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

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What Every Accountant Needs to Know About the Travel Act Chris Davis Gray Reed – White Collar Practice Group What Every Accountant Needs to Know About the Travel Act 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 Texas 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 bribery • 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 attempts to perform.. an act [as further described] . shall be imprisoned . • “unlawful activity” includes extortion 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 commercial bribery 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
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