Once, during Prohibition, I was forced to live for days on nothing but food and water. - W.C. Fields
By Andrew Grosso, J.D.
Not all search warrants are equal. Using a warrant to locate and seize a single piece of evidence, such as a firearm or crack cocaine, may be a fairly simple matter. Using a warrant to obtain the business records of a corporation or an executive suspected of fraud is quite another.
Although the same body of law applies in both instances, the techniques used to draft the applications for these warrants and to carry out the searches differ significantly. This article addresses some of these differences and suggests ways investigators can accelerate the process of obtaining search warrants in fraud cases, while minimizing the possibility that errors will be found by a court after the search has been completed.
Search warrants are very powerful investigatory tools, as well as very restricted ones. They permit agents of the government to invade a person's home, personal papers, and privacy, in order to search for and remove particular items of evidence. In short, warrants are intrusive, and for this reason, they must be specific. In this regard, a search warrant differs from a subpoena duces tecum,1 which permits subjects to conduct their own searches for requested items while permitting the government to embark on a fairly wide-ranging and speculative inquiry for possible evidence.
By contrast, in order to obtain a search warrant, investigators must demonstrate two things. First, they need to show probable cause that a specific crime was committed. Second, they must demonstrate probable cause that some type of physical evidence currently can be found in a particular place. Both of these requirements have their own nuances when applied in the context of fraud, as opposed to reactive crimes.
Identifying the Crime
Fraud is a crime of deception. Someone attempts, whether successfully or not, to deceive another party, usually for the purpose of obtaining money or something else of value. Obtaining the item of value is not the crime. Likewise, in a case where someone trades a worthless item for cash, the exchange is not the crime. In both scenarios, the act of deception, the "telling of the lie," is the crime.
An example may clarify this basic, but important, point.2 The U.S. Air Force contracts "Aerospace, Inc.," to supply parts for military aircraft. Unknown to the Air Force, the company intentionally uses substandard metals in the manufacture of these parts. Investigators wish to obtain a search warrant to seize company plant documents that they believe will prove that Aerospace, Inc., is using substandard materials. Because a search warrant will be issued only if probable cause exists that a crime has been committed, the investigators should first ask themselves, "What is the crime?" The answer may come as a bit of a surprise, for the crime is not the use of substandard metals, nor is it the fact that the suspected firm supplied parts made with the substandard metals to the Air Force. While both of these actions are clearly "unethical," simply acting in an unethical manner is not a crime. Investigators must search the criminal law in order to find a specific statute violation. In fact, several Federal statutes may be available. All of them, however, have one thing in common. They are all fraud statutes. That is, they all require the company to have lied for the purpose of deceiving the Government into paying for, and accepting delivery of, substandard parts. This brings investigators to the first rule for drafting white-collar crime search warrants: They must identify "the lie."
More accurately, they must identify a lie. Typically, several may be available from which to choose. Although lies may be verbal in nature, in white-collar crime cases, they usually can be found in the documents used in the transaction. In this example, Aerospace, Inc., would have supplied some type of certification to the Air Force stating, directly or indirectly, that the parts had been manufactured with the correct materials. Such agreements are standard requirements in military contracts. The lie may be straightforward. A document may state explicitly that "Aerospace, Inc., certifies that the metals used to manufacture these parts is 100 percent virgin alloy, consisting of 95 percent iron, 4.9 percent nickel, and 0.1 percent carbon." If the metals actually used some other mixture, then the certification is false. This certification of a false statement constitutes the lie.
In some cases, however, investigators may have to work a bit harder to find the lie. A document may state simply that "Aerospace, Inc., certifies that the parts meet all contract requirements." Identifying deception now becomes a two-step process. Locating the company's certification merely represents the first step. The second step requires investigators to identify the contract, pursuant to which the parts are being provided, and the "requirements or specifications" contained in that contract. The specification for the metals to be used in the manufacture of the parts usually will be found in this contract. Taken together, a company's contract specifications and certification will constitute the lie.
Ensuring the Lie is Material
In any case, though, this information is not enough. To constitute a crime, a lie must be material. In other words, the lie must be important to the party being deceived. This is not a trivial requirement. More than one criminal investigation has ended after many months of effort because the lie relied on by the prosecution turned out to be immaterial to the deceived party. In the fictitious Aerospace, Inc., example, the contract between the company and the Air Force further states that the turbine blades must be forged at a temperature of 2000 F. The certification states that the forging took place at this temperature, but in fact, the forging took place at 2500 F, technically making Aerospace's certification false. However, the Air Force may not care about the temperature at which the forging took place, as long as the forging temperature did not drop below 2000 F. In such cases, the lie is not important. Therefore, it is not legally material and will not support a charge of criminal conduct.
A different example may further clarify this point. An investigation is initiated to determine whether "BigBank" has been defrauded by a brokerage agency that specializes in preparing and submitting loan applications to banks on behalf of clients in need of financial assistance. The loan applications used by BigBank require applicants to list their credit cards. Among other deceits, the brokerage agency has stated falsely on the applications that each client holds two major credit cards. For several reasons, the lie may not be material. One reason may be that the application forms are outdated, and the bank no longer relies on credit card information when deciding whether to issue personal loans. Another reason may be that the loan amounts requested are small enough that the bank does not care whether these applicants possess credit cards. The significant point is that investigators must not take the importance of any false statement for granted. They must be sure that the lie upon which they are focusing is material.
The procedure used to ensure this point is fairly straightforward. Investigators should interview the party who has been deceived and ask explicit questions about the importance of each lie. When the defrauded party is a company or a government agency, then the person who is responsible for reviewing the relevant document on behalf of that organization should be interviewed. Alternatively, investigators should interview the person responsible for handling a specific matter tied directly to the lie. These two people may not be one and the same, and investigators will have to decide which one to interview.
For instance, in the Aerospace, Inc., example, a Government inspector may review each certification submitted by the company to ensure that on the face of each document, all requirements of the contract are met. This inspector may believe that it is important that the certification states that forging occurred at 2000 F. The inspector may tell investigators that if he had known that the certification was false and that the forging temperature was 2500 F and not 2000 F, he would have rejected the shipment of blades. However, the engineer responsible for designing the engine in which these blades are used may know that regardless of the contract requirements, a false forging temperature is not important as long as the actual temperature is above 2000 F. Although interviewing either of these persons should be adequate for the purpose of proving probable cause for a search warrant, investigators must remember that at trial, the proof must be "beyond a reasonable doubt." Therefore, it will do the prosecution little good if a search warrant is obtained and executed based on the inspector's belief that the lie was important, only to discover later, perhaps on the eve of trial, that an Air Force engineer is prepared to testify for the defense that the lie investigators consider a crime is not material. To avoid such a scenario, investigators may have to interview both persons to ensure the right answer to this crucial question.
When drafting the application for white-collar crime search warrants, investigators must describe in detail what documents and statements they are relying on to prove that a lie exists and explain why the lie is a material one. To avert later complications, investigators always should include their sources for this information.
Investigators commonly complain that prosecutors take too long to approve search warrant applications in white-collar crime cases. Among prosecutors, there is a common complaint that the applications submitted by investigators for such warrants require too much additional work before they can be approved. To a significant extent, these divergent complaints stem from the same root cause. Any search warrant application must explain clearly, precisely, and completely to a third person (a judge or a magistrate) what the crime is, what evidence establishes the crime, and what evidence the government wishes to seize during the proposed search.
A prosecutor reviewing a warrant application is acutely aware of two factors. First, any application submitted to a court must survive close scrutiny by the reviewing magistrate. Second, after the search has been executed, the application must survive the inevitable attack that will be brought by defense counsel. For these reasons, conscientious prosecutors take their time when reviewing warrant applications.
Speeding the Process
Investigators can take steps to help speed the process. First, they should remember that applications must be understandable. This is a deceptively simple statement. It is also the bane of most prosecutors.
A magistrate is not aware of the history of the investigation, the nature of the crime (the lie), or the regulations that the subjects attempted to evade through fraud. In a complex scheme, such as many Medicare frauds, the background necessary to convince a magistrate that the subjects' actions constitute a crime must be drafted carefully.
As stated above, the description must be clear, detailed, and complete. Putting these three elements together is not particularly easy. It takes time and effort, as well as a command of the written language and the intricacies of the investigation. To accomplish this goal, investigators must know what they plan to say in the application. They should put together an outline of what they need to establish and organize this in the same order that they intend to use in the application.
Having done this, investigators then should meet with prosecutors and discuss the outline. Together, they should decide the statute(s) with which to charge the suspects. This is a significant point, because many white- collar criminals violate more than one criminal statute.
For example, a scheme to defraud a federally insured financial institution may involve false statements to that institution, false statements to a Federal agency supervising that institution, mail fraud, bank fraud, and conspiracy. Given the status of the investigation, investigators may find it easier to establish probable cause for certain violations over others. Alternatively, the choice of a particular violation may permit investigators to search for and to seize valuable evidence, when choosing a different violation would not permit such search and seizure.
Once the statute is chosen, investigators should request that the prosecutor provide a list of the "essential elements" of that statute. Essential elements are generic facts that must occur to establish the violation of a particular statute.
Appellate courts often list these elements in their judicial opinions, and trial courts must describe them to juries in criminal cases before permitting deliberations to begin. Therefore, these elements are readily available. In the warrant application, investigators should note the information they have to support each element, as well as the source of that information. Next, investigators must decide what documents they need to seize during the search. As stated previously, a search warrant is not a subpoena. Investigators simply cannot request authority to search for all documents pertaining to the investigation. On the contrary, they must be very specific. Therefore, investigators should ask themselves and their cooperating witnesses the following questions:
-- What documents does the company use that are relevant to this investigation?
-- Why are these documents relevant? Or, in other words, how might these documents be used to prove this case against the company and its officers and employees?
-- Where does the company maintain these records?
-- For how long does the com-pany maintain these records?
The first two points should be discussed with the prosecutor. Being familiar with the laws governing fraud, the prosecutor may recognize that a particular document is not worth the effort of conducting a search, or the prosecutor may suggest that additional documents are necessary to prove the case at trial. Investigators often overlook the last two questions. They should remember that the warrant application must establish probable cause not only that a crime was committed but also that the documents that investigators wish to seize as evidence of the crime currently exist on the company's premises.
Usually two methods accomplish this task. The first involves the use of cooperating employees (current and former), who could provide investigators this information through firsthand knowledge. However, where former employees are the source of such information, their knowledge may not be current, and the information they provide may have to be updated through additional sources.
The second method is based on the required business practices of a company or profession. For example, Federal and State regulations require that medical doctors maintain the records of their patients for a specified number of years. If a physician bills insurance carriers on behalf of patients, the physician also is required to maintain the patients' financial records for another specified period of time. These regulations can be used in a search warrant application to establish probable cause that the physician under investigation maintains medical and financial files of current patients.
Investigators reasonably can assume that those files can be found at the physician's place of business. It should be noted, however, that doctors may maintain records of former patients at off-site locations. If investigators wish to seize these records, additional information as to where the files are maintained may be necessary. Similarly, defense contractors, financial institutions, accountants, and numerous other businesses and professionals are required by statutes, regulations, or ethical rules to maintain records for varying periods of time. For this reason, it is important that investigators learn under what requirements the suspect(s) may be operating and then put this information in their search warrant application.
Descriptions of the documents to be seized should be included in the warrant application in two places. First, they should appear in the general body. As investigators describe each portion of the fraudulent scheme, they should mention the pertinent documents that provide evidence of the scheme, along with the information they possess demonstrating how the company creates, uses, and maintains these documents. Again, investigators should include their sources for this information. In this way, the application will make clear that probable cause exists to seize the requested documents.
The end of the application includes a list of each type of document to be seized. Investigators should be specific when compiling this list. For example, if investigators only have probable cause to seize loan applications for home mortgages made from 1989 through 1991 for houses located in a particular community, then they should state this in the list. It would be counterproductive, for example, to seize all loan applications from 1985 for several communities. In trying to do so, one of two things may happen. If investigators are fortunate, the prosecutor or the magistrate will refuse to approve the warrant application as written. Or worse, the warrant will be approved; investigators will seize the additional loan applications; the warrant will be attacked by defense counsel; the additional evidence may be suppressed; and the court may rule that the evidence has "tainted" the investigation and the government's prosecution.3 Put simply, stretching probable cause in this way is not worth the potential cost.
Telling the Story Clearly
White-collar crimes can be intricate, and the investigation leading to a warrant application may be complex. Therefore, investigators should not expect a magistrate to read a tangled or technical treatise of the investigation and then spend time trying to decide if the warrant should be approved. Similarly, investigators should not expect a prosecutor to permit such an application to reach the magistrate.
An application must be written simply, describing everything clearly. Again, it is critical for investigators to assume that the prosecutor and the magistrate know nothing about the investigation. Hence, everything must be explained. Because fraud schemes often can be complex, investigators should first break down schemes into parts and then string the parts together to tell a story. After completeing the first draft, investigators should give a copy to a fellow investigator who has not been involved significantly in the matter. The reviewer should identify portions that are unclear or confusing and make suggestions for improving the application. Investigators should then revise those portions of the application.
Search warrants are important investigatory tools. Investigators should not avoid securing warrants in white-collar crime cases merely because the process necessary to obtain them appears difficult and time-consuming.
By following a series of step-by-step procedures, investigators and prosecutors can reduce significantly the time necessary to draft warrant applications. As a result, both groups may consider the use of warrants more often. The ultimate result will be stronger prosecutions.
1 Writ requiring that a party summoned to appear in court bring a document or other pieces(s) of evidence for examination by the court.
2 This example examines only Federal criminal law. Law enforcement officers of other than Federal jurisdiction who are interested in this article should consult their legal advisor.
3 State v. Novembrino, 105 New Jersey, 519 A. 2d 820 (1987); but see United
States v. Leon, 468 U.S. 897 (1984) (establishing good faith exception in
Mr. Grosso, a former Assistant U.S. Attorney, is now in private practice in Washington, DC.
Brought to you by - The 'Lectric Law Library
The Net's Finest Legal Resource For Legal Pros & Laypeople Alike.