News headlines routinely shout about regulators cracking down on financial institutions' misdeeds. But it's worth remembering that, more often than not, financial institutions are in fact the victim not the perpetrator of white-collar crime.
In a recent example, Morgan Stanley disclosed in January that one of its employees had stolen the account information of approximately 10% of the company's wealth management clients. The employee then tried to hawk the stolen data on the Internet, according to The New York Times. Morgan Stanley learned about the leak the same day that the offer showed up online, and the employee was promptly canned.
Such crimes are all too common. But banks that find themselves victimized by loan fraud, identity theft, credit card fraud, embezzlement and money laundering also have a number of significant rights under federal law. In many cases, they stand to benefit by actively cooperating and coordinating with federal authorities.
To be sure, working closely and actively with law enforcement can prove to be tricky. By involving the government, the institution loses its control over the pace and scope of the investigation. For instance, prosecutors may proceed more slowly than the institution would like, or uncover facts over the course of the investigation that turn out to be harmful or embarrassing to the institution. Also, if an institution has conducted an internal investigation, law enforcement may ask it to disclose the results of that investigation, which could cause the victim to waive its privilege.
Institutions should therefore hash out the risks and benefits with their lawyers before taking the plunge. That said, in some cases banks can be well-served to approach prosecutors early in the case to assert their rights as victims.
Congress has enacted some important pro-victim legislation over the last few decades, including the Crime Victims' Rights Act, which lays out a victim's rights in a federal criminal case, and the Victim Witness Protection Act, which allows courts to grant restitution to federal crime victims, including financial institutions. The Mandatory Victim Restitution Act requires a court to order restitution when a defendant commits certain offenses against property, including by fraud or deceit and there is an identifiable victim. Courts have taken a broad view of the term "against property." As a result, this mandatory restitution provision will likely apply in most federal criminal cases where a financial institution turns out to be the victim.
The MVRA provides some strong incentives for victims to cooperate actively with federal law enforcement. A restitution award encompasses the full amount of the victim's losses, including "other expenses" incurred during participation in the investigation and prosecution. Several courts, including the Court of Appeals for the Second Circuit (which includes New York City), have said that the term "other expenses" covers the legal fees and costs that a victim incurs.
This can mean millions in restitution for the victimized institutions. And by recovering their direct losses and investigative expenses, victims can avoid the cost and hassle of bringing a parallel civil action and trying to collect on a judgment themselves.
Coordinating with federal authorities can help banks ensure that they have a full opportunity to advocate for restitution amounts and plea terms for example, ensuring that a stipulated restitution amount is reflected in the defendant's plea agreement. Participating in this process also allows banks to provide the prosecutor with documentation to support the restitution amount.
Marcus A. Asner is a trial lawyer in Arnold & Porter LLP's New York office. Anne Brooksher-Yen is counsel at and Gillian Thompson is an associate at Arnold & Porter.