What Every Accountant Needs to Know About the Chris Davis Gray Reed – White Collar Practice Group

2019 CE Symposium – October 24, 2019 Chris Davis

Gray Reed • Partner, White Collar Defense Education • B.B.A., Baylor University • J.D., The University of School of Law Before Joining Gray Reed … • Senior Trial Counsel in the SEC's Fort Worth Regional Office Agenda

I. What is the Travel Act and why do we care? II. Traditional state law predicates III. Expansion to other state law violations IV. Combination with other federal laws V. Recent expansion in healthcare VI. Potential culpability of advisors VII. Looking forward VIII. Practice tips What is the Travel Act?

• Passed in 1961 as a new tool for the Federal Government to pursue racketeering activity • Federal efforts to pursue organized crime frustrated due to it being on a localized level • Criminal activities the Federal Government wanted to pursue: gambling, liquor, prostitution, narcotics and public • Often committed locally and did not involve interstate commerce or otherwise violate a federal statute “In summary, our information reveals numerous instances where the prime mover in a gambling or other illegal enterprise operates by remote control from the safety of another State – sometimes half a continent away. He sends henchman to the scene of operations or travels himself from time to time to supervise the activity and check on his underlings. As for the profits, he receives his share by messenger.” ‐ U.S. Attorney General Robert Kennedy Travel Act Offense

The Travel Act provides that:

Whoever travels in interstate or foreign commerce or uses the mail or any facility in interstate or foreign commerce, with intent to‐ (1) distribute the proceeds of any unlawful activity; or (2) commit any crime of violence to further any unlawful activity; or (3) otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity, and therefore performs or to perform.. an act [as further described] . . . shall be imprisoned . . .

• “unlawful activity” includes and bribery, as described by state law. Elements Of Travel Act Offense

1. Interstate element • Mailings • Wirings/Use of wires • Travel • Email/Internet • Courts are in agreement defendant need not have know about interstate element

2. Intent element

3. Performance element (subsequent overt act in furtherance) Important Aspects

• Significant penalties—often beyond those available under state law  5 year maximum for non‐violent offenses  Fine = maximum of either $250,000 or twice gross gain/loss • May capture conduct not otherwise prohibited by federal law  Healthcare: No federal health care benefit program involvement  Foreign Corrupt Practices Act (FCPA): No “foreign official” required • May elevate state misdemeanors to federal felonies (e.g., Texas patient anti‐solicitation statute) • In Texas and other jurisdictions, DOJ has regularly used the state statue as a predicate—and it applies to fiduciaries, including accountants, consultants, and lawyers (more on this later) State Laws that have Traditionally Implicated the Travel Act

• Illegal gambling • Illegal production and/or distribution of liquor or narcotics • Prostitution • Bribery of public officials • Other organized criminal activities Isn’t this Federal Overreach?

• U.S. v. Goldberg – Lawful exercise of Congress’ power to regulate interstate commerce • U.S. v. Jones – Reaches anyone who travels interstate or uses interstate facility with an intent to facilitate an unlawful act (i.e., pretty much everyone) • U.S. v. Rewis – Applies to those individuals whose agents or employees cross state lines Isn’t this Federal Overreach?

• U.S. v. Zizzo – Is not unconstitutionally vague • U.S. v. Borgose – Does not usurp police powers reserved for the States • U.S. v. Soteras – Acquittal on federal charge does not mandate reversal of Travel Act conviction • U.S. v. Douglas – Each interstate act is a separate violation • U.S. v. Abadie – Government did not need to prove defendant induced co‐ defendant’s interstate travel So why do we care about the Travel Act? So why do we care about the Travel Act?

DOJ Is Focused on Holding Individuals Accountable • Yates Memo (2015): instructs prosecutors to “…focus on individuals from the inception of the investigation…” while requiring corporations to provide “…all relevant facts about individuals…” • Rosenstein Memo (2018): continue to focus on individuals in white collar investigations, but ends the Yates Memo’s “all or nothing” approach and permits corporations to receive credit for cooperation if they identify individuals who were significantly involved in or caused the criminal conduct. So why do we care about the Travel Act?

The Government’s scope of investigation may not only be on the primary actors but consultants as well:

• Corporate  Formation of entities  Paper transactions  Agreements between the parties • Labor and Employment  Employment Agreement  Independent Contractor Agreement • Banking • Tax • Real Estate • Healthcare Expansion of the Reach of the Travel Act to Violations of Other State Laws • Several State statutes may apply including those that conflict with each other • State enforcement of State statute is irrelevant (and many times not enforced) • State penalty and/or category is irrelevant • Converting a State law violation into a Federal law violation many times will increase the associated penalties significantly Expansion of the Reach of the Travel Act to Violations of Other State Laws

Texas Fraud Statutes (Tex. Penal Code §32.01 et seq.) • Forgery • Criminal simulation • Trademark counterfeit • Deceptive business practices • Misapplication of fiduciary property or property of financial institution • Securing execution of document by deception • Simulating legal process • Refusal to execute release of fraudulent lien or claim Expansion of the Reach of the Travel Act to Violations of Other State Laws

• Commercial Bribery/Honest Services – Bribery and similar crimes are not limited to bribery of governmental officials or official corruption  U.S. v. Perrin – Supreme Court interpreted “bribery” as used in the Travel Act to include acts of Commercial Bribery  Honest Services – Term used in some states for “Commercial Bribery”  State specific and elements may vary depending upon the jurisdiction and act Expansion of the Reach of the Travel Act to Violations of Other State Laws

• Foreign Corrupt Practices Act  U.S. v. Control Components, Inc. – FCPA and Travel Act charged  Based on California commercial bribery statute  Conspiracy to Violate the Travel Act  Travel Act counts upheld and company and executives pled guilty • Health Care Fraud – Patient anti‐solicitation statutes U.S. v. Rogers (C.D. CA 2019)—Travel Act and Conspiracy Travel Act charges upheld where based on violation of state misdemeanor anti‐solicitation statute This is coming to Texas Expansion of the Reach of the Travel Act to Violations of Other State Laws

Texas Commercial Bribery (Tex. Penal Code §32.43) (a) For purposes of this section: (1) "Beneficiary" means a person for whom a fiduciary is acting. (2) "Fiduciary" means: (A) an agent or employee; (B) a trustee, guardian, custodian, administrator, executor, conservator, receiver, or similar fiduciary; (C) a lawyer, physician, accountant, appraiser, or other professional advisor; or (D) an officer, director, partner, manager, or other participant in the direction of the affairs of a corporation or association. Expansion of the Reach of the Travel Act to Violations of Other State Laws

Texas Commercial Bribery (Tex. Penal Code §32.43) (b) A person who is a fiduciary commits an offense if, without the consent of his beneficiary, he intentionally or knowingly solicits, accepts, or agrees to accept any benefit from another person on agreement or understanding that the benefit will influence the conduct of the fiduciary in relation to the affairs of his beneficiary (c) A person commits an offense if he offers, confers, or agrees to confer any benefit the acceptance of which is an offense under Subsection (b) Expansion of the Reach of the Travel Act to Violations of Other State Laws

Texas Anti‐Solicitation Statute (Tex. Occ. Code §102.001 et seq.) A person commits an offense if the person knowingly offers to pay or agrees to accept, directly or indirectly, overtly or covertly any remuneration in cash or in kind to or from another for securing or soliciting a patient or patronage for or from a person licensed, certified, or registered by a state health care regulatory agency Expansion of the Reach of the Travel Act to Violations of Other State Laws

In summary, if the following predicates have occurred:  State law prohibits certain conduct;  The conduct involves interstate commerce (i.e. travel between the states, use of mail or wire, etc.)

THERE IS A POTENTIAL IMPLICATION OF THE TRAVEL ACT Combination with Other Federal Laws

Foreign Corrupt Practices Act (15 U.S.C. §§78dd‐1, et seq.) • Makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business

Money Laundering (18 U.S.C. §1956) • Prohibits individuals from engaging in a financial transaction with proceeds that were generated from certain specific crimes, known as "specified unlawful activities" • Requires that an individual specifically intend in making the transaction to conceal the source, ownership or control of the funds • There is no minimum threshold of money, nor is there the requirement that the transaction succeed in actually disguising the money • Moreover, a "financial transaction" has been broadly defined, and need not involve a financial institution, or even a business Combination with Other Federal Laws

Mail Fraud (18 U.S.C. §1341) • There are two elements in mail fraud: (1) having devised or intending to devise a scheme to defraud (or to perform specified fraudulent acts), and (2) use of the mail for the purpose of executing, or attempting to execute, the scheme (or specified fraudulent acts) Wire Fraud (18 U.S.C. §1341) • The elements of wire fraud directly parallel those of the Mail Fraud statute, but require the use of an interstate telephone call or electronic communication made in furtherance of the scheme. • The four essential elements of the crime of wire fraud are: (1) that the defendant voluntarily and intentionally devised or participated in a scheme to defraud another out of money; (2) that the defendant did so with the intent to defraud; (3) that it was reasonably foreseeable that interstate wire communications would be used; and (4) that interstate wire communications were in fact used Combination with Other Federal Laws

Conspiracy to commit offense or to defraud United States (18 U.S.C. §371) • If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy • Generally a companion claim Recent Enforcement Actions across the United States

• The DOJ has successfully used the Travel Act in combination with other Federal and State laws • The DOJ has now successfully used the Travel Act across the United States in recent health care fraud cases • Primary enforcement activity occurring in but now seen in Texas, Ohio and California • Recent activity in Florida where it is being used as a pre‐indictment hammer Recent Enforcement Actions across the United States

California U.S. v. Grusd (2014) Multiple prosecutions resulting from illegal bribery and kickback scheme involving radiology services and multiple companies Grusd created. Created a scheme of payments through a set of companies he created that the government alleged were kickbacks. Recent Enforcement Actions across the United States

California U.S. v. Grusd (2014) 18 U.S.C. §371 – Conspiracy to Commit Honest Services Mail Fraud 18 U.S.C. §§ 1341 and 1346 – Honest Services Mail Fraud 18 U.S.C. §1952 – Travel Act 18 U.S.C. §2 – Aiding and Abetting CA State Laws – Bribery under Labor Code, Business and Professions Code and Insurance Code Recent Enforcement Actions across the United States

California U.S. v. Grusd (2014) Grusd sentenced to 10 years and a fine of $250,000. His companies were each required to pay a $500,000 fine, and an additional $15,600 in special assessments. Recent Enforcement Actions across the United States

New Jersey (2016) U.S. v. Greenspan Multiple prosecutions (over 50 separate indictments among all parties) involving BLS Labs. Recent Enforcement Actions across the United States

New Jersey (2016) U.S. v. Greenspan 18 U.S.C. §371 – Conspiracy to Commit Honest Services Mail Fraud 42 U.S.C. §1320a‐7b(b) – Federal Anti‐Kickback Statute 18 U.S.C. §§ 1343 and 1346 – Honest Services Mail Fraud 18 U.S.C. §1952 – Travel Act NJ State Laws – Honest Services Commercial Bribery Recent Enforcement Actions across the United States

New Jersey (2016) U.S. v. Greenspan Greenspan sentenced to 41 months in prison, a year of supervised release and $125,000 in fines. Recent Enforcement Actions across the United States

Texas (2016) U.S. v. Beauchamp et al. (a.k.a. Forest Park) Twenty‐one Defendants charged with a scheme to pay for referrals. Case involved a Texas hospital, Forest Park Medical Center. 10 pleaded guilty prior to trial. Recent Enforcement Actions across the United States

Texas (2016) U.S. v. Beauchamp et al. 18 U.S.C. §371 – Conspiracy to Commit Honest Services Mail Fraud 42 U.S.C. §1320a‐7b(b) – Federal Anti‐Kickback Statute 18 U.S.C. §2 – Aiding and Abetting 18 U.S.C. §1956 – Conspiracy to Commit Monetary Instruments 18 U.S.C. §§ 1343 and 1346 – Honest Services Mail Fraud 18 U.S.C. §1952 – Travel Act Texas State Law – Commercial Bribery under the Texas Penal Code Recent Enforcement Actions across the United States

Texas (2016) U.S. v. Beauchamp et al. Trial concluded in April 2019 Seven of nine defendants, including four physicians, found guilty of accepting millions in bribes and kickbacks over multiple years (but mixed verdicts on Travel Act). Sentencing pending on Defendants convicted and those who pled to charges prior to trial. Recent Enforcement Actions across the United States

Foreign Corrupt Practices Act Not much activity in the last few years (CCI case, discussed earlier, was 2011). However, DOJ remains focused on foreign bribery. Expect Travel Act to remain in the arsenal for certain cases. Practice Tips

• Be leery of the following:  Corporate structure that involves numerous entities formed for related purposes  Independent contractor arrangements for the production of business  Arrangements involving family members or those who do not appear to have any connection to the underlying business  Push back from parties when compliance matters are recommended  Out‐of‐state parties who have no apparent connection to the primary arrangement Practice Tips (Cont.)

• Consider whether any of the parties is a fiduciary and their arrangement in the transaction • Fully disclose any referral relationships • Do not be afraid to ask questions and make sure they are documented • Carry the right insurance (not just malpractice) Thank you!

Chris Davis [email protected]

Gray Reed www.grayreed.com