Mueller Monday: Breaking Down the Charges and Looking Ahead

This past Monday Special Counsel Robert Mueller unveiled the first criminal charges in his ongoing probe of potential ties between Russia and the Trump campaign. Word of an impending indictment leaked last Friday, and Washington was buzzing all weekend about who might be the target. On what the Internet quickly dubbed #MuellerMonday, prosecutors unsealed a twelve-count indictment charging former Trump campaign manager Paul Manafort and his associate Richard Gates.

The charges against Manafort were not a great surprise. The FBI had executed a search warrant at his house last July, and there were reports he had been told to expect an indictment. But Mueller’s other announcement was unexpected: he also unsealed a guilty plea by a former foreign policy advisor to the Trump campaign, George Papadopoulos. It turns out Papadopoulos was arrested last July, was charged under seal, and has been cooperating with Mueller’s office.

The charges indicate that Mueller’s team is moving forward aggressively and effectively. There are likely many more shoes to drop before he is done. And with Monday’s moves he’s sent an unmistakable message to others who may have been involved in any criminal conduct. 

Special Counsel Robert S. Mueller, III

Breaking Down the Charges

Manafort and Gates Overview

The indictment encompasses activity from 2006 to 2017. During that time Manafort ran two different political consulting firms. Gates worked for Manafort and the indictment identifies him as Manafort’s “right hand man.” Beginning in 2006, various pro-Russia political parties and individuals in Ukraine hired Manafort’s firms for lobbying and political consulting, and that work continued for a decade. The defendants allegedly concealed this work from the federal government by failing to register as foreign agents as required.

The defendants used an entity called the European Centre for a Modern Ukraine (the Centre) to retain other lobbying firms in the United States. The Centre was in fact controlled by political leaders in Ukraine working with the defendants. Using the Centre as a front allowed the defendants to distance themselves from the Ukrainian work and conceal it from the government.

Manafort and Gates also allegedly concealed the money they were earning from Ukraine by routing that money through a large number of corporations, partnerships, and bank accounts, including foreign corporations and accounts established in Cyprus, Saint Vincent & the Grenadines, and the Seychelles. To hide the existence of these foreign bank accounts they allegedly failed to report their control over those accounts to the federal government as required, both on their income tax returns and by separate required filings.

In addition, the defendants allegedly used nearly three dozen different offshore entities, primarily located in Cyprus, to wire millions of dollars into the United States to pay for goods, services, and real estate for themselves. None of this money was reported as income by the defendants or by Manafort’s companies. The indictment includes a seven-page detailed list of these payments, which included more than $5 million to a home improvement company in the Hamptons, nearly $1 million to an antique rug store, more than $800,000 to landscape companies in the Hamptons, and more than $1.3 million to clothing stores.

Paul Manafort

Criminal Charges Against Paul Manafort and Richard Gates

 Count One: Conspiracy, 18 U.S.C. 371

Count one charges both defendants with conspiracy under 18 U.S.C. 371. This is an overarching charge that encompasses the entire scheme from 2006 to 2017. The federal conspiracy statute prohibits conspiracies to defraud the United States and conspiracies to commit an offense against the United States. The indictment charges both.

A conspiracy to defraud the United States includes an agreement to impair, obstruct, or impede the lawful functions of the U.S. government. The indictment charges that the defendants’ activities impaired and obstructed the lawful functions of the Department of Justice (which is charged with monitoring the activities of foreign agents) and the Department of the Treasury (which includes the Internal Revenue Service).

The indictment also charges the defendants with conspiracy to commit offenses against the United States, which means a conspiracy to commit any federal crime. It alleges that they conspired to commit the federal crimes contained in the subsequent counts of the indictment.

This is a pretty common structure for a white collar crime indictment. The conspiracy charge up front tells the story of the entire criminal scheme, and it is followed by individual counts of the crimes the defendants allegedly conspired to commit. Conspiracy under 18 U.S.C. 371 is punishable by a maximum of five years in prison.

Count Two: Conspiracy to Launder Money, 18 U.S.C. 1956(h) 

Count two charges that by moving millions of dollars through their various partnerships, corporations, and foreign accounts, the defendants conspired to commit money laundering. Several different money laundering theories are charged as the objects of the conspiracy. The first is that the defendants transferred funds across international borders in order to promote criminal activity, in violation of 18 U.S.C. 1956(a)(2)(A). The second is that the defendants engaged in financial transactions in criminal proceeds with the intent to evade income taxes, in violation of 18 U.S.C. 1956(a)(1)(A)(ii), and knowing that those transactions were designed to conceal and disguise the source, ownership, and control of the proceeds, in violation of 18 U.S.C. 1956(a)(1)(B)(i).

Put more simply, this charge focuses on the defendants’ use of their extensive network of foreign companies and bank accounts to promote their business, conceal their activities and sources of income from the government, and avoid paying taxes. The money laundering conspiracy is the most serious charge in the indictment, carrying a maximum penalty of twenty years in prison.

Counts Three to Nine: Failure to File Reports of Foreign Bank Accounts, 31 U.S.C. 5314, 5322(b)

The Bank Secrecy Act requires U.S. citizens to file reports with the U.S. Treasury concerning any foreign bank accounts they own or have signatory authority over if the balance exceeds $10,000 at any time during the year. These are called foreign bank account reports, or “FBARs.” Willfully failing to file a required FBAR while engaged in other criminal activity is a ten-year felony.

Counts three to six charge Manafort with failing to file a required FBAR for the years 2011, 2012, 2013 and 2014, thus concealing his interest in multiple foreign bank accounts.  Counts seven to nine charge Gates with the same offense for the years 2011, 2012, and 2013.

Count Ten: Failure to Register as Foreign Agent, 22 U.S.C. 612, 618

The Foreign Agents Registration Act (FARA) requires persons who engage in lobbying or public relations work in the United States on behalf of a foreign principal to file detailed reports, under oath, with the Department of Justice. The reports must include the identity of the principal and the nature of the work being done. Count ten charges that between 2008 and 2014 both defendants failed to register as required by FARA for their work on behalf of the Ukrainian government and Ukrainian officials. The FARA violation is punishable by up to five years in prison.

Count Eleven: False and Misleading FARA statements, 22 U.S.C. 612, 618

FARA also makes it a crime to make false or misleading statements in connection with a FARA report. Count eleven charges that in November 2016 and February 2017, both defendants filed documents with the Department of Justice that contained false and misleading statements about their work on behalf of Ukraine. In particular, it alleges that they lied about their own role in the lobbying and falsely claimed that all such work was actually coordinated by the Centre.

Count Twelve: False Statements, 18 U.S.C. 1001

Count twelve charges essentially the same false and misleading FARA statements alleged in count eleven but charges them under a different statute, 18 U.S.C. 1001, the general false statements statute. That statute criminalizes any material false statement made in a matter within the jurisdiction of one of the branches of the federal government. It is also punishable by up to five years in prison.

Summary:

Manafort: Charged in counts 1-6 and 10-12, maximum statutory exposure 80 years.

Gates: Charged in counts 1-2 and 7-12, maximum statutory exposure 70 years.

George Papadopoulos

Criminal Charges Against George Papadopoulos

Papadopoulos pleaded guilty under seal to one count of lying to the FBI in violation of 18 U.S.C. 1001, false statements. His maximum exposure is five years, although his plea agreement indicates he may be sentenced to as little as 0-6  months.

The plea documents contain a statement of facts, which Papadopoulos has admitted as true. He admits he lied to the FBI during an interview on January 27, 2017 about his contacts with Russian individuals while working on the campaign. (Note that this interview was only a week after President Trump was inaugurated, and took place four months before Mueller was appointed Special Counsel.) During that interview Papadopoulos falsely downplayed his interactions with Russian individuals and claimed those interactions took place prior to his work on the campaign.

The plea documents contain a detailed timeline showing that Papadopoulos in fact had extensive contacts with Russian individuals while working on the campaign. These included Russian operatives with shadowy nicknames such as the “professor” and a “female Russian national” who claimed she was related to Vladimir Putin. Papadopoulos had repeated contacts with these individuals, trying to broker meetings between Russian government officials and members of the Trump campaign. They reportedly told Papadopoulos that Russia could offer “dirt” on Hillary Clinton and that they had “thousands of emails.” At one point the “female Russian national” told him, “We are all very excited by the possibility of a good relationship with Mr. Trump.”

Papadopoulos repeatedly advised other members of the Trump campaign (including an unidentified “senior policy advisor” and “high-ranking campaign official”) of his progress in his contacts with the Russians, and was encouraged to keep pursuing them. These included communications about the Russia ministry of foreign affair’s interest in a possible meeting with Trump in Russia. After repeated communications about a possible “off the record” meeting with Russian officials, a “campaign supervisor” encouraged Papadopoulos to make the trip, if feasible. The proposed trip never actually took place.

Although the Papadopoulos plea contains detailed information about his efforts to work with Russian nationals on behalf of the campaign, he is not actually charged with any crimes related to his Russian contacts. Instead, he pled guilty to lying to the FBI when interviewed about those contacts.

What to Expect Going Forward

The release of both sets of charges on the same day was a shrewd strategic move by Mueller. Manafort, who apparently has refused to cooperate, ends up indicted and potentially facing a decade or more in prison. Papadopoulos, who chose to cooperate and plead guilty, faces a single, relatively minor felony charge and may avoid jail altogether. The message to future witnesses is clear: be like George, not like Paul.

President Trump himself was quick to point out that the charges against Manafort primarily involve conduct that took place before he was involved in the campaign:

It’s true that most — though not all — of the alleged crimes in the indictment predate Manafort’s work on the campaign, but that’s largely beside the point. Mueller’s purpose, in addition to pursuing criminal charges that are fully justified in and of themselves, is to pressure Manafort into cooperating in the broader investigation. The indictment gives him the leverage to do that. As a campaign manager who also had extensive ties to Russia, Manafort may be uniquely situated to provide information central to Mueller’s investigation. He will now be under tremendous pressure to cooperate and share that information to help himself out in his own case.

The nature of the charges is particularly bad news for Manafort and Gates. These financial charges are tough to defend against. They don’t depend on a lot of nuance or witness credibility. The indictment spells out the paper trail in excruciating detail, and the jury needs only to follow the money. There are not many obvious defenses that leap off the pages of the indictment.

Manafort and Gates also need to be aware that this could be just the beginning. The allegations in the indictment suggest other potential charges that have not yet been filed, including tax crimes and bank fraud. Mueller’s team always has the option of bringing a superseding indictment to add more charges. It’s also possible the New York Attorney General could file state charges — and those would be outside the reach of President Trump’s pardon power.

The case against Manafort and Gates will move forward now in the ordinary course, with motions, discovery, and potentially a trial. It will occupy the time of a couple of members of Mueller’s team, but the rest will continue to move the broader investigation forward. Either or both of the defendants could decide to plead guilty at any time. Presumably they will have discussions with the Special Counsel’s office about possible cooperation — a prospect that has to make others involved in the campaign extremely uneasy.

A “Proactive Cooperator”

As for Papadopoulos, there has been a lot of speculation about what his cooperation over the past few months may have entailed. It’s all guesswork for now  – but keep in mind that Mueller had him charged under seal, to keep it a secret. One reason to do that would be if Papadopoulos was covertly assisting in the investigation. Speculation that this might have happened was further fueled by a paragraph in his plea agreement referring to him as a “proactive cooperator.”

Whether Papadopoulos actually worked with the FBI will be revealed in due course. It’s certainly possible that investigators could have had him make recorded phone calls, or arrange meetings with other targets while wearing a wire, to talk about the events under investigation. Or his cooperation may have simply involved providing testimony and documents about past conduct.

The other important aspect of Papadopoulos’s case is the detailed timeline and statement of facts in support of his plea. Although it contains pseudonyms like “senior campaign official,” everyone knows that Bob Mueller’s team knows who those people are. Investigators appear to know in great detail what happened during the campaign. And if future witnesses try to come in and lie to them, they will find themselves in the same boat as Papadopoulos. Once again, the strength of the charges and the amount of detail in the documents sends a clear signal that these investigators aren’t playing around and won’t be easily fooled.

The documents in Papadopoulos’s case don’t prove that collusion with Russia took place — although to steal a phrase from John Dickerson, they certainly establish that the Trump campaign was “collusion curious.” Whether any collusion or attempted collusion that did take place actually amounts to a crime is yet another question. But the guilty plea does make it clear that Mueller’s team is deep into examining the operations of the campaign and potential ties to Russia, and already knows a great deal.

Finally, the release of Papadopoulos’s documents further highlights the jeopardy in which Manafort finds himself. There is widespread agreement that the “senior campaign official” referred to in Papadopoulos’s plea is Manafort, who is now on notice that Mueller has an insider telling him all about the campaign, Russia, and the role played by Manafort and others. If Manafort ends up meeting with Mueller’s team about those issues, he knows he can’t get away with hiding the ball.

Mueller’s team appears to be pursuing a classic investigative strategy of building cases against lower-level players, persuading the to “flip” and cooperate, and moving up the ladder. Whether Manafort flips or not remains to be seen, but regardless, there’s every reason to believe the Special Counsel is just getting started.

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Update: Former Speaker Dennis Hastert Sentenced to 15 Months in Prison

Former Speaker of the House Dennis Hastert was sentenced today to fifteen months in prison, following a hearing in which the federal judge called Hastert a “serial child molester.” He was also ordered to pay a $250,000 fine and to undergo sex-offender treatments.

Hastert pleaded guilty last October to one count of illegally structuring his bank transactions in order to avoid questions about his large cash withdrawals. Hastert was withdrawing tens of thousands of dollars at a time to pay “hush money” to a man Hastert sexually abused decades ago when Hastert was a high school wrestling coach and the victim was a teenager. Evidence at the hearing revealed several additional instances of Hastert’s sexual abuse of teenage boys while he was a coach.

Hastert had lied to investigators when he was first approached about his large cash transactions, telling them he was being extorted.  Investigators soon determined that was not the case and that Hastert had been voluntarily paying the man in order to keep him from going public with the abuse allegations.

Hastert’s attorneys had asked that the 74-year-old be spared from prison based on his poor health – he appeared in court in a wheelchair – and on the fact that he had already been disgraced. But the judge concluded that the seriousness of the sexual abuse, coupled with Hastert’s initial lies to federal investigators, justified a serious punishment.  (The maximum sentence for the structuring charge was five years.)

You can read my earlier post about the details of the Hastert prosecution here.

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DOJ Doubles Down on the FIFA Indictment

This past May the U.S. Department of Justice stunned the international sports world by unveiling a 161 page, 47 count federal indictment charging widespread corruption within the Federation Internationale de Football Association (FIFA), the global soccer organization. Last week, DOJ made it clear that the May indictment was merely the tip of the FIFA corruption iceberg.

The original indictment charged fourteen defendants: nine current and former FIFA officials, four sports marketing executives, and one intermediary. (I wrote about that indictment in a post you can find here.) Now a superseding indictment, unsealed last week, has added sixteen additional FIFA defendants and has nearly doubled the number of charges: the new indictment runs 236 pages and contains 92 felony counts. (The DOJ press release and a link to the superseding indictment can be found here.)

A superseding indictment, as the name implies, replaces the original indictment in a case that is already pending. It generally means the grand jury has continued to investigate and has voted to add additional charges, additional defendants, or — as in this case — both.

The fundamental nature of the case remains the same: senior FIFA officials and officials within FIFA’s constituent organizations are alleged to have accepted more than $200 million in bribes and kickbacks in exchange for being influenced in awarding lucrative sports marketing contracts, rigging FIFA elections, agreeing to participate in certain competitions, and awarding the right to host soccer’s premier event, the World Cup.

When the superseding indictment was unsealed, DOJ also announced that eight additional defendants have pleaded guilty since the first indictment, bringing the total number of known guilty pleas to fourteen. Three of the eight – Jeffrey Webb, a former senior FIFA official; Alejandro Burzaco, former manager of an Argentinian sports marketing company; and José Marguilies, who acted as an intermediary for bribe payments – were among the fourteen defendants charged in the original indictment. Due to their pleas, they are not charged in the superseding indictment. The remaining five new guilty pleas came from FIFA officials and sports executives who waived indictment and pleaded guilty under seal.

The sixteen new defendants thus join the eleven remaining original defendants in the superseding indictment. Although the basic nature of the allegations is unchanged, the superseding indictment against the (now) twenty-seven defendants dramatically expands the universe of charges, including not only charges against the new defendants but also additional charges against the original defendants.

The FIFA superseding indictment greatly expands the conspiracy case

The Structure of the FIFA Superseding Indictment

Despite its length, the superseding indictment, like the original, consists almost entirely of three types of charges:

  • The Racketeer Influenced and Corrupt Organizations Act (RICO)
  • Money laundering and money laundering conspiracy
  • Wire fraud and wire fraud conspiracy

A massive RICO conspiracy lasting for more than twenty years continues to be the heart of the indictment. RICO is the statutory glue that allows the many different corruption schemes and far-flung defendants to be joined together in a single prosecution.

RICO requires that the defendants conducted of the affairs of an “enterprise” through a pattern of racketeering activity. As in the original indictment, the government charges that FIFA, its six continental confederate organizations, and other soccer organizations and sports marketing companies together constitute a single RICO enterprise, bound together by the common purpose and goal of promoting soccer worldwide. Because FIFA soccer organizations are present in more than 200 countries and territories around the world, this RICO enterprise is undoubtedly one of the most sweeping ever charged.

The alleged enterprise includes all six of FIFA’s continental confederate organizations, including those governing soccer in Asia, Africa and Europe. Almost all of the alleged corruption, however, relates to officials and events in only two of those organizations: CONCACAF, the confederation covering North and Central America and the Caribbean; and CONMEBOL, the confederation covering South America. (The United States Soccer Federation is a member of CONCACAF.)

To establish the required “pattern of racketeering activity,” the indictment alleges a series of different corruption schemes involving various soccer tournaments, different sports marketing and media agreements, and events such as the selection of the host city for the World Cup. The original indictment charged twelve such schemes. The superseding indictment has expanded one of those schemes and added three new ones, for a total of fifteen.

The individual criminal schemes are charged using two principal statutes: wire fraud and money laundering. The essence of each scheme is a series of bribes and/or kickbacks involving FIFA officials or officials from FIFA member organizations, along with financial transactions designed to facilitate or disguise the payments. Most of the alleged bribes were paid by individuals (a number of whom have been indicted or have pleaded guilty) seeking lucrative contracts for soccer media and marketing rights or to have certain countries participate in tournaments they were promoting.

To charge bribery and kickbacks the indictment uses honest services wire fraud, charging that various officials violated the duty of honest services they owed to FIFA and its member organizations. (For a more detailed analysis of the use of honest services fraud to charge bribery, see my posts here and here.)

The money laundering charges stem from financial transactions, many of them international wire transfers, used to facilitate the bribe payments and/or to conceal those payments. The defendants are accused of using various intermediaries, secret bank accounts, shell companies, and other methods to disguise the nature, source and ownership of the funds involved in various bribery transactions. They are also charged with transmitting funds across the U.S. border in order to promote their criminal activity, a form of international money laundering.

Following the overarching RICO conspiracy charge that encompasses all defendants, the great bulk of the indictment consists of a series of wire fraud and money laundering charges related to each of the fifteen different schemes in turn. Each of these schemes involves a different set of corruption allegations and a different combination of defendants. There are also a handful of additional charges, including tax fraud and obstruction of justice, that apply to only a couple of the defendants.

soccer balls

What’s New in the Superseding Indictment

The most significant change in the superseding indictment is, of course, the addition of the sixteen new defendants. All of the new defendants are current or former FIFA or FIFA-affiliated officials, seven from CONCACAF and nine from CONMEBOL.

The superseding indictment answers a lot of questions that were raised by the original charges in May. That first indictment included many allegations that described the criminal acts of anonymous individuals identified only by number, as in “co-conspirator #1” and “co-conspirator #2.” The superseding indictment includes many of those same allegations, but with formerly anonymous co-conspirators now identified as among the new defendants. As a result, a fuller picture of many of the corruption allegations has started to emerge.

The other significant change is the addition of three entirely new corruption schemes and the expansion of a fourth. One new scheme, titled “CONMEBOL Copa Libertadores Scheme #2,” charges a number of CONMEBOL officials with accepting millions of dollars in bribes over more than a decade in connection with selling the broadcast rights to a popular South American soccer tournament. A second, titled the “UNCAF Region Friendlies Scheme,” alleges that FIFA officials in El Salvador, Guatemala, Costa Rica and elsewhere accepted bribes in exchange for agreeing to participate in various “friendlies” soccer matches organized by private promoters. (UNCAF is a regional federation within CONCACAF that includes the soccer organizations of countries in Central America.)

The third new scheme, the “CONCACAF Media and Marketing Rights Scheme,” charges that several CONCACAF officials accepted hundreds of thousands of dollars in bribes in connection with an unsuccessful attempt to influence the sale of the media marketing rights to CONCACAF tournaments. It also alleges that various conspirators — including current FIFA vice president and CONCACAF president Alfredo Hawit — obstructed justice in July 2015, following the first indictment, by creating phony contracts and other documents to attempt to conceal their participation in this scheme.

Finally, the superseding indictment greatly expands the allegations in a scheme contained the original indictment titled the “UNCAF Region World Cup Qualifiers Scheme.” The scheme alleges that soccer officials from nearly every country in Central America solicited and accepted hundreds of thousands of dollars in bribes in connection with the sale of the media rights to their country’s World Cup qualifying matches.

The Nature of the Case and What to Watch Going Forward

The superseding indictment seems to take great pains to describe the effect of the FIFA corruption scheme on the United States. As did the original indictment, it stresses that a number of financial transactions related to the bribe payments were routed through U.S. banks. A number of the new charges also emphasize how some soccer matches in tournaments that were the subject of various bribe schemes were played in the U.S., or how the U.S. media market made up a significant portion of some media rights that were the subject of bribes, or how some bribes were actually paid within the U.S. These details may help address questions that have been raised over whether the United States was really the appropriate place to prosecute a massive corruption scheme in which the overwhelming majority of criminal acts took place in other countries.

The heart of the case remains bribery, on a massive and worldwide scale. The “victims” in a bribery case often do not suffer any identifiable economic damages. For example, if a Congressman takes a bribe in exchange for awarding a defense contract, the money for the bribe comes not from the Congressman’s constituents but from the bribe payer. The constituents are harmed not by losing money but in a more intangible way: by losing their right to the fair, honest, and unbiased services of the person elected to represent them. The harm is more diffuse; the damage is the corruption of the system, not a direct monetary loss as in a fraud case.

Similarly, in the FIFA case, the principal harm is the deprivation of the right of various FIFA member organizations and individuals to the honest and impartial services of the FIFA defendants who were supposed to represent their interests, and the resultant corruption of the entire FIFA decision-making process. The indictment does suggest other types of harm as well; for example, the wire fraud allegations claim that the defendants deprived their victims not only of the intangible right to honest services (the bribery allegation) but also of tangible money or property. But how this deprivation of money or property allegedly took place is never spelled out, and it appears that honest services fraud is definitely the primary theory.

There is one very interesting paragraph in the superseding indictment that did not appear in the original. It appears in the description of the racketeering conspiracy and is titled “Embezzlement and Misappropriation.” It alleges that “The conspirators’ corruption of the enterprise extended beyond the payment and receipt of bribes and kickbacks,” and notes that FIFA maintained hundreds of millions of dollars in various programs intended to benefit its member organizations, including youth leagues. It further alleges that certain defendants, including former CONCACAF executives Jack Warner and Jeffrey Webb, embezzled or otherwise misappropriated some of these funds, “including funds intended for natural disaster relief.”  News reports suggest this last clause refers to alleged embezzlement of funds intended to aid the victims of the 2010 earthquake in Haiti.

But after unveiling this tantalizing new allegation, the indictment provides no further detail and no specific charges related to this embezzlement. The DOJ press release concerning the superseding indictment does not mention embezzlement at all. We will have to await further developments to learn more details about any such misappropriation of FIFA funds, whether related to natural disaster relief or otherwise. Webb has already pleaded guilty and may well be a key source of this information for the prosecution.

The defendants who have pleaded guilty have agreed to forfeit more than $40 million, and DOJ is seeking tens of millions more in forfeiture. Typically, forfeited proceeds would go to the U.S. treasury, but this case is a bit unusual because the U.S. and its citizens are not the primary victims of most of the alleged misconduct. The DOJ press release notes that all forfeited money is being held in reserve so it can be used to satisfy any future orders of restitution entered at sentencing, “for the benefit of any individuals or entities that qualify as victims of the defendants’ crimes under federal law.” This could mean that some of the forfeited money ends up being distributed to the soccer organizations outside the U.S. whose officials were involved in the corruption.

The eight additional guilty pleas that DOJ announced last week are significant. Most, if not all, of these defendants are likely cooperating in the ongoing investigation, providing DOJ with information and testimony that will allow it to pursue the corruption allegations even further.

But in terms of the future of the investigation, the most significant thing to note about the superseding indictment is that it contains references to another 24 still unnamed and unidentified co-conspirators. That means there are at least two dozen more potential defendants out there – some of whom likely have already pleaded guilty under seal and are cooperating as the grand jury investigation continues.

And that means when it comes to FIFA corruption, the Department of Justice is just getting warmed up.

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From Speaker to Smurf: Examining the Charges Against Dennis Hastert

The criminal charges against Dennis Hastert include structuring and false statements

Former Speaker of the House Dennis Hastert

The criminal charges against former Speaker of the House Dennis Hastert have raised some interesting questions, including questions about whether the case should have been brought at all. Hastert was arraigned last week in Chicago on an indictment charging him with one count of illegal structuring of bank transactions and one count of lying to the FBI. Hastert served in Congress from 1981 to 2007 and was Speaker from 1999 to 2007.

The indictment charges that over several years Hastert withdrew large amounts of cash in order to make payments to someone identified only as “Individual A.” Hastert allegedly had agreed to pay Individual A $3.5 million to compensate for, and keep concealed, prior misconduct by Hastert against Individual A. Although the indictment does not reveal the nature of the misconduct, several news outlets have reported that it involved Hastert sexually abusing a male student when Hastert was working as a high school teacher and wrestling coach in Yorkville, Illinois between 1965 and 1981.

From June 2010 through April 2012, Hastert allegedly made fifteen separate withdrawals of $50,000 in cash from several different banks and gave that cash to Individual A. Federal regulations require banks and other financial institutions to report any cash transactions in excess of $10,000, and in April 2012 the banks apparently questioned Hastert about the large cash withdrawals.

After the banks started asking questions, Hastert allegedly began withdrawing cash in amounts just under $10,000, in order to avoid the bank reporting requirements. The indictment charges that he made at least 106 such withdrawals between 2012 and 2014, again providing all the cash to Individual A. Hastert is alleged to have paid a total of $1.7 million in cash to Individual A over more than four years.

In December 2014, the FBI interviewed Hastert concerning his unusual banking transactions. During that interview, Hastert told the FBI agents he made the withdrawals because he did not trust the banking system and that he was keeping the cash for his own use.

IMG_7470

The Criminal Charges Against Dennis Hastert 

Structuring: The structuring statute that Hastert is charged with violating, 31 U.S.C. § 5324, is part of the system of laws and regulations used to combat money laundering. In today’s economy, legal transactions involving large amounts of currency are relatively rare. But certain kinds of criminal activity, such as narcotics trafficking and organized crime, may generate enormous quantities of cash.

Having all of this cash is no fun if you can’t spend it without arousing suspicion. Criminal operations therefore need to get their cash into the legal financial system and make it appear legitimate. That’s where the money laundering laws come in. Money laundering takes aim at criminal activity from a different direction: it focuses not on the crimes that generate the money but on trying to freeze criminal proceeds out of the banking system and make it impossible for criminals to enjoy the fruits of their illegal activity.

As part of this effort, banks are required to file a Currency Transaction Report (“CTR”) providing details about any cash transaction in excess of $10,000. This allows the government to track large flows of currency through the economy – not because dealing in cash is illegal, but because it is unusual and suggests potential criminal activity. The filing of a CTR does not mean a crime has been committed. It is simply a flag that something is going on that might merit a closer look.

Criminals would obviously prefer that CTRs not be filed, because they do not want to draw attention to themselves and their large, unexplained piles of cash. Thus the crime of structuring was born.

Suppose I am a drug dealer with $100,000 in cash from my illegal drug operations. I’d like to get that cash into a bank account so I could write checks, make wire transfers, and otherwise spend it without arousing suspicion. But if I take my duffel bag full of $100,000 in white-powder-encrusted tens and twenties and plop it down on the bank teller’s counter, people are (hopefully) going to start asking uncomfortable questions – not to mention filing CTRs.

One way I can avoid this problem is to get eleven of my associates to take $9,000 each and deposit the money in eleven different banks. No CTRs will be filed, and all of my money is now in the banking system ready for me to enjoy. This is the crime of structuring: designing your bank transactions specifically to avoid the filing of CTRs.  It applies to both deposits and withdrawals.

Structuring is also known as “smurfing,” from the cartoon involving those cute little blue creatures, “The Smurfs.” I’m not sure how this nickname arose, but it may have to do with the image of many people scurrying around town to different banks to make deposits, just as the Smurfs used to scurry around their little Smurf village doing . . . whatever Smurfs do.

Hastert appears to have been engaged in textbook smurfing. He was withdrawing $50,000 in cash at a time, until the bank started asking questions. Then he deliberately reduced the amount of his withdrawals to just under $10,000, in order to avoid any more questions and to avoid the filing of CTRs.

False Statements:  The other charge in the indictment is a violation of 18 U.S.C. § 1001, false statements. This is a widely-used white collar statute that prohibits knowingly providing material false information to the government. It differs from, and is much broader than, perjury, because statements do not need to be under oath. Lying to the FBI during an interview about something material to their investigation falls squarely within § 1001, and that is the basis of the charge against Hastert.

hastert headshot

Issues Raised by the Hastert Indictment

One thing I find remarkable about this and many other white collar cases is that an accomplished and savvy person – in this case, someone who for years was third in line to be U.S. President — ends up committing such a dumb crime. As a former Member of Congress, Hastert had to know that his cash transactions would raise flags. Even if he were determined not to leave a paper trail by simply writing checks, he could have used any number of more sophisticated and still secret ways to pay off Individual A. And when the FBI comes calling, why not decline to be interviewed, or simply call your lawyer? Is there some hidden, psychological desire to be caught involved here? If Dostoevsky were still around and had a blog, he’d have a field day.

An interesting question that remains unanswered is: how did the government learn about Individual A and his deal with Hastert? A bank report likely led the FBI to focus on Hastert’s financial transactions, but how did they progress from learning about the cash withdrawals to learning what Hastert was doing with the money? Did Individual A came forward independently (seems unlikely) to report the arrangement to the FBI? Did they tail Hastert and witness him making a payment to Individual A? Did they use phone records or some other investigative tool? We don’t yet know.

A related question concerns the treatment of Individual A by the prosecutors. Will he be charged with any crimes? Has he already pleaded guilty, with the proceeding under seal? Or did the government conclude that he committed no crime, or agree to grant him immunity?

Some have argued that Individual A was plainly guilty of blackmail or extortion, and some (including Hastert himself) have suggested that Hastert was a victim, too. But we would need to know a lot more about the dealings between Hastert and Individual A, and how their arrangement came about, before making such a judgment. A mutual, consensual agreement, similar to an out-of-court settlement, would not amount to extortion.

Although there are lots of questions, it appears we won’t learn much more about Individual A any time soon, if ever. Prosecutors apparently have sought a protective order to cover any information they provide to the defense, to ensure that no one not involved in the case can see the material. If prosecutors have some kind of agreement with Individual A, it appears to include preserving his privacy for as long as possible.

Another interesting aspect of the case is the somewhat unusual application of the structuring laws. The money involved in Hastert’s cash transactions was not generated by criminal activity; this was “clean” money that legitimately belonged to Hastert. To that extent, the structuring charge falls outside of the heartland of activity at which the statute was primarily aimed.

Nevertheless, Hastert’s actions are a clear-cut case of smurfing. Unlike some other money laundering statutes, structuring does not require that the money involved be criminal proceeds. The purpose of the law is simply to enable the government to track large flows of cash through the banking system. Structuring thwarts that government interest, whether the money is clean or dirty. Even if the source of the cash is perfectly legal, large withdrawals may be a sign of other criminal activity.

The government had legitimate reasons to be questioning Hastert’s cash withdrawals. The transactions could have indicated that he was being extorted, perhaps even over something related to his time in Congress, or that he was involved in some other kind of criminal activity.   That the government was asking these questions does not indicate any kind of overreach.

Should Hastert Have Been Prosecuted?

The issue then becomes whether, once the nature of the transactions was revealed, criminal charges should have been filed. In the wake of the indictment, some have questioned the decision to prosecute. They argue that Hastert appears to be a victim, that as a former powerful politician he has been unfairly singled out, and that the case is not a wise use of prosecutorial resources.

It’s certainly true that not every instance of structuring results in a criminal prosecution. And if every witness who lied to the FBI during an interview were charged with false statements, federal prosecutors would have time to do little else.

Deciding whether to file charges in such a case requires the sound exercise of prosecutorial discretion. On this point I agree with another former AUSA, Jeffrey Toobin, who wrote in the New Yorker that he would not have hesitated to bring this case.

A number of factors would enter into the charging decision. One would be the length of time and the number of violations – more than a hundred structured transactions over more than two years. This was not a one-off situation; Hastert knew what he was doing and did it repeatedly over a long period of time.

Another factor would be the nature of the misconduct that Hastert was concealing. Any sexual abuse that took place while he was a high school teacher could almost certainly not be prosecuted now due to the statute of limitations. But if Hastert committed more recent crimes in order to cover up that activity, prosecuting those crimes can serve the interests of justice.

Prosecution of cover-up crimes such as false statements or obstruction of justice does sometimes serve to ensure that defendants who committed crimes that are too old to be prosecuted do not entirely escape punishment. Particularly where the past criminal conduct was so egregious, that would weigh heavily in the decision about whether to prosecute. To me, at least, as a prosecutor this charging decision would feel very different if Hastert had been covering up past conduct that was legal but just embarrassing, such as an extra-marital affair.

Another factor in the charging equation would be Hastert’s outrageous lies to the FBI. This was not a hapless, unsophisticated defendant ensnared by some wily FBI agents. A former Member of Congress knew what he was doing, knew his legal options in terms of talking to the FBI, and knew the potential consequences of lying.

It’s also worth noting that the prosecutors, if they were truly vindictive and out of control, could have been a lot harder on Hastert. They likely could have charged him with more than 100 counts of structuring, one for each withdrawal. Instead they chose to charge the entire two-year structuring scheme as a single count, exposing him to a maximum of five years in prison for structuring rather than more than 500.

Personally I find it hard to feel sorry for Hastert. But to the extent the critics are correct and Hastert deserves some sympathy for the situation he was in, those considerations may be taken into account when it comes to sentencing, or in fashioning an appropriate plea agreement.  That doesn’t mean the charges themselves were not fully appropriate.

And finally, speaking of plea agreements, a quick guilty plea is by far the most likely outcome in this case. There’s not much in the way of a defense apparent from the indictment, and Hastert will almost certainly want to avoid a public trial where Individual A would testify about the past misconduct and their agreement. Hastert’s best chance to avoid that information becoming public is to take a quick plea.

But whether or not that happens, information like this has a way of coming to light. I expect before the case is over we will know a great deal more about Individual A and the circumstances that brought Hastert to this unhappy point.

Update 10/28/15:  Hastert today pleaded guilty to one count of structuring his banking transactions. 

Update 4/27/16: Hastert was sentenced today to fifteen months in prison, followed by two years of supervised release. He was also ordered to receive sex-offender treatments and pay $250,000 in fines. 

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Charges and Issues in the FIFA Indictment

Trying to wade through the indictment in the FIFA criminal case is a bit like reading a Game of Thrones novel: there are so many different characters, schemes, kingdoms and sub-plots that it’s easy to become lost.

The 161-page, 47-count federal indictment was unsealed in the Eastern District of New York last week.  (The DOJ press release and a link to the indictment can be found here.)  It alleges a more than twenty-year history of rampant corruption within the Federation Internationale de Football Association (FIFA), the global soccer organization based in Switzerland.

FIFA’s mission is to develop and promote the sport of soccer internationally. There are 209 member associations, each representing soccer in a particular territory or country.  The individual member associations are grouped into six continental confederate organizations, each of which assists with governing soccer in a different area of the world. For example, CONCACAF, the North American organization, is a major focus of the indictment. It has forty-one members, including the United States Soccer Federation, and is headquartered in Miami.

The indictment charges fourteen defendants: nine current and former FIFA officials, four sports marketing executives, and one man who acted as an intermediary. (A helpful summary describing the different defendants can be found here.)  In addition to the fourteen defendants, the indictment names twenty-five unindicted co-conspirators and describes no fewer than twelve different corruption schemes taking place around the world over the past two decades. FIFA officials are alleged to have accepted more than $150 million in bribes in exchange for being influenced in awarding lucrative marketing and television contracts, rigging FIFA elections, and awarding the right to host soccer’s premier event, the World Cup.

FIFA logo: the FIFA criminal case alleges a global corruption conspiracy

The FIFA Criminal Case

Although it’s lengthy, the bulk of the charges in the indictment fall into only three categories:

  • The Racketeer Influenced and Corrupt Organizations Act (RICO)
  • Money laundering and money laundering conspiracy
  • Wire fraud and wire fraud conspiracy

RICO:  The heart of the indictment is an overarching and massive RICO conspiracy lasting more than twenty years and including all fourteen defendants. RICO was passed in the early 1970’s as part of the effort to battle organized crime. It doesn’t really define a new crime so much as criminalize ongoing and organized patterns of already criminal behavior. Over the years, as a result of its expansive language and some equally expansive Supreme Court decisions, RICO has become essentially a glorified conspiracy statute — although considering its twenty-year penalty and provision for forfeiture, maybe it’s more accurate to call RICO conspiracy on steroids.

The use of RICO in white collar cases is sometimes criticized as unnecessary and heavy-handed; a statute aimed at bringing down the mafia does not really seem called for in most white collar crimes. But the scope and magnitude of the FIFA corruption makes it an ideal RICO case. The powerful RICO statute allows the prosecution to bring in all members of a global criminal conspiracy, along with evidence of the criminal acts they committed all around the world, and prosecute everything in a single location.  Although FIFA, unlike an organized crime family, is not primarily a criminal organization, the scope and depth of the alleged criminal conduct makes it the type of case for which RICO was born.

RICO requires that the defendants participate in the conduct of the affairs of an “enterprise” through a “pattern of racketeering activity.” The enterprise may be a single legal entity, such as a corporation, or it may be a group of individuals or entities “associated in fact” for a common purpose.  In this case, the government has alleged that FIFA and its six continental confederate organizations together form an “association in fact” enterprise, bound together by their common mission of promoting soccer around the world. (Considering FIFA’s global reach, this must be one of the most sweeping RICO enterprises ever charged.)

The “pattern of racketeering activity” element requires that the defendants participated in the conduct of the enterprise’s affairs through a sustained pattern of criminal acts. Here the government charges that the pattern consisted primarily of three types of crimes: bribery and kickbacks, wire fraud, and money laundering.

Wire fraud and wire fraud conspiracy: At its core, the FIFA case is about bribery. But the federal bribery statute applies only to federal government officials and those acting on the government’s behalf. FIFA is a private organization, and even FIFA officials located within the United States would not be covered by the federal bribery law.

Accordingly, to charge bribery of officials within a private sector organization, the indictment relies on honest services wire fraud. The wire fraud statute criminalizes the use of an interstate wire or wireless transmission in furtherance of a “scheme or artifice to defraud.” This commonly involves a scheme to obtain money or property from a victim. However, wire fraud also may be used to charge a defendant who engages in a scheme to deprive another of the intangible right of “honest services.”  Honest services fraud is a popular vehicle for charging bribery involving state or local public officials, as well as private sector bribery.

A duty of honest services arises when there is a relationship of trust and responsibility between the parties that gives rise to special obligations of loyalty and candor that do not arise in ordinary contractual or arms-length relationships. The most common private sector example is the duty of honest services that an employee owes to an employer. Those who accept bribes in exchange for violating that duty may be found to have committed honest services fraud.  (For a more detailed discussion of the law of honest services fraud, see my earlier post here.)

The FIFA officials are charged with violating the duty of honest services that they owed to FIFA and its member organizations by accepting bribe payments in exchange for the exercise of their official powers concerning the awarding of contracts for sports marketing and other decisions. The non-FIFA defendants, as the bribe payers, are similarly charged with causing the FIFA defendants to violate those duties. As a legal matter this is a relatively straightforward application of honest services fraud. There is little doubt that FIFA officials did owe a duty of honest services to the organization, and if they did accept the bribes as alleged it would be a clear violation of that duty.

Wire fraud also requires that there be a wire or wireless transmission in furtherance of the fraud. The indictment relies primarily on bank wire transfers, many of them international and involving U.S. banks, that allegedly were used to facilitate the bribe payments.

Money laundering and money laundering conspiracy:  The money laundering statutes prohibit engaging in financial transactions involving criminal proceeds in order to conceal the nature, origin, source, or ownership of those proceeds, and also prohibit transporting fund across the U.S. border in order to promote certain kinds of criminal activity. The FIFA indictment charges many of the defendants with both kinds of money laundering: they are accused of using various intermediaries, secret bank accounts, shell companies, and other methods to disguise the source and ownership of various bribe payments, and with transmitting funds across the U.S. border to promote their underlying criminal activity of wire fraud.

Once again, if the allegations of the indictment are true, these seem like strong and uncontroversial money laundering charges.

Other charges: Eugenio Figueredo, a current FIFA vice president, alone is charged with falsifying documents in connection with his application for U.S. citizenship and with five counts of tax fraud. And Aaron Davidson, a sports marketing executive, alone is charged with one count of obstruction of justice for alerting other co-conspirators during the grand jury investigation to the possibility that their conversations were being recorded.

 Soccer_ball_on_ground

Other Issues and Questions in the FIFA Case

On the same day the indictment was unsealed, the government also unsealed the guilty pleas and criminal charges of four other individual defendants and two corporations. These guilty pleas date back to mid-2013 and had remained under seal. That suggests the defendants who pleaded guilty likely were cooperating in the investigation for some time, including recording conversations with their co-conspirators. Such evidence can be crucial to building a complicated conspiracy cases and will be very important at trial.

A case this large will take some time to unfold. Seven of the defendants were arrested in Switzerland at the same time the indictment was being unsealed in the United States, and the process of extraditing those defendants alone could take months. One would also expect a number of additional guilty pleas, as other co-conspirators seek to cooperate with the prosecution and reduce their own potential criminal exposure.

It’s noteworthy that the FIFA case is being prosecuted in the United States.  Most of the defendants are not U.S. citizens, and much of the alleged criminal activity took place in other countries. Soccer is not nearly as big in the U.S. as it is in much of the world. One could argue that FIFA corruption should not really be a U.S. priority. But this appears to be one of those, “If not us, then who?” situations – most of the other nations affected simply could not hope to bring such a case. FIFA affects hundreds of millions of people and billions of dollars of economic activity world-wide, and although the corruption was deplored for years, nothing much had been done about it. It took the prosecutorial chops and criminal laws of the U.S. finally to put together such a massive global prosecution.

(As an aside, the Swiss government has opened a separate investigation into allegations of corruption in connection with the selection of the sites for the next two World Cups – Russia in 2018 and Qatar in 2022.  There were immediate cries of foul after the selection of Qatar, a country with a spotty record on human rights and where it gets so hot during World Cup season that soccer balls — not to mention soccer players — are known to melt spontaneously.  It’s hard to understand such a choice unless someone was getting paid off. These specific allegations are not, however, part of the U.S. indictment.)

The Department of Justice has been pretty aggressive in recent years about asserting jurisdiction over criminal acts that took place in other countries, particularly in cases involving terrorism and the Foreign Corrupt Practices Act. That expansive assertion of extraterritorial jurisdiction  has been criticized on occasion. In this case, though, because so many of the corrupt payments went through the U.S. banking system and because of CONCACAF’s location in the U.S., there should be little question about the appropriateness of U.S. criminal jurisdiction.

What I find more interesting is the question of where within the U.S. the case is being prosecuted. The case was investigated and indicted in the Eastern District of New York, the district that covers Long Island and where the new Attorney General, Loretta Lynch, previously served as U.S. Attorney. I’ve seen some commentary suggesting that the E.D.N.Y may have been awarded the case based on its relationship with the new Attorney General, but that doesn’t make much sense. This investigation had been going on in that district for several years, long before anyone knew that Ms. Lynch would be the Attorney General. It’s not as though she moved to D.C. and then decided to hand the prosecution to her former colleagues.

But reviewing the indictment, one is left to wonder how exactly the case ended up where it did. Proper venue in criminal cases is not just a matter of convenience or choice; the Constitution requires that criminal cases be brought in the state in which the offense took place. So although the U.S. may have federal criminal jurisdiction, the question remains which court or courts within the U.S. would have venue.

It appears there would be several other, more logical venues than the E.D.N.Y. For example, CONCACAF, the North American FIFA federation, has its headquarters in Miami (and the FBI executed a search warrant there the day the indictment was unsealed). A number of the bank wire transfers that form the basis of the wire fraud charges also went through Miami banks, and meetings of conspirators and other events are alleged to have taken place there as well. The Southern District of Florida seems a much more logical location for the case.

The Southern District of New York in Manhattan, right next door to the E.D.N.Y., would be another likely venue. When jurisdiction is based in large part on use of the U.S. banking system, the Southern District, as the nation’s financial capital, is often the forum of choice.

The indictment is pretty vague concerning what relationship there is between Brooklyn (the heart of the Eastern District of New York) and the actions of the FIFA co-conspirators. For RICO and the other conspiracy charges, as long as there is at least one overt act in furtherance of the conspiracy within the E.D.N.Y, venue should not be an issue. But for some of the non-conspiracy charges it’s not at all clear on the face of the indictment why venue is proper in the Eastern District of New York.

In some circumstances, if criminal acts do not fall within the jurisdiction of any particular state, venue will be considered proper in any district in which the defendant is first arrested or brought.  Perhaps the government hopes to rely on this argument by ensuring that when the defendants arrested in Switzerland are extradited to the U.S. their plane lands at JFK or LaGuardia – both of which are within the E.D.N.Y.  But it’s unclear whether that argument would be successful.

It’s possible the case ended up where it is partly by accident. The New York Times reported that the case originally arose out of an unrelated investigation in New York concerning Russian organized crime. Perhaps that original unrelated case had a clearer connection to Brooklyn, but once the prosecutors started focusing on the FIFA allegations that emerged they were reluctant to give the case up. Or perhaps, as sometimes happens, there was a “turf battle” between different U.S. Attorney’s offices over which should take the case, and the E.D.N.Y. prevailed. In any event, it’s going to be interesting to see whether any of these venue issues end up forming the basis for defense motions and possible trouble for the prosecution.

*  *  *

It will be fascinating to watch how the FIFA case plays out over the months to come.  For now, the indictment tells a remarkable and gripping tale of worldwide greed and corruption.  Maybe HBO will turn it into a television series — all it needs is a little gratuitous sex and violence.  And maybe a dragon.

dragon

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