People v. Western Express International, Inc. , 923 N.Y.S.2d 34 ( 2011 )

OPINION OF THE COURT

Saxe, J.

These appeals concern the intended scope of the enterprise corruption provision (Penal Law § 460.20) of New York’s Organized Crime Control Act (OCCA) (Penal Law tit X). The question presented for our consideration is whether the proof presented to the grand jury sufficed to show that defendants’ combined activities constituted the type of “ascertainable structure” needed to satisfy the definition of criminal enterprise under Penal Law § 460.10 (3). We conclude that the evidence is sufficient to establish the type of criminal enterprise covered by the statute, and, accordingly, we reverse and reinstate those counts of the indictment.

Before the advent of widespread use of the Internet, organized criminal organizations were always tangible entities whose location could he pinpointed and whose members could generally be found in relatively close proximity to each other and their victims. The Internet has provided an extraordinarily useful new tool for criminals to perpetrate crimes in entirely new ways. Not only does the Internet permit individuals to commit traditional criminal offenses in cyberspace through the use of computers (see Goodman and Brenner, The Emerging Consensus on Criminal Conduct in Cyberspace, 2002 UCLA J L & Tech 3 [2002]; Katyal, Criminal Law in Cyberspace, 149 U Pa L Rev 1003 [2001]), but it created the opportunity for loosely organized networks to coordinate large-scale criminal operations such as thefts of millions of dollars in funds from banks worldwide, or the penetration of telephone network computer systems and theft of phone card information (see Rustad, Private Enforcement of Cybercrime on the Electronic Frontier, 11 S Cal Interdisc LJ 63 [2001]).

The groups, or networks, that commit such large-scale criminal operations do not resemble traditional organized crime models. As one commentator has remarked, the Internet allows criminals to commit crimes “without formal organization” since there is no need for physical contact or geographical control; contacts and coconspirators can remain faceless, and participation in a scheme need not involve the giving and following of orders, but may be carried out after general discussion in a virtual chat room (see Lauren L. Sullins, Comment, “Phishing” for a Solution: Domestic and International Approaches to Decreasing Online Identity Theft, 20 Emory Int’l L Rev 397, 418 [Spring 2006]). It has been observed that the structure of these criminal enterprises using the Internet may be fundamentally different than the hierarchical model typical of traditional organized crime; in the context of the Internet, traditional hierarchies are replaced by networks, and a hallmark of the network-style structure is decentralized power and authority (see Brenner, Toward a Criminal Law for Cyberspace: Distributed Security, 10 BU J Sci & Tech L 1 [2004]).

One new form of crime made possible by the Internet involves the theft and resale of computerized information, such as credit card data, for subsequent fraudulent use by others (see Peretti, Data Breaches: What the Underground World of “Carding” Reveals, 25 Santa Clara Computer & High Tech LJ 375 [2009]). A particular type of criminal enterprise has emerged from this new form of crime: “websites known as ‘carding forums’ that facilitate the sale of, among other contraband, stolen credit and debit card numbers,” which offer participants a variety of forms of assistance in perpetrating their crimes (id. at 381).

Since the time that cybercrime first emerged, prosecution of its various forms has involved the use of both long-established criminal statutes and new legislation. That is, some longstanding criminal prohibitions have been found to cover crimes committed with the use of computers, including the various criminal acts falling within the category of “carding.” Federal law enforcement has targeted and prosecuted some of these acts by charging a number of individuals with such crimes as conspiracy, identity theft, trafficking in illegal information, credit card fraud, and money laundering (see Peretti, at 395-403; Hsu, French arrest cyber-crime suspect for U.S., Washington Post, Aug. 12, 2010, at B04). However, in some respects, new criminal legislation such as the federal Computer Fraud and Abuse Act (18 USC § 1030) has been determined to be necessary to effectively combat such crime (see Sinrod and Reilly, Cyber-Crimes: A Practical Approach to the Application of Federal Computer Crime Laws, 16 Santa Clara Computer & High Tech LJ 177, 179, 180-181 [2000]; Heymann, Legislating Computer Crime, 34 Harv J on Legis 373 [1997]). Beginning in the 1980s, a wave of computer-crime-related criminal laws began to be enacted worldwide,

“precipitated by the inadequacy of the existing traditional criminal provisions, which protect exclusively physical, tangible and visible objects against traditional crimes, in the advent of cybercrime. The new laws addressed the new capabilities of computer related crimes to violate traditional objects through new media (such as stealing money by manipulating bank accounts), to involve intangible objects (such as computer programs), and to employ new methods of committing crimes made possible by increasing use and reliance on computer systems and networks.” (Goodman and Brenner, The Emerging Consensus on Criminal Conduct in Cyberspace, 2002 UCLA J L & Tech 3 [2002].)

During this same period, specifically in 1986, New York enacted the OCCA (Penal Law tit X, art 460, § 460.00 et seq.), having concluded that “new penal prohibitions and enhanced sanctions, and new civil and criminal remedies are necessary to deal with the unlawful activities of persons and enterprises engaged in organized crime” (§ 460.00). Since the intended scope of the OCCA is central to this appeal, it is fortunate that that scope may be discerned primarily from the legislative findings that introduce the Act, making it unnecessary to rely on the remarks of members of the Legislature found in the statute’s bill jacket. These statutory legislative findings explain how organized crime now involves “highly sophisticated, complex” criminal activity, and describe how “legitimate enterprises [are] being employed as instrumentalities, injured as victims, or taken as prizes” (id.). The findings relate that the Act was considered necessary because “[existing penal law provisions are primarily concerned with the commission of specific and limited criminal acts without regard to the relationships of particular criminal acts or the illegal profits derived therefrom, to legitimate or illicit enterprises operated or controlled by organized crime” (id.). These findings also recognize that sometimes a series of criminal acts, even if they arguably form a pattern, may be fully and properly prosecuted under existing criminal laws. The Act attempts to carefully define the terms “pattern of criminal activity” and “criminal enterprise” so as to give the prosecutor, the grand jury, and the Judiciary the means by which to determine when a group’s pattern of criminal acts may fairly be said to constitute part of a larger “criminal enterprise,” while allowing for their exercise of discretion (id.).

Therefore, when a business enterprise takes what would otherwise be a series of individual criminal acts by various participants, and attempts to incorporate those participants, and their criminal transactions, into a larger, ongoing criminal enterprise, the OCCA prompts us to look for a broader structure beyond the individual crimes perpetrated, and authorizes the prosecution of the larger organization as a whole, “because their sophistication and organization make them more effective at their criminal purposes and because their structure and insulation protect their leadership from detection and prosecution” (id.).

Although the forms of Internet crime have been evolving and becoming far more sophisticated over the decades since the OCCA was first enacted, the question is not whether the Legislature had this particular type of criminal enterprise in mind when it formulated the language of the statute. Rather, we need only decide whether the structure of the enterprise at issue falls within its definition of enterprise corruption.

The type of enterprise corruption charged here, under Penal Law § 460.20 (1), occurs when a defendant,

“having knowledge of the existence of a criminal enterprise and the nature of its activities, and being employed by or associated with such enterprise, . . .

“(a) intentionally conducts or participates in the affairs of an enterprise by participating in a pattern of criminal activity.”

The “criminal enterprise” with which the defendant must be associated is defined in Penal Law § 460.10 (3) as “a group of persons sharing a common purpose of engaging in criminal conduct, associated in an ascertainable structure distinct from a pattern of criminal activity, and with a continuity of existence, structure and criminal purpose beyond the scope of individual criminal incidents” (emphasis added). Therefore, while a charge of enterprise corruption under section 460.20 requires that the defendants participated in a “pattern of criminal activity,” that is not sufficient; the element most critical here is the requirement that the criminal enterprise must have “an ascertainable structure distinct from [that] pattern of criminal activity” (Penal Law § 460.10 [3] [emphasis added]).

The motion court concluded that the evidence failed to show the requisite “structure” of the charged enterprise, observing that “courts have consistently required some evidence of a system of authority or hierarchy binding the defendants together.” (People v Latta, NYLJ, Aug. 1, 2008, at 26, col 1, 2008 NY Misc LEXIS 4967, *3-4 [Sup Ct, NY County 2008].) In our view, however, the criminal operation created by Western Express, in which the individual defendants participated, had the requisite “ascertainable structure distinct from [its] pattern of criminal activity” so as to qualify as a “criminal enterprise” as defined by the statute. The statute does not require any particular structure for the enterprise, and nowhere does it indicate that it contemplates a traditional hierarchical organized crime model; I see no reason to preclude its application to a non-traditionally-arranged, non-hierarchically-structured criminal enterprise.

The indictment here charges that Western Express International, its president, Vadim Vassilenko, and the four other individual defendants appealing here, as well as various other individuals not parties to this appeal, formed and participated in an operation of this type. Defendants are charged with a wide variety of crimes, including scheme to defraud (Penal Law § 190.65), money laundering (Penal Law §§ 470.15, 470.20), and grand larceny (Penal Law § 155.40), as well as enterprise corruption. However, the only counts at issue on appeal are those charging each of the defendants with enterprise corruption under the OCCA (Penal Law § 460.20).

The indictment alleges that defendants comprised a “cybercrime” enterprise that used the structure and facilities of Western Express to systematically traffic in stolen credit card data, using money-laundering processes made possible by Western Express in order to avoid detection. The evidence presented to the grand jury, including information retrieved from computers seized at Western Express’s headquarters and Vassilenko’s residences, as well as money orders, forged credit cards, and defendants’ e-mail containing lists of stolen credit card account numbers, established the existence of a criminal enterprise in which the individual defendants participated to varying extents. The witnesses, including a United States Secret Service special agent and an investigator from the Manhattan District Attorney’s office, explained that while Western Express offered a variety of legitimate services, such as check cashing, mail receiving, money orders, digital currency exchange, and. Russian/English translation services, it also acted as an intermediary, or “money mover,” providing credit and facilitating transactions for buyers and sellers of stolen credit card data, while earning a commission for each such transaction. The credit card data was obtained by hackers or by other illegal methods, and was then sold through Western Express to buyers such as defendants Latta, Perez, Roach, and Washington, who in turn used that data for such illegal purposes as manufacturing counterfeit credit cards or making fraudulent on-line purchases.

The evidence reflects that Vassilenko, as president of Western Express, made concerted efforts to position Western Express as a preferred agency for “carders,” that is, vendors and buyers of stolen credit card data. He did so by making Western Express more than a neutral site for transacting sales; he provided services that would help these individuals successfully carry out their illegal transactions undetected by law enforcement. Vassilenko created and maintained Web sites and Internet forums containing postings about the sale of stolen account information, advertised Western Express’s money-moving services, posted messages on preexisting “carder” Web sites and looked into advertising on the Web site CarderPlanet. Then, Western Express employees actively assisted those customers buying and selling stolen credit card data by providing them with credit using unregulated digital currencies such as Egold and WebMoney, arranging exchanges of these digital currencies so that the transactions could be conducted without disclosure of the identities of the parties taking part.

More specifically, the evidence presented to the grand jury showed that Western Express provided Egold (in exchange for other currency) to buyers of stolen credit card data, including defendants Latta, Perez, Roach and Washington, which digital currency helped them anonymously purchase the stolen data; then Western Express would redeem from the sellers of the stolen data, such as defendants Egor Shevelev and Dzimitry Burak, the Egold that the buyers had paid to them, exchanging it for WebMoney or United States currency On each transaction, Western Express earned a commission of between two percent and five percent. By arranging for these transactions to be conducted in unregulated digital currencies, which were then exchanged for other unregulated currencies, and by knowingly permitting the transactions to be conducted using aliases, Western Express helped the participants avoid detection by governmental regulatory authorities, while itself profiting at each stage of the illegal process.

Western Express employees also helped the vendors and buyers avoid triggering federal reporting requirements by advising them to make wire transfers in small amounts under a variety of fictitious names. In these ways, Western Express not only failed to combat money laundering and detect suspicious or clearly illegal activity, it actively encouraged, assisted and participated in those activities. Indeed, defendant Vassilenko admitted to an investigator that five percent of his business involved “dirty” money.

In sum, the presented evidence shows that Vassilenko began with a legitimate business enterprise engaged in such services as check cashing, mail receiving, money orders, and digital currency exchange, which he then perverted both by attracting buyers and sellers of stolen credit card data to transact their business on his site, and by not only failing to enforce anti-money-laundering protections, but affirmatively providing specialized assistance to these criminals to protect them from detection and encourage their continued use of the site for additional transactions in the future. While the individual defendants acting as either buyers or sellers of stolen credit card data could conduct such illegal transactions in the absence of Western Express — indeed, they continued to conduct such illegal transactions even after Western Express ceased operations — the evidence before the grand jury permitted the conclusion that all the defendants had found it to be to their mutual advantage to utilize and participate in the larger organizational forum and structure provided by Western Express.

This Court is divided on the question of whether the nature of this organization, as indicated by the evidence presented to the grand jury, constitutes a “criminal enterprise” having an “ascertainable structure” as contemplated by the OCCA. It must be acknowledged that the structure of Vassilenko’s enterprise, used by the buying and selling defendants, differs greatly from the way in which the very word “structure” is ordinarily used in the context of organized crime. The “structure” at issue here is, essentially, a Web site; there is no social club or office, no hierarchy of appointed positions. Nevertheless, the criminal enterprise that was formed from the legitimate business known as Western Express served as far more than merely a site at which information thieves could fence stolen goods. Rather, it was molded into a full-service clearinghouse devoted to optimizing illegal transactions involving stolen credit card information.

Examination of cases in which charges of enterprise corruption were upheld, and others in which they were not, helps illustrate how to determine whether criminal activity falls within the OCCA.

Enterprise corruption charges were dismissed in People v Nappo (261 AD2d 558, 559 [1999], revd on other grounds 94 NY2d 564 [2000]), where the defendants’ scheme to import motor fuel from New Jersey to New York without filing reports or paying taxes did not constitute a “structure, business, activity, or continuity of criminal purpose beyond the scope of the criminal incidents alleged in the indictment.” Similarly, charges of enterprise corruption were dismissed in People v Moscatiello (149 Misc 2d 752 [Sup Ct, NY County 1990]), where it was alleged that the defendants were engaged in a bribery scheme in which each participant played a different role: one defendant directed the enterprise, one was his assistant, and another the “instrument.” The court observed that the structure of the individuals’ association was “not one with a scope of existence beyond their criminal acts” (id. at 756).

The same absence of an association that went beyond the scope of the component criminal incidents was apparent in People v Yarmy (171 Misc 2d 13 [Sup Ct, NY County 1996]), where the count of the indictment charging enterprise corruption was dismissed because the alleged criminal activity consisted of a firearms dealer arranging for an unlicensed coconspirator to illegally sell weapons and ammunition, sometimes with the assistance of family members, and the division of the proceeds from the sales. Although the District Attorney’s office had argued in Yarmy that the enterprise consisted of the illegal sales and recruitment of new customers aided by an unlicensed coconspirator and others, the court observed that there were actually only two roles in the enterprise: the supplier and the distributor, acting together to their mutual financial benefit, so the scope of the enterprise was no larger than the conduct of the illegal sales themselves. So, although the court in Yarmy remarked on the lack of a “hierarchical organization” which it considered “critical to establishing an enterprise” (171 Misc 2d at 17-18), the charged conspiracy also failed by the standard applied by the cases discussed above, in that the scope of its existence did not extend beyond the participants’ criminal acts.

In contrast, the requirements of the enterprise corruption statute were held to be satisfied by the business operations considered in People v Forson (NYLJ, May 12, 1994, at 29, col 3 [Sup Ct, NY County]). There, the defendants had formed what appeared to function as a legitimate securities dealer operation, but which actually conducted a variety of fraudulent schemes in which the participants stole investors’ funds. In denying dismissal of the enterprise corruption charges, the court observed that the defendants shared a common purpose of using their business, Oxford Capital Securities, to defraud members of the investing public, and, importantly, that the “enterprise” went beyond what was necessary to commit the series of acts charged. Rather, one defendant directed the enterprise and set goals, policies, and strategies, with an inner circle to convey his plans and strategies to others, and to fraudulently obtain funds from unsuspecting investors.

The definition of enterprise corruption was also found to be satisfied in People v Conigliaro (290 AD2d 87 [2002], lv denied 98 NY2d 650 [2002]), where the defendants were members of a gambling organization that ran a sports betting operation, which included a bookmaker who oversaw the operation, a controller who conducted its day-to-day business and maintained bettors’ account information, clerks who accepted bets over the telephone, and runners who met with bettors to settle their weekly accounts.

Finally, while Boyle v United States (556 US —, 129 S Ct 2237 [2009]) is not controlling here, because it concerned the issue of whether a particular criminal enterprise was covered by the federal Racketeer Influenced and Corrupt Organizations Act (RICO) (18 USC § 1962), its discussion is informative. The petitioner in Boyle, one of the participants in a series of bank thefts, was convicted of participation in a criminal enterprise under RICO. The group who took part in these thefts was “loosely and informally organized,” with no “long-term master plan or agreement,” and no particular leader or hierarchy; there was a “core group” which was assisted by “others who were recruited from time to time” (556 US at —, 129 S Ct at 2241). The United States Supreme Court upheld the trial court’s instruction to the jury that an “enterprise” under RICO could consist of an “association of individuals, without structural hierarchy, form[ed] solely for the purpose of carrying out a pattern of racketeering acts” (556 US at —, 129 S Ct at 2242), and need not “have any particular or formal structure, but it must have sufficient organization that its members functioned and operated in a coordinated manner in order to carry out the alleged common purpose or purposes of the enterprise” (556 US at — n 1, 129 S Ct at 2242 n 1 [emphasis omitted]). The Supreme Court held that the structure of the enterprise need not be hierarchical, and that to show the necessary structure, the prosecution need only show that the group functioned as a “continuing unit” with a “common purpose” and that it “remain[ed] in existence long enough to pursue a course of conduct” (556 US at —, 129 S Ct at 2245). Importantly, while the Supreme Court observed that the “existence of an enterprise” is a separate element, distinct from the requirement of a pattern of criminal conduct, the existence of an enterprise may sometimes “be inferred from the evidence showing that persons associated with the enterprise engaged in a pattern of racketeering activity” (556 US at —, 129 S Ct at 2245).

Unquestionably, the definition of a criminal enterprise to which the OCCA applies does not match that of RICO, and expressly requires that the group’s “ascertainable structure” be “distinct from a pattern of criminal activity” (Penal Law § 460.10 [3]). However, the logic behind the Boyle Court’s observation that RICO does not require the structure to be hierarchical ought to be similarly applicable to the OCCA. There is nothing in the language of the statute that requires the structure of the targeted enterprise to “be so rigid as to resemble the formalistic corporate flow chart” (People v Wakefield Fin. Corp., 155 Misc 2d 775, 785 [Sup Ct, NY County 1992]). Notably, nothing in the statute requires that the “structure” of the enterprise incorporate a “chain of command,” let alone “profit sharing,” as my colleague suggests. Given that the statute merely requires an “ascertainable structure,” there is no reason to engraft on it that the structure be of the old-fashioned, hierarchical nature. Notwithstanding references to the OCCA’s intent “to prosecute organized crime activities on a similar — but more limited — basis than [RICO]” (see People v Yarmy, 171 Misc 2d at 16, citing Donnino, Practice Commentaries, McKinney’s Cons Laws of NY, Book 39, Penal Law art 460, at 552-559), the question here is not whether the OCCA is as expansive as RICO, but rather, whether the showing made to the grand jury here satisfies the specific definitional language of the OCCA.

Although the criminal enterprise here was not of a traditional hierarchical sort, the participants worked together, employing a repeating pattern in their transactions that served to maximize the profits of each while minimizing their exposure, with each participant playing a different role: buyers, sellers, and money movers.

While the evidence certainly establishes a series of crimes by individual defendants comprised of purchases and sales of stolen credit card data, along with other related crimes such as money laundering, the business was shown to be more than simply the site at which a series of criminal transactions occur. Rather, Western Express may be said to have built a broader criminal structure, in which each of the defendants played a role. The structure of the criminal enterprise created by Vassilenko, using the framework of Western Express, amounted to more than a series of those individual crimes. Moreover, it was driven by a larger criminal purpose. Western Express positioned itself to serve as much more than an on-line site at which buyers and sellers could conduct their illegal transactions and pay a commission to Western Express. Specifically, there was the overall planning and communications spearheaded by Vassilenko, with the assistance of other company employees, to transform what had been Western Express’s initially legitimate business into a hub for criminal activity geared toward maximizing its own and its participants’ profits from the theft and use of stolen credit card information and its protection from law enforcement. This creation of a sophisticated, multifaceted criminal enterprise formed to encourage and expand on the criminal transactions upon which it is built is analogous to the gambling organization discussed in People v Conigliaro (290 AD2d 87 [2002], supra), which operated a sports betting concern that included a variety of participants who together conducted an enormous business.

While the more traditional form of organized crime, such as the gambling operation considered in Conigliaro, makes it easy to infer that the individual participants in the operation necessarily knew of the parts played by the other participants and the structure of the overall enterprise, such an inference may be made even where many of the participants never meet any other participants. The evidence here permits the inference that the individual participants understood the overall criminal structure, and that other individuals — albeit individuals never seen or personally known by each defendant — played other roles in the operation. The evidence points to the conclusion that the organization Vassilenko created out of the original financial services business of Western Express became more than merely a location at which individual criminal transactions occurred; it became a framework that existed to actively encourage more and larger criminal transactions by its participants on an ongoing basis. Recognizing this framework as an ascertainable structure to which the OCCA is applicable does not constitute an expansion of the definition of criminal enterprise so as to, in effect, eliminate the “ascertainable structure” element of the crime.

In enacting the OCCA, the Legislature made a point of remarking that the answer to “the question whether to prosecute under those [already existing] statutes or for the pattern itself . . . will depend on the particular situation, and is best addressed by those institutions of government which have traditionally exercised that function: the grand jury, the public prosecutor, and an independent judiciary” (Penal Law § 460.00). Particularly in view of the findings’ reference to the need for discretion (id.), and the statute’s particular concern for legitimate businesses being overtaken by criminal enterprises, the showing made by the prosecutor and the findings of the grand jury here should be permitted to stand. The People should be permitted to attempt to prove at trial that each of the defendants took part in the ongoing criminal enterprise that Western Express had become, in violation of the OCCA’s enterprise corruption statute. We therefore reverse the dismissal.

Accordingly, the orders of the Supreme Court, New York County (Bruce Allen, J.), entered on or about July 25, 2008, which dismissed the enterprise corruption count against each defendant, should be reversed, on the law, and the counts reinstated. Appeals from orders, same court and Justice, entered on or about March 3, 2009, which denied the People’s motion to reargue, should be dismissed, without costs, as taken from nonappealable papers.