Building a case against corporate fraud

The plea deal between former Trump Organization CFO Allen Weisselberg and the Department of Justice was shocking, not just because of the people involved, but because such cases against chief financial officers at that level are still relatively rare. Weisselberg pleaded guilty to raking in ~$1.7 million worth of untaxed extras in his role at former president Donald Trump’s conglomerate.

But prosecutions of white-collar crime may start to become more common: US Attorney General Merrick Garland said earlier this year that “the prosecution of corporate crime is a Justice Department priority.” And while CFOs can be challenging to prosecute since they’re typically well-insulated and often less involved in small, day-to-day transactions, the DOJ has increased staff to investigate and prosecute the growth in corporate fraud.

“We want to hold individuals accountable,” Jason Linder, a former senior federal prosecutor, and co-chair of Mayer Brown’s Anti-Corruption and Foreign Corrupt Practices Act (FCPA) practice, told CFO Brew. “It is the most effective deterrent to criminal misconduct. Companies getting shaken down for money—eh, that’s a lot of money, that sucks. Those ending up in handcuffs and in prison will deter the next generation of CFOs from thinking about committing the same kind of conduct.”

According to the indictment, Weisselberg allegedly expensed a Manhattan apartment, his grandchildren’s tuition, and multiple Mercedes-Benz cars. Now, the 75-year-old—known as Trump’s “money man”—faces a five-month jail sentence, and $2 million in fines and fees. In exchange for a shortened sentence, the former CFO has agreed to testify as a prosecution witness in the Trump Organization trial that is set to begin in October.

Corporate crime on the rise: Violations of the FCPA are the “most active area of white-collar criminal enforcement over the last 10 years more than any securities fraud or healthcare fraud or anything else,” Linder told CFO Brew. Earlier this year, the DOJ announced it would hire 120 new prosecutors and 900 new FBI agents, in part to investigate and address corporate crime.

The staffing needed to investigate, gather evidence, and prosecute cases is significantly greater than in many criminal cases, US Attorney of the Western District of Arkansas David Clay Fowlkes told CFO Brew. “[The] rule of thumb is for every day in court, it requires seven days of preparation,” he said.

The DOJ did not respond to requests for comment.

Putting the pieces together: After beginning an investigation,the DOJ, often alongside the IRS and the FBI, goes into the discovery process, Fowlkes explained. Since information is highly digital now, the discovery process is extremely intensive, taking months, and at times, years. Instead of searching cell phones, imagine looking through all of the emails of everyone in an organization’s finance department over many years, Fowlkes told CFO Brew.

The Office of the Whistleblower at the Securities and Exchange Commission receives hundreds of thousands of whistleblower tips a year, Linder said. Being a whistleblower isn’t always fun, but it can pay off; in a recent case, for instance, the SEC awarded more than $16 million to two whistleblowers. Since the Sarbanes-Oxley Act created it 20 years ago, and the Dodd-Frank Act bolstered it a decade ago, the SEC’s whistleblower’s office has awarded more than $1.3 billion to 281 individuals, according to the commission.

Companies sometimes discover misconduct through internal audits or anonymous whistleblower tip lines, and voluntarily self-disclose to the SEC. Over the past decade, the DOJ has worked to sweeten incentives, such as “a non-prosecution agreement or significant reductions in penalties,” available to companies that voluntarily self-disclose.

And sometimes, in the process of investigating one possible crime, prosecutors may discover other offenses they want to pursue. But CFOs aren’t usually the ones in handcuffs when these investigations come to a head.

“It’s relatively rare for CFOs to be charged with criminal activity. There are a lot of steps that can be taken before you get to a criminal charge,” Mark Kokanovich, a former federal prosecutor told CFO Brew, “Most criminal statutes require some some type of criminal intent, and demonstrating criminal intent on behalf of a CFO can be pretty difficult when they’ve got teams around them who are providing them advice, especially on the most critical decisions.”

Finance has gone global: One of the largest hurdles prosecutors face is the use of foreign transactions and offshore accounts. Fowlkes told CFO Brew there are many countries where the US doesn’t have the ability to access bank records or other financial transactions. Even with “friendly” countries, there are still plenty of hoops to jump through, he said.

In addition, there’s always criticism for the perception that white-collar offenders tend to get lighter sentences for their misdeeds than other types of criminal defendants. That disparity in sentencing is top of mind for attorneys general, Fowlkes told CFO Brew. “I think when you look at white-collar cases, it’s important for us to keep that at the forefront of our mind that the law should apply equally to a drug dealer as it does to a corporate executive that’s being prosecuted for fraud.” —KT