Daily business decisions can help your business grow, give you a competitive edge, or set you back a year -- even land you in jail. Tax evasion, election-law violations, puffing up financial records to get a bank loan, failing to comply with environmental laws--all these and many other actions can lead to criminal charges.
"I don't believe there's more business crime today than in the past," says Washington, DC, attorney Frank Razzano of Dickstein, Shapiro, Morin & Oshinsky LLP. Razzano, who is chair of the Criminal Laws Committee of the American Bar Association's Business Law Section, contends there's been a change in the moral structure of the United States since Watergate. Ethically questionable decisions made by business owners and other respectable people now rank in the public mind with street crimes. "It's a lot sexier to go after white collar criminals than drug kingpins," he says.
It doesn't help that many people simply don't understand how business works, including many of those elected to public office. "Bureaucrats are making decisions about how business should operate," Razzano says. The result is a plethora of government regulations and reporting forms that require scrupulous attention, especially for public companies. While big companies can afford whole departments with no other purpose than to make sure the company files all the proper forms and complies with all applicable government regulations, small businesses have just a few people trying to do everything. "Many small-business owners are very busy, and they're not careful," Razzano says. "Filing any false document with the U.S. government is a crime."
Once the false document, misjudgment or slip-up in compliance comes to light, it's up to the regulators in charge to decide whether or not to prosecute. "The only thing that separates you from the jailhouse is your intent," Razzano says.
If you're convicted of a business-related crime, that often means you'll pay criminal fines, sometimes up to three times the amount of the actual damages. What's especially frightening for a small business, however, is that the business owner may face jail time if found guilty. While a large company can probably survive the situation by offering a few managers as scapegoats, in a small company, the owners and managers targeted are probably the heart of the business.
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.
Frank Razzano, c/o Dickstein, Shapiro, Morin & Oshinski LLP, 2101 L St. N.W., Washington, DC 20037, (202) 785-9700
Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.