DOJ Shifts Stance on False Statements Prosecutions - A Change That Could Have a Major Impact on Future White Collar Investigations and Prosecutions

HIGHLIGHTS:

  • The U.S. Department of Justice (DOJ) recently adopted a more defense-friendly position on criminal prosecutions under a commonly used federal charging statute, Section 1001. This statute makes it a crime to "knowingly and willfully" give false statements in any matter under federal jurisdiction.
  • In recent court filings, DOJ has quietly clarified that in order to prove a defendant acted willfully, federal prosecutors must show beyond a reasonable doubt that the defendant knew his or her statement was unlawful - not just that the statement was false. This is a material change in the government's position that could have a significant impact on future white collar investigations and prosecutions involving Section 1001.

The U.S. Department of Justice (DOJ) recently adopted a more defense-friendly position on criminal prosecutions under a commonly used federal charging statute, False Statement to Government Agency, 18 U.S.C. §1001 ("Section 1001"). To be convicted under Section 1001, a person must act "willfully" in making false statements to federal investigators. Courts are divided over whether Section 1001's "willfulness" element requires proof that the defendant knew his or her conduct was unlawful. However, in recent court filings, DOJ has quietly clarified that in order to prove a defendant acted willfully, federal prosecutors must show beyond a reasonable doubt that the defendant knew his or her statement was unlawful - not just that the statement was false. This is a material change in the government's position that could have a significant impact on future white collar investigations and prosecutions involving Section 1001.

False Statements to Government Agencies

Section 1001 makes it a crime to "knowingly and willfully" give false statements in any matter under federal jurisdiction.1 Defendants convicted under Section 1001 face a maximum of five years in prison and up to $250,000 in criminal fines.2 Section 1001 has ensnared numerous high-profile defendants, including Martha Stewart and former Illinois Governor Rod Blagojevich. These prosecutions fit into the category that the "cover up is worse than the crime," which is often the case where a white collar defendant is acquitted or not charged with the underlying offense, but is instead convicted of lying about their conduct.

In order for a person to be found guilty of violating Section 1001, the government must prove each of the following elements beyond a reasonable doubt:

  1. The defendant made a false statement or used a writing which contained a false statement in a matter within the jurisdiction of a specific government agency or department (i.e., the FBI).
  2. The defendant acted "willfully."
  3. The statement was "material" to the activities or decisions of the government agency or department, that is, it had a natural tendency to influence, or was capable of influencing, the agency's decisions or activities.3 The common law test for materiality is often used when false statement statutes such as Section 1001 are charged.4

Section 1001: An Easy Trap for Prosecutors

Some judges and commentators have criticized Section 1001 as a "catch-all" and an unfair trap for the unwary. It is not unheard of for prosecutors to charge people with making false statements even where the government lacks sufficient evidence to indict on the underlying offense under investigation. The breadth and flexibility of Section 1001 makes it attractive to prosecutors, particularly in investigations where the suspected crimes are complicated and difficult to prove. In 1998, U.S. Supreme Court Justice Ruth Bader Ginsburg went so far as to state that Section 1001 gives prosecutors "extraordinary authority" to "manufacture crimes."5 For example, if investigating agents knock on someone's door and interview them, even though no warnings are given that the witness can consult with counsel or that they are essentially "under oath," an inaccurate statement can violate Section 1001. Prosecutors have brought Section 1001 cases on the basis of statements people made in their living rooms without any opportunity to talk to a lawyer, compose themselves, or prepare their comments.

The federal Courts of Appeals are divided over whether Section 1001 requires proof that the defendant knew his or her conduct was unlawful. The Third Circuit has held that the "willfully" element in Section 1001 requires proof that the defendant had "knowledge of the general unlawfulness of the conduct at issue,"6 and the Second Circuit appears to have adopted the same view.7 By contrast, the First, Fourth, Fifth, Eighth, Ninth and Tenth Circuits have held that the government need only prove that the defendant deliberately made the statement with knowledge that it was false.8

DOJ's New Position on "Willfulness"

DOJ's new position on the "willfulness" element of Section 1001 was clearly articulated for the first time in the U.S. solicitor general's brief in opposition to certiorari in Natale v. United States, No. 13-744, filed March 14, 2014.

In Natale, a federal grand jury indicted a vascular surgeon for Medicare fraud, mail fraud, and making false statements for allegedly billing Medicare for more expensive procedures than were actually performed.9 The false statement count was brought under 18 U.S.C. 1035, an analog to Section 1001 dealing specifically with health care benefit programs.10 A jury eventually acquitted the surgeon of the fraud charges, but convicted him for making false statements. The District Court sentenced him to 10 months of imprisonment and a $40,000 fine.11 The Seventh Circuit Court of Appeals affirmed the conviction and the surgeon sought review by the U.S. Supreme Court, which was denied.12 Chief among the surgeon's complaints was the failure of the District Court to instruct the jury that Section 1035 requires proof of a "specific intent to deceive."13

In opposing certiorari, the solicitor general argued generally against an interpretation of "willfully" that requires a "specific intent to deceive."14 However, the government explicitly stated that DOJ now believes Section 1001 requires proof the defendant knew his or her conduct was unlawful: "[A]s the government recently explained in response to two petitions for certiorari presenting that question in the context of Section 1035, it is now the view of the United States that the 'willfully' element of Sections 1001 and 1035 requires proof that the defendant made a false statement with knowledge that his conduct was unlawful."15

In other words, the government now admits it must prove that the person knew the statement was false and knew that making a false statement was unlawful. DOJ's new position is not yet reflected in the United States Attorney Manual (USAM). The USAM still states: "Knowledge of the criminal statute governing the conduct is not required. ... The term 'willfully' means no more than that the forbidden act was done deliberately and with knowledge, and does not require proof of evil intent."16 However, changes to the USAM often take time and the manual could be updated over the coming year to reflect DOJ's new position.

Potential Implications

DOJ's quiet admission that one of its favorite prosecutorial tools may have had a little too much bite (in some Circuits) is a major development in the current landscape of white collar criminal prosecution and defense. The effects of this change are only beginning to be felt, but will likely be far reaching. Prosecutors may be more reluctant to bring Section 1001 claims, knowing they will have to prove a defendant knew that making the false statement at issue was unlawful. If they do, defense counsel will have one more potential defense against unjust Section 1001 claims.

Notes

1        See 18 U.S.C. §1001.

2        18 U.S.C. §1001 & 18 U.S.C. §3571(b)(3).

3        Instruction No. 8.73, Ninth Circuit Manual of Model Criminal Jury Instructions (2010 Edition)

4    United States v. Peterson, 538 F.3d 1064, 1072 (9th Cir.2008) (citing United States v. Gaudin, 515 U.S. 506, 509 (1995)). "The false statement need not have actuallyinfluenced the agency, and the agency need not rely on the information in fact for it to bematerial." United States v. Serv. Deli Inc., 151 F.3d 938, 941 (9th Cir.1998); see also United States v. King, 735 F.3d 1098, 1108 (9th Cir.2013).

5        Brogan v. United States, 522 U.S. 398, 408 (1998) (J. Ginsburg, concurring) ("I write separately, however, to call attention to the extraordinary authority Congress, perhaps unwittingly, has conferred on prosecutors to manufacture crimes.").

6        United States v. Starnes, 583 F.3d 196, 211-212 (2009).

7        See United States v. Whab, 355 F.3d 155, 160, cert. denied, 541 U.S. 1004 (2004); United States v. Bakhtiari, 913 F.2d 1053, 1060 n.1 (1990), cert. denied, 499 U.S. 924 (1991).  See also United States v. Moore, 612 F.3d 698, 703 (D.C. Cir. 2010) (Kavanaugh, J., concurring) (same). 

8    See United States v. Gonsalves, 435 F.3d 64, 72 (1st Cir. 2006); United States v. Daughtry, 48 F.3d 829, 831-832 (4th Cir.), vacated on other grounds, 516 U.S. 984 (1995), reinstated in relevant part, 91 F.3d 675 (1996); United States v. Hopkins, 916 F.2d 207, 214 (5th Cir. 1990); United States v. Hildebrandt, 961 F.2d 116, 118 (8th Cir.), cert. denied, 506 U.S. 878 (1992); United States v. Tatoyan, 474 F.3d 1174, 1182 (9th Cir. 2007); Walker v. United States, 192 F.2d 47, 49-50 (10th Cir. 1951).

9        Natale v. United States, 719 F.3d 719, 722-25 (7th Cir. 2013).

10  Id. at 725.

11Id. at 728.

12Natale v. United States, -- U.S. --, -- S.Ct. --, 2014 WL 151724 (April 21, 2014).

13  Natale, 719 F.3d at 739.

14  Br. in Opp., Natale v. United States, No. 13-744 (March 14, 2014), 2014 WL 1018796 at *9-11.

15  Id. at * 12 (emphasis added).

16USAM, Criminal Resource Manual 910.

To ensure compliance with Treasury Regulations (31 CFR Part 10, §10.35), we inform you that any tax advice contained in this correspondence was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code.

 

Topics:  Criminal Prosecution, DOJ, Enforcement, Enforcement Actions, False Statements, Fraud, Investigations, White Collar Crimes

Published In: Criminal Law Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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