Author: David M. Eskew

New York State recently implemented significant changes to patient consent and payment laws that affect healthcare providers across the state. On October 20, 2024, new laws governing patient consent and payment procedures went into effect, prompting healthcare providers in New York to reassess their current practices. These changes, which are aimed at enhancing patient rights and financial transparency, introduce new requirements that impact how healthcare providers obtain patient consent, discuss costs for medical services, and process payments. As a result of these changes, healthcare providers face the challenge of adapting their policies and operations to ensure compliance. The following overview outlines key changes that providers need to be aware of to effectively comply with these new legal requirements.

Treatment and Payment Consents

The new Section 18-c of the Public Health Law requires that healthcare providers obtain patient consent for treatment, procedures, examinations, or other health care services separately from patient consent to pay for such services. This change forces providers to depart from the common practice of obtaining combined patient consent for treatment and payment. Further, Section 18-c stipulates that providers cannot seek patient consent for payment until two conditions are met: first, there must be a discussion about the costs of treatment, and second, the patient must have already received the healthcare services in question. To ensure compliance with this new law, providers may need to implement new patient consent protocols.

Ultimately, by mandating a cost discussion before payment consent, the law promotes price transparency and may help reduce instances of surprise billing. However, it also creates potential new challenges for healthcare providers, who must now deliver services before securing payment consent.

Restrictions on Pre-Authorization and “Cards on File“

Section 519-a of the General Business Law introduces restrictions on healthcare providers’ billing practices. Specifically, it prohibits providers from mandating credit card preauthorization or requiring patients to keep a credit card “on file” as a prerequisite for receiving emergency or medically necessary services. As a result, this may lead to more conservative treatment approaches, as providers may be hesitant to perform procedures without upfront payment assurance.

New Patient Credit Card Notification Requirements

Section 519-a also requires that healthcare providers educate patients about the potential risks associated with using credit cards to pay for medical expenses. More specifically, providers must inform patients that they may lose certain state and federal protections related to medical debt when using credit cards. In anticipation of these legal changes, the New York State Department of Health issued guidance regarding the specific content of these patient notifications. Such guidance clarifies that patient notifications should include the following components: (i) medical bills paid by credit card are no longer considered medical debt; (ii) by paying with a credit card, patients are forgoing federal and state protections around medical debt; (iii) protections that patients must acknowledge forgoing include (a) prohibitions against wage garnishment and property liens, (b) prohibition against reporting medical debt to credit bureaus, and (c) limitations on interest rates; and (iv) patients must affirmatively acknowledge forgoing these protections by paying with a credit card.

Limitations on Provider Involvement in Medical Credit Applications & Prohibition on Assisting with Credit Card/Loan Applications

Pursuant to Section 349-g of the General Business Law, providers can no longer complete any portion of a patient’s application for medical credit cards and third-party medical installment loans or otherwise arrange for an application that is not completely filled out by the patient. This restriction may significantly impact how healthcare facilities assist patients in managing their medical expenses.

* * *

These new statutes likely require changes to previously existing workflows and documentation processes among health care providers in New York.  In order to ensure compliance with these legal changes, health care providers should audit their consent forms and payment processes, and stay informed about additional anticipated forthcoming guidance. AEL is continuing to monitor these legal changes.  If you have any questions, please reach out to us and we will be happy to assist.

This article was authored by Jarrod Schaeffer and was originally published in Law360’s Expert Analysis Section on June 4, 2024.

The upcoming elections across New York this year will be the first under the state’s new program, launched back in 2022, that provides public financing for state political campaigns.

Features of that program mirror New York City’s long-standing public financing program, including the provision of public funds to match small-dollar contributions.

Intended to increase average voters’ impact on state campaigns, the program also may open the door for greater scrutiny of state campaign finance violations by federal prosecutors.

Public Financing Programs in New York

Concerns over the influence of money in politics are nothing new, though the landscape has shifted markedly in recent decades. As election spending explodes, large contributions by select contributors may dwarf contributions by small donors. See, e.g., Sarah Fischer, U.S. Political Ad Market Projected to Reach Record $16 billion in 2024, Axios (Dec. 8, 2023), available here; Vanderwalker, et al., Analysis Shows Amplification of Small Donors Under New NY State Public Financing Program, Brennan Ctr. For Justice (Jan. 30, 2023), available here (“Last year, the 200 biggest donors to candidates gave almost $16 million, more than all 206,000 of the state’s small donors of $250 or less put together.”).

This shift stems in part from U.S. Supreme Court decisions cabining campaign finance regulation. See, e.g., How Does the Citizens United Decision Still Affect Us in 2024?, Campaign Legal Center (Jan. 15, 2024), available here (observing that political spending has “become a growing problem” following certain decisions “as each respective election cycle has seen record-breaking amounts of spending”). Rejecting concerns regarding large contributions in politics (See, e.g., New York Voters Support New Public Campaign Finance Program, Data for Progress (Feb. 28, 2023), available here (finding that “about 9 in 10 New York voters believe wealthy donors have more influence on politicians than the average voter wealthy donors have more influence on politicians than the average voter”—a belief that was “widely shared across partisanship, with 91 percent of Democrats, 93 percent of Independents, and 90 percent of Republicans saying the same.”)), the court declared in its 2010 Citizens United v. Federal Election Commission decision that “[i]ngratiation and access … are not corruption.” Citizens United v. Federal Election Commission, 558 U.S. 310, 360 (2010). And it has repeatedly curtailed regulation it believes could limit “gratitude” to large contributors or impede “the political access such support may afford,” as articulated in its 2014 decision in McCutcheon v. FEC. McCutcheon v. Fed. Election Comm’n, 572 U.S. 185, 192 (2014). It was not always this way. For many years, the Supreme Court acknowledged concerns that improper influence could result from large contributions. See, e.g., McConnell v. Fed. Election Comm’n, 540 U.S. 93, 143 (2003), overruled by Citizens United v. Fed. Election Comm’n, 558 U.S. 310 (2010) (acknowledging an “interest in combating the appearance or perception of corruption engendered by large campaign contributions”); Nixon v. Shrink Missouri Gov’t PAC, 528 U.S. 377, 389 (2000)) (observing that the Court has “recognized a concern not confined to bribery of public officials, but extending to the broader threat from politicians too compliant with the wishes of large contributors”); Austin v. Michigan Chamber of Com., 494 U.S. 652, 659 (1990), overruled by Citizens United v. Fed. Election Comm’n, 558 U.S. 310 (2010) (recognizing “that the compelling governmental interest in preventing corruption supports the restriction of the influence of political war chests funneled through the corporate form” (internal quotation omitted)); Fed. Election Comm’n v. Nat’l Conservative Pol. Action Comm., 470 U.S. 480, 497 (1985) (“Elected officials are influenced to act contrary to their obligations of office by the prospect of financial gain to themselves or infusions of money into their campaigns.”).

Public financing programs, like those in New York City and now New York state, are one way to address concerns about the effects of large contributions. While these programs survive, the Supreme Court has kept them on a tight leash. See, e.g., Arizona Free Enter. Club’s Freedom Club PAC v. Bennett, 564 U.S. 721, 754 (2011) (striking down a public financing program but stating that “governments ‘may engage in public financing of election campaigns’ and that doing so can further ‘significant governmental interests,’ such as the state interest in preventing corruption,” so long as such programs comport with the Court’s interpretation of the First Amendment); Davis v. Fed. Election Comm’n, 554 U.S. 724, 741 (2008) (holding that providing “level electoral opportunities for candidates of different personal wealth” is not “a legitimate government objective”).

While a state public financing program was a long time coming (for instance, last year a former co-chair of New York’s Moreland Commission to Investigate Public Corruption noted that the commission had recommended in 2013, among other things, that the state create a small-donor public financing system to help amplify the influence of average New Yorkers in the face of large contributions. Milton L. Williams, Don’t Give Up On Public Campaign Financing, City & State (Apr. 8, 2023), available here), New York City has long maintained a public financing program for municipal elections. See Friedlander, et al., The New York City Campaign Finance Act, 16 Hofstra L. Rev., Issue 2, art. 4 (1988) (noting passage of New York City’s Campaign Finance Act and

observing that “[i]n enacting this law, the city of New York has become the fourth, and largest, major local government to have instituted a mechanism for providing public funds to candidates seeking election to local office in return for the candidates’ agreement to abide by restrictions on contributions and expenditures”). A key feature of that program is the availability of public matching funds. Candidates who agree to abide by certain fundraising restrictions can receive public funds to supplement, in varying amounts, small-dollar contributions from New York City residents.

The goal of the program is to incentivize candidates to finance campaigns by engaging average voters over pursuing substantial sums from special interests. Matching Funds Program: How It Works, N.Y. Campaign Fin. Bd. (2024), available here.

The program is administered and policed by a nonpartisan independent agency called the New York City Campaign Finance Board, or CFB. About the CFB, N.Y. Campaign Fin. Bd. (2024), available here. In 2021, it distributed almost $127 million in matching funds to participating candidates. Honan, et al., Public Spending on 2021 NYC Elections Blew Away Previous Records, The City (Sept. 27, 2022), available here.

In 2020, the New York Legislature authorized the New York State Public Campaign Finance Program (Part ZZZ of Chapter 58 of the N.Y. Laws of 2020 (enacting N.Y. Elec. Law, art. 14, tit. 2), which, among other things, created a state-level funds matching program, and established a state Public Campaign Finance Board, or PCFB, to administer the program in a manner roughly comparable to that of the CFB. N.Y. Elec. Law, art. 14, tit. 2 § 14-207.

The state program went into effect as of Nov. 9, 2022 (Part ZZZ of Chapter 58 of the N.Y. Laws of 2020 (providing, inter alia, that the relevant sections “shall take effect on 11/9/2022 and shall apply to participants in the primary and general elections to be held in 2024”)), making the upcoming primary and general elections in 2024 the first to be conducted under the auspices of the state program.

As of early March, over 300 candidates had signed up for the state program (Press Release, N.Y.S. Pub. Campaign Fin. Bd. (Mar. 1, 2024), available here) which has allocated $100 million to distribute to eligible campaigns. See Alyssa Katz, State Campaigns Are About to Rake in $100 Million of Public Funding — While Also Spending All The Private Money They Want, The City (May 1, 2024), available here (“The new state budget provides $100 million for matching funds, nearly one-third of the total New York City has given candidates in the entire 36-year history of its system.”).

Federal Prosecutors and State Campaign Finance Violations

The state program’s implementation may provide new possibilities for federal prosecutors in New York. Elections are regulated through a complicated patchwork of federal, state and local laws. In some areas, such as election financing activities by foreign nationals, federal laws take precedence. 52 U.S. Code § 30121(a)(1) (providing, inter alia, that “[i]t shall be unlawful for . . . a foreign national, directly or indirectly, to make . . . a contribution or donation of money or other thing of value . . . in connection with a Federal, State, or local election”); see also United States v. Singh, 979 F.3d 697, 710 (9th Cir. 2020) (concluding that Congress has authority to regulate state elections as to foreign nationals pursuant to its broad power to regulate immigration and foreign affairs). In most other areas, however, states police their own elections under state law. See, e.g., Oregon v. Mitchell, 400 U.S. 112, 134–35 (1970) (Black, J.) (invalidating federal laws setting the voting age state and local elections to “save for the States the power to control state and local elections which the Constitution originally reserved to them and which no subsequent amendment has taken from them”).

Federal prosecutors are empowered to pursue offenses against the U.S. (28 U.S.C. § 547(1) (providing that “[e]xcept as otherwise provided by law, each United States attorney, within his district, shall . . . prosecute for all offenses against the United States”)), and are not authorized to enforce state or local statutes that undergird nonfederal campaign finance regulations.

There are, however, ways in which federal criminal charges can arise from violations of state or local campaign finance laws. Often, such charges turn not on state or local rules themselves, but on federal statutes targeting corruption and fraud. The most common examples are the federal crimes of bribery, 18 U.S.C. § 666, and mail or wire fraud, 18 U.S.C. §§ 1341, 1343. This article focuses on the fraud statutes and, unless otherwise indicated, refers collectively to the mail and wire fraud statutes “[b]ecause the mail fraud and the wire fraud statutes use the same relevant language” and courts generally “analyze them the same way.” United States v. Schwartz, 924 F.2d 410, 416 (2d Cir. 1991).

One of the most common ways prosecutors deploy those statutes is the investigation and prosecution of fake or straw donations that are used to obtain public matching funds. Such prosecutions frequently focus on efforts to obtain matching funds (although schemes to obtain matching funds are the focus of this article, they are not the only way in which federal prosecutors can bring charges predicated on violations of state or local laws. Depending on the facts of a particular case, other federal statutes may apply without any connection to public matching funds. See, e.g., 18 U.S.C. § 1952(a), (b) (prohibiting, inter alia, interstate travel with the intent to commit certain state law crimes, including “extortion” and “bribery”); 18 U.S.C. §§ 1956(c)(7)(A), 1961(1)(A) (prohibiting money laundering involving proceeds of specified unlawful activities including, among other things, inter alia, state law crimes of “extortion” and “bribery”); see also infra n. xxiv), because attempting to secure those funds makes public money the “object of [a] fraud,” to quote the Supreme Court’s 2020 decision in Kelly v. U.S. Kelly v. United States, 590 U.S. 391, 402 (2020) (quoting Pasquantino v. United States, 544 U.S. 349, 355 (2005)); see also United States v. Xing Wu Pan, 632 F. App’x 15, 16 (2d Cir. 2016) (upholding fraud convictions based on a straw donor scheme and noting that “the necessary result of the straw donor scheme was injury to the New York City Campaign Finance Board”).

In other words, federal prosecutors bring charges based on straw donor schemes that violate state or local campaign finance laws, not because those laws were broken, but because the scheme sought to “obtain[] money or property” in the form of matching funds “by means of false or fraudulent pretenses, representations, or promises” under Title 18 of the U.S. Code, Sections 1341 and 1343. 18 U.S.C. §§ 1341, 1343.

Conversely, prosecutors typically do not bring fraud charges where conduct merely provides false information — e.g., incorrect names, addresses or contribution amounts — to state or local regulators. See, e.g., Ciminelli v. United States, 598 U.S. 306, 309 (2023) (quoting United States v. Binday, 804 F.3d 558, 570 (2d Cir. 2015)) (holding that traditional property rights do not include allegations that a “scheme denies the victim the right to control its assets by depriving it of information necessary to make discretionary economic decisions”). Other federal statues prohibit altering information in ways that may be relevant to violations of state or local laws. See, e.g., 18 U.S.C. § 1519 (prohibiting the destruction, alteration, or falsification of records related to matters under federal investigation). Additionally, there may be circumstances where providing incorrect information causes inaccurate federal reporting, giving rise to other potential enforcement. See 52 U.S.C. §§ 30104 (imposing certain reporting requirements regarding contributions under the Federal Election Campaign Act), 30109 (providing for enforcement).

While accurate campaign finance information may be important, courts have held that the federal fraud statutes “protect[] only [an] … interest as property-holder, excluding protection of a governmental entity in its capacity as regulator,” as articulated by the

U.S. Court of Appeals for the Second Circuit in its 1989 decision in Corcoran v. American Plan Corp. Corcoran v. Am. Plan Corp., 886 F.2d 16, 20–23 (2d Cir. 1989); accord Cleveland v. United States, 531 U.S. 12, 20–21 (2000) (finding no property interest because “the State’s core concern [wa]s regulatory” where Louisiana law focused on “the importance of public confidence and trust” in licensed activities, ensuring such activities “are conducted honestly and are free from criminal and corruptive elements,” and “include[d] the distinctively sovereign authority to impose criminal penalties for violations of the licensing scheme” (emphasis in original)).

Since they primarily embody an interest in truthful disclosure, nonfederal campaign finance regulations likely serve a function “ancillary to … regulation, not to property,” in the words of the Second Circuit’s 1988 U.S. v. Evans decision. United States v. Evans, 844 F.2d 36, 42 (2d Cir. 1988) (concluding, in a case where defendants were charged with conspiring to provide false documents in order to obtain government approval for contemplated transactions, that the government’s right to control the future alienation of arms was not a property right for federal fraud purposes); see also Schwartz, 924 F.2d at 417 (citing Evans and concluding that “[w]hat was fraudulently obtained . . . was the government’s agreement to allow [] proposed transactions to take place,” which did not qualify as a property right because “[w]hether it chooses to use licenses or blanket rules, the government’s purpose is to control the private use of private property”); United States v. Murphy, 836 F.2d 248, 254 (6th Cir. 1988) (explaining that a state’s “right to accurate information with respect to its issuance of [] permits constitutes an intangible right” outside the scope of the federal fraud statutes).

Past federal prosecutions in New York have targeted fraudulent attempts to obtain matching funds administered by the CFB. For example, in U.S. v. Baldeo, the U.S. Attorney’s Office for the Southern District of New York charged a former New York City Council candidate in 2013 with fraud offenses based on a scheme to obtain matching funds during his 2010 municipal campaign. No. S1 13 Cr. 125 (PAC), 2013 WL 5477373 at *1 (S.D.N.Y. Oct. 2, 2013). Baldeo ultimately was acquitted of all fraud offenses at trial, but convicted of multiple obstruction of justice offenses.

The government alleged that Baldeo had straw donors complete contribution cards with their own identifying information, but provided, or had others provide, money orders or cash to fund the contributions. See id. Those cards allegedly were submitted to the CFB to obtain matching funds. Id.

Until the creation of the state program, there was no comparable federal hook regarding violations of state campaign finance regulations, because no state matching funds were available. That is no longer the case.

Providing public funds to eligible candidates through the state program may broaden federal prosecutors’ purview with respect to state campaign finance violations, since schemes that fraudulently attempt to obtain state matching funds likely seek to “obtain[] money or property” from the PCFB “by means of false or fraudulent pretenses, representations, or promises” in the same way that similar schemes sought to obtain matching funds from the CFB. 18 U.S.C. §§ 1341, 1343.

With millions of dollars in public money on the line (Rebecca C. Lewis, First $3.6 Million in New York Campaign Matching Funds Headed Out the Door, City & State (May 16, 2024), available here (noting that “[t]he fledgling New York Public Campaign Finance Board approved nearly $3.6 million in matching funds to 37 candidates last week in the first round of disbursements”)), federal prosecutors in New York may seek to leverage that possibility to combat perceived fraud or corruption.

Conclusion

As a result of New York’s provision of public funds to state campaigns, federal prosecutors may have new ways to bring charges predicated on violations of state campaign finance laws.

Only time will tell whether prosecutors seek to pursue these avenues, but responsible campaigns should consider taking steps early to avoid drawing undue federal scrutiny, including implementing a robust compliance program that looks for common indicia of straw contributions.

Jarrod L. Schaeffer is a partner at Abell Eskew Landau LLP. He previously served as an assistant U.S. attorney and as a senior member of the Public Corruption Unit in the U.S. Attorney’s Office for the Southern District of New York.

The opinions expressed are those of the author and do not necessarily reflect the views of their employer or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

This Article – authored by Jarrod Schaeffer and Scott Glicksman – was originally published on April 4, 2024 in Law360’s Expert Analysis Section. The Law360 version is available here.

Ever since ChatGPT burst onto the scene in November 2022, new tools and applications using artificial intelligence and adjacent technologies have proliferated across multiple industries. See, e.g., Bernard Marr, A Short History of ChatGPT and How We Got to Where We Are Today (Forbes, May 19, 2023), available here.

And while governments and regulators have started implementing frameworks and guardrails for use cases of these technologies, federal criminal enforcement related to or involving AI is still relatively rare. But that may soon change.

Many have commented on how AI might facilitate new kinds of crimes, as well as the use of AI by the U.S. Department of Justice itself to uncover, track and prosecute criminal activity. Some of those efforts will require time and deliberation, such as the evaluation envisioned by the DOJ’s recently launched Justice AI initiative.

But white collar practitioners should also expect to see federal criminal enforcement issues involving AI arise in the near term, including even in pending cases.

DOJ Mobilization Regarding AI

As part of Executive Order No. 14110 on the safe and secure development of AI, issued on Oct. 30, 2023, President Joe Biden directed federal agencies, including the DOJ, to evaluate potential uses and pitfalls of AI. See, e.g., 88 Fed. Reg. 210 at 75191, 75211–75212, §§ 7.1(b)(i)(A)–(C), (F), available here.

General Lisa Monaco signaled that federal criminal law enforcement officials had begun working to implement the president’s directives. Deputy Attorney General Lisa O. Monaco, Remarks at the University of Oxford on the Promise and Peril of AI (Dep’t of Justice Feb. 14, 2024), available here.

Calling AI “a double-edged sword” with perhaps “the sharpest blade yet,” Monaco extolled the technology’s “potential to be an indispensable tool to help identify, disrupt, and deter criminals, terrorists, and hostile nation-states,” while recognizing “that AI can lower the barriers to entry for criminals.” She went on to say that AI was “changing how crimes are committed and who commits them — creating new opportunities for wanna-be hackers and supercharging the threat posed by the most sophisticated cybercriminals.” Id.

To combat those threats, Monaco announced the Justice AI initiative, which, “[o]ver the next six months, … will convene individuals from across civil society, academia, science, and industry to draw on varied perspectives” in order “to understand and prepare for how AI will affect the Department’s mission and how to ensure [it] accelerate[s] AI’s potential for good while guarding against its risks.” Id.

That initiative is expected to provide its findings by the end of this year, and may build on prior work by the DOJ’s existing Disruptive Technology Strike Force.

But Main Justice officials are not the only ones who will have a hand in policing AI misuses. (This article focuses solely on federal criminal law enforcement efforts and does not address civil enforcement efforts undertaken by a variety of by federal and state regulators.) The 94 U.S. attorney’s offices around the country also play important — and, in some cases, leading — roles in addressing new issues and trends in law enforcement. Prosecutors in those offices are unlikely to wait for the DOJ’s overall deliberative process to conclude — in fact, some have already charged cases that target crimes involving AI. See Press Release, Founder of Artificial Intelligence Start-Up Charged With Fraud (Dep’t of Justice, Aug. 15, 2023), available here; see also Press Release, Two Men Charged for Operating $25M Cryptocurrency Ponzi Scheme (Dep’t of Justice, Dec. 12, 2023), available here.

And Monaco’s remarks, combined with recent events, suggest that the DOJ is not asking them to wait.

Likely Areas of Interest for Federal Law Enforcement

Where should practitioners expect to see more immediate efforts targeting AI by federal prosecutors and law enforcement agencies? Considering Monaco’s recent remarks alongside prior clues from DOJ officials — and taking account of modern law enforcement practices and procedures — AI is likely to become an early focus in a few key areas.

First, prosecutors and agents will likely focus on how AI can facilitate the commission of familiar crimes, as well as how prosecutors can deploy existing tools to combat such misuses.

Since AI acts as a powerful force-multiplier for a wide range of activities, federal criminal enforcement tactics developed for traditional offenses may be readily adapted to cases where those offenses are made more serious or effective through AI.

This is where practitioners are most likely to first encounter these issues, whether in pending cases, ongoing compliance reviews or new investigations.

Second, prosecutors and agents will likely focus on areas where AI may enable new kinds of crimes that would not be possible otherwise, such as advanced AI-enabled cyberweapons and other sophisticated national security threats. See, e.g., Staying ahead of threat actors in the age of AI (Microsoft, Feb. 14, 2024), available here (describing how “[c]ybercrime groups, nation-state threat actors, and other adversaries are exploring and testing different AI technologies as they emerge, in an attempt to understand potential value to their operations and the security controls they may need to circumvent.”).

While industry professionals have yet to see examples of this conduct, most expect that it will soon confront law enforcement. See id. Combating these threats is likely to require the development of new law enforcement tools and the recruitment of additional personnel.

Third, prosecutors and agents will almost certainly explore how AI can be used to better uncover, track and prosecute all kinds of criminal activity.

As many attorneys are aware already from personal experience, AI can make aspects of their own practices more effective and efficient through advanced data processing, sophisticated pattern identification, and the automation of rote tasks. Those same benefits may be harnessed by prosecutors and federal agents, including through the use of AI-assisted document and evidence review tools, early versions of which have existed for years in various forms of less advanced technology-assisted review.

Traditional Offenses Utilizing AI

While prosecutors and agents are likely to eventually explore these and other areas, there are several reasons why their efforts may focus first on traditional offenses utilizing AI.

To begin with, focusing on how AI facilitates the commission of familiar offenses requires less expenditure of new resources, because prosecutors and agents can bring to bear the traditional investigatory tools and strategies that they use in other cases.

More drastic adaptations or paradigm shifts, on the other hand, may take longer, because AI is just as new for law enforcement as it is for society. That does not mean big changes will not come — just that they might take longer to have an impact.

More fundamentally, prosecutors are likely to be most comfortable addressing AI misuses through conventional legal frameworks. As Monaco has reiterated, “Fraud using AI is still fraud. Price fixing using AI is still price fixing. And manipulating markets using AI is still market manipulation.” Deputy Attorney General Lisa O. Monaco, Remarks at American Bar Association’s 39th National Institute on White Collar Crime (Dep’t of Justice Mar. 7, 2024), available here.

Prosecutors have a long history of repurposing existing statutes and enforcement tools to combat challenges arising from new technologies. For instance, in U.S. v. Chastain this past year, the U.S. Attorney’s Office for the Southern District of New York — which is often on the front lines of emerging issues — invoked the wire fraud statute, 18 U.S.C. § 1343, first enacted in the 1950s (66 Stat. 722, ch. 879, § 18(a) (July 16, 1952)), to prosecute fraud involving non-fungible tokens (See Press Release, Former Employee of NFT Marketplace Sentenced to Prison in First-Ever Digital Asset Insider Trading Scheme (Dep’t of Justice, Aug. 22, 2023), available here, which have a considerably more recent vintage. See, e.g., Sarah Cascone, Sotheby’s Is Selling the First NFT Ever Minted—and Bidding Starts at $100 (Artnet, May 7, 2021), available here (noting that the first-ever NFT was minted in 2014). More recently, in U.S. v. Austad, the Southern District of New York unsealed charges alleging, among other things, that the defendants “used artificial intelligence image generation tools” to advertise sales of stolen account credentials. U.S. v. Nathan Austad & Kamerin Stokes. See, e.g., Press Release, Two More Men Charged With Hacking Fantasy Sports and Betting Website (Dep’t of Justice, Jan. 29, 2024), available here.

Investigatory and Compliance Considerations

Given the range of traditional offenses where AI may be particularly easy to misuse, practitioners should expect the same ingenuity in investigations and prosecutions going forward.

For example, because AI can be used to quickly generate and distribute cutting-edge deepfakes and other professional-looking content, it might be used to induce fraud victims to purchase nonexistent goods or services through convincing advertising, enable or amplify a scheme to generate false identification materials, facilitate a market manipulation scheme through the dissemination of forged company literature (See, e.g., Brian Fung, U.S. Senators Propose Tough Fines for AI-driven Securities Fraud or Market Manipulation (CNN, Dec. 19, 2023), available here, or sow confusion intended to disrupt the electoral process through AI-generated robocalls. See, e.g., Holly Ramer, Political Consultant Behind Fake Biden Robocalls Says He Was Trying to Highlight a Need for AI Rules (Assoc. Press, Feb. 24, 2024), available here.

In fact, it appears that prosecutors may already have launched new inquiries focused on AI in the context of traditional crimes. In January, for instance, Bloomberg Law reported that “[p]rosecutors have started subpoenaing pharmaceuticals and digital health companies to learn more about generative technology’s role in facilitating anti-kickback and false claims violations.” Ben Penn, DOJ’s Healthcare Probes of AI Tools Rooted in Purdue Pharma Case (Bloomberg, Jan. 29, 2024), available here.

Such developments necessitate additional considerations not only by those responding to federal investigative inquiries, but also by compliance professionals.

As to the former, practitioners responding to subpoenas and other investigatory demands should carefully consider the capabilities of clients’ AI tools, their internal controls or other relevant compliance protocols, and potential misuses that may have prompted an inquiry or stimulate further interest from prosecutors.

Those same considerations are also important for compliance departments and those who develop or utilize AI for valid purposes, as Monaco has explicitly cautioned that prosecutors will assess management of AI-related risks when considering future resolutions of compliance and enforcement matters. Monaco, Remarks at American Bar Association’s 39th National Institute on White Collar Crime, (Dep’t of Justice Mar. 7, 2024), supra.

Implicit in that warning is the possibility that even AI created or utilized for proper purposes can be misused, and that the DOJ expects those who develop or use AI to take preventative measures.

In connection with appropriate investigations or compliance inquiries, practitioners should consider whether AI may have been utilized, regardless of whether the relevant conduct appears technologically sophisticated. Some uses of AI — such as text or code generation — may not be readily apparent, but nonetheless should be carefully evaluated. This is especially important as the public becomes increasingly conversant with widely available tools that have a variety of existing lawful uses, such as generative AI applications that create text and images.

Considerations for Plea Negotiations and Sentencing

The implications of this focus on AI misuses likely will also extend beyond the investigatory phase into plea negotiations and sentencing arguments, as prosecutors are likely to seek increased penalties that reflect any greater harm flowing from AI.

In February, Monaco observed that “[l]ike a firearm, AI can also enhance the danger of a crime,” and “[g]oing forward, where … prosecutors can seek stiffer sentences for offenses made significantly more dangerous by the misuse of AI — they will,” in addition to seeking reforms that provide additional penalties “if … existing sentencing enhancements don’t adequately address the harms caused by misuse of AI.” Monaco, Remarks at the University of Oxford on the Promise and Peril of AI, supra.

Monaco doubled down on this last month at the American Bar Association’s National Institute on White Collar Crime, emphasizing that “[w]here AI is deliberately misused to make a white-collar crime significantly more serious, our prosecutors will be seeking stiffer sentences — for individual and corporate defendants alike.” Monaco, Remarks at American Bar Association’s 39th National Institute on White Collar Crime, (Dep’t of Justice Mar. 7, 2024), supra.

This is a logical place for prosecutors to deploy tools and practices targeting AI misuse. Novel theories may be easier to advance in this context, because prosecutors have a lower burden of proof, evidentiary rules apply less stringently than they do at trial, and many provisions of the U.S. Sentencing Guidelines are intended to encompass a broad range of flexible policy considerations.

And to the extent that plea negotiations incorporate agreements over what enhancements apply, litigation risks for prosecutors regarding new twists on certain enhancements may be significantly reduced.

Practitioners should carefully consider these issues in the context of plea negotiations, while recognizing that prosecutors likely have significant leverage with respect to some traditional guidelines enhancements.

For example, a familiar enhancement for offenses that involved sophisticated means (U.S.S.G. § 2B1.1(b)(10)(C)) has been construed broadly to apply not only where an offense relied on specialized computer knowledge, (United States v. Hatala , 552 F. App’x 28, 30 (2d Cir. 2014) (upholding enhancement where defendant “used his extensive knowledge of computer programming and database systems, as well as self-written codes, to bypass professionally-designed security systems”) but also where an offense involved the use of readily available software. United States v. Calderon , 209 F. App’x 418, 419 (5th Cir. 2006) (rejecting, inter alia, argument that “printing checks using a computer program available for purchase by anyone at a local office supply store . . . did not constitute sophisticated means” because “[e]ven though certain aspects of [the] scheme were not sophisticated, the offense as a whole involved sophisticated means”). Prosecutors may seek to apply this enhancement in cases where an offense was facilitated by AI, even if the actual application used is generally commercially available.

Similarly, enhancements targeting the use of authentication features[25] have been applied to items ranging from forged notary seals (United States v. Sardariani, 754 F.3d 1118, 1122 (9th Cir. 2014)) to voice verification data (See, e.g., United States v. Barrogo, 59 F.4th 440, 446 (9th Cir. 2023) (concluding that an “authentication feature” encompasses “non-physical” means of identification like biometric data, including “voice or retina information”)—all things for which sophisticated AI might generate passable forgeries. See, e.g., Press Release, Gartner Predicts 30% of Enterprises Will Consider Identity Verification and Authentication Solutions Unreliable in Isolation Due to AI-Generated Deepfakes by 2026 (Gartner, Inc., Feb. 1, 2024), available here. Prosecutors may seek to apply these enhancements where AI was used to create deepfakes that circumvent advanced identity authentication measures. Practitioners should carefully consider the application of such guidelines provisions and attempt to anticipate how prosecutors may retool other conventional arguments based on the particular facts of a case. And it is important to consider such issues early in the life of a case, so that practitioners are prepared during plea negotiations that may significantly affect later positions taken at sentencing.

Conclusion

As technologies and applications utilizing AI continue to proliferate and new tools are developed, white collar practitioners should expect to encounter AI in federal criminal enforcement matters sooner rather than later. Even as the DOJ deliberates on an overall approach to AI, prosecutors and agents are likely to forge ahead while repurposing traditional strategies and tools. And because an early focus by those actors is likely to be where the misuse of AI facilitates the commission of conventional offenses, practitioners should carefully consider how clients — even those using or developing AI for lawful purposes, or in existing cases otherwise involving only traditional offenses — may use AI, and the significance it could have for an investigation or prosecution.