Cracking Down

Breaking The Law

Here are some scenarios that could be prosecuted as crimes:

  • Securities violations. If you have a small public company, the federal government requires as many forms and reports to the Securities Exchange Commission (SEC) as it does from a large corporation. If you fail to file the proper forms at the proper time, or file a document with inaccurate information, you could be prosecuted.
  • Insider trading. Suppose you're playing golf with a business associate who mentions he's getting a million-dollar severance package because his company will soon be acquired by a larger company. Smelling a windfall on the stock market, you quickly buy shares in his company just before the price soars. That's insider trading. Under SEC rules, if you learn of information that could affect stock prices by means that are not available to the general public, such as your associate's off-hand remark on the golf course, you must abstain from trading or face criminal sanctions.
  • Currency transactions. If you're doing business overseas and deposit more than $10,000 in a foreign bank, you're required to file a currency report with the Commission of Internal Revenue. The Currency and Foreign Transactions Reporting Act requires reporting the movement of $10,000 or more of currency into or out of the United States as well as disclosing any interest in a foreign financial account on federal income tax returns.
  • Bank fraud. Suppose you're so eager to get a loan that you fluff up your financial statements to help persuade the loan committee to take a chance on you. It's a crime to make false statements for the purpose of influencing any action by a federally insured institution. It doesn't matter whether or not the loan committee was actually influenced by the fluff, the bank actually lost money or the loan officer knew what you were doing. It's still illegal.
  • Bribery. An influential state legislator offers to introduce legislation that would remove certain business barriers--provided that you and your trade group help him retire his campaign debt. This transaction would count as extortion, illegal under the Hobbs Act, and your contribution would be considered an outright bribe.
  • Election-law violations. Business owners are allowed to contribute $1,000 per candidate per election, the same as any individual. Corporations may make no contributions at all. If you try to get around that rule by handing your employees $1,000 "bonuses" to contribute to a candidate in their own names, you're guilty of violating federal election laws.
  • Environmental crimes. Thinking of cutting expenses at your manufacturing plant by abandoning drums of toxic waste in a ravine at night? Under the Clean Water Act and other laws, it's illegal to release certain toxins into surface or ground water. Many environmental protection laws use a standard of "strict liability," where you can be convicted of a crime even if you didn't intend to break the law.

If you think you may be in trouble, call a lawyer who can offer advice and refer you to a criminal defense lawyer if necessary. Don't just ignore the problem--a criminal investigation can take on a life of its own.

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This article was originally published in the February 1999 print edition of Entrepreneur with the headline: Cracking Down.

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