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From Banking and Finance Law Daily, September 25, 2013

New York task force recommends reforms of state’s white-collar crime laws

By John Filar Atwood

In an effort to update New York’s laws to better fight cybercrime and financial fraud, a white-collar crime task force has issued recommendations to modernize the state’s fraud and corruption laws. The recommendations fall into five general categories: anti-corruption, cybercrime and identity theft, elder fraud, fraud and trademark counterfeiting, and procedural reform.

With the exception of 2008 changes to criminal tax laws, the last significant modernization of New York’s white collar crime laws took place in 1986. Manhattan District Attorney Cyrus R. Vance, Jr. convened the task force in October 2012 during his tenure as president of the New York State District Attorneys Association and charged the group with developing common sense recommendations for reform. Vance said in a press release that he hopes the proposals will better align New York law with other states’ laws and with federal statutes.

Scheme to defraud. One of the task force’s goals in the area of fraud was to enhance the laws to ensure that the punishment fits the crime. The group recommended that the crime of scheme to defraud be gradated to punish serious fraud schemes more severely, bringing the sentence in line with the amount of money wrongfully obtained or the number of victims. The gradations would range from the existing Class E felony for schemes that obtain more than $1,000 or intend to defraud 10 or more victims, up to a new Class B felony for schemes to obtain more than $1 million or intend to defraud 1,000 or more victims.

The task force also recommended the elimination of the requirement that a scheme to defraud target more than one victim in all instances. The group noted that a scheme is not any less fraudulent because only one victim is involved.

The group stated that, in the Internet age, multiple-victim frauds have become commonplace. They cited online “phishing” schemes in which fraudsters send emails to millions of people seeking their bank account information on the premise that there is a payment waiting to be made to them or seeking to confirm their credit card information on the premise that their credit card may have been used fraudulently. The task force felt that criminal charges in these cases should be based on the number of intended victims.

The Martin Act. New York’s own securities fraud law is the Martin Act, which contains criminal and civil provisions prohibiting securities fraud. Like scheme to defraud, those provisions are capped at a Class E felony, no matter the amount of money obtained or the number of victims targeted.

The task force acknowledged that securities fraud is a central concern of white-collar crime enforcement today, as demonstrated by the recent cases in the news concerning massive accounting fraud and insider trading schemes. The group considered recommending amendments to the Martin Act similar to those suggested for scheme to defraud but declined to do so at this time.

The group said that, without further study, it was not prepared to propose higher felony grades for offenses covered by the Martin Act, which are based on a complex set of rules particular to the securities and commodities businesses and which do not, in many instances, require the same intent to defraud as scheme to defraud. The task force believes that, if its scheme-to-defraud proposals are adopted, then the most serious forms of securities fraud will be addressed.

Cybercrime and identity theft. New York’s status as a global financial center makes it especially vulnerable to cybercrime and identity theft, the task force noted. Accordingly, the group made several recommendations to modernize the laws in these areas.

The task force recommended that the definition of “computer material” be expanded to allow for the felony prosecution of computer-hacking cases that do not necessarily involve an “advantage over competitors.” The group believes this change would enhance the ability to use the existing computer trespass law to prosecute those who access private emails of another, hack into webcams, and access school databases to take disciplinary records of children. Under the current definition of “computer material,” these crimes are limited to class A misdemeanors, the task forced noted.

The group also recommended upgrading the existing computer tampering law and creating a first-degree crime as a Class B felony. The proposal is intended to put computer tampering on par with grand larceny laws, which gradate the crime based on the harm caused.

The task force suggested gradating the crime of identity theft up to a Class B felony, based on dollar-threshold amounts or the number of victims. It also recommended upgrading unlawful possession of a skimmer device from a Class A misdemeanor to a Class D felony and changing the phrase “unlawful possession” to “criminal possession” to more accurately reflect the seriousness of the offense. Finally, the task force suggested amending the crime of Enterprise Corruption under the Organized Crime Control Act to add identity theft as a predicate crime.

Tax and money laundering. In this area, the task force recommended enacting a law based on the existing federal statute that criminalizes structuring of cash transactions to avoid a reporting requirement. It also suggested enacting a state statute analogous to 18 U.S.C. § 1957, which criminalizes the knowing spending and depositing of criminal proceeds, with an express carve-out for bona fide attorneys’ fees.

The group recommended amending the tax law to permit aggregation of tax losses across multiple years in prosecutions for criminal tax fraud and to provide access to tax returns in non-tax cases with a showing of necessity and court approval.

An amendment to “particular effect” jurisdiction to allow for prosecution in any county of New York City of schemes to defeat city taxes, and in Albany County for schemes to defeat state taxes, is also among the task force’s recommendations. It also suggested amending the crime of defrauding the government to cover schemes that defraud government agencies of government revenue, with more serious schemes being treated more seriously.

Elder fraud. To help protect the elderly from exploitation, the task force recommended amending the Criminal Procedure Law to allow for the conditional examination of victims who are at least 75 years of age. The group noted that many older adults never have the opportunity to face their abuser in court because of trial delays that increase the chances that the victim will become unavailable. Allowing for conditional examination before trial would ensure that victims have the opportunity to testify, the task force stated.

The group also suggested amending the definition of larceny so that purported consent by a victim with diminished mental capacity is not a defense to larceny and amending the Criminal Procedure Law to permit a caregiver to accompany a vulnerable victim into the grand jury, with the consent of the district attorney. The task force also recommended allowing prosecutors to obtain medical records of mentally impaired victims of financial exploitation, without requiring a waiver from those victims.

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