Roy William Harris

Roy William "Will" Harris was the chief executive officer and majority shareholder of Arochem Corporation, a now defunct refinery and petrochemical plant located in Ponce, Puerto Rico, which ceased operation in 1992. Harris, a former successful commodities trader, was the central figure in United States v. Harris, a case involving numerous charges of financial crimes. Harris was convicted of conspiracy to commit wire and bank fraud, money laundering, engaging in a continuing financial crimes enterprise (CFCE). Harris was the first non-drug lord ever convicted of the CFCE statute which was intended to be used on drug kingpins as a method of seizing the resources of wealthy outlaws and to deprive them of resources. The case highlighted the intricate financial fraud that led to the collapse of Arochem but also served as an essential legal precedent for issues related to the application of the CFCE statute and the role of financial institutions in fraud detection.

Arochem, trading, and bank fraud The Arochem Companies operated an 80,000-barrel-per-day petroleum refinery in Puerto Rico formerly known as the CORCO refinery and traded petroleum products through a credit arrangement with a consortium of banks led by Chase Manhattan Bank. Will Harris owned 60% of the stock of Arochem International Inc. and Arochem Corporation. Harris was also the sole shareholder and managing director of Arochem International Ltd. ("Limited"), based in the Cayman Islands, which engaged in trading and financing of crude oil and petroleum products. and other senior officers, allegedly engaged in widespread fraudulent activities to conceal the companies' true financial condition and to continue securing loans from the banks.

According to Harris's indictment (summarized):From January 1990 to December 9, 1991, Arochem Companies submitted borrowing base reports to their lending banks, showing that the collateral securing their loans exceeded $200 million. By November 30, 1991, these reports had supported approximately $200 million in borrowed funds. However, the actual collateral held by Arochem at that time was less than $35 million. In February 1992, the lending banks filed an involuntary bankruptcy petition against Arochem in the U.S. Bankruptcy Court for the District of Connecticut, with the Chase bank group reportedly incurring losses of over $150 million on its loans to the company. Harris was accused of wiring $3.7 million to his personal bank account in the indictment. The employees were terminated and the Arochem site today is an EPA Superfund cleanup site.

Legal proceedings and trial After rejecting a plea deal that would have earned Harris a maximum 3-year sentence, on September 9, 1992, Harris was indicted on multiple charges, including conspiracy to commit wire and bank fraud, money laundering, and engaging in a continuing financial crimes enterprise. The indictment also included charges related to the submission of false statements on loan applications. The government's case against Harris rested on the assertion that he and other Arochem executives had engaged in a deliberate scheme to defraud the company's creditors by falsifying financial information, manipulating inventory reports, and conducting illegal financial transactions to disguise the company's deteriorating financial health.

The indictment listed 24 counts, and the government sought the forfeiture of Harris's assets under 18 U.S.C. § 982, which allows for the confiscation of property involved in money laundering and other financial crimes. Harris moved to dismiss several counts and sought to sever the charge related to making a false statement on a loan application. The district court granted his motion to sever the loan-related charge but denied his motion to dismiss the remaining counts of wire fraud, bank fraud, and the CFCE charge.

After Harris rejected a plea bargain that would have earned him a maximum three-year sentence, a New York jury convicted him in December 1992 of engineering a scheme to defraud the bank consortium. Prosecutors identified false financial documents and sham contracts, as well as accounting ledgers doctored to overvalue the companies' oil inventory and hide its large losses. He was convicted on all counts. On December 14, 1992, the jury found Harris guilty, and he was sentenced to 188 months (approximately 15 years) of imprisonment, along with a five-year term of supervised release. The court also ordered Harris to pay $200 million in restitution to the banks that had been defrauded.

Harris argued that his conviction under the CFCE statute violated the Ex Post Facto Clause of the U.S. Constitution, as some of the conduct that formed the basis of the conviction occurred before the CFCE statute's enactment in November 1990. The appellate court rejected this argument, affirming the principle that in cases involving continuing offenses, conduct occurring both before and after the enactment of the statute can be considered in determining guilt. The court found that the jury had been properly instructed to consider only post-enactment conduct in its determination of guilt under the CFCE statute.

Appealing of United States v. Harris On appeal, Harris contended that the money laundering charge should have been dismissed because the transfers of funds within the United States—specifically from New York to Connecticut—were the key transactions designed to conceal the fraud, rather than the subsequent transfers to Switzerland. The appellate court disagreed; it ruled that the domestic and international transfers were part of a single transaction aimed at concealing the proceeds of fraud. Thus, the money laundering conviction was upheld. Evidence at court showed that Harris had moved $7.5 million of Arochem money to an account that he controlled in Switzerland.

The district court's imposition of a $200 million restitution order was another point of Harris's appeal. He argued that the court had failed to properly consider his financial needs, his earning potential, and the impact of the restitution order on his dependents. The appellate court found that while the district court had considered Harris's future earning potential, it had not adequately addressed his obligations to his dependents. As a result, the court vacated the restitution order and remanded the case for further consideration of Harris's financial circumstances in light of the statutory requirements for restitution.

The United States v. Harris case is notable for its contributions to the legal understanding of financial fraud, money laundering, and the application of the CFCE statute. Several key principles emerged from the case, influencing future prosecutions of complex financial crimes:

The Continuing Nature of Financial Crimes: The appellate court's ruling affirmed that the Ex Post Facto Clause does not prohibit the prosecution of ongoing financial crimes that began before the enactment of relevant statutes but continued afterward. This principle is critical in prosecuting complex schemes that span multiple years and involve numerous fraudulent acts. Multiplicity of Charges in Financial Fraud Cases: The court's decision to uphold multiple counts of bank fraud based on separate extensions of the loan agreement reinforced the notion that each act of fraud can be treated as a distinct offense if it involves new misrepresentations or actions that deceive creditors or financial institutions. This approach is essential in cases where defendants engage in long-term fraudulent activities that require repeated misstatements to maintain the scheme. Concealment and Money Laundering: The court's ruling on the money laundering charge clarified the scope of the statute, confirming that domestic and international transfers can be treated as part of a single laundering scheme when designed to conceal the proceeds of fraud. This ruling has implications for how financial institutions and prosecutors approach cases involving the movement of funds across borders to hide unlawful gains. Restitution in Large-Scale Fraud Cases: The appellate court's decision to vacate the restitution order underscored the importance of considering a defendant's financial needs and obligations when imposing restitution. While courts aim to ensure that victims are compensated, they must also balance this goal with the practical reality of the defendant's ability to pay.

Regarding CFCE, Harris's appeal did place effort on CFCE to be treated similarly to RICO in being constitutionally vague (which had been successfully litigated in a previous case). However, the appellate Federal Judge Charles Haight Jr. responded in his decision:Viewing the case in this light, I conclude that the continuing financial crimes enterprise statute gave defendant adequate warning that the charged conduct would fall within its terms. The statute reaches one who "organizes, manages or supervises" the enterprise.

And further that:

RICO's component parts are differently worded from the continuing financial crimes enterprise statute. Arguably RICO's provisions are more vulnerable to constitutional attack for vagueness, although it must be remembered that Justice Scalia wrote for a minority of the Court in H.J. Justice Brennan's opinion commanded a majority of five and contained no murmurings about constitutionality. In any event, subsequent to H.J. the Second Circuit in Coonan sustained the constitutionality of the RICO statute against a vagueness challenge. Harris's legal team also tried to use that the CFCE law was focused on drug king pins as a means to appeal, arguing that other financial crimes were different in nature. The appellate judge Haight ruled that:I find nothing to comfort defendant in all of this. Just as 21 U.S.C. § 848 is a "regulation" of the business of selling drugs, so 18 U.S.C. § 225 is a "regulation" of doing business with financial institutions. In particular, the statute is intended to "regulate" that business by safeguarding such institutions from theft or fraud. The appeals process for Harris provided ended with failure over a 10-year period.