Forensic accounting required to allay court's concerns for flight of white collar defendants

"[L]iberty is the norm, and detention prior to trial or without trial is the carefully limited exception."
United States v. Salerno 481 U.S.
739, 755 (1987).

Despite this well-established principle, white collar defendants in federal court frequently find themselves subject to pretrial detention where the government alleges that they have the financial resources, and motive, to flee the United States if released from custody. Under 18 U.S.C. § 3142, a federal judge must address bond at the defendant's first appearance and either, (1) release the defendant on his or her personal recognizance or on an unsecured bond, (2) release the defendant on a combination of conditions designed to address flight and safety risks, such as electronic monitoring, (3) temporarily detain the defendant in the case where the defendant is on parole, is not in the United States lawfully, etc., or (4) order the defendant detained.

Except in more serious cases usually involving drug trafficking or great violence, there is a presumption for pretrial release. To order the defendant detained, therefore, the court must find that no condition or combination of conditions will reasonably assure the appearance of the defendant in court or protect public safety. In white collar cases, where the alleged harm is typically purely financial, public safety is not a legitimate concern. Bond litigation between the parties therefore frequently focuses on the defendant's risk of flight.

In a recent case involving the interstate market for stolen catalytic converters, the defendants were initially detained in their home state of New Jersey based on indictments out of Oklahoma and California. The defendants, who had no appreciable criminal histories and were accused of non-violent crimes, were initially ordered released by the New Jersey magistrate judge before whom they were initially brought and ordered to present themselves to the federal court in California. The California prosecutors, displeased with this result, successfully moved the California district judge assigned to the case to stay the New Jersey release order. The government failed to inform the California court that it had already asked the New Jersey magistrate judge for the same release and had been denied. The defendants were re-arrested and began the long wait to be extradited to California by the U.S. Marshals.

In the California court, the government moved for reconsideration of the New Jersey court's release order. Their primary submission was that, based on accounting done by the FBI, the defendants appeared to have over $20 million in excess cash which could not be accounted for. The cash, the government argued, must be somewhere where the defendants could access it and thereby facilitate their flight from the United States to evade the pending charges.

The defendants engaged a forensic accounting firm. Over the course of months, the accountants poured over the often poorly-maintained business records of the catalytic converter business to attempt to trace all the incoming proceeds, whether cash, check, wire transfer, or otherwise. The independent forensic accounting eventually established that there was no "missing" cash. The appearance of excess cash receipts was the result of the company's negligent invoicing and recordkeeping practices. The district judge was persuaded, notwithstanding additional last-minute arguments by the government, that the defendants were not in possession of millions in squirreled-away cash and ordered their release on conditions, including requiring multiple third-party sureties to guarantee the defendants' appearance by pledging cash or property in the event that they absconded.

The catalytic converter case is a good illustration of the practical reality that, whatever the Supreme Court and federal statutes may say about the presumption of pretrial release, a white collar defendant with access to significant resources often finds the burden on him or herself to prove that there is no risk of flight. The penalties for federal offenses which result in significant economic harm under the sentencing guidelines are extremely onerous. This sets up a common-sense dynamic which is easy for the government to persuasively present to a judge considering bond that the defendant has the means to flee, and an overwhelming motive to do so given the massive prison terms he or she would face upon conviction. To push back against this powerful narrative, defense counsel will often need the assistance of forensic accountants or other experts to assuage the court's fear that a well-heeled defendant will use his or her substantial resources to evade justice.