United States v. Yusuf

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
8-24-2006
USA v. Yusuf
Precedential or Non-Precedential: Precedential
Docket No. 05-3484
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-3484
UNITED STATES OF AMERICA;
GOVERNMENT OF THE VIRGIN ISLANDS,
Appellants
v.
FATHI YUSUF MOHAMMED YUSUF a/k/a
FATHI YUSUF;
WALEED MOHAMMED HAMED a/k/a WALLY HAMED;
WAHEED MOHAMMED HAMED a/k/a WILLIE YUSUF;
MAHER FATHI YUSUF a/k/a MIKE YUSUF;
ISAM MOHAMAD YOUSUF a/k/a SAM YOUSEF;
UNITED CORPORATION d/b/a PLAZA EXTRA;
NEJEH FATHI YUSUF
On Appeal from the District Court for the Virgin Islands
Division of St. Croix
(D.C. No. 05-cr-00015)
District Judge: Honorable Raymond L. Finch
Argued May 11, 2006
Before: FISHER, COWEN and ROTH,* Circuit Judges.
(Filed August 24, 2006)
Alan Hechtkopf
S. Robert Lyons (Argued)
United States Department of Justice
Tax Division
P.O. Box 502
Wahington, DC 20044
Attorneys for Appellants
Leon Friedman (Argued)
148 East 78th Street
New York, NY 10021
Attorney for Appellees
Henry C. Smock
Smock Law Offices
Palm Passage, Suite B18-23
P.O. Box 1498
Charlotte Amalie, St. Thomas
USVI 00804
Attorney for Appellee
Fathi Yusuf Mohammed Yusuf
*
The Honorable Jane R. Roth assumed senior status on
May 31, 2006.
2
Gordon C. Rhea
Richardson, Patrick, Westbrook
& Brickman
1037 Chuck Dawley Boulevard
Building A
Mount Pleasant, SC 29464
Randall P. Andreozzi
Marcus, Andreozzi & Fickess
6255 Sheridan Way, Suite 302
Williamsville, NY 14221
Attorneys for Appellee
Waleed Mohammed Hamed
Pamela L. Colon
27 & 28 King Cross Street
Christiansted, St. Croix
USVI 00820
Attorney for Appellee
Waheed Mohammed Hamed
John K. Dema
Law Offices of John K. Dema
1236 Strand Street, Suite 103
Christiansted, St. Croix
USVI 00820-5008
Attorney for Appellee
Maher Fathi Yusuf
3
Thomas Alkon
Alkon & Meaney
2115 Queen Street, Suite 101
Christiansted, St. Croix
USVI 00820
Attorney for Appellee
United Corporation
Derek M. Hodge
Mackay & Hodge
P.O. Box 303678
Charlotte Amalie, St. Thomas
USVI 00803
Attorney for Appellee
Nejeh Fathi Yusuf
OPINION OF THE COURT
FISHER, Circuit Judge.
Defendants, a Virgin Islands corporation and several of
its owners and operators, were charged in a seventy-eight count
indictment with various criminal offenses, including money
laundering, currency structuring, tax violations, mail fraud,
obstruction of justice, and conspiracy.1 In connection with
1
There are seven defendants in this case: (1) United
Corporation (“United”), a family-owned business located in the
4
securing various search warrants, an FBI special agent submitted
an affidavit that contained admittedly inaccurate information,
which had been supplied by the Virgin Islands Bureau of
Internal Revenue (“VIBIR”) pursuant to a court order. The
District Court held a hearing pursuant to Franks v. Delaware,
438 U.S. 154 (1978), and determined that certain statements in
the affidavit were made with reckless disregard for the truth.
The District Court then excised those statements from the
affidavit and found that the reconstituted affidavit would have
lacked probable cause. As a result, the District Court
suppressed all of the evidence seized during the execution of the
search warrants, effectively dismissing the Government’s case.
We find that the disputed representations in the affidavit
were not made with reckless disregard for the truth because the
FBI agent did not have an “obvious reason to doubt the truth” of
the information supplied by VIBIR. The District Court erred by
Virgin Islands that operates a chain of three Plaza Extra
Supermarket stores in St. Thomas and St. Croix; (2) Fathi
Yusuf, the primary shareholder of United; (3) Maher “Mike”
Yusuf, Fathi’s son, who is a part-owner of United and manager
of one of the Plaza Extra stores; (4) Waheed “Willie” Hamed,
Fathi’s nephew, who manages the second Plaza Extra store;
(5) Waleed “Wally” Hamed, Fathi’s nephew and Waheed’s
brother, who manages the third Plaza Extra store; (6) Isam
“Sam” Yousef, Fathi’s nephew, who is a resident of St. Maarten,
Netherlands Antilles, and owns and operates a retail furniture
and appliances store; and (7) Nejeh Fathi Yusuf, Fathi’s son,
who is an owner and employee of United and who participated
in the operation of the Plaza Extra stores.
5
failing to recognize that government agents should generally be
able to presume that information received from a sister
governmental agency is accurate. To demonstrate that a
government official acted recklessly in relying upon such
information, a defendant must first show that the information
would have put a reasonable official on notice that further
investigation was required. If so, a defendant may establish that
the officer acted recklessly by submitting evidence: (1) of a
systemic failure on the agency’s part to produce accurate
information upon request; or (2) that the officer’s particular
investigation into possibly inaccurate information should have
given the officer an obvious reason to doubt the accuracy of the
information. As we will explain herein, defendants in this case
have failed to make this requisite showing, and, as a result, we
find that the District Court erred in excising the disputed
representations from the affidavit.
In addition, even assuming that portions of the affidavit
should be excised, we conclude that the District Court clearly
erred in concluding that the reformulated affidavit lacked
probable cause. The reformulated affidavit contained sufficient
allegations of money laundering to provide probable cause to
search the three grocery stores for specific types of corporate
business records alleged to have been involved in the money
laundering enterprise. It is clear that the District Court’s
analysis on this point cannot be supported by the record.
Furthermore, the warrant does not fail as an unconstitutional
general warrant. The listing of the corporate items to be
searched in the warrant application was not unconstitutionally
overbroad, particularly considering this Court’s repeated
pronouncements to give greater flexibility in making the
6
probable cause determination in the context of large-scale,
document-intensive corporate offenses.
For these reasons, we will reverse the decision of the
District Court and remand the case for further proceedings
consistent with this opinion.
I.
In seven deposits made between April 16-19, 2001,
United placed $1,940,000 in currency in $50 and $100
denominations into its account with the Bank of Nova Scotia
(the “Bank”). (App. 408). Because this activity was
inconsistent with United’s normal business banking activity, the
Bank generated a Suspicious Activity Report on May 17, 2001,
which was forwarded to the FBI’s St. Thomas office on July 20,
2001. Based on that information, the FBI immediately opened
a criminal investigation to investigate, inter alia, possible
money laundering violations. (Id.) Federal grand jury
subpoenas were issued to the Bank in mid-August 2001, and the
Bank began producing documents relating to United’s operating
account on August 31, 2001. (Id.)
The FBI’s investigation culminated several weeks later
in an application for search warrants submitted to a magistrate
judge.2 That application contained a sworn affidavit that
2
The application, filed October 19, 2001, sought warrants
for the following locations and persons: (1) the Plaza Extra
Supermarket in St. Thomas; (2) the Plaza Extra Supermarket in
Frederiksted, St. Croix; (3) the Plaza Extra Supermarket in
7
detailed, in thirty-six numbered paragraphs and two exhibits, the
Government’s investigation to that point. The affidavit
contained some background information regarding past
immigration violations at the Plaza Extra stores. In 1999,
United paid a $20,000 fine to settle an administrative proceeding
brought by the Immigration and Naturalization Service (INS)3
regarding its failure to fill out employee I-9 forms. Also in
1999, Fathi Yusuf pled guilty to three counts of unlawful
employment of unauthorized aliens; he was subsequently
sentenced in September 2001 to six months of house
confinement. During that investigation, INS agents who
searched the supermarkets found large amounts of U.S. currency
inside the safe of one of the stores. A manager of the store who
opened the safe told the agents that the money, which was in
denominations of $50 and $100, totaled between $3 million and
$7 million. Bank records obtained in the investigation revealed
Christiansted, St. Croix; (4) Fathi Yusuf’s residence in St.
Croix; (5) Waleed Yusuf’s residence in St. Croix; (6) Waheed
Yusuf’s residence in St. Thomas; (7) the persons of Fathi Yusuf,
Waleed Hamed, and Waheed Hamed; and (8) two safe deposit
boxes in Maher Yusuf’s name at the Bank of Nova Scotia in St.
Croix. (App. 379.)
3
On March 1, 2003, the INS ceased to exist as an agency
of the Department of Justice. Pursuant to the Homeland
Security Act of 2002, the enforcement functions of the INS were
transferred to the Department of Homeland Security, Bureau of
Immigration and Customs Enforcement (“BICE”). See
Homeland Security Act of 2002, Pub. L. No. 107-296, § 441,
116 Stat. 2135, 2192.
8
that United never made any large-scale currency deposits of that
magnitude in 1999. (App. 395.)
The affidavit also utilized the financial records provided
by the Bank to profile United’s average currency deposits over
an eighty-seven week period between January 2000 and August
2001, which reflected a pattern of currency deposits of $300,000
to $500,000 per week. During that time span, currency deposits
dipped below $300,000 on five occasions, the lowest total cash
deposit being $140,000. (App. 396.) In contrast, nineteen
weekly deposits exceeded $614,000, and seven of those deposits
exceeded $920,000, which FBI Special Agent Thomas Petri, the
FBI agent in charge of the investigation, characterized as
“excessive when compared to the normal currency deposit
pattern of United Corp.” (Id.)4
The affidavit focused in detail on the deposits made
during the week ending April 21, 2001. According to the
affidavit, the seven cash deposits made between April 16 and 19
were inconsistent with the normal pattern of deposits made by
United in three respects: (1) the large total amount of
$1.94 million deposited over a four-day period; (2) the fact that
the deposits consisted solely of $50 and $100 bills; and (3) the
4
According to the affidavit, criminals with large amounts
of cash often seek out money launderers to conceal the source
of funds realized through criminal activity. The affidavit states
that money launderers are typically individuals who are in a
position to deposit large amounts of cash into banks without
suspicion – such as bars, restaurants, liquor stores, and
supermarkets. (App. 392.)
9
fact that each deposit slip was marked “Cash (Stockholder’s
Investment).” (App. 396.) Moreover, the deposits themselves
contained certain similarities. Each deposit was made in
rounded amounts: $225,000, $250,000 (2 deposits), $300,000
(3 deposits), and $315,000. Although each of the deposits was
made between April 16 and 19, the deposit slips were filled out
in advance, dated April 12 through 19. According to the
affidavit, all of this information “strongly implie[d] that the
$1,940,000 cash was originally structured into smaller deposit
amounts in order to create an appearance of deposits more
consistent with the normal business activity, as opposed to a
one-time cash deposit.” (App. 397.)
The affidavit further noted that United issued two checks
totaling $1.9 million to “Hamdan Diamond Corp.” on August 17
and 19, 2001. The checks were signed by Waleed Hamed and
marked “loan payment” and “partial payment” respectively.
Hamdan is a retail business located in St. Maarten, Northern
Antilles, owned in part by Fathi Yusuf. The affidavit noted that
Fathi Yusuf is the sole signatory of Hamdan’s Virgin Islands
account, and that Hamdan shares the same Virgin Islands post
office box as United. Moreover, the affidavit recounts
information from a purportedly reliable foreign services agency
which stated that Fathi Yusuf was a member of a network of
Middle Eastern merchants who had made cash deposits in St.
Maartens in 2000 in excess of $2.2 million. The agency told the
FBI that these cash deposits were consistent with money
laundering because “the amount of cash deposited appeared to
far exceed the legitimate cash proceeds of their retail sales in St.
Maartens.” (App. 398.)
10
In addition, the affidavit contained information
purportedly from three reliable confidential informants and one
anonymous source. The first confidential source (“CS #1”),
who had purportedly provided the Government with reliable
information in the past, told the FBI that a known drug trafficker
was in direct contact with the management of Plaza Extra in
order to launder drug proceeds through the supermarket. A
second confidential informant (“CS #2”) informed the FBI that
Waheed Hamed illegally purchased food stamps from stores
owned by persons of Middle Eastern descent who were not
authorized to collect reimbursements, in violation of federal law.
In addition, a third confidential source (“CS #3”), who the
affidavit stated was willing to testify, told the FBI that Waleed
Hamed had arranged to smuggle more than $2 million in U.S.
currency in Muslim robes to Sadaam Hussein during the first
Persian Gulf War. CS #3 also described a conversation with
Fathi Yusuf in which he said that “[a]ny man who can’t take out
$1 million a year in cash from a business like this is a fool.”
(App. 399.) Finally, the affidavit stated that the FBI received an
anonymous phone call on October 12, 2001, in which the caller
stated that the Yusuf had contacted a pilot, who had been
previously convicted of alien smuggling, to transport two
separate shipments of U.S. currency totaling $2.1 million from
St. Thomas to St. Maarten. According to the caller, the money
was destined for Afghanistan.
The portion of the affidavit upon which the parties have
focused in this appeal are the allegations of tax fraud made in
paragraphs 23 and 24. The Government now concedes that
11
these allegations were inaccurate.5 After receiving United’s
bank records, the Government moved the District Court to grant
an ex parte order compelling VIBIR to produce United’s tax
returns based on the Employer Identification Number (EIN)
listed in the Suspicious Activity Report. The District Court
signed the order on September 21, 2001, and VIBIR began
producing records in October 2001. VIBIR initially provided
the Government with a copy of United’s 1998 U.S. corporate
income tax return and computer transcripts reflecting the gross
receipts reported by United on monthly Virgin Islands returns
filed during 1999 and 2000.6 United’s 1998 U.S. corporate tax
return reported gross receipts of approximately $41 million for
1998. In contrast, the computer transcripts provided by VIBIR
reflected that United had reported gross receipts of $270,000 in
1998. (App. 672-73.) Thus, for the year 1998, there appeared
to be a difference of over $40 million between the gross receipts
reported on the 1998 U.S. corporate tax return and the 1998
5
Paragraph 23 of the affidavit alleged that United had
underreported its tax obligations, substantially inflated its
revenues in connection with a loan application, and failed to file
U.S. corporate income tax returns in 1999 and 2000. Paragraph
24 of the affidavit relied upon the allegations set forth in
paragraph 23 to allege that United had submitted false financial
statements to the Bank of Nova Scotia’s headquarters in
Toronto, in violation of various provisions of federal law. (App.
397-98.)
6
In the Virgin Islands, a 4% gross receipts tax is imposed
on retail businesses. Businesses such as United are required to
file a monthly gross receipts tax return. (App. 534.)
12
Virgin Islands gross receipts returns. In addition, computer
transcripts provided by VIBIR reflected that United reported
gross receipts of $3.7 million in 1999 and $8.3 million in 2000.
The Government, however, had copies of loan documents that
United had furnished to the Bank in February 2000, stating gross
receipts of approximately $47 million in 1999 and forecasting
gross receipts of $54 million for 2000. (App. 397.)
VIBIR did not produce United’s 1999 and 2000 U.S.
corporate tax returns, and, prior to the time that the Government
filed an application for the search warrant, VIBIR officials
repeatedly informed the FBI agents investigating the case that
United had not filed corporate tax returns for 1999 and 2000.
(App. 397, 552-53.) Those representations turned out to be
inaccurate. VIBIR later learned that United’s tax returns were
maintained under more than one EIN, and the agency conceded
that it mistakenly did not produce all of the documents requested
under the ex parte order. These tax returns, uncovered after a
search of the Plaza Extra stores, revealed that United had
reported $39,120,091 in gross receipts in 1998, as opposed to
the $270,000 reflected on the computer printouts; $43,967,171
on its 1999 returns; and $49,211,159 on its 2000 returns. In
addition, the search yielded United’s U.S. corporate tax returns
from 1998 through 2000. When all of these documents were
uncovered, it became clear that the search warrant affidavit
erroneously set forth that United underreported its income on the
Virgin Islands gross receipts returns by $54 million, when in
actuality the alleged difference was $7,159,580. (See
Goverment’s Br. at 12-13.)
13
B.
The grand jury handed down the original indictment in
this case on September 18, 2003. On September 9, 2004, the
grand jury returned a seventy-eight count superseding
indictment that charged defendants with various federal criminal
offenses. Thereafter, defendants filed a motion to suppress
evidence, or in the alternative a motion for a Franks hearing, to
determine whether Agent Petri made knowingly false or reckless
misrepresentations in the affidavit of probable cause. After
extensive briefing from both parties, an evidentiary hearing, and
oral argument, the District Court found that Agent Petri had
made the false statements in paragraphs 23 and 24 with reckless
disregard for the truth.
The District Court then reformulated the affidavit,
striking out paragraphs 23 and 24. The District Court concluded
that, without those paragraphs, the affidavit did not contain
sufficient allegations to establish probable cause that defendants
engaged in money laundering. It stated that the allegations
regarding the discovery of $7 million in a safe during a raid of
the St. Thomas Plaza Extra store in 1999 did not support an
inference that United was laundering money, but rather that an
equal inference could be drawn that United was “holding the
money for some other legal purpose – such as paying vendors or
cashing customer’s and employee’s checks. . . . If anything, this
tends to show that the money viewed in the safe in 1999 was
periodically deposited between January 2000 and August 2001,
controverting the Affiant’s money laundering insinuation.”
(App. 20.) The District Court also dismissed the evidence of
currency deposit fluctuations throughout the course of 2000 and
14
2001, explaining that the currency fluctuations and the checks
to Hamdan could have been to repay a loan. Finally, the District
Court dismissed the allegations in paragraph 25 regarding the
$2.2 million deposited by the middle eastern merchants in St.
Maarten as vague because the warrant affidavit did not “indicate
what evidence would likely be found in the locations to be
searched that would prove or disprove that Fathi Yusuf
deposited money in St. Maarten as part of a money laundering
scheme.” (App. 21.) Notably, the District Court did not even
bother to address in its opinion the fact that the money was
deposited solely in $50 and $100 denominations.
As a result of these findings, the District Court
suppressed all of the evidence that was obtained as the fruits of
the search warrants. This decision effectively dismissed the
Government’s case. The Government appealed.7
7
The District Court had original jurisdiction over the
charged offenses pursuant to 18 U.S.C. § 3231 and 48 U.S.C.
§ 1612. We have appellate jurisdiction over the Government’s
appeal from a final order of the District Court suppressing
evidence pursuant to 18 U.S.C. § 3731 and 28 U.S.C. § 1294(3).
Also pending before this court is a motion to remand the
case to the District Court to augment the record regarding Agent
Petri’s alleged recklessness. In a separate order issued today,
we deny that motion without prejudice to defendants’ right to
bring additional motions before the District Court if relevant to
the matter at hand and not inconsistent with this opinion. We
note, however, that our decision in Part II.C of this opinion
likely moots any further motion brought to challenge Agent
Petri’s bad faith since the reformulated affidavit contained
15
II.
A.
The Warrant Clause of the Fourth Amendment to the
United States Constitution provides in pertinent part that “no
Warrants shall issue but upon probable cause, supported by Oath
or affirmation.” U.S Const. amend. IV. It has been referred to
by the Supreme Court as the “bulwark of Fourth Amendment
protection.” Franks v. Delaware, 438 U.S. 154, 165 (1978).
In Franks, the Supreme Court determined that a criminal
defendant has the right to challenge the truthfulness of factual
statements made in an affidavit of probable cause supporting a
warrant subsequent to the ex parte issuance of the warrant.
There, the Court created a mechanism to allow a defendant to
overcome the general presumption that an affidavit of probable
cause supporting a search warrant is valid. First, the defendant
must make a “substantial preliminary showing” that the affidavit
contained a false statement, which was made knowingly or with
reckless disregard for the truth, which is material to the finding
of probable cause. Id. at 171.8 At the hearing, the defendant
probable cause to search the United grocery store locations for
corporate business records.
8
In order to make this preliminary showing, the defendant
cannot rest on mere conclusory allegations or a “mere desire to
cross-examine,” but rather must present an offer of proof
contradicting the affidavit, including materials such as sworn
affidavits or otherwise reliable statements from witnesses. Id.
16
must ultimately prove by a preponderance of the evidence that:
(1) that the affiant knowingly and deliberately, or with a reckless
disregard for the truth, made false statements or omissions that
create a falsehood in applying for a warrant; and (2) that such
statements or omissions were material, or necessary, to the
probable cause determination. Sherwood v. Mulvihill, 113 F.3d
396, 399 (3d Cir. 1997) (citing Franks, 438 U.S. at 171-72).
The Supreme Court in “Franks gave no guidance
concerning what constitutes a reckless disregard for the truth in
fourth amendment cases, except to state that ‘negligence or
innocent mistake [is] insufficient.’” Wilson v. Russo, 212 F.3d
781, 787 (3d Cir. 2000) (quoting United States v. Davis, 617
F.2d 677, 694 (D.C. Cir. 1979)). In Wilson, we set forth
standards to identify what constitutes “reckless disregard for the
truth” regarding both misstatements and omissions:
In evaluating a claim that an officer both asserted
and omitted facts with reckless disregard for the
truth, we hold that: (1) omissions are made with
reckless disregard for the truth when an officer
recklessly omits facts that any reasonable person
would want to know; and (2) assertions are made
with reckless disregard for the truth when an
officer has obvious reasons to doubt the truth of
what he or she is asserting.
The parties in this case do not dispute that a Franks hearing was
appropriate based upon the information submitted by the
defendant.
17
Id. at 783. The latter standard is similar to the actual malice
standard set forth in First Amendment defamation claims. Id. at
788.
In the end, the defendant must prove by a preponderance
of the evidence that probable cause does not exist under the
corrected affidavit, i.e., that the deficiency in the affidavit was
material to the original probable cause finding. Id. We have
recognized a distinction between misrepresentations and
omissions for purposes of determining whether deficiencies in
the affidavit are “material.” When faced with an affirmative
misrepresentation, the court is required to excise the false
statement from the affidavit. In contrast, when faced with an
omission, the court must remove the “falsehood created by an
omission by supplying the omitted information to the original
affidavit.” Id. at 400.
If the defendant is able to ultimately meet this burden,
“the Fourth Amendment requires that . . . the fruits of the search
[must be] excluded to the same extent as if probable case was
lacking on the face of the affidavit.” United States v. Frost, 999
F.2d 737, 743 (3d Cir. 1993) (quoting Franks, 438 U.S. at 156).
B.
Our task in the present case is to determine whether the
District Court erred in finding that the misstatements in
paragraphs 23 and 24 of the affidavit were made recklessly. It
is clear from the record that the FBI had some concerns
regarding the discrepancies between the 1998 U.S. corporate tax
return and the 1998 Virgin Islands gross receipts return, as well
18
as the figures it had for United’s gross receipts returns it
received from VIBIR for 1999 and 2000. Agent Petri submitted
an affidavit that he “returned to the VIBIR offices on multiple
occasions in an attempt to determine a reason for the large
discrepancies.” (App. 409.) Although the VIBIR disclosure
officer was unable to explain the reasons for the discrepancies,
Agent Petri claimed that “[o]n each visit I was assured that the
United Corporation gross receipt tax information previously
provided pursuant to the Ex Parte order were [sic] complete for
United Corporation, dba Plaza Extra.” (App. 409.) In addition,
Agent Petri designated one of his agents, John Ware, as a liaison
to report to VIBIR on a “daily basis . . . to collect all documents
that were requested in the ex parte order.” (App. 537.) VIBIR
officials repeatedly assured the FBI that the gross receipts
figures reported on the computer transcripts reflected the
information submitted in the actual returns. Despite these
repeated assurances, the District Court viewed Agent Petri’s
inability to obtain a satisfactory explanation from VIBIR as
indicative of recklessness. (App. 25.)
The District Court also focused on the fact that Petri did
not obtain an additional court order or subpoena United, any of
the individual defendants, or United’s accountant to obtain
United’s underlying gross receipts tax returns for 1998 through
2000 and the U.S. corporate tax returns for 1999 and 2000. Petri
explained at the Franks hearing that he did not request such
information from defendants prior to the search so as not to
compromise the ongoing criminal investigation, and that a
further court order would have been futile because the District
Court had already entered the ex parte order. (App. 538, 553.)
19
We find that the District Court erred in concluding that
the statements in the affidavit were made recklessly, particularly
because the District Court did not take into account the nature
and source of the information obtained by Agent Petri. Courts
have routinely recognized a distinction between information
provided by an informant and that provided by a law
enforcement officer or other government agency. Informants
are not presumed to be credible, and the government is generally
required to show by the totality of the circumstances either that
the informant has provided reliable information in the past or
that the information has been corroborated through independent
investigation. See, e.g., United States v. Ritter, 416 F.3d 256,
263 (3d Cir. 2005) (“Where corroboration or independent
investigation after receipt of an anonymous tip is lacking – and
thus the predictive value of the tip goes untested before a
warrant is issued – courts have found officers’ subsequent
reliance on the warrant unreasonable.”). In contrast, information
received from other law enforcement officials during the course
of an investigation is generally presumed to be reliable. See
United States v. Ventresca, 380 U.S. 102, 111 (1965)
(“Observations of fellow officers of the Government engaged in
a common investigation are plainly a reliable basis for a warrant
applied for by one of their number.”); United States v. Hodge,
354. F.3d 305, 311 (4th Cir. 2004) (“[S]tatements of other law
enforcement officers ‘are plainly . . . reliable’ even without any
special showing.”) (citation omitted); United States v. Meade,
110 F.3d 190, 193 (1st Cir. 1997) (“[L]aw enforcement officials
cooperating in an investigation are entitled to rely upon each
other's knowledge of facts when forming the conclusion that a
suspect has committed or is committing a crime.”); United
States v. Davis, 557 F.2d 1239, 1247 (8th Cir. 1977) (finding
20
that a DEA agent was entitled to rely upon information provided
to him by a Minneapolis police officer in submitting an affidavit
for probable cause).9
The present case deals with information supplied by a
sister governmental agency pursuant to court order. Under these
circumstances, we believe that a flexible standard, taking into
consideration the inherent reliability of the information provided
by sister governmental agencies, as well as the possibility that
such agencies might respond to a court order with inaccurate
information, should be applied to determine whether a
government agent acted recklessly by including specific
information in an affidavit of probable cause. Certainly,
information received from another governmental agency may
raise questions as to its accuracy and require an agent to
undertake further investigation, and we explicitly decline to
adopt a rule that information obtained from a sister
9
We recognize the line of cases beginning with Whitely
v. Warden, 401 U.S. 560 (1971), which hold that reliance upon
another officer’s assertion that probable cause exists to make an
arrest does not determine conclusively whether the arrest was
legal. See id. at 568 (stating that “an otherwise illegal arrest
cannot be insulated from challenge by the decision of the
instigating officer to rely on fellow officers to make the arrest”).
We are faced with a different analysis in this case. Here, the
focus is on Agent Petri’s mental state when he submitted the
affidavit to the magistrate judge, not “whether the law
enforcement system as a whole has complied with the
requirements of the Fourth Amendment.” 2 LaFave, Criminal
Procedure, § 3.3(e) (2d ed. 1999).
21
governmental agency pursuant to a court order is per se reliable.
Rather, we conclude that a defendant is required to demonstrate
initially that the information provided by the agency would have
put a reasonable official on notice that further investigation was
necessary. If the defendant can meet this initial burden, the
defendant must point to additional objective factors, suggesting
that the agent’s subsequent inquiry would have rendered the
agent’s reliance upon that information unreasonably reckless.
In this case, it is clear that the discrepancy between
United’s 1998 U.S. corporate income tax return, which reported
income of approximately $41 million, and United’s 1998
monthly gross receipts, which totaled $270,000, would have
placed a reasonable official on notice that further investigation
was necessary. A difference of over $40 million in reported
earnings is so excessive as to cause a reasonable person to
search for corroboration and an explanation. Indeed, Agent
Petri conceded as much at the Franks hearing, and the
Government has focused our attention in this case on Agent
Petri’s subsequent investigation in support of its argument that
his actions were not reckless.
The fact that further investigation was required, however,
does not demonstrate recklessness. In the context of a sister
agency’s response to a court order, the substance of an agent’s
particular investigation is pertinent as to whether the agent’s
insertion of an inaccurate allegation into the affidavit of
probable cause was reckless. We find two factors to be
particularly helpful to address this inquiry: (1) whether a
reasonable agent would have been aware of a systemic failure
on the agency’s part to produce accurate information upon
22
request; and (2) whether the agent’s particular investigation into
possibly inaccurate information would give rise to an obvious
reason to doubt the accuracy of the information.
The first factor focuses on external considerations
independent from the particular facts of the ongoing
investigation. Such considerations include, inter alia, whether
the agent is aware that the agency has a history of providing
inaccurate information to the investigating agent or other
officers, and whether the agency lacks necessary procedural
safeguards to ensure that the information it provides is accurate.
The second factor focuses on the particular investigation
conducted by the agent in the face of information that a
reasonable officer would realize required further inquiry
regarding its accuracy. Considerations under this factor may
include the quality of the agent’s attempts to validate the
information, the source and nature of the information requested,
and whether there exists a reasonably plausible explanation for
the information provided by the governmental agency.
Applying each of these factors to the present case, we
conclude that Agent Petri did not act recklessly by including
paragraphs 23 and 24 in the affidavit. As an initial matter, we
disagree with the District Court’s belief that Agent Petri’s lack
of prior experience with VIBIR should be viewed as indicative
of recklessness. To the contrary, it demonstrates that Agent
Petri was unaware of any reason to doubt the accuracy of
information provided by VIBIR pursuant to a court order. When
combined with evidence that no other agents in Petri’s field
office, nor any prosecutor in the United States Attorney’s
Office, had ever dealt with or encountered problems with the
23
accuracy of VIBIR gross receipts printouts, the record is devoid
of any systemic failure on VIBIR’s part to provide accurate
information upon request.
Moreover, the evidence presented to the District Court
does not lead us to conclude that Agent Petri’s particular
investigation into the possibly questionable information gave
rise to an obvious reason to doubt that the information was
correct. Here, Agent Petri undertook a thorough investigation
to determine whether VIBIR provided accurate information in
response to the ex parte order. Agent Petri personally met with
the VIBIR disclosure officer on several occasions in an effort to
explain the discrepancy. (App. 409, 537.) Agent Petri also met
directly with the VIBIR director and sent Agent Ware to the
VIBIR offices on an almost-daily basis to gather information
contained in the ex parte order. (App. 551.) On repeated
occasions, VIBIR assured Agent Petri that United only had one
tax identification number, that all of United’s returns shared the
same number, and that the monthly gross receipts printouts were
those provided by United. (App. 409, 536, 568-69.) When Petri
inquired further regarding whether he could obtain the actual
gross receipts returns, VIBIR told him that it was able only to
produce the printouts. (App. 537.) As Agent Petri testified,
“VIBIR insisted that . . . Plaza Extra, doing business as United
Corporation, had not filed their taxes and they could not find
their tax returns,” going so far as to give Agent Petri a written
certification that they were unable to uncover the returns. (App.
551, 555-56.) As a result, Agent Petri exhausted all reasonable
24
investigatory options to corroborate the information that VIBIR
provided.10
Additionally, the source and nature of the information
requested and obtained by the Government provides further
support for Petri’s actions. VIBIR did not disclose United’s tax
records voluntarily, but rather was required to do so because of
an independent court order. This fact is important, as it detracts
from any possible allegations that VIBIR and the FBI colluded
to produce false information in the affidavit. Nor did VIBIR
initiate the investigation with the FBI, which helps allay
concerns that VIBIR deliberately provided false information to
the FBI to cover up bad faith or improper motive. See, e.g.,
Franks, 438 U.S. at 163 n.6 (warning against the dangers of the
police “insulat[ing] one officer’s deliberate misstatement merely
by relaying it through an officer-affiant personally ignorant of
its falsity”) (quoting Rugendorf v. United States, 376 U.S. 528,
533 n.4 (1964)).
10
We disagree with defendants that the Government was
required to return to the District Court to obtain an order to
enforce the previously filed ex parte order. There is no evidence
that VIBIR complied with the ex parte order in bad faith.
Rather, it appears that sloppy record-keeping prevented the
agency from uncovering the correct information. In addition,
we agree with the Government that Agent Petri was not required
to subpoena defendants or their agents directly to obtain the tax
records in the face of an ongoing investigation into serious
criminal allegations.
25
Finally, a review of the record reveals a reasonably
plausible explanation for the incorrect information provided by
VIBIR at the time that Agent Petri submitted the affidavit to the
magistrate judge: that United had underreported its gross
receipts to VIBIR for 1998 through 2000. Our review
demonstrates that Petri undertook his investigation with some
skepticism, but that he and his fellow agents were assured at
every possible investigatory avenue that the records provided by
VIBIR were accurate. Agent Petri and his fellow officers did
not simply “go through the motions,” but diligently pressed
VIBIR to ensure that the information was correct. Agent Petri
testified at the Franks hearing that he attempted to disprove the
validity of the figures provided by VIBIR. (App. 557.) After
being assured repeatedly by VIBIR that the information was
accurate, Agent Petri was left with the eminently plausible
conclusion at that point in the investigation that United had
underreported its gross receipts returns. That this information
later turned out to be incorrect because of VIBIR’s internal
mistakes is not determinative, as we focus our analysis under
Franks on whether a reasonable officer in Agent Petri’s position
would have had an obvious reason at the time he submitted the
affidavit to doubt the accuracy of the information. No such
reason existed in this case.
For all of these reasons, we find that the District Court
erred by determining that the misstatements in paragraphs 23
and 24 were made recklessly by Agent Petri.11
11
Defendants argue, and the District Court agreed, that
Agent Petri omitted material information in the affidavit:
namely, that he did not inform the magistrate judge that he was
26
C.
The disconcerting part of our analysis of the District
Court’s decision is that the ultimate determination of whether
the assertions in paragraphs 23 and 24 were made with reckless
disregard for the truth is inconsequential. The reformulated
affidavit clearly establishes probable cause to authorize the
uncomfortable with the discrepancies in the data. We disagree.
Agent Petri’s purported omission consists of his alleged
subjective misgivings regarding the quality of the information
he received from VIBIR. A review of the affidavit reveals,
however, that Agent Petri did not omit any material information
in the affidavit, as paragraph 23 contains the discrepancy
between the income tax filings and the gross receipts. Our cases
dealing with purported material omissions have not recognized
that an agent is required to set forth his subjective misgivings
regarding information in the affidavit; rather, those decisions
have focused on whether the agent recklessly omitted objective
information that is material to the magistrate judge’s
determination of probable cause. See Wilson v. Russo, 212 F.3d
781, 791 (3d Cir. 2000) (omitting fact that eyewitness spotted
defendant in a different location while a crime was ongoing);
Sherwood v. Mulvihill, 113 F.3d 396 (3d Cir. 1997) (omitting
fact that officer directed third party to make drug purchase);
United States v. Frost, 999 F.2d 737, 743-44 (3d Cir. 1993)
(omitting fact that drug dog was not “alerted” to alleged
courier’s suitcase).
27
search warrants.12 Even if this Court were to strike paragraphs
12
We note that it would be improper to reformulate the
affidavit with the “correct” gross receipts figures reported in
United’s 1998 through 2000 Virgin Islands tax returns to show
a $7.16 million difference between what was reported on
United’s Virgin islands gross receipts returns and what was
reported on its 1998 through 2000 U.S. corporate income tax
returns. The Government contends that information allegedly
indicating that United had underreported its gross income by
$7.16 million would have established probable cause to issue the
warrants. Defendants, in contrast, assert that it would be
improper to reformulate the affidavit with the “corrected”
figures because the Government would not be deterred by its
own misconduct.
We agree with defendants. The purpose of Franks and
its progeny is to deter law enforcement personnel from including
recklessly false information in affidavits of probable cause. If
an agent provides recklessly false information, the government
should not get the benefit of the fortuitous circumstance that
evidence obtained as a result of the defective search warrant
would have been sufficient to establish probable cause had it
been contained in the original affidavit. The Government’s
argument assumes that the tail can wag the dog, i.e., that we can
consider the corrected information. This argument is flawed,
however, because the magistrate judge is limited to the facts
submitted in the affidavit in making a determination of probable
cause. United States v. Hodge, 246 F.3d 301, 305 (3d Cir.
2001). Indeed, in reviewing whether the magistrate had a
“substantial basis” to issue the warrant, we are limited to
reviewing the affidavit and cannot “consider information from
28
other portions of the record.” Id.; see also United States v.
Button, 653 F.2d 319, 326 n.8 (8th Cir. 1981). If we were to
“correct” the affidavit as suggested by the Government, we
would not only be infusing extraneous information into the
probable cause determination, but we would also allow the
Government to receive the benefit of its misconduct. See Nix v.
Williams, 467 U.S. 431, 443 (1984) (explaining that the purpose
of the exclusionary rule is to ensure that “the prosecution is not
put in a better position than it would have been in if no illegality
had transpired”); see also Baldwin v. Placer County, 418 F.3d
966, 971 (9th Cir. 2005) (holding that a reformulated affidavit
must be based upon information already contained in the
warrant); 2 Wayne R. LaFave, Search and Seizure: A Treatise
on the Fourth Amendment, § 4.4(c) (4th ed. 2004) (stating that
an affidavit that contains knowing falsehoods “should not be
open to rehabilitation by a process of substituting for the
affiant’s lies other information which is really the truth from
which he deliberately departed”). That result is not endorsed by
Franks, which requires courts to “set to one side” the affirmative
misstatements and determine whether the remaining information
in the affidavit supports a finding of probable cause. 438 U.S.
at 155; see also Baldwin, 418 F.3d at 971.
Additional information may be incorporated into an
affidavit only if we determine that a government agent made a
material omission. The reason for the distinction between
omissions and misrepresentations is that an omission cannot be
excised; rather, the omitted information is introduced into the
affidavit in order to determine whether the omission was
material. See Sherwood, 113 F.3d at 400. See also 2 LaFave,
supra, § 4.4(c) (noting that the outcome in Franks challenges
29
23 and 24 from the affidavit, there are sufficient factual
allegations of money laundering to support a finding of probable
cause to search the three Plaza Extra supermarkets for corporate
business records.
The redaction process set forth in Franks is designed to
determine whether there existed a causal connection between the
misrepresentation and the challenged search. United States v.
Calisto, 838 F.2d 711, 715 (3d Cir. 1988). Essentially, the
process helps us determine whether the misrepresentation was
material, i.e., whether it mattered regarding the magistrate’s
probable cause determination. In this case, our focus is further
narrowed based on the Government’s representation that it is
going to introduce in its case-in-chief only “evidence of business
records seized . . . from the Plaza Extra store locations[.]”
(Government’s Br. at 50; App. 347.)13 Because the Government
may turn on whether the defect is a material omission or a
misstatement). Because the alleged misconduct in this case
focuses on misstatements by a government agent, rather than
omissions, we will not reformulate the affidavit with the
“corrected” gross tax receipts information.
13
This evidence, seized from the supermarkets as a result
of the search, “consists primarily of corporate business records,”
including: (1) financial records, such as general ledgers,
financial statements, balance sheets, bank statements, checks,
reconciliations, and payroll checks; (2) sales records, such as
computer and handwritten records of company sales; credit card
receipts; (3) tax records, such as income, gross receipt and
employment tax returns; (4) purchase records, such as sales
30
is bound by its declaration that it will not use evidence in its
case-in-chief seized from the other locations listed in the search
warrants, we need not examine whether the search and seizure
of items from those locations was supported by probable cause.14
This course of action is commensurate with our existing
precedent. In United States v. Christine, 687 F.2d 749, 753 (3d
Cir. 1982), we held that where the evidence authorized to be
seized exceeds the underlying probable cause justification, the
proper course is for the court to redact that information from the
affidavit of probable cause. We explained in Christine that:
By redaction, we mean striking from a warrant
those severable phrases and clauses that are
invalid for lack of probable cause or generality
and preserving those severable phrases and
clauses that satisfy the Fourth Amendment. Each
part of the search authorized by the warrant is
examined separately to determine whether it is
invoices and cash ledgers; and (5) cash found in the safes at the
Plaza Extra locations. (See App. 348.)
14
As a result, the Government will be precluded from
introducing during its case-in-chief any evidence seized from
the following locations: Fathi Yusuf’s principal residence in
Christiansted, St. Croix; Waleed Hamed’s residence in
Christiansted, St. Croix; Waheed Hamed’s residence in St.
Thomas; the persons of Fathi Yusuf, Waleed Hamed, and
Waheed Hamed; and the two safe deposit boxes in the name of
Maher F. Yusuf in the Bank of Nova Scotia, St. Croix. (App.
391, 401.)
31
impermissibly general or unsupported by probable
cause. Materials seized under the authority of
those parts of the warrant struck for invalidity
must be suppressed, but the court need not
suppress materials seized pursuant to the valid
portions of the warrant.
Id. at 754. Thus, our course in this case will mirror that taken in
Christine, and we will consider the validity of the search warrant
solely with respect to the corporate business records and cash
seized from the three Plaza Extra stores.
Our focus, then, is whether the reformulated affidavit
established probable cause to search the three Plaza Extra
Supermarkets. In conducting this analysis, we must examine the
“totality of the circumstances” as set forth in the affidavit.
Ritter, 416 F.3d at 262. Under this flexible standard, “the task
. . . is simply to make a practical, common-sense decision
whether, given all the circumstances set forth in the affidavit[,]
. . . including the ‘veracity’ and ‘basis of knowledge’ of persons
supplying hearsay information, there is a fair probability that
contraband or evidence of a crime will be found in a particular
place.” Illinois v. Gates, 462 U.S. 213, 235 (1983). That
determination does not require absolute certainty that evidence
of criminal activity will be found at a particular place, but rather
that it is reasonable to assume that a search will uncover such
evidence. Ritter, 416 F.3d at 263; see also United States ex. rel
Campbell v. Rundell, 327 F.2d 153, 163 (3d Cir. 1964)
(“[P]robable cause which will justify the issuance of a search
warrant is less than certainty of proof, but more than suspicion
or possibility, the test being whether the allegations of the
32
supporting affidavit warrant a prudent and cautious man in
believing that the alleged offense has been committed.”)
(citation omitted).
Both this Court and the United States Supreme Court
have warned against the practice of “overly
compartmentaliz[ing]” the determination of probable cause. In
re Application of Adan, 437 F.3d 381, 397 n.7 (3d Cir. 2006).
The probable cause determination is to be made only after
considering the totality of the circumstances, which requires
courts to consider the cumulative weight of the information set
forth by the investigating officer in connection with reasonable
inferences that the officer is permitted to make based upon the
officer’s specialized training and experiences. United States v.
Arvizu, 534 U.S. 266, 275 (2002). In Arvizu, for example, the
Supreme Court rejected the Ninth Circuit’s approach of
individually weighing and considering in isolation each of the
factors relied upon by a government agent to stop a vehicle for
possible immigration smuggling offenses. The Supreme Court
explained that such an approach was inconsistent with a totality
of the circumstances approach:
The [Court of Appeals’] evaluation and rejection
of seven of the listed factors in isolation from
each other does not take into account the “totality
of the circumstances,” as our cases have
understood that phrase. The court appeared to
believe that each observation by [the agent] that
was by itself readily susceptible to an innocent
explanation was entitled to “no weight.” Terry,
33
however, precludes this sort of divide-and-
conquer analysis.
Id. at 274.15
In this case, the District Court erroneously applied the
divide-and-conquer approach rejected by the Supreme Court in
Arvizu by examining each of the allegations in the affidavit
seriatim rather than collectively. We conclude that the
information set forth in the affidavit provides probable cause
that evidence of money laundering would be found at the three
Plaza Extra stores.
Agent Petri’s affidavit alleged that United’s principals
made large currency deposits inconsistent with the corporation’s
usual business practices on several occasions between April
2000 to August 2001. Importantly, those deposits – from a retail
grocery chain – were made solely in $50 and $100
denominations. We cannot understand why this critical fact was
overlooked by the District Court. It is utterly incomprehensible
that a retail supermarket chain receives and deposits cash only
15
The fact that the Court’s decision in Arvizu reviewed
whether the agent had reasonable suspicion, as opposed to
probable cause, to stop the vehicle is immaterial. We focus in
this case on application the totality of the circumstances
approach, which is used in both the determination of both
probable cause, United States v. Hodge, 246 F.3d 301, 305 (3d
Cir. 2001), and of reasonable suspicion, United States v. Nelson,
284 F.3d 472, 478 (3d Cir. 2002).
34
in such large denominations.16 The nature of the business
certainly entails receiving currency from customers in smaller
denominations, and the absence of any smaller denominations
deposited on these two occasions makes it reasonable to assume
that this money was not tied to legitimate grocery sales.
This fact is compounded by the manner in which the
April 2001 deposits were structured. Although cash deposit
slips were made out in advance and dated for seven consecutive
days between April 12 and April 18, the seven deposits were
made over a four-day period. In addition, the deposits were
made separately in similarly rounded amounts ($225,000,
$250,000, $300,000, and $315,000) that more closely resembled
normal deposits. Based on his twelve years of experience, as
well as his specialized training in money laundering
investigations, Agent Petri explained that this evidence strongly
implied “that the $1,940,000 cash was originally structured into
smaller deposit amounts in order to create an appearance of
deposits more consistent with the normal business activity, as
opposed to a one-time bulk deposit.” (App. 397.)
Moreover, the information from the August 1999 INS
search provides a useful historical reference point consistent
16
At oral argument, defendants’ counsel attributed the
large number of $50 and $100 bills deposited to extra cash
brought in by the Carnival celebration that took place in the
Virgin Islands during April 2001. Even assuming that the Plaza
Extra stores generated greater revenues during Carnival,
defendants failed to provide any viable explanation why the
deposits were made solely in $50 and $100 bills.
35
with United’s continuing practice of having large, unexplained
amounts of cash in $50 and $100 denominations. See, e.g.,
Ritter, 416 F.3d at 263 (permitting court to consider agent’s
observation of narcotics activity at the situs eight months earlier
in the probable cause analysis because later search involved
similar type of criminal narcotics offense). We disagree with
defendants that the information relating to the August 1999
search, which uncovered $3 million to $7 million in
denominations of $50 and $100 bills, was stale. Although the
“[a]ge of the information supporting a warrant application is a
factor in determining probable cause . . . [a]ge alone . . . does
not determine staleness.” United States v. Harvey, 2 F.3d 1318,
1322 (3d Cir. 1993). The facts and circumstances of each
individual case must be considered. Id. We have noted
generally that the mere passage of time does not render
information in an affidavit stale where: (1) the facts suggest that
the activity is of a protracted and continuous nature, United
States v. Tehfe, 722 F.2d 1114, and (2) the items to be seized
were created for the purpose of preservation, e.g., business
records, United States v. Williams, 124 F.3d 411, 421 (3d Cir.
1997). See United States v. Ninety-Two Thousand Four
Hundred Twenty-Two Dollars & Fifty-Seven Cents
($92,422.57), 307 F.3d 137, 148 (3d Cir. 2002) (holding that
eleven-month gap between criminal activity and execution of
the warrant did not render the affidavit stale because the
relationship between the defendant and the criminal enterprise
was “of considerable duration” and the warrant authorized a
search for business records, which are typically retained for an
extended period of time). In this case, the warrant application
sought permission to search for United’s corporate business
records, which are likely be kept for a longer time period than
36
other types of physical evidence due to general business and
accounting practices. See Christine, 687 F.2d at 760. The
August 1999 INS search, thus, provides a link between the
alleged current criminal activity and similar activity that took
place over the preceding twenty months, suggesting a pattern of
activity that was continuous in nature.
Finally, the affidavit lists several allegations that, when
taken together with the unexplained currency deposits, provided
probable cause for the magistrate judge to issue the search
warrants. During the same period in which United was
depositing the unusually large currency amounts in large
denominations, Waleed Hamed signed two checks totaling
$1.9 million on behalf of United payable to “Hamdan Diamond
Corp.” Hamdan is a retail business located in St. Maarten,
Northern Antilles, owned in part by Fathi Yusuf, who is the sole
signatory of Hamdan’s account.17 A reliable foreign services
agency informed the FBI that its investigation had uncovered
that Yusuf was part of a network of Middle Eastern merchants
who owned retail businesses in St. Maarten. According to the
agency, these merchants made cash deposits of over $2.2 million
into their respective accounts in 2000, an amount far in excess
of the legitimate cash proceeds of their retail sales. The foreign
services agency concluded that the merchants were laundering
U.S. currency through their retail businesses. When combined
17
Defendants contend that Hamdan Diamond Corporation
is neither owned by Yusuf nor a St. Maarten retail business.
That fact, however, was not challenged in the Franks hearing
below. As a result, we accept the fact as true for purposes of
examining the reformulated affidavit of probable cause.
37
with this historical backdrop, the cash deposits in $50 and $100
bills and contemporaneous check to Hamdan suggest that
United’s activities in April 2001 were an attempt to launder cash
proceeds through an offshore corporation in St. Maarten.
Based upon all of the allegations in the affidavit,
considered in toto, a reformulated and redacted affidavit would
establish probable cause for the Government to search for
corporate business records at the three Plaza Extra stores. Thus,
we would reverse the decision of the District Court even in the
absence of our finding that the allegations in paragraphs 23 and
24 were not made recklessly.
III.
Apart from whether the warrants contained sufficient
allegations to establish probable cause is the question of whether
the warrants were drafted with sufficient particularity with
respect to the property to be searched and the items to be seized.
Defendants argue that any evidence the Government intends to
introduce at trial should be suppressed in its entirety because the
warrants were general warrants.18 Defendants advance three
18
Although the District Court did not reach the general
warrant issue below because of its decision following the Franks
hearing, we consider the issue at this time because the factual
record is fully-developed and the purely legal question is
necessary to our resolution of the appeal. See Hudson United
Bank v. LiTenda Mortgage Corp., 142 F.3d 151, 159 (3d Cir.
1998) (“When a district court has failed to reach a question
below that becomes critical when reviewed on appeal, an
38
arguments in support of this proposition: (1) the warrants do not
state with particularity the property to be searched and seized;
(2) the warrants fail to identify the crimes committed by
reference to the statutory elements in the United States Code;
and (3) the catch-all provision in the warrants, which allowed
the agents to search for any evidence of “money laundering and
illegal activities,” unconstitutionally gave the agents unfettered
discretion to conduct their search.
The Fourth Amendment provides that warrants must
“particularly describ[e] the place to be searched and the persons
or things to be seized.” U.S. Const. amend. IV (emphasis
added). General warrants violate the Fourth Amendment
because they essentially authorize “a general exploratory
rummaging in a person’s belongings.” Coolidge v. New
Hampshire, 403 U.S. 443, 467 (1971). For example, warrants
requesting to search for the following materials have been struck
down as general warrants: (1) evidence of “smuggled goods,”
Boyd v. United States, 116 U.S. 616 (1886); (2) evidence of
“obscene materials,” Marcus v. Search Warrant, 367 U.S. 717
(1961); (3) evidence of “books, records, pamphlets, cards, lists,
memoranda, pictures, recordings, and other written instruments
concerning the Communist Party of Texas,” Stanford v. Texas,
379 U.S. 476 (1965); (4) evidence of “illegally obtained films,”
United States v. Cook, 657 F.2d 730 (5th Cir. 1981); and
appellate court may sometimes resolve the issue on appeal rather
than remand to the district court. This procedure is generally
appropriate when the factual record is developed and the issues
provide purely legal questions, upon which an appellate court
exercises plenary review.”) (citations omitted).
39
(5) evidence of “stolen property,” United States v. Giresi, 488
F. Supp. 455 (D.N.J. 1980), aff’d, 642 F.2d 444 (3d Cir. 1981).
Defendants’ three arguments essentially contend that the
warrants in this case violated the particularity requirement,
giving government agents unfettered discretion to search the
three Plaza Extra stores.19
Defendants’ first argument is that the warrants failed to
incorporate the Petri affidavit and did not otherwise explicate
the facts constituting the enumerated crimes. They argue that
we should apply the Supreme Court’s recent decision in Groh v.
Ramirez, 540 U.S. 551 (2004), to invalidate the search warrant
because the affidavit in this case was not incorporated into the
19
There is a legal distinction between a general warrant,
which is invalid because it vests the “executing officers with
unbridled discretion to conduct an exploratory rummaging
through [the defendant’s] papers in search of criminal
evidence,” and an overly broad warrant, which “‘describe[s] in
both specific and inclusive general terms what is to be seized,”
but “authorizes the seizure of items as to which there is no
probable cause.” Ninety-Two Thousand Four Hundred Twenty-
Two Dollars & Fifty-Seven Cents ($92,422.57), 307 F.3d at 149
(quoting Christine, 687 F.2d at 753-54). As discussed above, an
overly broad warrant can be redacted to strike out those portions
of the warrant that are invalid for lack of probable cause,
maintaining the remainder of the warrant that satisfies the
Fourth Amendment. Id. In contrast, the only remedy for a
general warrant is to suppress all evidence obtained thereby. Id.
at 758 (“It is beyond doubt that all evidence seized pursuant to
a general warrant must be suppressed.”).
40
search warrant. The facts in Groh, however, are clearly
different from this case. In Groh, an ATF agent prepared and
signed a detailed affidavit and application for a search warrant
which stated that the purpose of the search was to find a number
of illegal firearms. Although the application was extremely
detailed and particularly described the place to be searched and
the items to be seized, the warrant itself “failed to identify any
of the items that [the agent] intended to seize.” Id. at 554
(emphasis added). In addition, the warrant failed to incorporate
by reference the list of items to be seized, which was
enumerated in the application. Id. at 555. According to the
Court, this defect was fatal: “The fact that the application
adequately described the ‘things to be seized’ does not save the
warrant from its facial invalidity.” Id. at 557 (emphasis in
original). The Court explained that a warrant may incorporate
a supporting application or affidavit, so long as the warrant
cross-references the supporting document and the document
accompanies the warrant. Id. at 558.
From this holding, defendants contend that the warrant is
invalid in our case because it did not incorporate the entire
affidavit. The flaw in this argument, however, is that the
warrant in this case did incorporate Exhibit B of the application,
which was attached to each of the warrants. There is no
question that the warrants in this case (like the warrant in Groh)
particularly described the place to be searched. Unlike Groh,
however, Exhibit B – which specifically identified the items that
the government intended to seize – was also incorporated into
the warrants. (See App. 380-82.) Had the same step been taken
in Groh, the deficient warrant would have been remedied. Thus,
41
the problem which existed in Groh is simply not implicated in
this case.
Because Exhibit B was incorporated into the affidavit, the
next question becomes whether that exhibit particularly
described the items to be searched. Defendants argue that the
government did not narrow the categories of evidence sought to
be searched because the warrant authorized the search for
violations of broad federal statutes, including money laundering
and various frauds, that encompass a wide-range of criminal
conduct. According to defendants, the reference to these
statutes, without any further limitation, transformed the warrants
in this case into general warrants.
Defendants cite principally to the Tenth Circuit’s
decision in United States v. Leary, 846 F.2d 592 (10th Cir.
1988), in which the court determined that a warrant was facially
overbroad because it sought evidence of “the purchase, sale and
illegal exportation of materials in violation of” federal export
laws. Id. at 601. The principal failure of the warrant in that case
was its singular reference to a broad federal statute without any
meaningful limitations on the items to be searched. There, the
government sought to search for records relating to the export of
one product to China, and the government failed to include such
limiting information in the warrant. Id. at 604.
In United States v. American Investors of Pittsburgh, 879
F.2d 1087 (3d Cir. 1989), a case similar to the present one, we
distinguished the Tenth Circuit’s decision in Leahy. In that
case, the government sought twenty-three categories of
documents as evidence of money laundering. The defendants
42
argued that the search was unconstitutionally overbroad. We
disagreed, noting that a broad range of documents were required
to be searched to “sort[] out the details of th[e] sophisticated
scheme.” Id. at 1106. We noted that “[t]he fact that the warrant
authorized a search for a large amount of documents and records
does not necessarily render the search invalid so long as there
exists a sufficient nexus between the evidence to be seized and
the alleged offenses.” Id. at 1105-06. We explained that the
holding in Leahy depended on the crucial fact that the
government had information available “to make the description
of the items to be seized much more specific.” Am. Investors,
879 F.2d at 1106. Thus, in contrast to the warrant at issue in
Leahy, the warrant in American Investors was as specific as
possible under the circumstances:
Here, given the range of information required to
unravel the laundering scheme and the extent of
participation by the parties, the warrant was as
specific as circumstances would allow, however
broad the requirements of the search might be.
We cannot see how any more precise language in
the affidavit could have limited the scope of the
search authorized by the magistrate, despite the
fact that the language of the warrant was broader
than that of the affidavit.
Id.
Similarly, in United States v. Kepner, 843 F.2d 755 (3d
Cir. 1988), we held that a search warrant seeking “documents,
records, and personal effects” of the defendants in connection
43
with an investigation into violations of the Taft-Hartley Act was
not impermissibly overbroad. The items listed to be searched in
the warrant were broader than in the application, which stated
that the agent had probable cause that the search would result in
“the seizure of personal items of [the defendant] such as
clothing, documents, records, diaries, and correspondence that
establish his use and control of the condominium unit as well as
his illegal receipt of the prohibited benefits.” Id. at 757. We
determined that the warrant was drawn with sufficient
particularity. The key in that case was that any evidence that the
defendant had a presence in the condominium on a regular basis
would have been proof of a violation of the Taft-Hartley Act,
which prohibits union officials to receive benefits from an
employer. As a result, the more precise language of the affidavit
could not have served to limit the scope of the search authorized
by the magistrate. Id. at 762-63.
The holdings in each of these decisions recognize that the
breadth of items to be searched depends upon the particular
factual context of each case and also the information available
to the investigating agent that could limit the search at the time
the warrant application is given to the magistrate. After
reviewing the application in the present case, we conclude that
the warrants did not violate the particularity principle, as the
warrants were limited in three respects: (1) they specified that
agents were searching for evidence of several specifically
enumerated federal crimes; (2) the search was limited in time to
evidence from 1990 to the date of the search in October 2001;
and (3) the evidence sought was limited to records pertaining to:
“United Corporation d/b/a Plaza Extra, Plessen Enterprises, Inc.,
Hamdan Diamond Corp., Sixteen Plus Corp. and any affiliated
44
companies as well as their principals, officers managers, and
employees (including but not limited to Fathi Yusuf, Maher
Yusuf, Waleed “Wally” Hamed, and Waheed “Willy”
Hamed”).”
Given the nature of the crime and the limitation on the
items to be searched, the warrant here was drafted with
sufficient particularity. It is important to remember that the
government was conducting an investigation into money
laundering and other complex white collar crimes. We have
repeatedly stated that the government is to be given more
flexibility regarding the items to be searched when the criminal
activity deals with complex financial transactions. See
Christine, 687 F.2d at 760 (stating that the flexibility inherent in
the probable cause determination is “especially appropriate in
cases involving corporate schemes spanning many years that can
be uncovered only by exacting scrutiny of intricate financial
records”); see also Am. Investors, 879 F.2d at 1106 (“Given the
complex nature of a money-laundering enterprise, we cannot say
that the categories overdescribed the extent of the evidence
sought to be seized.”).
Indeed, it is difficult to conclude how the Government
could have more narrowly tailored the warrant in this money
laundering investigation. Like in American Investors, the
government needed to search for a broad array of corporate
documents to piece together United’s unexplained large-scale
currency deposits. The specific categories of corporate
documents to be introduced at trial – financial records, sales
records, tax records, and purchase records – are all probative of
the cash flow coming into and going out of the Plaza Extra
45
Supermarkets, and could establish the massive white collar
scheme the Government has alleged in this case. See Andresen
v. Maryland, 427 U.S. 463, 480 n.10 (1976) (stating that the
government was investigating a “complex real estate scheme
whose existence could be proved only by piecing together many
bits of evidence,” and accordingly that, “[l]ike a jigsaw puzzle,
the whole ‘picture’ of [the unlawful scheme] . . . would be
shown only by placing in proper place the many pieces of
evidence that, taken singly, would show comparatively little”).
Accordingly, we conclude that the warrants satisfied the
particularity requirement with respect to the items to be
searched.
Defendants’ final argument is that the “catch-all”
provision in paragraph 13 of Exhibit B, authorizing the
government to search for evidence of “money laundering and
illegal activities,” renders the warrant unconstitutionally
overbroad. In Andresen, the Supreme Court rejected a similar
argument. The warrant in that case sought to search for items
tending to establish the elements of the crime of false pretenses
“together with other fruits, instrumentalities and evidence of
crime at this (time) unknown.” Andresen, 427 U.S. at 480 n.10.
The Supreme Court concluded that the reference to an unknown
crime in the warrant did not transform the warrant into a general
warrant because the context of the warrant made clear the phrase
“together with . . . crime at this time unknown” referred to the
crime of false pretenses. Id. at 481-82.
The warrants in our case are even more specific than the
warrant in Andresen. Our warrants state that the Government
sought to search for evidence of money laundering and illegal
46
business activities.” In Exhibit B, paragraph a., “illegal business
activities” is defined as “Money Laundering and Conspiracy to
Commit Money Laundering, Failing to Report Exporting of
Monetary Instruments, Mail Fraud, Wire Fraud, Alien
Smuggling, Food Stamp Fraud, and Conspiracy.” (App. 402.)
Thus, unlike the term “crime” in Andresen, which the Court had
to view in context to determine that it referred to the crime of
false pretenses, the term “illegal business activities” is
specifically defined in the warrant. Accordingly, we will
interpret paragraph 13 with respect to that specific definition.
Under this interpretation, it is clear that paragraph 13 does not
transform the warrants into general warrants.
IV.
The rule we adopt today recognizes the special quality of
information obtained from a sister governmental agency
pursuant to court order within the existing Franks framework.
We stress that we do not adopt a per se rule that information
obtained from a sister governmental agency will never be
considered reckless. Such a conclusion would run counter to the
teachings of Franks and its progeny and could possibly invite
collusion among different agencies to insulate deliberate
misstatements. The District Court erred in holding that Agent
Petri’s conduct was reckless in this case, however, because it did
not take into consideration the nature and source of the
information he received from VIBIR, as well as his reasonable
subsequent investigation into the accuracy of the information.
Although that information later turned out to be incorrect, we
cannot conclude that Agent Petri’s investigation would have
47
given a reasonable official an obvious reason to doubt its
accuracy.
Apart from our finding that Agent Petri did not act
recklessly, we also conclude that the District Court erred in
determining that a reformulated affidavit would have lacked
probable cause. The circumstances surrounding the large-scale
currency deposits in April 2001, which were structured in
advance of the deposits and made solely in $50 and $100 bills,
clearly provided probable cause to search for corporate business
records at the Plaza Extra locations, particularly given the
historical link of similar past activity at the Plaza Extra stores,
as well as information provided by a foreign services agency
regarding recent suspect offshore deposits made by the principal
defendant. Furthermore, we reject defendants’ argument that
the warrants were unconstitutional general warrants. The
warrants were drafted with sufficient particularity because they
explicitly incorporated an affidavit detailing the items that the
government intended to search and seize. The government
further limited the scope of the warrants by focusing on
enumerated white collar federal offenses and by limiting the
nature of documents sought to specific corporate records at the
Plaza Extra stores over a ten-year time period.
For these reasons, we will reverse the decision of the
District Court and remand for further proceedings consistent
with this opinion.
48