Falsifying business records is a serious crime carrying severe penalties. Whether you submit false claims for medical reimbursement, submit altered records as part of an investigation, change the numbers in your tax submissions, or forge signatures, your actions may be punishable under federal and state laws.
This article specifically deals with federal charges and penalties that arise from falsifying business records. While it is no substitute for legal counsel, it should give you a solid understanding of how this crime is detected, the types of charges you might face, and the penalties you could suffer.
Falsifying Business Records Under Federal Law
Although falsifying business records is not its own crime under federal law, the act is criminalized under numerous federal regulations.
It is essential to understand that even if your conduct does not fall under one of the federal laws discussed in this article, falsifying business records is always a crime. If your activity is detected, fines and jail time will almost certainly result from a conviction.
Penalties depend on where the false records were submitted. In other words- the government action you impeded will determine how severely you are punished.
Below are some examples of how the government criminalizes and penalizes the falsification of business records.
Tax Fraud
Taxpayers are often tempted to inflate their business expenses or under-report their earnings to avoid higher income taxes; however, submitting falsified business records to the IRS is a form of tax fraud under federal law. As a felony, those convicted may face a term of imprisonment up to 3 years and result in fines of up to $250,000 for individuals or $500,000 for corporations. Depending on the circumstances, both penalties, as well as the cost of prosecution, may be imposed.
Make sure that you seek the counsel of a qualified criminal attorney to best understand your rights and responsibilities as a taxpayer, and do not hesitate to retain counsel if you are under investigation by the IRS.
Healthcare Fraud
Healthcare fraud is a broad term covering a wide variety of conduct. Falsifying business records in a healthcare fraud context may give rise to charges under the False Claims Act, False Statements Act, Federal Mail and Wire Fraud statutes, or Social Security Act.
Violations under any of the statutes aforementioned are generally punishable by up to five years in prison, along with fines that may amount to triple the government’s actual damages. Additionally, where business records are falsified to reflect false claims for medical reimbursement, each false claim could constitute its own separate charge.
Courts have discretion in determining terms of imprisonment and are unlikely to stack prison terms in the context of multiple false claims; however, the more false claims you submit, the more likely you are to face significant jail time, potentially expanding beyond the five-year maximum for a single false claim.
In addition to imprisonment, each false claim generally comes with its own fine. Accordingly, the effects of a conviction involving a large number of false claims could be financially devastating.
Finally, where business records are falsified as part of a deliberate scheme to defraud or fraudulently obtain money from a healthcare program, penalties can increase up to 10 years imprisonment.
A conviction under any healthcare fraud statute will likely be accompanied by the loss of one’s medical license and permanent reputational damage. Accordingly, if you are facing charges or if you are concerned about your previous conduct, be sure to consult with a well qualified criminal attorney immediately.
Obstruction of Justice
One of the most severely punished crimes involving falsified business records is obstruction of justice.
Many people, whether realizing they are being investigated by a federal agency, sued in a civil case, or charged with a crime, are tempted to alter their business records in order to hide incriminating evidence.
Unfortunately, they don’t always realize that in addition to removing the possibility of proving their innocence or at least mitigating their liability, the act of hiding evidence itself constitutes a separate crime, with penalties far worse than those flowing from whatever activity they were attempting to hide.
Because obstruction of justice arises in such a wide variety of contexts and carries such devastating penalties, we will spend a good deal of time unpacking how it works.
First, it is important to understand that while obstruction of justice has long been criminalized, Congress’ passage of the Sarbanes-Oxley Act in 2002 broadened the statutory language defining the crime, allowing for the conviction of many more defendants.
This means that it is easier to be convicted of obstruction of justice now more than ever.
To understand why, let’s look at 18 U.S. Code § 1519, which reads in relevant part:
- “Whoever knowingly…falsifies, or makes a false entry in any record, document, or tangible object
- With the intent to impede, obstruct, or influence
- The investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States…or any case filed under title 11…or in relation to or contemplation of any such matter or case,
- Shall be fined under this title, imprisoned not more than 20 years, or both.”
This statute provides that when you submit falsified records in an effort to affect a federal investigation or legal proceeding, penalties can include both fines and up to 20 years in prison.
Note that the “intent” element applies to two elements of the statute- The falsification itself must be intentional, but the effect on a federal investigation must be intentional as well.
The other elements of the statute are relatively broad, as the false entry may be made to a “record, document, or tangible object,” and that the investigation impeded need not necessarily be active (“in relation to or contemplation of any such matter or case”).
While the Supreme Court has demonstrated a reluctance to interpret the statute broadly, holding in Yates v. United States that the statutory intent to prevent “corporate document-shredding to hide evidence of financial wrongdoing” should govern its application, other courts have taken a broader view of these terms.
The point is to demonstrate that there is a high degree of ambiguity involved in this type of crime.
Strategic lawyering is a crucial component to the successful defense against any criminal allegations, but it can be especially influential in an obstruction of justice case.
As one final but crucial note regarding obstruction of justice, you do not need to falsify the records yourself to face criminal charges. Indeed, 18 U.S.C. §1512 reads in relevant part:
“Whoever knowingly uses intimidation, threatens, or corruptly persuades another person, or attempts to do so, or engages in misleading conduct toward another person, with intent to…cause or induce any person to…alter, destroy, mutilate, or conceal an object with intent to impair the object’s integrity or availability for use in an official proceeding…or to produce a record, document, or other object, in an official proceeding…shall be fined under this title or imprisoned not more than 20 years, or both.”
This provision essentially states that coercing, or attempting to coerce another person to falsify business records can carry as much prison time as falsifying the records yourself.
However you contribute to the falsification of business records; the consequences of a conviction can extend far beyond fines and jail time. Job loss, credit score reduction, disqualification for bank loans, more frequent auditing by the I.R.S., civil lawsuits, grounds for ineligibility for passport records, deportation, as well as permanent damage to one’s personal and professional reputation, are all the common results of conviction an experienced criminal defense attorney strives to help you avoid.
Who Can Be Held Liable?
By now you should understand that intentionally falsifying business records, or coercing another to do so, can lead to severe penalties. But what if someone from your corporation alters records without your knowledge?
In fact, a corporation can be held criminally liable for the actions of its members. While this does not mean that if one employee is sentenced to ten years in prison, he takes the entire organization to prison with him, it does mean that criminal sanctions imposed on one member can have significant consequences to the organization as a whole.
There are two theories under which a corporation can be held criminally liable, as discussed below:
(1) Respondeat Superior
The doctrine of respondeat superior provides that a corporation can be held liable for the actions of an employee acting within the scope of his employment, so long as the action is intended to benefit the corporation.
While many people are aware that this principle applies to civil cases where damages are sought in connection with economic or physical injury, the Supreme Court has held that corporation may be held criminally liable for the acts of its employees as well.
Courts have held that the applicable standard does not depend on the responsibility or authority of the agent, but rather on the employee’s position in the corporation. This means that an employee’s conduct can be considered “authorized” by the corporation’s decision to place that employee in a position where criminal activity could be conducted on the organization’s behalf.
Courts have upheld this principle in a wide variety of cases. In The People v. Lessoff & Berge, for example, a partner in a law firm committed fraud unbeknownst to the other partners, yet all were found liable because they all stood to gain and could have taken better preventative action.
Similarly, in United States v. Hilton Hotels Corp., an employee breached corporate policy when he engaged in illegal boycotts; yet, the corporation was still held liable on the theory that by entrusting the employee with authority to commit the illegal acts, the corporation maintained the power to prevent them. As with Lessoff, part of the court’s decision rested on the fact that the corporation as a whole stood to benefit from the employee’s illegal activity.
While these principles may seem unjust, they persist because if a corporation can benefit from an employee’s illegal activity, and then avoid culpability by claiming they had no knowledge of it, there would be no incentive to establish and enforce effective compliance policies. Moreover, many corporate leaders might be tempted to place risk-prone individuals in powerful roles, knowing the corporation could benefit from the employee’s illegal conduct while hiding behind their own technical uninvolvement.
(2) Corporate Policy
While benefit to the corporation is a crucial element under the respondeat superior doctrine, a corporation can still be held criminally liable even when the employee’s action did not provide a benefit. That is, where the illegal conduct reflected corporate policy.
An example would be where a secretary learned of an SEC investigation and independently decided to shred all of the company’s financial statements. Perhaps the corporation was innocent, and the secretary’s action destroyed their only proof. If the secretary’s action was consistent with corporate policy, the corporation could still be held liable.
The important takeaway here is that it is imperative to not only refrain from falsifying documents but to ensure that the members of your organization do so as well. To shield your organization from future liability, a white-collar criminal defense attorney can help you develop a firm corporate compliance policy.
Detection
Whatever the context in which falsified records are submitted, the federal government has many potential avenues of detection.
Generally, common tip-offs that records have been altered include copies of documents that do not match, or where the same person is listed as completing the records for every day of the year (implying that the individual never took a vacation or day off).
Where the records were completed by hand, the same handwriting and pen used to complete every record can signal the probability that records allegedly kept over time were actually filed in bulk.
More sophisticated methods of falsifying business records are generally detected by technological advances such as data mining and data analysis. Artificial intelligence techniques are able to identify patterns and match algorithms to compare submitted data against industry norms.
What is important to understand is that once the federal government suspects that you have falsified your business records, the level of falsification applied will only delay their detection. In other words, there is no fool-proof way to escape liability.
It is also important to note here that many federal statutes criminalizing record falsification, including the False Claims Act and the Sarbanes-Oxley Act detailed above, contain whistleblower protections for those who come forward with evidence of fraud.
For example, where the False Claims Act is concerned, whistleblowers are actually incentivized to report fraud, because doing so entitles them to a portion of the financial recovery. Further, under the Sarbanes-Oxley Act, any retaliation against a whistleblower could add ten years to the defendant’s prison sentence.
This is by no means an exhaustive list of the methods law enforcement uses to detect falsified business records, but it should give you an idea of the wide-ranging strategies employed to identify potential crime.
Criminal Proceedings
If you are charged in connection with any crime involving the falsification of business records, the first thing you need to do is obtain an experienced criminal defense attorney.
While legal counsel is imperative in every criminal case, proving that you falsified business records can be especially challenging for prosecutors due to the strict intent requirements of the relevant statutes. In other words, your criminal attorney has a lot of ambiguity to work with to argue that you cannot be found guilty beyond reasonable doubt.
Should your case reach the trial stage, your criminal defense lawyer’s strategy will likely involve illuminating to the jury that the prosecution has not established each element of the statute in question beyond a reasonable doubt.
This strategy may involve presenting contradictory evidence, perhaps in the form of witnesses to testify on your behalf. It may also involve challenges to the credibility of the prosecution’s evidence, possibly through cross-examination intended to introduce doubt regarding their credibility.
Your criminal attorney will likely try to avoid the expensive and time-consuming reality of trial altogether, through early established efforts to get your case dismissed, or at the very least negotiate a favorable plea deal for you to consider as a trial alternative.
Whatever the appropriate strategy to your situation, retaining skilled counsel is the best decision you can make to mitigate the consequences you face in connection with falsified records.
Falsifying Business Records in the News
The news is full of cases involving falsified business records since this action is often taken in connection with other commonly committed crimes.
For example, a former federal employee, Eugenio Pedraza, was found guilty in 2018 of falsifying federal records while under internal inspection by the Department of Homeland Security, where he served as supervisor. When Pedraza learned he was under inspection, he reportedly ordered several agents to alter reports to create the false appearance that certain work had been completed.
As a pending 2018 example, a federal grand jury indicted Lloyd Robl on obstruction of justice grounds after he allegedly devised a scheme to defraud customers of his asbestos abatement business. Robl provided falsified insurance documents and asbestos abatement licenses to his clients and later concealed business records during a federal grand jury investigation.
These examples demonstrate the various scenarios in which falsifying business records can lead to federal charges.
What to Do
You are likely reading this article because you have been charged with falsifying business records. If so, it is imperative that you retain legal counsel immediately.
However, even if you are not facing criminal charges, you should still consult with a criminal attorney in order to prevent future liability.
An experienced white-collar criminal defense attorney can help you develop a detailed understanding of your rights and responsibilities, and also help you create a bulletproof compliance program within your organization that will protect you from facing liability for crimes you didn’t commit.
If you are a part of a corporation, remember that criminal liability can be imputed to your organization as a whole. It is imperative that you protect yourself and the people you serve from this devastating possibility.
Thankfully, most criminal defense attorneys provide risk-free consultations, so there is no reason for hesitation at obtaining the knowledgeable counsel you need to protect yourself and your business.
