an additional way of finding other victims, benefitting from prior investigations, etc.
Corroborative evidence of a suspect’s repeated wrongful acts may be acquired through the use of undercover operatives. Undercover operatives posing as potential victims can record, or, where prohibited by law, simply take note of the various circumstances under which the suspect repeats the crucial misrepresentation. The use of undercover operatives enables law enforcement agencies to produce corroborating witnesses in cases where complainants are few and non-victims cannot be located. To avoid legal problems, such as exposure to the entrapment defense, the investigative agency’s legal adviser should be consulted where possible.
Evidence that the suspect had in the past participated in similar frauds or made other misrepresentations similar to those involved in the case under investigation, may be used to show that:
- The suspect was in fact in the habit of committing the acts he is presently accused of making; and
- That the misrepresentations were made with knowledge of their falsity and with the intent to deceive.
The use of evidence showing past participation in similar fraudulent activities has its difficulties. Where such similar fraudulent activities resulted in a conviction, these earlier events will be useful evidence as part of the prosecution case in most instances. More commonly, this kind of information is most useful in challenging the credibility of a defendant who has taken the witness stand to argue, for example, that he had no way of knowing that a statement which he had inadvertently made, would mislead victims. Under such circumstances he can usually be cross-examined to show that he had been called on the carpet earlier (in other investigations or by consumer protection offices) with respect to the misleading effect of the same kinds of misrepresentations, even if criminal action had not been taken or a conviction obtained.
As a practical matter, an investigator cannot search every corner for evidence that his suspect participated in a fraud similar to the one under investigation. Nevertheless, the investigator should be alert to gather evidence of similar frauds. Routine search into the background and activities of his suspect is fundamental, including systematic checking of a unit’s own intelligence file. Standard sources where an investigator may very likely uncover evidence of earlier frauds are the public and private agencies which have responsibilities for or interests in the activity under investigation. In a real estate fraud, for example, the Department of Housing and Urban Development, the Federal Trade Commission, Securities and Exchange Commission, State Division of Real Estate, real estate brokerage associations, etc., often maintain files pertaining to various land frauds and the persons involved. Better Business Bureaus will have files on merchandising frauds, home repair frauds, etc. Similarly, in a medical fraud involving quack cures for diseases or ailments such as cancer or arthritis, such agencies as state and local health departments, the American Cancer Society, the Arthritis Foundation, etc., will often have information about medical frauds and medical fraud artists. In nearly every area of fraud there are public and private agencies with responsibilities for or interests in the activity under investigation.
Identifying non-complaining victims or persons who successfully resisted blandishments or other pressure to become victims is sometimes beyond the capability of even the most experienced investigator, since most investigators lack the power to compel the subject of the investigation to answer questions or to produce books or records. Such power does exist in many regulatory agencies, for example, where the right to be in a regulated business depends on licensing and agency access to books and records. Before the prosecutor interests himself in the case, however, the investigator should ask him to consider whether a grand jury or inquiry judge subpoena should not be issued to obtain records pertaining to such items as mailing lists used, telephone records, salesmen’s compensation claims showing names of those solicited and any claims in connection therewith. This information will not only serve to identify other victims and those who were solicited but avoided victimization, but also will help to be sure that the prosecutor (and ultimately the court and jury) has the full scope and magnitude of the scheme in proper perspective.
Conflicting Statements
Evidence that the subject of the investigation made conflicting statements to different audiences will usually be helpful in proving his fraudulent intent. The investigator’s objective is to gather facts which will ultimately help the prosecutor to convince a court or jury of a consistent disregard for truth on the part of the suspect. A legitimate business person will generally make consistent statements of fact to different audiences. In contrast, a dishonest promoter will say whatever is necessary to consummate the fraudulent scheme.
Representations made by the subject of investigation, whether verbal or written, may be obviously inconsistent. For example:
- A sales force for an underwriter selling stock to investors makes repeated oral representations that the company whose securities are being sold averaged $150,000 per year in profits during the previous three years, while certified financial statements filed with the state agency regulating securities sales showed an average net loss for the same period.
- A promoter of distributorships for a particular product will, in response to one prospective client-victim’s concern about his lack of sales experience, tell the prospective victim that lack of experience is unimportant and unnecessary to success in the venture. Under similar circumstances with another client who has previous sales experience, the promoter will tell the experienced client that this particular business opportunity is “tailor-made only for experienced personnel.”
Conflicting representations may also be in written or verbal forms which are not so obvious, for example, they appear to be mere exaggeration for promotional purposes. For example:
- A store advertises a sale of merchandise valued at $100. A short time later the store advertises a sale of the same merchandise but now valued at $150.
- A merchant tells one customer that the stereo on sale for $200 is really worth $300. The same merchant tells another customer that the same stereo equipment is valued at $350. The merchant tells a third customer the stereo’s worth is $250. The true value may be none of these.
Where conflicting statements involve highly subjective judgment questions, such as matters of value, it is very difficult to make a fraud case without much more evidence of other kinds.
The investigator should be continually alert to eliminating the possibility that the suspect will be able to explain away his conflicting statements when a case comes to trial. The suspect’s first line of defense regarding such statements might be to deny having made inconsistent representations. A second line of defense might be to claim mistake or, as in the case of not so obvious conflicting degrees of misrepresentation, to claim that the inconsistent statements were mere “sales puffing” or expressions of opinion. Each of these defense claims may be used to overcome evidence that the suspect’s acts were part of a deliberately executed pattern of activity. In order to develop a showing of a pattern of conflicting statements from which fraudulent intent can be inferred, the investigator needs evidence of repeated inconsistent statements. The method for establishing the repetitiousness of inconsistent statements are the same as those discussed in the preceding sub-section with regard to complainants, victims, witnesses, and other agencies. Proof of repeated inconsistencies establishes the fact of their occurrence and also refutes the claim that the misstatements were innocently made.
Of added significance to the investigator is the fact that although conflicting statements may not in themselves be sufficient as proof of fraudulent intent, they do indicate a deliberate disregard for truth on the part of the suspect and thus provide support for determining fraudulent intent. This consideration is important in persuading a court or jury that so-called “inconsistent puffing” was really part of a fraudulent scheme.
Systematically organized dissemination of misleading information
Large scale fraudulent sales schemes do not rely solely upon the sales pitch of individual sales persons. Most, if not all, large scale consumer frauds, land frauds, investment frauds, pyramid schemes, and other white collar crime schemes, base their operations on carefully planned training sessions for sales personnel. At these sessions sales personnel are instructed on various techniques for successful sales, usually including either the careful dissemination of misleading information or methods to avoid providing victims with relevant information which, if they had it would cause victims to reject the deal offered to them. The systematic dissemination of misleading information is most likely to be made orally, since oral statements are more difficult to prove. However, misinformation will often be systematically disseminated by white collar criminals in written form through brochures, prospectuses, charts, graphs, and pictures accompanying oral presentations.
An investigator should therefore take particular care to collect copies of all brochures, prospectuses, and other such written information provided potential customers (victims) by suspects. Similarly, investigators should, during their interviews of victims and witnesses, always inquire about the use of any brochures, prospectuses, graphs, photographs and illustrations which may have accompanied an oral presentation, or were passed out during the presentation and later collected. Such written material may include misleading information, which explains why it was collected at the conclusion of a presentation. Some victims, or non-victims who were present, may have deliberately or accidentally retained copies. In addition, just knowing that such material was in existence at one time will provide the investigator with an opportunity to try to get hold of it.
Let us consider a specific scheme which exemplifies the personnel training program of a white collar crime scheme and a systematic approach to committing a fraud.
The promoters of a land development scheme plan to use a standard sales approach; inviting a group of people to attend a dinner where a sales presentation will be made. The promoter plans several such dinners. The scenario might be as follows:
- The promoters hold a training session for twelve sales-persons, and instruct on how to make their sales pitches, including ways to avoid giving information on lack of water, utilities, and other facilities. Plans for the use of confederates in the audience will be discussed, including ways to ensure that questions will be asked in a way which will make it possible to provide answers which mislead others in the audience.
- At the sales presentation dinner a professionally produced film is shown. The film includes views of developed real estate intermingled with illustrations of the land for sale. The film and narration strongly implies that the land being offered for sale is a copy of the developed real estate shown, and that the facilities, utilities, and amenities shown in the developed real estate are already being constructed in the area where the lots are being sold.
- The lights go on and the prospective client sees a large professionally prepared chart on the wall that shows how an investment of $1,000 multiplied enormously. (The chart contains no information regarding the who, what, when, where or why of the $1,000 investment.)
- A salesman approaches and relieves the nervous client’s doubts by assuring him that the land for sale is registered with the Office of Interstate Land Sales in Washington, DC and offers to show verified audited statements of the actual expenditures that the developers have poured into developing the land.
- Another distinguished looking member of the audience (a confederate) then volunteers that he is a senior partner in a well known accounting firm. He is attending this meeting only out of curiosity and he would certainly insist on examining these figures if he wanted to buy property. He volunteers to examine these figures and the salesman passes him an impressive file folder containing the figures.
- The salesman spends a half-hour “explaining” the chart with $1,000 and how it grew.
- All specific questions are answered with official sounding responses such as “I can show you a letter verifying…” or “we have already signed a contract for… ” or “you get a full title insurance policy…” or “ground has already been broken. You can see it for yourself if you visit the land” and so on.
- The doors open and food and drink are wheeled in.
- The prospective client observes at least 3 or 4 people (confederates perhaps) opening checkbooks and signing contracts. The audience is told that this is their chance to “buy land” whereas the actual contract may only give them the legal right to take title to the land after the promoters have collected enough money to buy it; or the land may already be mortgaged.
- One friendly salesman says he took a liking to the victim and will personally tear up the contract if the victim changes his mind. This is pre-arranged, as are arrangements for transfer of these contracts to financing businesses and institutions.
- Prospective victim with just a little more urging says, “What have I got to lose?”
Such techniques and other similar ones perhaps less professionally prepared, tend to prove an intent to deceive and mislead. When taken together with other circumstances described in this section, a fair inference of intent to defraud is raised.
There are basically two techniques for gathering evidence on such systematic dissemination of misleading information The first technique is the development and use of informants. This involves identifying and “turning” one of the perpetrators, usually a salesperson associated with the scheme, and recruiting him to cooperate with law enforcement. In one instance, where salesmen were trained with the use of taped recordings to instruct them, a salesman who “turned,” was able to provide a set of tapes. Such material, as well as the informant’s own testimony will make it possible or help to prove that misleading information was being systematically disseminated.
There is little or no experience to indicate that there is any value to planting undercover operatives to obtain evidence of this kind. There are far better uses for investigative resources.
The second technique is the gathering of physical evidence. As stated above, the charts, graphs, photographs, illustrations, or other apparatus employed as part of a scheme should be vigorously sought; where compulsory process is available, as through an inquiry judge or grand jury, they should be subpoenaed, but the more the investigator knows about them the more likely it is that all these documents will in fact be produced. All such physical evidence provide excellent visual examples with which to explain to a jury how the suspects operated. Since such evidence is easily destroyed or hidden, the investigator’s timing of a seizure and obtaining search warrants must be carefully planned as in any criminal investigation.
Admissions
As part of every investigation, the investigator should be alert to any acts or statements made by the suspect which clearly demonstrate that he knows that he has lied and has been perpetrating a fraud. These acts or statements may have been made to his associates or even to victims. The investigative techniques of researching complaints, interviewing, interrogation and using undercover informant operatives (discussed in later sections) provide the procedural details for discovering such evidence.
Particular emphasis should be placed on trying to get a statement from the suspect immediately at the time of arrest. Even though a confession is not forthcoming, the white collar criminal will generally tie himself down to some story, particularly if his bail is high and he has no local assistance readily available. White collar criminals are usually confident of their ability to convince others of the truth of their statements or the image they present. After all, deception is their stock in trade. Nevertheless, statements will often contain inconsistencies when compared with other evidence obtained from victims, which may be tantamount to admitting that they lied to victims. It should be recognized, however, that most white collar criminals will have had the opportunity to anticipate arrest (they frequently surrender by pre-arrangement between their own counsel and the prosecutor, in lieu of normal apprehension and arrest), and will not be likely to waive their rights and make helpful statements.
At this point it is helpful to consider the importance of “turning” lower level functionaries in a white collar crime scheme. These schemes, particularly in consumer fraud or investment fraud areas, customarily involve numbers of salespersons who drift from one scheme to another.
These salespersons are not themselves attractive targets for criminal prosecution, and generally lack assets which make them attractive defendants in civil actions. They are, however, in a position to provide a wealth of detail as to how the scheme being investigated was implemented, and to supply evidence bearing on the guilty knowledge of the higher-ups who conceived and managed the scheme, but who may never have been seen by a victim. Intense attention to the “turning” of lower-level white collar crime subjects is frequently the only avenue for making a case against sophisticated fraud artists who systematically insulate themselves from the activities of agents who act at their direction. Also the early turning of such a subject may open floodgates of additional evidence from others.
Acts which impede an investigation
Evidence that a suspect attempted to hinder or sidetrack an investigation may also bear on the issue of his criminal intent. It is perfectly reasonable for the guilty as well as the innocent to attempt to prove their innocence. But when the overall scheme includes such things as fabricated evidence, destroyed evidence, pre-contrived defenses, pre-planned payoffs to complaining victims to preclude their complaining to law enforcement officials or acting as witnesses while making no similar payments to non-complaining victims, intimidation of witnesses or investigators, and similar impediments, the investigator can use these as evidence to show that the suspect acted with fraudulent intent. Evidence of commission of such acts should be gathered and submitted to the prosecutor for possible use as corroborative evidence of criminal intent or as the basis for a separate prosecution, e.g., for attempted bribery, obstruction of justice, and similar offenses.
Misrepresentation and Disguise
It is characteristic of white collar crime that the subjects of investigation will have misrepresented facts and disguised their true purpose in order to deceive their victims. This can most readily be seen in the case of frauds which involve land sales, securities sales, advance fees, home improvements, medical quackery, false advertising, personal improvement, investment and business opportunities, pyramid sales, and chain referrals. In these and other fraudulent schemes the subject attempts to induce the victim to part with money or property by deliberate deception such as:
- Making an intentional misrepresentation of facts or omission of key facts relating to the quantity, quality, value, nature, utility, status, or other characteristic of an article, service, or proposed transaction; for example, a promoter represents that certain land offered for sale can be used as a retirement home while omitting to state that the land is under six inches of water year-round or that the land is on the side of a mountain on a 70 degree slope; or an applicant for a bank loan fails to indicate significant liabilities.
- Making representations which are true but create an impression which is false — for example, in a work-at-home scheme, a promoter suggests that the victim may earn supplemental income through some minor part-time effort at home; or in a business· opportunity scheme a promoter purports to help the victim go into business for himself.
The representations in these cases are at least literally true, the work-at-home victim can, for example, buy a sewing machine and materials at the prices stated; or the would-be businessman can invest in a vending machine route. At the same time, however, the promoter creates a false image of the actual amount of work involved and/or potential earnings in the victim’s mind when, in fact, there is no market for the products to be made at home or dispensed through the vending machines. In some instances the promoter will often talk in terms of “guaranteeing” purchases of materials produced at home, or cite phony figures purporting to be the earnings of others who operated the vending machines being pushed by the same man.
As another example, a promoter mails solicitations to subscribers appearing in the yellow pages section of telephone directories. The solicitation actually asks that they purchase space in the promoter’s directory. But the solicitation is purposely contrived to resemble the normal payment request used by the telephone company for the already existing yellow page listing. The victim-companies make payments because they are deceived by the image of the invoice while they do not pay much attention to the specific words in the invoice; they are asked to make checks payable to a payee company which resembles the name of the telephone company.
The detailed methods and specific types of misrepresentations will vary from case to case. Nevertheless, the investigator need not know the specific profile of every possible scheme so long as he maintains an awareness of the general characteristics of misrepresentation. Misrepresentations may be more than direct than the statements made to a victim. Creating an appearance which is false and deceptive by misstatement or omissions is also a misrepresentation. This can occur in a number of ways, for example, through a careful arrangement of words, through the manner in which they are displayed, the circumstances in which they are used. Any of the innumerable deceptive practices used by a suspect to con his victim into “signing on the dotted line” may be admissible and persuasive as proofs of fraud.
For example, a representation that land is ideal for a retirement homesite, “with everything you can desire for gracious living” will be misleading if in fact the land in question is (1) not connected to a water supply, and (2) it would cost $50,000 to sink a well, even if nothing was said to represent availability of water.
The investigator’s task is therefore to gather evidence which will tend to prove that:
- The representation in question was made;
- The representation was false, by commission or omission.
How the investigator should go about performing this tasks discussed in detail immediately below. It should be noted that the requirements discussed in the previous sub-section are, of course, still applicable. The investigator must not only gather evidence of the misrepresentations but must be able to prove that the misrepresentation was made knowingly and with the intention of deceiving the victim. In many cases, where the falsity of the representation is obvious, proving that the representation was actually made will also tend to prove criminal intent.
Proof that Misrepresentation was Made
Suspect’s written material: The variety of written material used to induce fraud victims to part with their money or property is endless. The following list, which is at best a partial list, is intended to provide an investigator with a guide to gathering evidence:
- Correspondence, received by victims, or others solicited
- Sales brochures
- Newspaper or magazine ads
- Prospectuses
- Securities
- Financial statements
- Purchased or rented lists of prospective victims, e.g., from companies which supply mailing lists
- lists of other investors or endorsers of the scheme
- Contracts
- Receipts
- Warranties
- Guarantees
These types of data and documentation should be routinely collected and analyzed by the investigator. Such written material may serve as corroborative evidence of representations already alleged by victim. They may also be a source of additional false representations not noted by victims.
Records
In certain cases of fraud, a set of government or private records will exist which may help prove that misrepresentations were made. It is frequently difficult to determine just who is involved in a white collar scheme. Many business enterprises cannot operate without filing with some public agency; even though front men may be used, these individuals can often be contacted and induced to disclose the identity of those for whom they are fronting. Such filings would include articles of incorporation, certificates to do business under a trade name, applications for licenses to solicit for charities or door-to-door sales, information filings to legalize sales of securities or real estate, etc. Careful searches for such material may not only make it possible to identify and reach the principal perpetrators of schemes, who wish to discourage pursuit of civil or criminal liability, but may also make it possible to invoke criminal statutes which penalize false statements made in such filings, or which provide penalties for failure to file.
The key element to be looked for, in addition to leads for further sources of evidence — whether one is looking to public or private records — is information which shows that the filings or applications, or other records, disclose information originating with the subject which is at variance with that provided to the victims. For example:
- A fly-by-night home repair operator may tell a prospective victim that he has been in the home repair business for 30 years, but his contractor’s license shows otherwise;
- An alleged medical doctor practicing quack cures, which in themselves cannot be easily proven as quackery, may have no license to practice medicine or may have lied on a license application; and
- As an example of records in the private sector, consider a nationwide computerized credit verification system which has been programmed with false credit information. A business loan applicant provides information to a banker on a loan application. The banker requests verification of the applicant1s credit through the above credit verification company. The company verifies the applicant1s credit. The discrepancy between the computer records and original data records not properly entered are a principal way to show that there has been tampering with the computer system.
As we have noted above, for almost every type of business there is a government agency responsible for issuing licenses, permits, and charters, or responsible for collecting taxes, license fees, unemployment insurance and workmen’s compensation, or which has jurisdiction over some technical aspect of the business. Both the presence or absence of such documentation and records may serve an investigator in gathering evidence of false representations made by a promotor to a victim.
For example, in schemes designed to extract payment from the government or avoid payment to the government, in the form of unemployment compensation, welfare payments, loans, padded payrolls, false travel and expense claims, overpayment on a contract, underpayment of taxes, etc., false representations can be found in the applications, invoices, contracts, reports and other forms which are submitted to the government agency. Similar considerations apply in connection with frauds against private enterprise. Private institutions or companies dispense their money and property usually on the basis of financial statements, letters of credit, and types of written endorsements which verify the promoter’s assets, liabilities, need, character of business, etc.
Suspect’s Oral Representations
Investigative techniques for proving oral misrepresentations were considered earlier in the discussion of Repetitious Wrongful Activity, in the previous sub-section on proving criminal intent.
When a misrepresentation is made orally to a single victim, the investigator might attempt to get the promoter to repeat the misrepresentation. The investigator should consider the use of a hidden tape recorder (in accordance with the legal requirements of the jurisdiction) or insure that there will be witnesses to the misrepresentation. Without such corroboration the promoter can easily deny having made the statements attributed to him. Another alternative is to develop proof that a suspect committed similar acts. The cumulative effect of several witnesses attesting to the fact that the suspect made the representation in question is very persuasive in court.
Investigative techniques applicable to handling complaints, finding other victims, interviewing, interrogation, and undercover operations are all applicable to gathering evidence of misrepresentations. These techniques are discussed in detail in other sections of this book. Prosecutors, or the investigative agency’s legal adviser, should always be consulted before using these investigative techniques.
Proof of falsity
The investigator’s collecting evidence as to the falsity of a representation may be gathering evidence from victims which indicate the product or service was not as represented.
Investigative requirements
False representations, false pretenses, and false promises can take an infinite variety of specific forms depending upon the type of fraudulent scheme. They can be in the form of false statements, omissions of key facts, or creation of false impressions about an article or a service which is part of a transaction between the suspect and victim. The misrepresentation may concern the quantity, quality, value, nature, utility, or other characteristic of an article, service, or proposed transaction.
- Testing the validity of the suspected misrepresentation; for example, actually trying out a product or service to an extent which will convincingly indicate the falsity of the representation;
- Accumulating documentation which disputes the suspected misrepresentation; and
- Obtaining expert testimony which is counter to the suspected misrepresentations.
Example: A group of victims of a land sale scheme do not know that their property is not worth what they paid for it; They are sought out through advertising by a corporation, whose representatives make the following oral statements in order to get money from them.
- The corporation will publish a magazine, in which they will advertise the landowner’s property for sale;
- The corporation already has a list of investors, mostly foreign, who have contacted them for help in investing in United States land because the dollar has depreciated;
- The corporation does not have to be licensed in the victim’s state because it is already licensed in another state;
- The corporation has been in business for six years;
- There will be no charge for the advertising unless there is a sale, in which case the charge will be 6% of the sale price, but there is a $100 “registration fee” which will be applied to the 6% charge.
Examples and applications of investigative techniques
The following are examples which serve to illustrate the varieties of investigative approaches used to achieve the above requirements. In truth and in fact, while it may be difficult to prove, this is simply a scheme to con more money out of persons who have already demonstrated their vulnerability to white collar schemes.
Representation constitutes a future representation which is almost impossible to prove to be a false representation unless there is documentary or oral testimony (from the schemers themselves) that they had no intention of publishing the magazine at the time they said they intended to publish it. After all, the promoters might easily be able to publish a magazine. But, the promise to publish would not have been sufficient to induce potential victims to part with their money. The promoter, therefore, spiced up his pitch with a statement which shows the reasonableness of the idea; a statement which relieves a certain doubt in the mind of a prospective victim; and a statement d) which gives the promoter’s company an aura of respectability. Note that b), c), and d), unlike a) are representations of facts, and are either true or false, thus good target areas for investigation.
This is the kind of case which will generally call for help from the prosecutor, who should be persuaded that it bears all the outward indications of a traditional advance fee scheme. Subpoenas of the books and records of a corporation, for example, should disclose the existence or non-existence of a foreign buyers list, which can be checked for authenticity. Telephone and cable records can similarly be checked to determine whether there was wire contact with alleged prospective foreign buyers. The 6% charge would very likely be construed as the equivalent of a real estate brokerage commission under the laws of some states, making it important to check other states to determine whether any such license had been obtained; if yes, there might be helpful information in the application; if no, there would be one additional misrepresentation. In any event there might be a violation in the investigator’s own state for failure to get a license.
Example: A salesman represents that a carburetor attachment will increase gas mileage. In such cases which involve technology, investigators should seek out expert testimony. Another alternative is to have the device tested at a testing laboratory or university with appropriate facilities to determine the truth or falsity of the representation.
Example: A scientific laboratory advertises countrywide with the representation that it will analyze urine samples and provide its customers with prescriptions for vitamins based on this analysis. The ads placed in medical journals falsely imply that recent research at a major hospital has demonstrated the value of hormone urinalysis in anticipating nutritional deficiencies. The promoter’s names are added with the appropriate titles of M.D or Ph.D. The victims, many referred by medical doctors who read the ads, pay for the urinalysis and subsequently receive reports with recommendations regarding purchase of vitamin.
In an actual case of this nature, the investigator checked the urinalysis reports and found that every report contained a recommendation for vitamins. Consulting faculty members at a medical school, the investigator learned that less than one percent of all Americans suffered from the kinds of vitamin deficiencies discovered in the urinalysis reports. The investigator also tested the representation by submitting many samples of his own and others urine as well as some synthetic samples under different names. The only consistency in the urinalysis reports was the prescription for vitamins, which was being sold by the same promoters at inflated prices.
This case exemplifies the value of seeking expert assistance such as that found in health and drug regulatory agencies and medical schools. In addition, the investigator can in such cases patiently test the product or service offered until the data statistically support a conclusion concerning the truth or falsity of the representation. The investigator should, however, make sure that experts test both the samples of urine (or whatever item is the subject matter of a fraud) and the providers of the samples (if such is relevant) before they are sent in, to be sure that the experts· testimony will be relevant and admissible at trial.
Example: A fraudulent land company sells land it purports to own to unsuspecting victims. The land company offers the land on a contract with a comparatively low down payment and relatively low monthly installments. In truth, it is only the down payment that interests the company. Upon receipt of the initial payment, and prior to any effective title search, the company closes its office and leaves the victims with worthless land contracts.
Similarly a renter leaves a payment of one month’s rent with the purported owner of a house for rent with the intention of moving in two weeks later. He arrives two weeks later to move in only to find that there are twenty other renters all with receipts for the down payment of one month’s rent in advance. In such cases (aside from the problem of locating the suspects who will usually have long since vanished), the investigator will have to develop the falsity in the misrepresentation of true ownership or title. In real estate cases the county recorder and assessor will usually have records appropriate to such proof. In cases of other types of property, the investigator must develop proof of falsity through documentation such as receipts, sales slips, cancelled checks and the like. When such documentation is not available, the investigator should try to develop circumstantial evidence from interviewing others who may have factual knowledge which disputes the representation in question.
Example: In a scheme involving the sale of silver certificates, a promoter operating out of a very impressive office represents that the silver is purchased through (X) a well-known silver brokerage house in another state; that the actual silver is stored in (Y) a bonded warehouse, also out-of-state; and that delivery of silver will be made within 30 days upon presentation of the certificate. The scheme is basically one in which the promoter encourages the victim to trade in silver certificates through the promoter, rather than calling for actual silver at any time. An investigative check with the “X” brokerage house and the “Y” warehouse regarding the accuracy of the representations is the first step, and it is found that the suspect has had no business transactions with “X” or “Y”. From the fact that the promoter’s local offices contain no silver storage facility such as a safe and no silver is ever found on hand, one might conclude that no delivery of silver was ever intended.
Example: A promoter induces his victims to purchase distributorships in a referral selling scheme. The promoter fails to inform the purchasers that among the many papers they are signing are real estate mortgages on their homes, though he has made clear that they are signing promissory notes for the cost of the distributorship. Although this is misrepresentation by omission, the investigator can develop evidence by acquiring testimony from one or more victims that the purchase would not have been made if they had known the truth, for example, that they were also acquiring mortgages on their homes as well as distributorships.
Voluntary Victim Action to Assist the Offender
As discussed earlier in this Book, two essential elements of white-collar crimes are reliance of the white collar criminal on the carelessness or ignorance of the victim and voluntary victim action to assist the offender; for example, some affirmative action by the victim to cooperate with the perpetrator(s) of the crime.
Proof of voluntary victim action is relatively easy to obtain.
The victim is quite capable of supplying it if he or she is at all cooperative testifying to Signing a contract, sending a letter with a check, etc. Even where the victim is an institution it can usually provide evidence through its officers or employees that it accepted as valid a false loan application, or a deceptive claim for goods or services allegedly delivered. Government itself may supply the testimony that its officials provided the affirmative action essential to execution of the fraud (as victim, or indirectly) by accepting as valid and truthful a claim for goods or services, or by accepting and filing what were purported to be truthful and complete disclosure statements required before securities or certain real estate subdivisions of land can be offered for sale.
Information (evidence) on the steps taken by the white collar criminal to make him confident that the victim would respond in the way he wishes, will generally involve proof of more subtle misrepresentations made by the suspect to increase victim confidence. It is therefore most important that the investigator carefully question victims to determine what caused them to more easily accept written or oral misrepresentations. What was there in the setting in which their signatures were obtained which made them act without doing much checking? This is not to suggest that the victim ever has an official duty to check up on everything but rather that where the offender can be shown to have deprived or conned the victim into not checking, it will be a stronger case. The answers to such questions may well produce information which gives deeper meaning to vague sales pitches, transforming them into clear and obvious misrepresentations. Examples of the kinds of evidence which will contribute to showing the anatomy of the fraud to a court or jury (or to a prosecutor who is considering either civil or criminal action) would be the following:
False statements made to a regulatory agency which must clear securities or land sales, will often be accepted and the resulting prospectuses will carry the legend that the facts contained therein were filed with the state, or federal agency as required by law. The same legend will usually include a statement that acceptance for filing or registration does not constitute any form of government approval. Nevertheless, the very fact that there has been some governmental surveillance of the transaction tends to increase victim confidence in the bonafides of the opportunity.
The investigator in such cases should therefore concentrate on showing that misrepresentations were made to the government regulatory agency (which is usually a violation in and of itself), with the aim of getting the state agency to accept the suspect’s filing, as part of the scheme to defraud the ultimate victim. Possible lies by the white collar criminal operator to the accountant who prepared a financial statement for filing should be targets of inquiry. In a land fraud case every attempt should be made to question surveyors and water experts who produced data for filing to gain testimony which might indicate that their findings were distorted to induce the regulatory agencies to take the affirmative step of accepting the filing. Careful attention should be given to obtaining details as to the setting in which fraudulent deals are closed, to see how voluntary victim action was procured.
Misrepresentations, or even vague statements become more deceptive if shills are present to stampede victims into signing on the dotted line. The deceptive pitch of a personal improvement scheme, promising a great theatrical career for a victim, can be perceived to be even more deceptive if there is evidence that the perpetrators gave victims talent tests as a prerequisite for admission to a talent school, but that it was part of the scheme that no one was ever allowed to fail such a test. Evidence should be sought as to the manner in which relatively innocent third parties, or parties with lesser degrees of culpability, are used to help procure voluntary victim action.
It is not uncommon, particularly in investment schemes, for fraud operators to enhance their own credibility by using otherwise legitimate investment advisers, accountants, and attorneys, to persuade clients to invest. Often these intermediaries will be lured into conflict of interest situations by special sales commissions or free or cut rate participations in the same investments. Their position is equivocal, since they helped to perpetrate the fraud but are not particularly important subjects for prosecution. Under these circumstances they will frequently “turn” and provide evidence as to how they were used to lull their clients into acquiescence, and particularly if they are apprehensive about being prosecuted. They should generally not be treated as innocent victims if they received special compensation; if so treated they will be apprehensive about being sued by their clients, and will be lost as a source of evidence. Furthermore, in some cases these intermediaries will have operated so closely with the principal scheme operators that they can be charged as co-conspirators, and their own misrepresentations can be introduced in evidence against the principal scheme operators as co-conspirators.
In chain referral or pyramid schemes, perpetrators generally persuade victims to bring other victims (often their own friends) into the net, by making it financially rewarding to do so. Statements made by first-tier victims to second-tier victims, etc., should be carefully collected to determine how they were inspired. Victims, including those who start to lose faith and bother the fraud operator, will receive special encouragement and advice as to what to say to persuade a friend or acquaintance to buy into the same fraud; careful questioning of the first-tier victim as to where he obtained the information for his “pitch” may well produce evidence laying responsibility for clear misrepresentations at the doorstep of the principal fraud operators.
One form of fraud against government is bid-rigging, for example, collusion among bidders to present a facade of competitive bidding while ensuring that the colluding bidders determine the winner and the price of the goods or services. In addition to seeking evidence that there was an illegal agreement to act in concert among the bidders, the investigator should go further to get information on steps taken to enhance appearances of competition, for example, half-hearted appeals following bid awards, carefully contrived random-appearing bid disparities, and agreed-upon winners, etc., all undertaken to procure the voluntary victim action by the agency awarding the sought-for contract by creating a facade of bona fide competition.
Evidence of activities designed to procure voluntary victims such as those described above, can be extraordinarily important to the success of a case, and to the prosecutor agreeing to take a case. If the investigator simply procures evidence that misrepresentations were made, that the victim acted in reliance on these misrepresentations, and lost his money thereby, it may be sufficient for a technical legal case. But the extra dimension provided by evidence of the many activities employed to break down the victim’s resistance can spell the difference between a prosecutor taking or not taking a case, between a case being appropriate for criminal prosecution rather than civil or administrative action, and between winning and losing.
Concealment
The concealment element of white collar crime generates the most significant distinctions between the investigation of white collar and other crimes. In white collar crimes there are rarely any simple indicators or events which trigger law enforcement reactions, as would be the case in common crimes such as homicide, robbery, burglary, or vice crimes such as gambling, narcotics, or prostitution. In common crimes, though there may be a problem in obtaining evidence, it is relatively clear victims almost never know they have been victimized until well after the executed transactions or occurrences, and, in fact, may never know they have been victimized. The element of concealment addresses those aspects of execution of a white collar scheme which are undertaken to keep the victim in perpetual ignorance of his victimization, or delay the victim’s realization, and the importance of those aspects to the investigator.
This discussion differs from those in which Misrepresentations were considered at length in that the earlier discussions basically concerned evidence on the use of guile and deception to gain victim acquiescence, for example, to get the victim’s signature or money, while here we are concerned with what evidence the investigator should seek to show what the white collar criminal does, or relies on, to cover up the fact that a crime or wrongful act has taken place.
Acts in furtherance of concealment may simply be another aspect of, or implicit in, the steps taken to obtain victim acquiescence. Or they may be an entirely separate and distinct series of deceptive acts, a continued cover-up of what has taken place. In either situation it is important that the white collar crime investigator ask, in every case he investigates, what the perpetrator did to conceal or cover-up; both while “taking” the victim and after obtaining the proceeds of the fraud.
The Supreme Court of the United States has specifically held, for example, that lulling letters, to keep the fraud victim quiet after the victim has fully parted with his money, can still be part of a scheme to defraud.
Regardless of the type of scheme or method of concealment, the investigator should use the same basic sources of leads to aid in detection and gathering evidence of white collar crime concealment, as in proving other elements of the crime, for example, victim complaints, intelligence concerning individuals, intelligence concerning possible criminal activities, financial investigations, and affirmative searches for violations.
As an added consideration, the white collar crime investigator must be continually alert to the hidden nature of most sophisticated white collar crime. The investigator should, therefore, consider the following in gathering and organizing evidence of white collar crime concealment:
Crimes Too Small to be Recognized as Crimes by the Victim
The ideal white collar crime, from a perpetrator’s point of view, is one which will never be recognized as a crime. A classic example is the charity fraud. A charity fraud may involve a large amount of money which is ordinarily an accumulation of small amounts taken from large numbers of people.
Accordingly, no victim will have a sufficient personal interest to attempt to follow up on what is done with his money. The health fraud example given earlier in which the scientific laboratory did “hormonal urinalyses” and always recommended vitamins, is another example where the individual amounts taken from each victim are small enough to practically guarantee concealment of the fraud. The specific tactics used by the investigator to collect evidence in the hormonal urinalysis fraud involved the investigator’s becoming a victim and obtaining statistical evidence of fraud, by submitting many samples of his own and friends’ urine under many different names and also getting experts to refute the claims of the perpetrators. In a case of charity fraud, the investigator could collect evidence such as data on the applications for permits (fraudulent charities will often fail to get permits), and financial trail of the collected funds, for example, how they were used or failed to be used.
Lulling the Victim
There is another type of concealment which is prevalent in frauds that have to be continuous in nature in order to succeed. For example, bankruptcy frauds and “bust-outs” require that over a period of time the criminal promoter establish sufficient credit with suppliers to be able to purchase large quantities of materials without payment. To conceal such frauds, during the weeks or months of their perpetration, the criminal subject may lull the victim with a series of official sounding letters or telephone calls reassuring the victim and explaining why the particular payment in question cannot be made “at this time.” The letters and telephone calls will often be made by people who have previously established a relationship of trust with the suppliers, may be fronts for organized crime which have hooks into ostensible owners of business, and will frequently result in granting of additional credit. Token payments to the victim, comprising only a small percentage of the amount due, may also be used to lull him. Finally, the perpetrator goes bankrupt, or just closes the doors of his company and disappears.
In an advance fee loan scheme, a businessman seeking a loan will agree to give $2,000 to a loan broker for securing a $75,000 loan. The loan broker will ask for $500 or $750 initially, graciously offering to waive the balance until he has delivered the promised financing. The loan broker has no intention of ever earning the balance. His objective is to obtain the initial retainer. A series of lulling letters is then used to keep the victim quiet while others are being victimized, and to tire the victim out. Finally, the loan brokerage firm collapses. A year may elapse while preprogrammed lulling letters continue until finally the victim learns that the loan brokerage company is no longer in existence.
In all such cases it is essential that the investigator carefully check representations made for the purpose of lulling victims; the falsity of such representations will be strong evidence of fraud.
Creating a Complex Organizational Structure to Discourage Victims
Concealment may also be achieved by design of a complex organizational structure which discourages complaints or pursuit by victims. For example, a victim may refuse to continue payments for his purchase of a faulty product or service because it was misrepresented to him. He finds out that his installment payment agreement has been sold to a bank or collection agency which refuses to be held responsible for the performance of the supplier. The victim’s complaints result in legal-sounding responses which are confusing. The victim’s ignorance of the law and the specter of huge legal expenses might easily discourage him from pursuit of an elusive adversary, and may even cause him to continue to make payments for the faulty product or service.
In such cases the investigator should seek to detail the exact steps taken by the suspect, carefully considering whether each step had some business purpose other than to discourage the victim from pursuit. Where an installment payment agreement has been sold to a bank, finance company, or collection agency, the investigator should search for information which might show collusion between the suspect and the company purchasing the agreement, such as 1) a heavily discounted price, which might indicate the finance company was aware of some problem in the deal, or 2) proof that the finance company was well aware of the way the suspect did business by reason of numerous complaints arising out of prior transactions, or 3) the finance company purchases were executed without standards of care usually employed by legitimate purchasers of such contracts.
US Federal Trade Commission rules now make this particular tactic more difficult to implement, but there is little doubt that it will continue to be used as a fraud tactic on the theory that many victims will not be aware of their rights.
None of these might, in themselves, be conclusive, but could lead to cumulative evidence of intent to frustrate, conceal and stop the scheme prior to its reaching the point of discovery, and then either disappear or try to make an outward showing that the losses resulted from a mere business failure. In a classic Ponzi scheme, for example, the perpetrator will use money from new investors to make the expected dividend or interest payments promised to earlier investors. Investors are thus kept satisfied for a short period of time, as would be the case if a $1,000 investment resulted in three monthly payments of $50 each, an annual return of 60 percent in contrast to bank interest of approximately 5 percent. By the end of the third month, early investors have told their friends and relatives about this “good deal” and investments pour into the subject’s cashbox. The end is inevitable, though in some instances Ponzi schemes have been prolonged for several years.
In cases involving large numbers of investors, who are scattered geographically, the investigator should consider the possibility of using the media to encourage victims to come forth. Victims of schemes which employ such concealment devices can usually provide Substantial, detailed evidence of oral misrepresentations used to discourage complaints, frequently backed up by letters, etc. If a list of investors is available the investigator should consider the use of questionnaires, where the list is a long one.
Crimes which are Detectable and Provable only through Audit Procedures
White collar crimes such as embezzlement, tax fraud, bankruptcy fraud, unemployment insurance fraud, and the like, require some form of audit procedures, for example, a physical examination and analysis of financial accounts, transaction records and documentation, inventories, etc., as a prerequisite to finding out and proving that a crime has been committed.
In today’s world the use of cash to conduct major transactions is becoming practically non-existent. Almost all businesses, financial institutions and government agencies use some form of computerized system to conduct all or part of their business making the problem of auditing particularly difficult, and compounding the difficulties in detection.
Example: A computer programmer in a bank adjusts the program for detecting overdrafts to ignore overdrafts of his personal account.
Example: A con-artist sets up a fictitious business with six fictitious employees, pays the minimum amount of unemployment taxes for the minimum period required. The con-artist then assumes identifications as the fictitious employees and then applies for and collects unemployment insurance. The investigator seeking to detect such a fraud must examine the forms submitted to the state agency that handles unemployment insurance and the records of applications and payments to the employees to see if there are any patterns which indicate that a fraud is underway. For example, a group of firms with similar lists of employees who all make applications for insurance as soon as the minimum time for qualifying has passed; or the use of a recent series of social security numbers which might indicate false social security cards being obtained by a single person.
Example: An insurance company creates fake life insurance policies and sells them to reinsurers (for example, other insurance companies who assume the long term risk) for an immediate income, hoping that they will be able to make the annual payments to the reinsurers either through investments or other business or by selling more fake policies. The accountants who are responsible for the audit report their suspicions to their superiors but are repeatedly put off when they request to see original paperwork to back up the computer printouts. The delays are for the white collar scheme operators to gain time to prepare forgeries of “original” documents.
Example: A computer is programmed to show that an oil company’s barge is receiving 2,000 barrels of oil each trip, when in actuality the barge is carrying 4,000 barrels. It is evident that some form of double-check upon the computer data, e.g., a spot audit of any individual transaction records which indicate amount of oil delivered or an audit of inventory would be the only way to detect such a crime, other than informants or accidental detection. Incidentally, one such theft continued intermittently for seven years.
Investigators should possess, or have ready access to auditing and accounting skills, since tracking of a white collar scheme by an audit trail is frequently the most efficient way to develop evidence which will effectively preclude the spinning of fictitious explanations by suspects; it is very, very difficult to change the records of past transactions which are perpetuated in the documents and books of third parties such as banks, telephone companies, landlords or innocent suppliers of goods and services to the white collar scheme operators.
Crimes of Overwhelming Size and Complexity
Extremely large scale white collar crime operations may be so complex and have absolutely no outward appearance other than that of a legitimate, competitive, normal business, that the sheer size and the character of the sponsorship makes a crime seem an incredulous possibility. A single complex scheme of this kind may involve many different categories of white collar crime and peripherally may also involve many common crimes. The connection between the perpetrators of the common crimes and white collar criminals will rarely be evident to any outside observer and the entire process may include a variety of transactions into which an investigator must dig. Take, for example, the establishment of a monopoly by an organized criminal enterprise in an industry such as garbage collection. The process by which this occurred may take a variety of forms such as the gradual takeover of competitors through first undercutting prices then buying out the failed companies; or perhaps bombing of competitors’ trucks or other types of violence which insure that competitors will not resist takeover; and perhaps bribery of public officials responsible for regulating the industry or collection routes.
To develop proofs in such situations will require imaginative searches for evidence on such issues as: the true identity of company owners; the sources of finance (for example, the possibilities of criminal funds being laundered through investment in this business); the associations between company owners and political figures who might influence the selection of contractors and establishment of collection routes; the pattern of bids by alleged competitors; and relationships between the suspects and relevant labor unions.
Elements: A summary
The elements discussed here cannot be separated one from the other, with each provable by a showing of entirely different sets of facts or occurrences arising in the course of commission of a white collar scheme. Neither must there be evidence as to each of these elements in every case. They should be viewed, rather, as different lenses through which the white collar scheme can be seen. Examination from the different perspectives disclosed through each of these lenses will help the investigator to be sure that he can identify the kinds of evidence he needs to be certain that a court or jury will understand what occurred, the criminal design which made it occur, how the victim was manipulated, and what was done to the victim.
By establishing such a solid basis for identifying the kinds of evidence needed to make a case, and by making such identifications, the investigator will be in a good position to employ the investigative techniques to which this book now directs its attention.
INTERVIEWING AND INTERROGATION
Few skills are so important to the effectiveness of the white collar crime investigator as having firm command of interviewing and interrogation techniques. For purposes of this book the distinction between the two situations is determined by differences in the prime objectives and the types of persons involved in the meeting. Thus interviewing involves the systematic questioning of persons who have knowledge of events, persons involved, or circumstances surrounding the case under investigation, including the obtaining of documentary or physical evidence; interrogation, on the other hand, involves questioning of suspects and/or uncooperative witnesses for the purpose of obtaining evidence or proof of significant omissions, or to give the subject of the investigation an opportunity to volunteer facts which might have the exculpatory effect of putting the transactions being investigated in a different light.
The line between interviewing and interrogation is often quite fluid. For example, an uncooperative witness being interrogated may decide to cooperate, or one of the subjects of the investigation may be “turned” and agree to provide evidence against others. In such a situation the interrogation will necessarily take on the attributes of the interviewing process and call for the employment of many of the interviewing techniques discussed below, though with careful regard for sensitive legal issues and apprehension about whether the apparently cooperating subject or formerly recalcitrant witness is truly cooperating. In these situations, where interrogation is shading or edging into interviewing, tactics and techniques must be carefully employed or modified to take into account the interviewee’s special motivations and objectives.
It should also be recognized that the opposite may occur. In the course of questioning a witness thought to be an innocent and incidental party to a transaction, the investigator may sense that the person being interviewed (even in some instances where such person was a victim at some stage) may also be culpable. In such a situation the investigator will wish to modify his tactics or techniques in the opposite direction, or to cease his questioning entirely, either because the proffered cooperation is untrustworthy, because the investigator may disclose more about his case than he wishes to do because of his line of questioning, or because serious legal issues may arise (or may already have arisen) because of failure to warn this subject as to his or her rights.
Interviewing Victims and Witnesses
Purpose and Objectives
At the outset of an inquiry into a crime the investigator usually possesses very limited information concerning the occurrence. In some instances the information may be more complete, such as where a trade association has investigators who previously undertook a substantial investigative effort. In the more usual situation, this is what will face the investigator:
- A crime may have been committed but the fact of its commission must yet be established
- There may be a complainant or a victim, perhaps an individual, a corporation, or a government entity
- There may be some physical evidence of the crime
- There may be some intelligence regarding a crime and there may be a suspect
In white collar crime one of the major investigative tools required to close the gap between these items of information, and evidence to support a prosecution, is the interview. It is fundamentally from interviews that the investigator achieves the following significant objectives:
- Obtains information which establishes the essential elements of the crime
- Obtains most of his leads for developing the case and gathering other evidence
- Obtains the cooperation of victims and witnesses in recounting their experiences in court
- Obtains information concerning personal background and personal and economic motives of those to be considered for witnesses at the trial
Although there can be little standardization of technique in the actual approach to and conduct of an interview, a process strongly dependent on the personalities of the investigator and interviewees, every investigator should follow a set of guidelines which will insure maximum probability of achieving the above objectives.
Planning for the Interview
Why plan? Proper planning enhances the probability of the investigator’s success and effectiveness in the interview situation. The investigator should ascertain as many facts as are reasonably available to him prior to conducting any interview, including careful review of relevant documents to refresh his memory. Rarely will the investigator be able to follow a format which is routine, or that he can commit to memory. It is, therefore, advisable to prepare questions in advance. This is particularly important when investigations may involve new schemes with which the investigator is unfamiliar. Without proper planning an investigator will find himself in over his head, he will not understand the responses being given, nor will he know what further information to seek in order to conduct an intelligent investigation.
Time and place
There are very real advantages (principally to the efficiency of the investigation) in conducting the interview at the investigator’s own office. In many cases, however, it may be far more advisable to visit the witness at his home or office, a method which has several advantages:
- The interviewee is more likely to have papers, appointment books, etc., available for production if they become relevant to the interview.
- The interviewee may also be in a position to immediately call on members of his family, or co-workers for additional information and corroborative evidence.
- It may be more convenient for the interviewee, thus making it more likely that he will agree to the meeting for the interview in the first place.
- The investigator will have a more difficult time eliminating distractions, such as from inquiries from his supervisors or colleagues who need, help if the meeting is at the investigator’s own office, than will interviewees on their own turf, for whom the process will be a unique and impressive experience.
- It may also be advantageous to catch the potential interviewee off guard, before he can have second thoughts, talk to someone else, develop fear, or be contacted by the subjects of the investigation.
When the interview is to be held away from his own office, the investigator should make a specific appointment for optimum convenience of both parties, unless there ;s some special reason not to do so, such as indicated above.
Interviews should always be arranged so that there is enough time to conduct a full interview. It is always better to have extra time than to create additional irritations by terminating an interview early or making excuses for breaking or delaying appointments which are scheduled to follow. When you know you are going to be late, telephone, apologize, and inform the person to be interviewed when you will arrive, or schedule another appointment immediately.
If interviews are attempted without prior appointment, the investigator risks not finding the person or finding that the person is completely unprepared. This problem is particularly important when the investigator desires to obtain documents such as cancelled checks of a victim, sales literature from a witness, or advice and supporting documents from an expert. Be sure to tell the interviewee what you would like him to have at the interview, or to assemble and have on hand. When calling on a person without an appointment, it is important to select a time that would be least likely to irritate the interviewee, this seems like an elementary point but enough witnesses have been turned off by failure to follow this obvious precaution that it is well worth stating again.
The investigator should take the special characteristics of interviewees into account. When dealing with witnesses/victims whose native language is not English (and where the investigator does not speak the foreign language), appointments should be made by personnel familiar with the foreign language, if at all possible. The investigator should take special pains to be certain there is no misunderstanding as to time and place and should, if possible, arrange for someone fluent in the foreign language to accompany him.
It is highly desirable to schedule appointments as quickly as possible after the first contact with an interviewee, within 24 hours if at all possible, and to take the time to telephone to confirm the appointment a few hours before it is to take place. Misunderstandings and faulty memories can cause investigators more trouble than recalcitrant witnesses in such situations, since confusion easily triggers loss of confidence on the part of the victim/witness.
The investigator will find that the process of making the appointment will itself be a source of valuable information, both to the effectiveness and efficiency of the investigation. The response of a witness or victim to the request for the interview should alert the investigator to special problems he might encounter (such as language problems, fear, lack of awareness on the part of the witness that he was a victim) which will help the investigator to properly plan the forthcoming interview.
Setting
When under control of the investigator, the setting for an interview should be selected to provide a minimum number of roadblocks to talking and, more importantly, listening. Distractions such as telephones, other voices, other conversations, other persons can have a disastrous affect on the recall capabilities of a victim or witness. Interruptions, unrelated to the problem at hand, will often convey to the interviewee that the investigator is not really interested in what is being said. When the interview is conducted at the investigator’s agency, he should use an interviewing room designed for pleasant but serious conversation, without too many decorative distractions, and which insures privacy.
The investigator should also consider other possibilities for creating an environment which will be helpful in obtaining information, all directed toward putting the witness at ease and heightening the witness’ trust in the investigator. For example, the witness should be encouraged to tell their story in his own way, even if it rambles; the investigator should interrupt only for clarifications and refrain from pointed questions until the witness, particularly the victim-witness, has unburdened himself.
Information to be obtained
Investigators must be prepared with knowledge of the types of information they are trying to collect. Below is a chart which illustrates the types of information generally important to white collar crime investigation. It lists and categorizes the types of information that might be collected from victims, potential witnesses, or third parties who may have peripheral information or expertise relating to the case under investigation. This list is intended as a guide only, and should be modified as the particular occasion demands. For example, although all of the items listed
GUIDELINES FOR INFORMATION TO BE COLLECTED IN INTERVIEWS
ABOUT THE INTERVIEW
Location, date and time Names of investigators
ABOUT THE SUBJECTS BEING INVESTIGATED
Names of promoters, their representatives, agents, etc. (individuals and company names)
Addresses of individuals and companies
Legal status of companies (corporations, partnerships, state of incorporation, etc.)
Telephone numbers of individuals and companies Physical descriptions
Title, salary, tenure, duties and responsibilities of suspect (particularly important in embezzlement cases)
ABOUT CONTACT BETWEEN SUBJECTS AND WITNESSES
How was· initial contact made?
For example, advertisement in newspaper, radio, or television Get name of paper, station and dates
Sales letter – Get copies of letter, envelopes, other material included
Personal contact
Telephone or in person — get dates, names, locations and content of conversation
Reference through third party (attorney, friend, etc.)
Were there any previous relationships between promoter and victim?
How did the promoters or their representatives get the victim’s name or learn about the victim?
ABOUT THE SITUATION AND CONTENT OF MEETINGS, CONVERSATIONS, TRANSACTIONS, ETC.
Date, location and time of occurrence
Names, addresses, titles, etc., of all who were present
Full details of all representations (promises)
Method of representation
What was said?
What was shown? What was handed out ?(letters, brochures, prospectuses, sales literature, warranties, guarantees, contracts), etc.
Which person made each representation? Victim’s degree of reliance on representation
Did victim have reservations?
Did he express them?
Did he ask any questions?
What were the answers? Who made them?
How were his reservations overcome? By whom?
Was anything done to discourage victim from a detailed reading of papers, consulting friends or attorneys, accountant, banker, etc.?
Representations which victim believes were false
Representations which victim believes were omitted but should have been told
Was victim put under any time or other severe pressure to enter into transaction? How?
Full details of transaction
Amount of dollars
Method of payment — check, cash, agreements or contracts to pay in future, etc.
Date and circumstance of payment — in person, by mail, to whom, etc.
ABOUT THE VICTIM
Name, address, telephone numbers (home and business)
Motivation behind the complaint:
To recover losses
Anger or outrage
To protect others from same scheme
If information as to victim motivation, based on victim statement, what is basis for above information?
Note – Circumstances will dictate when the investigator should advise victim that criminal action does not guarantee restitution nor does it insure success in a civil action, but it is proper to point out that one possible outcome of action is restitution following criminal or government civil action.
Victim’s background (may assist in finding out how promoter got victim’s name and thus help in locating other victims)
How and when victim discovered representations were false Has victim complained to promoter?
What did victim do or say?
Did victim complain himself, or through a friend or attorney?
Has victim complained to any other private or public agency? With what results? Financial losses suffered
Victim’s source of funds lost
Psychological suffering
Has victim withheld information from members of his family or business associates?
Victim’s willingness to assist in investigation and testify in court (circumstances will dictate appropriate timing for addressing these issues, for example, this may not be suitable in the early stages of interviewing non-complaining witnesses)
Will victim sign statement, or affidavit swearing to truth of what was said?
ABOUT PHYSICAL EVIDENCE
Borrow or copy all physical evidence — cancelled checks, receipts, brochures, sales literature, prospectuses, warranties, guarantees, letters, envelopes, contracts, etc.
Give receipt for all items borrowed
Have interviewee initial and date each page of each item on the chart would be applicable to a complaining victim, not all of them would be applicable to a witness who was not victimized.
The specific requirements of interviewing the principals or suspects in a scheme is covered in the next section, which deals with interrogation of suspects.
Conducting the Interview
Investigator’s demeanor
An investigator when dealing with any member of the public, whether in person or via the telephone, must always be efficient, courteous, polite and careful with regard to language.
The investigator represents his agency and the impression he leaves is the impression the public will have of the agency. Acceptance of even the smallest gratuity, including offers of refreshment, can lead to problems for the agency’s image as well as the development of the case.
The following are some suggestions regarding an investigator’s conduct during an interview.
Never talk down to the person you are interviewing. Never assume that the subject is less intelligent than you. Any hint of disrespect or condescension can quickly turn a cooperative subject into an uncooperative one.
Never use language which disparages the intelligence or competence of the interviewee, even if you may think he acted foolishly in being victimized, in not preventing victimization of a friend or associate, or in failing to notify law enforcement officers when it would have been common sense to do so.
Be sensitive to the personal concerns of the victim or witness, especially when these involve perceptions of how interviewee may be treated because of sex, race, religion, or ethnic background.
Be businesslike. Conduct the interview in a professional manner. The investigator should be friendly, but not familiar. Certain pleasantries are sometimes acceptable but the interview should not become a social occasion.
Do not become authoritarian or attempt to dominate the interview .
Make it clear that anyone, no matter how smart or well-trained can be victimized, that there are others who are and have been in the same boat. If necessary, cite examples of well known people or professional, groups who have been similarly victimized.
Always be sympathetic and respectful to victims and complainants. Never suggest that a victim is a victim because of something he did. You must be extremely careful not to injure the victim’s pride in his own judgment, not to belittle his loss, and not to build up any false hopes as to the possibilities of his recouping all or part of his loss.
Give careful thought to the language to be employed during the interview to make sure that it is consistent with the approach and understandable to the interviewee.
Avoid law enforcement or other bureaucratic jargon.
Compliment the victim or complaining witness for taking the trouble to complain and cooperate, and that not to complain and cooperate would be playing into the hands of the subject of the investigation.
Close every cooperative interview with thankful sincere appreciation. Perhaps this will encourage the subject to maintain contact if he acquires or remembers more information.
Note-taking
The method of taking notes permits little standardization. Whatever the form, notes should reflect accurately the data obtained during the interview. Names, places and dates should be written out with correct spellings, otherwise subsequent identification will be very difficult and may be impossible. To insure minimal dependence on memory, immediately after the interview the investigator should review the notes, then clarify and elaborate on all areas which could not be fully written out during the interview. A follow-up telephone call to the interviewee should be made as soon as possible to clear up any confusing areas.
If a tape recorder is permitted by the interviewee it should be used as a backup to note-taking, and not as a substitute for note-taking. Otherwise the investigator will find himself consuming a great deal of time just listening to tape recordings and preparing memoranda from that information, much of which may have no value. Always make sure that the first thing on tape is the investigator’s request for permission to tape the interview, and that the oral consent is absolutely clear and loud enough to record.
For interviews that may be complex, technical, or of singular importance to the investigator, the interview should be conducted by two investigators if possible. One can take the lead in questioning and the other can take notes.
Remember that interview notes may eventually result in a memorandum or signed affidavit which will be used as evidence in a trial, that there is a very real possibility that if there is criminal or civil litigation the defendant may have the right to inspect these notes or memoranda and that the investigator may be called upon to explain them. It is therefore vital that the words put down be clear, not fuzzy, even if the investigator knows what the words mean. Few things are worse, personally and for a case, than for an investigator to try to explain on cross-examination why words mean something other than what they may seem to mean.
Other considerations
The investigator must consider the emotional state of victims or witnesses being interviewed. The loss of all or part of their money has been a shock if they are victims; if non-victims they may have great apprehensions about being involved. Victims will often have unsupported opinions regarding the circumstances connected with the crime. These should not be disparaged, but should be pursued to a logical conclusion. Apparently unsupported opinions may ultimately prove justified; people’s feelings often have some logical basis even though the’y may not be able to clearly articulate that basis.
The victim may feel that if the governmental agencies conducting the investigation had stayed out of it, everything would have been all right. He may want and expect that the investigator’s agency will help him recover his losses. Agency policy in this regard should be carefully explained with attendant suggestions regarding assistance which can be acquired from private attorneys, and other public or private agencies which can offer assistance or which may have specialized enforcement or remedial jurisdiction.
Concentrate deeply on what the interviewee is saying. Think about one topic at a time and not about your next question. Follow up each topic to its logical conclusion. If the interviewee wanders from the question do not stop him, the response may lead to other topics which have exceptional possibilities. Always bring the interviewee back to the original topic with a specific question.
Remember that when you interview a victim or a witness you necessarily give some information about what you know, and what you suspect. If you don’t want a piece of information to surface, be careful and think about how you use it. Such information may be inadvertently disclosed to the subject of the investigation.
The determination of whether the interviewee is telling the truth is always a consideration. If untruthfulness is suspected, the investigator must judge whether or not to confront the interviewee. If the decision is affirmative, the investigator must be prepared with facts to refute the untruthfulness. It is better to terminate an interview than to lose control of the interview by a confrontation without sufficient evidence. Remember, an untruthful interview can still be very useful at a later time, after more evidence has been developed. People confronted with evidence of their untruthfulness might be more readily persuaded to assist in the investigation and prosecution of a case. If the investigator suspects that the interviewee is untruthful, or may be culpable, he should consider these options:
- Stop the interview immediately and make a written record of the reason. This will be especially important if the investigator suspects the interviewee may become the subject of a criminal prosecution
- Allow the interviewee to continue to talk, on the theory that by confronting the interviewee with his own falsities, he may push the interviewee into giving valuable information or evidence.
The investigator (especially if he is in an agency which has criminal investigative jurisdiction) should be sensitive to the possibility that the interviewee must be informed of his legal rights before proceeding further.
Observe carefully the demeanor of those being interviewed. They should be put at ease from the first and this ease should be maintained throughout. The discussions should continually and systematically go more into depth. When it appears that the pressures on the interviewee have become intense and will result in destroying possibilities of continued cooperation, the investigator should remove the pressures immediately, e.g., by temporarily bringing the interview around to other subjects; or sincerely confirming the importance of the information by explaining the investigator’s role and goals of the investigation before getting back to the subject; or by having a higher level official do this.
Obstacles to Successful Interviewing of Victims
The white collar crime investigator often faces problems and obstacles which relate to certain characteristics of victims/witnesses, or to the situations in which they find themselves. There may also be differences, in this regard, between interviewees who are only victims, or only witnesses.
Personal Embarrassment of Victims
Jonathan Kwitny has pointed out that, “Somewhere in the human psyche lies an element that induces many people to hand over their savings rather than risk the possibility that some total stranger might think them stupid. If this element did not exist, neither would the fine art of swindling…This same element provides the greatest obstacle to the investigator, first in locating victims and second in getting victims to participate in a situation, such as an interview or on a witness stand, in which they must make admissions of having been duped … [or that] their victimization stemmed from such things as personal greed, stupidity in not listening closer to disclaimers or in not reading all the terms of a contract, or failure to fulfill their part of the bargain, etc.”
Institutional Embarrassment
Both privately owned and government enterprises operate on the basis of public trust and confidence. Banks, savings and loan associations, business organizations in general, brokerage houses, fiduciary organizations, and government agencies rely, in large part, on public confidence for their success. The commission of a white collar crime may not only cause an immediate financial loss, but the attendant publicity may also cause a loss in public confidence and a corresponding drop in business prestige or public trust. The enterprise may prefer to conceal the occurrence and forego a prosecution rather than risk a loss of public confidence.
Previous Denials and Inconsistent Stories
The victim, whether individual, private enterprise, or government agency, may have already related a false or erroneous account of the situation or question to family, friends, news media or others. The victim may, therefore, have a stake in an erroneous or false story and attempt to stick with it, or may even have come to partially believe it.
Nothing to Gain
Most victims do not welcome appearances in court, particularly when they know there is little chance that it will help to restore their loss.
Obstacles to Successful Interviewing of Witnesses Who Are Not Victims
A witness who is not a victim may be uncooperative for a variety of reasons such as fear of reprisal, dislike of law enforcement, and fear of self-incrimination. Even totally innocent witnesses may just consider it too much trouble to spend their time assisting law enforcement.
Technical experts may be reluctant to participate at the outset of an investigation for fear of eventually inviting a civil liability suit. For example, an honest certified public accountant who prepared the financial statements for a business which was defrauded might be concerned about being sued for negligence because he did not uncover the fraud in the course of his professional work.
Suggested Methods for Overcoming Obstacles
The following suggestions should be considered only as potential tool for use by the investigator. The specific approach must be determined by the demands of each individual situation. It is not possible to provide a set of standard techniques which would be applicable to the personality and capability of each investigator and to each situation.With particular regard to situations involving previous denials and inconsistent stories, the investigator must develop the following approaches:
- Persist in following up every question or topic under discussion to a logical conclusion
- Pursue the same topic from a variety of perspectives, anyone of which might generate additional responsiveness, e.g., a discussion from a technical perspective of how the fraud under consideration is generally perpetrated might trigger responses that would otherwise remain dormant if the interviewer just repeated the who, what, when, where how and why questions
- Be ready to use all information obtained earlier, whether from file documents or memory, to refute denials and inconsistencies and to impart varying degrees of damaging information about the scheme and its promoters in order to cultivate cooperation
In all cases, but especially those involving private and government agencies, particular care should be taken to indicate to victims what steps will be taken to insure that their embarrassment will be minimized. When applicable, the investigator should also indicate that credit will be given for assistance in the investigation.
Since, in actuality, the investigator is usually working for the public, of which the victim/witness is part, the investigator should always attempt to encourage both victims and witnesses to cooperate because it is their duty to assist law enforcement.
The investigator may find it desirable to encourage cooperation on the basis that such cooperation will protect other potential victims from similar victimization. This will be particularly important where the interviewee obviously distrusts the “establishment” whether business or government or both. In such cases the investigator can point out that this is the witness’ chance to “fight back”; that someone wants his story about how he, or those he knows, were mistreated and that this is something the witness can do for those with whom he identifies himself.
In attempting to gain cooperation, it is always advisable at the initial stages of interviews to be sympathetic to the victims’ or witness’ attitudes even though they impede swift resolution of the obstacles. The investigator should also consider the advisability of expressing thanks and making the interviewee feel that he is part of the law enforcement team, which he really is when he cooperates.
Since most victims are primarily concerned with the losses they have sustained, the investigator may encourage cooperation by pointing out the possibilities of restitution resulting from the agency’s criminal or civil action; the steps which might be undertaken by the interviewee to initiate action (concentrate on referrals, not legal advice); and (where it is true) the fact that the agency would consider it an obligation to assist a citizen who had provided assistance to the agency. The investigator must, of course, be certain that the interviewee understands that criminal action does not guarantee restitution nor does it insure success in a civil action. In most instances, the investigator’s agency will not provide counsel or representation to victims, and therefore victims should not be even indirectly led to infer that this kind of assistance will be provided.
Interrogating suspects
Purpose and Objectives
The investigator’s obvious purpose in talking to a suspect is to get him to provide information (evidence) about the problem being investigated or to obtain admissions which will be useful and persuasive at trial. Such an interaction with a suspect may arise from either a request of the suspect or his attorney, or from the desire of the investigator to get the other side of the story or an admission of guilt.
In the first situation the suspect, his attorney, or both, may requestor even clamor for an interview because word of an actual or possible investigation has reached them and (they claim) it is important to the suspect that his business and personal reputation are not injured by false accusations. (The investigator must consider the possibility that this may be true.) In such a situation the sole objective of the investigator is to get the suspect to talk extensively about his business. The investigator must always be aware that the suspect and his attorney may attempt to get information about the status of any investigation. The investigator must be extremely cautious about inadvertently providing information to the suspect which could create problems in the investigation or eventual prosecution. He should outwardly assume that since the interview came about at the suspect’s request that the suspect also has the same objective, for example, that they are both professionals attempting to ascertain the status of the situation and to obtain a fix on what the other knows.
In the second situation, in a meeting with a suspect which is initiated by the investigator, the objectives may be any of the following depending on the actual case:
- To fill in any missing pieces of the investigation
- To elicit incriminating statements from the suspect; while these incriminating statements will rarely take the form of admissions of guilt, the suspect may make false or inconsistent statements, especially if the investigation takes him by surprise and the facts confronting the subject dramatically and conclusively point to guilt
- To anticipate the suspect’s possible defenses; during the suspect’s responses to questions regarding the nature, characteristics and specific methods used in the venture under investigation, the investigator may learn about contrived defenses which will help to develop tactics and further investigative steps to refute them
- To confront the suspect with the evidence and provide an opportunity for exculpatory explanations or admissions
The possibility of achieving the purposes or objectives stated above in an interrogation situation is subject to debate. A great many experienced investigators express serious doubts about the worthwhileness of interrogation, though all recognize its usefulness in specific situations. Investigators must take into consideration the unique aspects of each case prior to making a judgment regarding the value of interviewing or interrogating the suspect. They must consider:
- The type of white collar crime being investigated; for example consumer frauds using false business fronts, frauds using real business fronts but involving misrepresentations about products and services, confidence games, etc.
- The type of suspect; for example, age, experience, past history, etc.
- The scheme itself ; for example, fly-by-night or some degree of permanence, etc.
Each of these factors presents the investigator with different criteria for making judgments regarding whether or not to interview or interrogate a suspect, and when and how to do it.
In considering the arguments pro and can, the investigator should know that he treads on dangerous legal grounds, which may not only imperil his entire case but also hurt his credibility with the prosecutor, when he adopts this tactic against a subject he has already clearly identified as a likely defendant in a criminal prosecution. This is not to say that an interrogation should not take place under such circumstances, but investigators who do not have a thorough grounding in the legal issues and prior experience in considering how to deal with them should consult with a prosecutor or with their agency’s own legal adviser.
The investigator should also consider whether it ;s desirable to conduct such an interrogation if the suspect wishes to have his or her attorney present. Under no circumstances should the investigator ever allow himself to-be placed in the position of seeming to deny a suspect the opportunity to consult with or be accompanied by counsel, but remember, the risks of interrogation to the case go up, and the prospective benefits go down if the suspect is accompanied by counsel. It is often wise to defer an interrogation, in such cases, until after the prosecutor or agency legal adviser gets into the case. It should be noted, however, that many agencies are specially geared to dealing with this problem, particularly regulatory agencies which employ attorney-investigators or whose non-attorney investigators are thoroughly oriented to such issues.
We now turn to the arguments for and against interrogations of suspects, and the techniques to be employed.
Interrogations
Affirmative Considerations
Staffs of many white collar crime investigative units, particularly those with both investigative and prosecutorial responsibilities, believe that confronting a suspect with overwhelming evidence al ready accumulated during a thorough investigation, will induce suspects to plead guilty. These units have used interrogation and disclosure as means of inducing pleas of guilty in cases where proof of guilt is overwhelming, or almost so. Since white collar subjects are likely to be represented by particularly astute and skilled attorneys, this is no place for the bluffer, and any slipshod investigative or legal work will cause this tactic to backfire. Where this tactic is approved as a matter of office policy, suspects are frequently confronted with a full disclosure of the evidence against them so that they and their attorneys can intelligently weigh the risks and benefits of a public trial and the attendant publicity.
A high plea ratio is important to units with joint investigative and prosecutorial functions, since the resources saved when a suspect pleads guilty can be used to prepare other cases. In one case where this approach was skillfully employed, early confrontation of the suspect was almost immediately followed by the charge of a corporate defendant, plea of guilty, and sentence, all in the same day.
While the use of confrontation as a means of inducing pleas of guilty has been employed by units with joint investigative and prosecutorial responsibilities, the principle and its benefits would not appear to be limited to such units. Investigators should be able to reap similar benefits from confronting a suspect in an interrogating manner with overwhelming evidence of guilt. This may, especially if the suspect is taken by surprise, have such psychological impact as to provoke an admission of guilt, or constitute the first step in a series of steps leading to a plea of guilty. Finally, an interrogating confrontation with a suspect which induces any kind of substantial demoralization will add to the prosecutorial attractiveness of the case. The suspect’s demoralization will sometimes heighten the possibility that he will plead guilty.
A meeting with a suspect prior to completion of evidence-gathering will rarely elicit an admission of fraudulent intent, but it may serve as a means for learning about the suspect’s activities. Because such meetings frequently will occur at the suspect’s request, the investigator is often in a favorable position to expect the suspect to discuss his business fully. By assuming an objective approach, for example, a professional attempting to determine facts in a situation which has provoked certain complaints, the investigator may be able to get the suspect to talk, and talk extensively, about the operation of his business. If, however, the investigator is not already fairly well oriented as to the facts and modus operandi of the type of business and activity being investigated, there is always a danger that he will be misled or sent up blind investigative alleys.
One rule of thumb used in deciding whether interrogation would be wise is to evaluate the experience of the suspect in question. Experienced suspects who have taken steps to develop a fraudulent scheme will in all likelihood also develop contingency plans and explanations in case the scheme is investigated. Thus, interrogating such individuals would possibly give them more information than it would the investigator. Inexperienced suspects, on the other hand, may not yet have developed sufficient occupational experience to handle an interview or interrogation. This would lessen the danger that the suspect will learn something from the interrogation, and the lack of a (possibly tested) contingency plan may prevent him from exploiting what he does learn. The shock of discovery and resulting fear may result in the suspect making incriminating admissions or giving up incriminating documents.
Investigators should remember that they have no power to confer immunity nor to bargain on pleas or sentences. They should take great precautions to avoid any speech or other conduct which could be misunderstood in this regard. They should be particularly on guard where the suspect’s attorney is present at the interrogation. Immunity can often develop inadvertently. Prosecutors or agency lawyers must be consulted with respect to these dangers; they should be the ones who make decisions relating to plea bargains or grants of immunity.
Arguments Against Interrogation
There are a number of pitfalls which will face the investigator who gets involved in meeting with and questioning a suspect. Such pitfalls are most likely to be present when the evidence of the suspect’s guilt is still inconclusive and particularly when the suspect is accompanied by an attorney. For example:
- The investigation and prosecution may be stymied by disclosing the fact that an investigation is underway or a prosecution is being considered
- The suspect may learn something during the interview or interrogation from which he can figure out how to obscure evidence or manipulate victim and witness attitudes and willingness to cooperate
- The suspect might flee the jurisdiction before charges are filed and bail set
- The investigator may be deceived by the suspect and consequently either waste investigative resources on a false lead or allow the suspect more time to put together a scheme to counter the investigation process
- The investigator may be intimidated by the suspect’s position, image, and demeanor. An investigator who is confronted by a well-educated and respected businessman accompanied by an attorney will sometimes develop inappropriate feelings of deference and respect for the image presented, resulting finally in a loss of confidence and loss of control of the situation.
The character of a suspect may be a factor which might make interrogation prior to arrest a waste of an investigator’s time. The likelihood of many white collar criminals admitting guilt or providing useful information is extremely remote.
White collar criminals are, in the main, proficient liars. Many of them thrive on the challenge of their ability to deceive people, and it is their stock in trade. Investigators are not necessarily immune to these skills. Investigators should be aware that this factor is rarely under their control and thus makes the failure of the interrogation more likely than not, except when such results are expected and desired, for example, when the anticipated lies are perceived to be useful as evidence against the suspect.
Interrogation of a suspect prior to arrest may be unnecessary or undesirable in cases where the investigation has developed solid comprehensive evidence for a prosecution. What the suspect has to say prior to arrest may not matter. The fact that law enforcement has found it previously unnecessary to confront the suspect may also have a tremendous psychological impact upon him. It is demoralizing for a suspect to believe that the case against him is so strong that investigators found it unnecessary to even inquire into his explanation, and this could be a factor in an ultimate plea of guilty.
Conducting the Interrogation
Most of the principles and methodology of interviewing discussed in connection with victims will bd applicable to interrogation situations. Courtesy and consideration are always in order, and can payoff in “turning” a suspect to cooperate against his confederates. There are, however, a number of additional factors which the investigator must consider when interviewing or interrogating a suspect.
When Interrogation is Held at the Request of a Suspect
The suspect who asks for a meeting may be motivated by a desire to clear up the situation, or he may wish to influence the investigator, or learn how much the investigator knows. Regardless of his motivation, the fact that the suspect requests the meeting puts the investigator in a favorable position to get the suspect to talk about his business. The investigator should assume that this is the suspect’s desire. Following delivery of a warning to the suspect as to his legal rights, he should adopt the objective attitude of a professional seeking to understand the suspect’s business in the fullest detail possible. The investigator should avoid denunciatory questioning, even if untruthful statements are made. Such questioning will inhibit the type of free discussion desired and may lead to untimely disclosure by the investigator of what he knows, and does not want the suspect to realize he knows. Additionally, false statements made by the suspect during such an interview may prove to be the most significant evidence of criminal intent developed in the investigation.
When Interview is Held at the Request of the Investigator
When the investigator elects to initiate an interview with a suspect or non- non-cooperativecooperative witness, he should be aware that the person being interrogated is quite likely to lie, but more often will simply prefer to evade the investigator’s questions or give non-responsive or misleading answers. Many suspects will be skillful in misdirecting the investigator and distracting him from the salient points which were the purpose of arranging the interview. The investigator must be ever alert, must maintain his concentration, and refuse to be sidetracked. This will require listening very carefully but never forgetting the original question. Frequently, a question will have to be rephrased again and again to elicit any useful response, don’t be afraid to look stupid because the original question has to be repeated. The failure of the investigator to “understand” is more likely to reflect a non-responsive answer than lack of comprehension on the part of the investigator.
Interrogation – A Summary
There are no textbook formulas for conducting an interrogation. Neither is there any dependable and invariable guide to inform an investigator as to whether or when to agree to or seek to interrogate a suspect or hostile witness. The infinite variations in personalities and backgrounds of investigators and suspects, as well as the different character and status of investigations makes it both hazardous and unwise to act as if there were such dependable guides.
COVERT OPERATIONS
While covert operations are only very rarely called for in investigations of white collar crime (unless such investigations are directed at organized crime figures), the proficient white collar crime investigator should know:
- How to recognize when certain persons, who have access to information or personal knowledge which may be valuable in a prosecution by reason of intimate involvement in the criminal operation might be cooperative with law enforcement
- How a qualified law enforcement officer might penetrate a criminal organization to gain such access
- How to give a suspect the opportunity to act unlawfully while under surveillance without entrapment
- How and when covert observation of fraudulent operations might be useful
These operational tools fall within the general investigative techniques of informant development, undercover operation and surveillance. Although it is beyond the scope of this book to cover these methods and implementing techniques in detail, some general guidelines and discussion of the strategic utility of these techniques as applied to white collar crime investigations are discussed below. Sensitive and changing legal, tactical, and other considerations which govern covert operations generally will equally apply to the use of such operations in white collar crime investigations.
Informants
All possible persons who are in a position to know something of value, or who may be able to gain access to valuable information should be considered as potential sources of information. Those who may be receptive to cooperating with law enforcement should be considered as possible witnesses or for undercover work. A potential informant may be one who was formerly involved in the criminal scheme, but who is frightened about what he got into, or who for some reason has fallen out with those with whom he is or was involved. In many instances these people themselves believe they have been cheated in some way by the scheme’s managers.
One investigator, with more than a generation of experience in the field, has put it this way:
“He may be an advertising agent, printer, or supplier, or perhaps a competitor close enough to the scene to have gained a substantial insight into the operation. He may be a salesman who fears his own involvement has been sufficiently established as to make it prudent for him to join the other side. Whatever his capacity or personal involvement an “insider” if properly cultivated, can save an enormous amount of investigative time. He may unfold the scheme, identify the players and the parts played, expose the “wheels within the wheels,” and most importantly, supply evidence of fraudulent intent on the part of all participants or leads to such evidence . . . (He may provide) testimony as to the use of aliases, forged signatures on contracts or other documents, unguarded in-house comments suggesting contempt for customers or normal business ethics, and other such incidents which can be immensely valuable in proving intent.”
The informant may be the only avenue to evidence on the involvement of “higher ups” who have otherwise insulated themselves. He may be able to provide documents, or tapes, taken for his own purposes prior to cooperating with or being approached by the investigator and, sometimes most important of all, explain the purpose of activities which the investigator does not understand. He may be able to identify incriminating evidence with sufficient specificity to support a most productive search pursuant to warrant.
In dealing with well organized criminal frauds, the investigator should always keep in mind the possibility that some type of consideration may be traded with a lower level subject for insuring the ability to make a successful case against higher echelon criminals. He should realize that he does not have the power to deliver on such promises. Any attempt to provide such assurances will not only backfire against his case, but also severely and negatively affect his and his agency’s relationships with prosecutorial authorities. The prosecutor should be immediately consulted if any such arrangement is considered.
In cases where the investigator has already decided to talk to the subjects under investigation, it should be a general rule to talk also to all persons in any way innocently connected with the operation, such as employees, particularly secretaries, bookkeepers, and accountants. Their cooperation will often be invaluable to an investigation.
In all cases, the investigator must remind himself that people providing information may eventually be called as witnesses in a trial.
To prevent compromise of a case and detraction from the investigator’s professionalism terms like “informer” and “snitch” should always be avoided, even among investigators themselves. They are considered derogatory and can be totally misleading. Many of those who cooperate in covert operations may be innocent themselves, or trying to work their way out of situations into which they were gradually inveigled by circumstances.
Undercover Operations
Under certain circumstances it may be feasible to employ law enforcement personnel or informants to penetrate a criminal enterprise as participants, or as victims of the scheme. As a general rule, however, undercover operations which involve penetration as participants are far less valuable in the white collar crime area than in other areas of criminal investigation, unless the investigator is dealing with white collar crime related to other criminal activity, for example, organized crime, fencing, arson, extortion, etc. Such operatives will have their uses in some cases, described below, but use of this technique is likely to be a matter of rising to an occasional and unusual opportunity, rather than a standard and frequently used part of the investigator’s arsenal. To employ undercover operations, the investigator must know how to penetrate a white collar crime operation.
In white collar crime the most likely method of penetration is in the guise of an employee. For example, large numbers of such criminal operations require salesmen. An investigator could respond to such an advertisement, receive the necessary instructions in how to perpetrate the scheme such as how to evade answering searching questions, how to get the contract signed, how to get payment, how to use confederates, or similar instructions which are evidence of criminal intent. All of the specific techniques used by investigative units in setting up undercover or decoy operations may be applied as the situation dictates. For example, development of an operational plan; selection of the undercover officer on the basis of his ability to fit the situation, for example, how to dress, speak, etc.; development of cover including background, status, and activities and all necessary identification and credentials to prevent detection; establishment security and safety measures; designation of a supervisory control training in operational and legal restrictions; what to do in case emergency, etc.
How to Become a Victim
An investigator may obtain valuable evidence by becoming victim of the fraud. For example:
- An investigator can respond to a letter invitation to be a guest at a promotional dinner for sale of real estate. Detailed, first-hand evidence of the sales presentation (perhaps on tape) could be important evidence should the promotion turn out to be fraudulent
- Undercover agents can join fraudulent religious organizations, respond to medical quackery schemes as potential patients, etc
- A consumer fraud investigator can respond to advertising, observe or record the sales tactics, purchase the products, etc., thus obtaining similar evidentiary material
Decoy Operations
Many agencies, in every part of the United States, have undertaken decoy operations in which appliances, automobiles, etc., which are in good working order except for some minor and early discovered and repaired fault, are entrusted to repairmen. There are certain common principles involved in decoy operations, which are discussed here in the context of automobile repair frauds.
In order for decoy operations to be effective, they must be executed with great care and thoroughness; half-way measures will not work. The example of a decoy car operation is described below to illustrate the effort that must be made in all decoy operations to develop cases that will stand up in court.
The decoy vehicle should be one that is beyond warranty age, and should look like a family car, with family objects attached or inside (books, gloves, decals, baby seats, worn trailer hitches, ski racks, etc.). It should be made to look dirty from road dirt, perhaps by first driving it over a newly oiled road and then over a dusty one; depending on the locale, it could be wetted down to cause rusting.
In the unit’s garage, or in a garage where security can be maintained, the vehicle should first be stripped and the glove compartment and under seats cleaned out. The shop number and all other identifying numbers should be recorded. The vehicle should be returned to factory specifications with factory parts, not with parts that are claimed by the parts maker to be equivalent to factory parts. All working parts should be brought as near as possible to perfection, for example, the front end suspension, brake system, engine, transmission, and the muffler. Before the car is reassembled, each part should be marked (e.g., holes in metal; serial numbers on rubber; a wire on springs) in such a way as to be relatively unnoticeable, yet still visible, even after being covered by grease and oil for camouflage purposes. The marked parts should be photographed in the presence of both the investigator and the mechanic, both before reassembly and after each step in the reassembly process. All repair and periodic service work done on the decoy should be recorded, both the investigator and the mechanic retaining copies of the repair and service orders, including complete information (date, make, model, shop or license number, mileage). The car should be periodically inspected and kept in absolutely top condition with the mileage kept to a minimum.
This section was based upon unpublished instructional outline prepared by the Bunco-Forgery Division of the Los Angeles Police Department for the guidance of its auto repair decoy operations.
The driver of the decoy vehicle should be both mechanically, investigatipvely, and legally sophisticated; should be able to fit into any neighborhood; have an appearance and manner consistent with the car’s characteristics; should know how to extract statements, yet avoid causing entrapment, etc. Before starting out on an operation the car should be certifiable as being in perfect condition, with the exception of one obvious and minor defect. The engine or any other relevant part should be photographed from the mechanic’s eye level just before it leaves the unit’s garage, with the deliberately inflicted defect showing clearly. The operator can select his target garage on the basis of complaints, suspicious ads, or just random sampling. He should drive to it in the most direct way. He should check the adjacent area so that he can develop a good cover story for his being in the neighborhood (e.g., visiting a brother on such and such a street). He should check the garage for number of stalls, amount of work, presence of owner, number of employees on duty, the exterior signs, etc. (In states in which use of one party consent recording is legally permissible, all relevant recording procedures should be used.)
After the decoy vehicle driver takes the car into the garage and reports the symptoms of difficulty, he should make an excuse and leave in order to give the mechanic time and privacy to prepare a repair order. After the driver returns and receives a statement of repairs allegedly needed and an estimate, he should again excuse himself and leave with the car so that the unit’s own mechanic can re-check the car. (In states in which it is legal to record one party consent telephone conversations, the operator should then call the mechanic to re-confirm his suggested repairs.)
Where a fraudulently inflated or suspicious repair order or estimate is received, the investigator/driver should return to the garage. Upon returning to the target garage with the car, the decoy car driver should ask the mechanic to point out the defect and the consequences of not correcting it, to indicate whether other mechanics, the service manager, or owner have also checked the car. The decoy car driver should appear convinced, then sign the work order, inquire about and get details as to any work guarantee, and retain a copy of the order (but not give a phone number).
Upon picking up the car, the decoy car driver should ask again what work was done, request the parts that were removed, and ask to see what was wrong. At this point, the operator can either confront the mechanic or take the car back to his garage for checking again. In either case, the car needs to be secured as evidence. The unit’s own mechanic needs to have the critical parts photographed again from mechanic’s eye level. He also needs to remove, inspect, and photograph the parts as they are removed in the presence of the investigator/decoy car driver. The mechanic should then make a statement and a complete record of the findings and of the date, time, mileage and location.
If target garage operators lie about needed repairs, and/or charges for repairs not done or for parts not supplied, these investigative techniques have been found to be effective in making both criminal and civil cases. These procedures, it should be kept in mind, apply to other repair areas as well as to automotive repairs.
Surveillance
Other than standard uses of investigative surveillance for the purpose of identifying criminal associates, there are relatively few circumstances in white collar crime which lend themselves to surveillance techniques. One example might be a bankruptcy fraud operation where all products in a suspect’s store are received, never uncrated, and then removed; combined with non-payment of the suspect’s suppliers, the suspect’s disappearance or declaration of bankruptcy, or report of burglary. In such cases, surveillance and photographing the receipt and removal of the products, learning of their destination, making records of people, merchandise, autos and trucks, may provide both useful evidence as well as investigative leads.
Crimes such as insurance frauds involving fake accidents, transfer and sale of stolen vehicles, and public corruption will usually necessitate surveillance for evidence and leads.
When an investigator is faced with problems in finding other victims, associates of the suspects, or other organizations with which the suspect may be involved, he should consider the possibility of establishing a surveillance of the mail delivered to the suspect or his business. To do this he will need the help of the Postal Inspection Service. The procedure is outlined as follows:
If a law enforcement agency may ask the Postal Inspection Service to institute a mail cover for a 30 day period on all mail addressed to a firm or individual. (The period may be extended under certain circumstances.) The postmark and name and return address of the sender, if any, is recorded from the cover of the mail and furnished the agent or agency making the request. Mail covers may only be placed with respect to investigations relating to: (a) the protection of national security; (b) efforts to locate a fugitive; and (c) efforts to secure evidence of the commission or attempted commission of a crime. This process can reveal an enormous amount of information about a fraudulent promoter, for example, identity of banks, suppliers, advertiSing agents, customers and potential customers, and numerous other leads to additional sources of information. There are certain restrictions on its application, however and it should not be requested routinely but reserved for investigations in which other sources have proven fruitless or impracticable. The local Postal Inspector is the point of contact for mail cover requests.
White collar crime investigators should look to general law enforcement expertise with respect to use of surveillance equipment such as audio and video recorders, binoculars, radios, motion and still cameras, and to agency legal advisers with respect to legal issues relevant to such operations.
Finding information / Documents/Public Records
The variety of types of documents, public records and sources for obtaining specific information is so vast that development of a complete source reference book for every type of information which might be required or useful to a white collar crime investigator would be impractical for this book and would require continuing modification. This section is therefore designed to provide:
- General guidelines for seeking information
- Recommendations for developing an information guide
In using this section, it must be kept in mind that involuntary production of private or business records is not required and will not be available, except pursuant to warrant or subpoena. Public records or private records voluntarily produced may well provide information which can contribute to the legal basis for compulsory access to other records. This discussion therefore deals with what records there may be, and where they may be, and how they may be used.
Rapidly developing laws and court decisions dealing with privacy inhibit many kinds of voluntary cooperation on the part of third parties who have records, for example, telephone companies, banks, etc. This eliminates many “short-cuts” and will compel the investigator to more carefully organize his case and use his imagination. On balance, such challenges to the investigator’s skill and imagination may more than compensate for the loss of short cuts.
General Guidelines for Seeking Information
Investigators’ Own Files
When seeking information contained in documents and public records, the investigator’s own files and those of his agency should be checked first. Examination of this material may provide important leads.
Other Agencies’ Files
The second step is to seek out other enforcement and regulatory agencies that may have an interest in the case under consideration.The investigator must through his own research learn what is available in each type of public agency. For example, if a company involved in land operations raised money from investors in order to launch its effort, filings in the records of the US Securities and Exchange Commission or equivalent state agencies may provide a wealth of information, which may provide leads, such as disclosures of litigation which raises doubt as to the capacity of the seller to convey good title. As another example, most investigators will be aware that the National Crime Information Center (NCIC) contains information about persons who are wanted for crimes. They should also be aware the NCIC also maintains information on stolen securities. Numerous municipal, state and federal agencies all have files, some with computerized indexes, which can be used for obtaining leads, past histories, and a myriad of other pertinent information.
General Information Sources
The investigator must at times search through the files of publications, such as newspapers, periodicals, reports, etc., and seek out public or private organizations which might provide significant information. In numerous instances, licenses are needed to conduct certain businesses, requiring initial and often continuous periodic submission of information. Because the potential sources of information are so numerous, the investigator must become adept at using the many indexes available in public and private libraries, and in obtaining information from official agencies, from trade associations, etc. In most public and trade libraries, librarians on duty are most helpful in showing how to use card catalogs, data bases, and other indexing material. From these indexes the investigator can locate information which identifies corporations, unincorporated businesses, articles in newspapers and periodicals, and almost every variety of reference material an investigator might find useful.
Suspect Company Records
Investigation of white collar crimes very often requires the examination of company books and records. As pointed out above, access to such records will frequently require legal process which few investigators can easily command. Where access can be obtained, by appropriate subpoena or other lawful means, these are the considerations to be kept in mind.
Company records will vary in size, character, and complexity, and may not even exist in small companies. In some fraud operations checks are written without even filling in the stub to indicate the purpose of the payment. Large companies will have a corporate charter and by-laws, corporate minute books of director’s and shareholders meetings, lists of shareholders, correspondence and memorandum files, formal books of accounts, financial statements, advertising materials, brochures, advertisements, etc. In smaller operations and in fly-by-night schemes, the above types of documents will be either fragmented or non-existent. Of particular interest to the investigator, regardless of the size of the enterprise under investigation, are transactional documents such as contracts, purchase agreements, sales slips, escrow agreements, deeds of trust, leases, orders, production records and the like.
Investigators must be alert to the possibility that records can be destroyed, lost and altered. Sometimes a subpoena for such records can be served before the suspect company is aware that there is a problem, or before its operators realize that proceedings have developed to the point where legal process is warranted. Even if a complete examination cannot be made at that time, process such as issuance of a subpoena might deter destruction of or tampering with the records. It is important for an investigator to know what kinds of records a company is likely to keep so that he will know what to look for. Investigators who lack such knowledge should consult with some expert in the particular business area regarding the type of records which are normally maintained by the particular type of company which he is investigating.
When company records are not readily available, e.g., in companies which do not keep formal books of accounts, the investigator should look for bank statements, deposit slips, checks or other money storage and transfer methods which might have been used by the suspect in a fraud scheme.
Third Party Records
The investigator should keep in mind that subjects being investigated do business with others, such as suppliers, printers, etc., whose records will reflect what should be in the books of the subjects. Many such third parties are not in sensitive relationships with their customers, as are banks, telephone companies, etc., and are free to disclose their own operations and records. Thus the printer of a sales brochure can show his production and sample files without being in the sensitive position of a telephone company voluntarily disclosing with whom a customer was talking.
In seeking records from third parties that require a subpoena, as may be the case with respect to banks, utility companies, telephone companies and others, it is advisable to make contact in advance with an officer of the institution whose records are being subpoenaed. Since the investigator may have to make more than one visit, it is important to develop good relations from the outset. Advance notification may prevent the possible alarming effects which a surprise visit could have.
Investigators who fail to develop a rapport with these institutions will find a negative attitude in response to their requests for records. Even with a subpoena, without this rapport, the investigator will find himself searching through vast complicated files of records without assistance.
Developing a Unit Guide to Sources of Information
Every white collar crime investigative unit should develop its own Guide to Sources of Information. The guide should be designed to provide an easy reference for investigators seeking information. Three key points should be kept in mind in preparing such a guide:
- The guide should be indexed by type of information, rather than by source, for example, all pertinent sources should be listed under each type of information which may be required
- The guide should be dynamic. Since no single guide can ever be perfectly complete, provisions should be made to continually add new types of new sources as experience is gained
- The guide should outline the form in which the information will be found, and any special legal or other problems which may be encountered in obtaining the information
- Investigators should prepare forms containing a checklist of the information which probably will be required in each specific type of investigation; such as home improvement fraud, investment fraud, etc. Then when an examination is made or a subpoena is requested, the investigator can go through his list and thus insure a high probability of comprehensiveness in finding documents and public records. In addition, each time he has a similar case he can start with the appropriate list and also add to the lift each time a new document is discovered.
Sample Guide to Sources of Information
At Appendix B in this book is a Sample Guide to Sources of Information, based upon one which was prepared by the Orange County, California, District Attorney’s office for its use. It is indexed by the type of information desired. The investigator considering development of such a Guide can use this sample guide as a starting point or model to build upon, taking into account parallel sources in his or her own jurisdiction and special considerations related to the subject matter in which his or her own unit specializes or is most frequently involved. For example:
The guide could be expanded to include a number of major industry and trade associations which are of particular importance to the fraud investigator. Organizations such as the Insurance Crime Prevention Institute; National Association of Credit Management; American Medical Association; Recording Industry Association of America; are directly involved in fraud detection and investigation, maintain complaint and offender files, and work closely with law enforcement.
The guide could also be expanded to include every licensing, fee collecting, and regulatory agency in the state. Most states have one or more agencies which formally issue booklets listing every such agency.
Developing Unit Legal Guides
Many federal, state and private white collar crime investigation agencies have prepared documents summarizing fraud laws, such as California’s summary of consumer fraud law in the checklist found at http://www.dca.ca.gov/publications/legal_guides/m-1.shtml, and the Recording Industry Association of America’s facts and research page at http://www.riaa.com/reports/. Documents such as these can be useful in guiding an investigator to a variety of prosecution alternatives and other documentation.
HANDLING EVIDENCE
A major responsibility of the investigator is to maintain the evidence he collects in such a form that it will not lose its value as evidence or as a source of additional leads for follow-up investigation by himself or others. For example, if an investigator is unable to identify and substantiate from whom an evidentiary document was received or when it was received, the document is worthless as evidence. Similarly, if oral evidence, for example statements made in an interview is not properly preserved, potentially important information may be lost, lowering the effectiveness of follow-up investigation.
The following are suggested guidelines for handling both oral evidence, such as witness statements, and physical evidence, such as documents, business records, financial records, letters, memoranda, products of a sales or service scheme and similar items.
The Memorandum of Interview
If an interview provides information which might be useful either as evidence or as an investigative lead, the investigator should preserve such information. This can be done by obtaining an affidavit or signed statement from the interviewee, or by preparing a detailed memorandum. Good notes, or a tape recording of the interview are essential to the preparation of a good memorandum.
All information of any significance should be made part of a checklist to insure that it is part of the material submitted to the prosecuting attorney, or to other investigators to whom the information might be useful. This will be important not only to effective presentation of the case, but also to the prosecutor’s duty to make full disclosures of information which a defendant or his counsel may have the right to see.
Considering the problem of discovery applicable to the jurisdiction, the investigator must make a judgment as to whether or not to include his own personal opinions about the interviewee’s answers, for example truthfulness, competence, etc. If discovery is no problem, such opinions may be stated at the end of the memorandum along with any recommendations for additional investigative steps. It is not uncommon for an investigator’s opinion to (very legitimately) change as an investigation unfolds; he should be prepared to explain these changes if he volunteers such opinions in his memorandum.
Physical Evidence
As soon as potential demonstrative or documentary evidence is obtained, the investigator should note information on the item itself, or by a tag attached to the item. At a minimum this information should include:
- Name or description of the item
- From whom it was obtained
- When it was obtained
- Whether it is an original or a copy of an original
- Initials of the investigator receiving the document.
When confronted with minor items, large quantities of items, or voluminous documents, the investigator may have to weigh his priorities and decide whether preparing a list for future reference will suffice.
When a sworn affidavit or signed statement is obtained from a witness, the investigator should attach copies of any documentary evidence obtained from the witness as exhibits to the affidavit or statement. When the physical evidence is to be kept in the investigator’s or his agency’s custody, an official log of custody must be maintained, as in any police or other law enforcement operation.
During the course of an investigation it is often necessary to handle physical evidence for the purpose of study or to develop new leads. As a precaution against loss or deterioration, it is advisable to make copies of documents rather than work with originals. When large numbers of documents are involved, microfilming should also be considered.
There are situations where the original documents will be required in court, but the witness wishes to retain the original. In such cases, in addition to obtaining a copy, the investigator should explain the importance of the evidence to the witness, and take all possible steps to be sure that the evidence is preserved. This should, in the first instance, be done through discussion, in which the witness is queried about how he proposes to protect the evidence. This should be followed by specific suggestions, if appropriate, to improve protection of the evidence. Where there is special concern, the investigator should request the prosecutor or his agency’s legal adviser to write a letter to the witness regarding the need for care of the evidence and, in some cases, pointing out that there may be legal consequences if the evidence is destroyed, for example the possibility of an obstruction of justice violation. As soon as the investigation has progressed to the point where grand jury or inquiry judge subpoenas are available, or if the administrative or regulatory agency has subpoena power, compulsory process should issue to obtain the evidence.
Audio and Video Recording Files
In addition to recording interviews or interrogations, the investigator may wish to use as evidence an audio or video recording made during an undercover operation, for example a recording made of the misrepresentations made at a business opportunity meeting. The following guidelines are suggested:
- Use good equipment, in good working and operating condition. Check batteries carefully. The investigator should be able to testify as to his past experience with the equipment and that the equipment was in good operating condition
- On the recording itself, after the recording has been made, identify the individuals engaged in the conversation, any other persons present, the time, date and location
- Immediately after the original has been made, make a copy for use in transcribing the conversation or for follow-up investigation, then seal and store the original
- Keep a record of the custodians and storage from the time it was originally recorded to the time it was submitted as evidence
- When recordings are going to be used in taking a confession, advise the suspect of his rights and have the subject state at the start of the recording that he is aware that the recording is being made
LOCATING ADDITIONAL VICTIMS AND WITNESSES
In the types of frauds which involve false pretenses, representations, and promises, the investigator will at times find that the only possible way of proving the case is to obtain evidence of repetitious wrongful activity. As discussed earlier, one of the principal means and also one of the most effective ways in a courtroom for establishing such proof will be the statements of additional victims and of witnesses who were solicited but avoided becoming victims. A parade of such witnesses is a most persuasive way to demonstrate that the false pretenses, representations, and promises were not accidental.
This section discusses a number of alternatives available to the investigator for finding additional victims. In using the repetitious wrongful activity method of proving bad faith on the part of the subject, investigators must continually be aware of the possibility that the promoter of the scheme might be able to demonstrate good faith by producing satisfied customers, but investigators should also recognize that satisfaction may be irrelevant, as in the case of bait and switch victims. Satisfied customers, by their testimony, may create a level of uncertainty regarding whether a fraud has been committed. The investigation must therefore include a determination of good as well as bad transactions made by the promoter, and not overlooking the possibility that there may be satisfied customers, as well as unhappy victims.
Sources for Identifying Additional Victims
In all the methods discussed below for finding additional victims, the techniques and precautions discussed in the sections on interviewing and interrogation are applicable. In particular, the investigator must recognize when victims may be reluctant to cooperate because law enforcement is interfering with an undertaking in which they have a monetary interest.
Complainants
In interviewing the initial complainant, victims, or third parties, the investigator should always ask those being interviewed whether they know of any other persons victimized by the suspect. If not, the investigator may obtain leads to other victims by inquiring whether the complainants know how the subject got their names. If the answer to this question is no, the investigator can obtain leads by following up with detailed questions regarding the interviewee’s employment, memberships, education, military background, hobbies, etc. From these questions he may deduce common characteristics among certain of the complainants which will help him find more victims and others who were solicited but did not become victims. Some of the major possibilities are that the suspect used mailing lists, club rosters, school enrollment lists, or the like to obtain the names of potential victims.
Suspects
A premature direct approach to a promotor of a white collar scheme could hamper the process of gathering evidence and preclude effective reconstruction of the fact situation. The investigator must be ready with all legal tools for use when available, for example, subpoenas and search warrants for obtaining immediate access to books and records. The investigator should be aware that businesses today store much information regarding customers digitally. Evidentiary computer data recovery, including hardware, software, remote server, and cloud storage requires special handling by trained experts. The investigator must also be cognizant of the suspects cell phone, disguised storage devices (USB drive concealed in pen for example), and other very small and concealable devices. Writing search warrants for digital evidence requires special language and experts in this area should be consulted.
Other Agencies
The number of municipal, state, and federal agencies combined with the many private agencies that handle public complaints is too large for inclusion in this book. When there is a complaint against a business enterprise, other agencies should be checked to find if they have received similar complaints against the same subjects. Many such agencies will have relevant files and thus be able to provide rapid response. Once good liaison is established, the investigator should consider a search of official records in other agencies to be a preferred first step for identifying additional victims and witnesses. In addition to the possibility of identifying other victims, such searches may produce information regarding previous investigation of the same suspect, firms, or individuals which can be integrated into a new investigation.
Most states and municipalities have pamphlets or other documentation which identify agencies which receive public complaints. Many of these agencies are listed in the “Sample Guide to Sources of Information,” in this book.
Another productive source of complaint information is the local Better Business Bureau. Such organizations vary considerably in the degree to which they monitor the business community or cooperate with law enforcement. Nevertheless, they can often be helpful, not only as a source of complaint information, but also as a source of background facts and data on member firms and others doing business in their locality.
The mail cover provided to law enforcement agencies by the Postal Inspection Service, described in the sub-section on Covert Operations, can be used to provide leads to victims. Questionnaires and form letters, discussed in the following section, may also be used to find other victims and witnesses.
QUESTIONNAIRES / FORM LETTERS
The fundamental reason for use of questionnaires and form letters as an investigatory tool is to gather large amounts of information more quickly, efficiently and at lower cost in manpower than would be possible through direct interviews. In investigations which may have numerous widely-scattered non-complaining victims or “satisfied customers” (e.g., suspected charity solicitations, securities sales, medical and health cures, contests, land sales, etc.), a quick and useful method of gathering initial facts or finding other victims is to send a questionnaire to all known contributors and purchasers.
Use of questionnaires and form letters should be confined to routine and low priority situations when it doesn’t make any difference if the suspect knows about the investigation. An exception would be a situation where there is substantial reason to believe that fraud has occurred and other means of gathering initial facts and finding other victims has proven fruitless; for example a case where the promoter or his records have disappeared or in other respects he has refused to cooperate. Questionnaires can also be useful during an investigation when there are a large number of possible victims and additional leads are desired for the purpose of strengthening the case. Where the number of possible victims is overwhelming, investigators should consider the use of sampling techniques to reduce the magnitude of the task.
Design and Use of Questionnaires and Accompanying Form Letter
There is no standard questionnaire or form letter design. Questionnaires should always be structured to fit the situation at hand. The following sample form letter and questionnaire are presented as a guide to demonstrate certain features which apply to their use in white collar crime investigation as follows:
The letter should include no prejudgments or derogatory information regarding the firm or individuals under investigation.
- An attempt should be made to reduce to a minimum the possible harmful effects that the inquiry itself might have. For example, a sentence is included in the form to the effect that the inquiry should not be regarded as a reflection on the integrity or reputation of the individual or firm in question.
- The questionnaire should be designed to elicit answers to all of the routine who, what, when, where, why, and how questions needed to make a decision as to whether or not a violation has occurred.
- A request for possible evidentiary materials should be included.
- A request for cooperation, a statement of the importance of the response and the fact that it will be given careful attention should be included.
- A self-addressed, stamped, return envelope should be included.
Remember that the following samples are only samples. While such a standard form could be used as a guide, suitable modifications and additions should be made for each specific case being investigated. All questionnaires should be preserved; they can serve as a starting point for design of other questionnaires in the same or other similar cases.
Other Form Letters
Specialized form letters may be used for a variety of reasons, such as advising a suspect or suspect company that complaints have been received which indicate that the activity or transaction in question may constitute a violation of a particular statute, to request the recipient to appear at the investigator’s office at a certain date and time to discuss complaints, or to request the production of certain documents relative to the complaint.
Any form letters or questionnaires should receive approval from the agency legal advisor before distribution.
SAMPLE FORM LETTER
Dear_____________
The (name of agency)is conducting an investigation to determine whether there have been any violations of the statutes, in the (describe the promotion — sale of ‘X’ stock, or solicitation of charitable contributions by ‘X’ Foundation).
In the course of the investigation, your name appears as a possible (investor, purchaser, contributor, etc.) with this organization.
The fact that such investigations are in progress should not in itself cast any reflection upon the integrity or reputation of the firm or individuals involved. This letter and the attached questionnaire are sent to you for the sole purpose of ascertaining the facts which led you to become an (investor, purchaser, contributor, etc.) and in particular, what reliances you placed on oral or written representations made by these firms through their sales representatives or other agents.
The attached questionnaire is self-explanatory. Please answer each question as completely as possible. If it would be easier to use one or more additional sheets of paper for your answers, please feel free to do so.
Your cooperation is earnestly solicited and your responses will be given careful attention. A self-addressed envelope, requiring no postage, is enclosed for your convenience in replying.
Please furnish the originals, or copies, of all related items, such as any advertising, envelopes, correspondence, cancelled checks (front and back), memorandums of any telephone conversations (noting with whom, the date, circumstances, and what was said), and any additional related exhibits. Should additional postage be required, you will be reimbursed.
Sincerely yours,
SAMPLE QUESTIONNAIRE
- Did you (invest in, purchase from, contribute to, etc.) (name of the organization)
- How did you first become aware of “X”? (how, when, where, through whom, etc. )
- What are the names of the particular people you dealt with? (owner’s, salesmen, agents, brokers, etc)
- What were you told, either orally or in writing concerning “X”; type of businesses engaged in, the profits to be realized, and the reliability of (investing, purchasing, contributing, etc.) to “X”? (by whom, how, when, and where)
- Did you receive any letters or literature in the mails?
- What literature were you supplied regarding “X” its products or services?
- Please summarize your transactions with “X”, (a) Dates of transactions:(b) Dollar amounts: (c) Item (invested or purchased)
- Are you satisfied with the purchase?
- If you were not satisfied, what action have you taken to rectify the situation?
- If not mentioned previously, please list names of all persons with whom you’ve had contact regarding the above (investment, purchase, contribution, etc. ). Describe circumstances and conversations.
IMPORTANT: Please furnish your complete name, address and telephone numbers at home and at work, in the spaces provided below.
NAME:
ADDRESS:
HOME PHONE:
BUSINESS PHONE:
Anyone or combination of the above might be developed as a form letter for situations where the investigation calls for gathering facts from individuals or firms that may be unintentionally violating the law, or in routine cases involving established businesses within the community.
Such letters should advise the recipient that his appearance and production of documentation is voluntary. The letters should also request notification of the recipient’s intention to appear or not to appear several days prior to the requested appearance date. This will allow time for arranging for a court reporter if it is deemed necessary to make a permanent record.
The following is a similar investigative product created by the FBI as an internet public service announcement.￼
FINDING EXPERTS / RESOURCES
The variety of types of legitimate undertakings is so large that it would be totally impracticable to expect investigators to have detailed knowledge of every type of business they come across. The intricacies of modern businesses, professions, and technologies will frequently require that white collar crime investigators and prosecutors seek help from experts.
The need for expert assistance is usually self evident when a case is finally being prepared for presentation in court. But there are many circumstances where expert assistance is essential to the efficiency and success of the investigation itself.
Experts are not necessarily needed to participate directly in an investigation but they can often be valuable in providing either answers to specific questions or crash training and advice regarding the peculiar aspects, special terms, systems and practices used in the business operation or transactions being investigated. For example, an investigator will have great difficulty in investigating medical quackery fraud without some familiarity with the consensus of informed medical opinion as to the nature and treatment of the disease involved; an alleged computer fraud without some elementary knowledge of how a computer is used in a business; an advance fee scheme of the loan variety without some knowledge of loan financing; an alleged securities fraud without some basic knowledge of securities trading and factors which affect securities valuations; or insurance fraud without at least a rudimentary understanding of the relevant features of the insurance business.
Some basic knowledge about a business area may be needed at the very outset of an investigation, for example, at the receipt of a complaint, for the investigator to understand the complaint and collect the maximum information possible from the complainant. The same holds true when an investigation is initiated by other sources such as an intelligence unit, informants, or by referral from some other agency. If the unit is conducting its own affirmative search for violations, such knowledge is needed prior to starting the investigation, for example, in using decoy vehicles to detect auto repair fraud.
The development of basic skills for investigating business and financial transactions is well within the capabilities of any competent investigator. However, when complex and extensive auditing is required the investigator will wish to supplement his own knowledge with direct assistance from an expert accountant. Auditing books and records for possible fraudulent practices is a professional and technical task.
Where to Go to Get Assistance
The following discusses some general guidelines and approaches to obtaining expert assistance and education as well as other resources not available to the investigative unit within its own agency.
Experts
Where the services of accountants are not readily available to white collar crime investigation units, help should be sought from other government bureaus or departments which employ accountants on a regular basis. If the accountant so recruited does not have investigative accounting experience, the investigator should keep in mind that the accounting investigation will require a combination of the investigator’s knowledge of the criminal elements of fraud and the accountant’s knowledge of record-keeping and the meaning of individual transactions.
Investigative accounting can be quite specialized, but most accountants can be helpful if the investigator tells them what is suspected, what kinds of information will be helpful, and the suspect’s probable modus operandi.
Private sources can be extraordinarily helpful in ad hoc training during the course of an investigation. One’s own bank officer, family doctor, real estate agent acquaintance, securities broker, or insurance agent can be of great help. Even without personal acquaintances in a particular field, it should not be difficult to obtain assistance, given voluntarily and with pride, from members of the local business community, for example a reasonable request by an investigator for a guided tour of a brokerage house and a crash course in securities would rarely be refused by a brokerage firm, a good auto mechanic can help to identify a transmission expert who in turn can advise on investigation of a transmission repair fraud.
The investigator should be prepared to help the prosecutor find witnesses who will be accepted by a court as “experts,” and who can provide admissible expert opinions because they are qualified by professional, scientific, or technical training, or by practical experience, to testify as experts in the particular field under investigation. As a first source, the investigator should explore the possibility of getting expert assistance from within his own or another government agency, or from a university faculty.
There are a number of reasons for seeking experts from these sources prior to private or commercial sources. First, expert witnesses will usually be questioned regarding their motives for testifying. Those from schools and government might generally be less suspect with respect to their motives. Second, as a matter of professionalism and civic responsibility, highly qualified academics and government personnel in highly technical fields such as computers, medicine, engineering, sales and marketing, economics, geology, etc., will often provide their time and expert advice at minimum cost, even to the extent of testifying in court. Finally, there is a possibility that jurors and judges will be more familiar with and respect their local university or government agencies, making expert testimony from these entities more acceptable and persuasive.
Local experts will frequently be reluctant to testify against one in his field, e.g., an auto mechanic against a local garage. In such cases, expert help can be sought from other communities.
In selecting experts, care should be taken to recruit those who can personally relate to the real world of jurors and who can explain their interpretations and opinions in simple, lay language.
There are numerous government agencies at the municipal, state and federal levels which will cooperate with an investigator. Personnel with expertise in many fields and disciplines can be found in these agencies. The investigator who operates under the premise that the required expertise must be available in his own agency will surely stunt his own development as a white collar crime investigator and limit the overall success of his agency.
Other Resources
The white collar crime investigator will find extensive opportunities for employing the standard resources normally used in investigations other than white collar crime, such as the crime laboratory in analysis of fingerprints, questioned documents, chemicals, and handwriting; the identification bureau in searching for previous criminal history; or the intelligence unit in searching for associated persons or organizations.
International Investigations
White collar crime activities frequently flow across national boundaries, and information and evidence will have to be sought abroad, using the facilities of foreign police agencies. When the trail leads abroad, the unit can call on the services of INTERPOL, an international criminal police organization which has experience in helping with white collar crime investigations.
INTERPOL will help the unit by arranging for voluntary cooperation in more than 120 countries abroad. Such assistance covers a broad range, including but not limited to criminal history checks, locating suspects, fugitives, and witnesses, and even full investigations which could lead to arrests and extraditions. Where such help is needed, the unit should contact INTERPOL at:
INTERPOL Washington
US National Central Bureau
Washington, DC 20530-0001
or go through the website, hosted by the Department of Justice – http://www.justice.gov/interpol-washington
Interpol also provides an ‘app’ enabling the user to receive updates on international crime available for iPhones or Android devices.
A letter of request to Interpol should briefly state the nature of the investigation or assistance required, and from whom assistance is sought. No special form is needed. If the unit is not certain as to who should be contacted abroad, INTERPOL will advise.
There is no charge for INTERPOL assistance. The United States office is located within the US Department of Justice and is staffed by personnel from federal law enforcement agencies (US Marshall’s, Customs, Secret Service, Drug Enforcement Administration)
PREPARING A PACKAGE FOR THE PROSECUTING ATTORNEY
The organizational relationships between investigator and prosecuting attorney may take many forms. The most common investigative arrangement is one in which the investigator consults intermittently with the prosecuting attorney during the course of an investigation, but primarily acts on his own in gathering the evidence. When the investigator believes the investigation is complete, or has gone as far as it can go without compulsory process, he will submit the investigation file to the prosecuting attorney with a recommendation for criminal t civil, administrative, or further investigatory action. It should always be kept in mind that there may be civil or administrative, as well as criminal prosecution outcomes from investigations, and that many investigators work in agencies which do not have criminal jurisdiction. For purposes of brevity, however, terms “prosecution” and related terms are used in this section to include other than criminal prosecution litigation.
Arrangements may range from situations in which investigators, prosecuting attorneys and perhaps other investigators with specialized skills work as a team, to situations in which investigators do not consult with anyone at all until they believe their investigation is complete.
Despite all the possible varieties of investigator/prosecution relationships and the resulting differences in requirements placed upon investigators for preparation of evidence for prosecution or other litigation, the proficient investigator must be able to present his work product in written form and organized in a way that permits efficient access to all information and evidence important to the case. Even the best case is likely to be declined by the prosecutor if it is poorly organized and presented (whether in writing or orally). The prosecutor should not be blamed for this. It is the investigator’s responsibility to organize the material to enable the prosecutor to make his decision; it is not the prosecutor’s responsibility to exhaustively examine papers and question the investigator to determine what should have been clearly presented to him in the first place. The prosecutor is taking on a big job; he needs selling and every bit of help he can get.
The following figure provides an outline guide for the preparation of a comprehensive report for presentation to a prosecuting attorney. In each investigation, depending upon case complexity and the particular organizational arrangement with the prosecuting attorney, the investigator should be able to select those elements of the outline which are applicable to the particular case. In preparing reports the investigator should carefully and explicitly distinguish between his suppositions and the facts he has established by investigation.
GUIDELINES FOR PREPARING A COMPREHENSIVE PACKAGE FOR THE PROSECUTING ATTORNEY
Introduction
A brief narrative which explains:
- The type of scheme
- How it came to the attention of law enforcement
- Period of operation
- Names, fictitious names, company names, etc. used by perpetrators
- Evidence of prior criminal activity
- Whether warnings were given
- Type and total amount of loss
- Number and type of victims
- Possible statutes (criminal, civil, administrative) which were violated
Description of Proposed Defendants
A standard identification record may be used, which contains at least the following:
- Name
- Alias
- Addresses (home and business)
- Physical description
- Place and date of birth
- Criminal identification number (FBI or State) Occupation/employers
- Associates/accomplices
- Prior record
- Identification of those who have cooperated or might cooperate with the prosecution
Description of Offenses
- A detailed exposition of all pertinent data concerning the who, what, when, where, why and how of the scheme, from its conception through its perpetration. For example, for each occurrence, to the extent possible describe:
- How was the scheme conceived?
- Who executed it?
- Who played what parts?
- Where was it put into operation?
- How long was it in operation?
- What was the nature of the scheme, the types of merchandise, service, or concealed trickery involved?
- Whether the victims can be classified as to economic, social, educational, or other background. ‘
- What was the specific loss to each victim? Total losses to all victims?
- Any information which will provide the prosecuting attorney with a firm comprehension of the magnitude, nature and characteristics of the scheme.
Results of Investigation
A narrative description containing the evidence which may possibly be used for development of proof of misrepresentations, fraudulent intent, or other essential element of the statutes violated.
Any occurrences which might lead to a conclusion of criminal intent. To this should be attached any diagrammatic outlines of the white collar crime operation which may have been prepared. When applicable, each major misrepresentation, false pretense, or false promise which the defendants used in obtaining money or property from the victims.
Possible Evidence
- List of witnesses (including cooperating subjects of investigation and law enforcement) addresses, telephone numbers.
- Oral, documentary, and physical evidence associated with each witness.
- How obtained — interview, surveillance, survey questionnaire, etc.
Other Agencies Involved
A brief description of the involvement or interest of other government, law enforcement or private agencies.
SUMMARY
By preparing a properly formatted complete and thorough package for the prosecution, the case will be more likely to be accepted for filing at the first submission. There may be requests for further investigation, however, the decision to move forward may be imminent. Be sure that all addresses, phones, emails, and other contact information is correct, and that all names are spelled correctly. There are no shortcuts to the level of detail required for a white collar crime prosecution.
STUDENT CASE STUDY FOUR – Public corruption
Assignment
- Review the case study about frauds involving Hurricane Katrina. Assess a disaster in your state during which fraud was perpetrated, or could have been perpetrated.
- What special skills would an investigator need to investigate this type of crime?
Overview
Public corruption poses a fundamental threat to our national security and way of life. It impacts everything from how well our borders are secured and our neighborhoods protected…to verdicts handed down in courts…to the quality of our roads, schools, and other government services. And it takes a significant toll on our pocketbooks, wasting billions in tax dollars every year.
The FBI is singularly situated to combat this corruption, with the skills and capabilities to run complex undercover operations and surveillance. Many state, local, and non-governmental organizations have effect teams as well in the response to public corruption crimes.
Katrina four years later – FBI press release 09/01/09
In the devastating aftermath of Hurricane Katrina, the federal government began pouring billions of dollars into New Orleans and the Gulf Coast region to aid recovery efforts-and the criminal justice system braced for the fraud and corruption that would surely follow all that money.
Today, four years after the storm struck on August 29, 2005, the FBI and our law enforcement partners continue to aggressively investigate and prosecute Katrina-related crimes. Last Friday, for example, the United States Attorney’s Office for the Eastern District of Louisiana announced 18 new felony indictments stemming from citizens fraudulently obtaining assistance from the American Red Cross and the Louisiana Road Home Program.
There have also been many cases of public corruption associated with Katrina, said David Welker, special agent in charge of our New Orleans office. “When it comes to criminal activity and public officials trying to siphon off funds meant for projects to rebuild the area,” he said, “we maintain a zero tolerance policy. We won’t stop pursuing these cases no matter how much time passes.”
Within days of the hurricane, the Department of Justice established the Hurricane Katrina Fraud Task Force-since renamed the National Center for Disaster Fraud-to deter, investigate, and prosecute disaster-related federal crimes.
The task force-comprised of federal, state, and local law enforcement agencies, as well as the United States Attorneys’ Offices-is located in Baton Rouge, Louisiana, and it has not lacked for business.
To date, more than 1,300 individuals have been indicted for Katrina-related crimes. The task force has received more than 36,000 complaints since 2005, and has referred some 22,500 to law enforcement for possible investigation. The FBI has received nearly 4,800 of those referrals.
Some of the cases are shocking. Earlier this month, a former chief of police in Lumberton, Mississippi was sentenced to 2.5 years in jail after being convicted on eight federal fraud charges in connection with lying to receive aid for a property that was not his primary residence. The former chief was found guilty of stealing government funds, lying to the Federal Emergency Management Agency (FEMA) and committing wire fraud. At sentencing, the judge ordered him to repay FEMA more than $29,000 and noted that he had betrayed the public trust and seriously tarnished the image of law enforcement.