United States v. Bockius

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
9-25-2000
United States v. Bockius
Precedential or Non-Precedential:
Docket 99-1973
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Filed September 25, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 99-1973
UNITED STATES OF AMERICA,
Appellant
v.
DAVID G. BOCKIUS
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
D.C. Criminal No. 97-cr-00250-1
(Honorable Herbert J. Hutton)
Argued July 10, 2000
Before: SCIRICA, ALITO and FUENTES, Circuit Ju dges
(Filed: September 25, 2000)
RICHARD W. GOLDBERG, ESQUIRE
(ARGUED)
WALTER S. BATTY, JR., ESQUIRE
Office of United States Attorney
615 Chestnut Street, Suite 1250
Philadelphia, Pennsylvania 19106
Attorneys for Appellant
EDWARD C. MEEHAN, JR.,
ESQUIRE (ARGUED)
Hetznecker & Meehan
1420 Walnut Street, Suite 911
Philadelphia, Pennsylvania 19102
Attorney for Appellee
OPINION OF THE COURT
SCIRICA, Circuit Judge.
In this appeal of a criminal sentence, we again address
the heartland of cases covered by U.S.S.G. S 2S1.1
(Laundering of Monetary Instruments).
David G. Bockius pled guilty to wire fraud, foreign
transportation of stolen funds, money laundering and
forfeiture. Citing United States v. Smith, 186 F.3d 290 (3d
Cir. 1999), the District Court declined to sentence Bockius
under the money laundering guideline U.S.S.G. S 2S1.1
because it believed the S 2S1.1 heartland includes only
money laundering associated with extensive drug trafficking
and serious crime. The government appeals, contending the
District Court misinterpreted Smith and adopted too narrow
a view of the heartland. Because Smith made clear the
heartland includes typical money laundering as well as the
money laundering activities connected with extensive drug
trafficking and serious crime, we will vacate the sentence
and remand.
I
The facts are undisputed. Bockius was the president and
one of four principals of Asset Protection Management, an
insurance brokerage firm in Blue Bell, Pennsylvania, when,
in the summer of 1995, he stole $600,000 from the
brokerage and its clients and fled to the Cayman Islands.1
_________________________________________________________________
1. The exact amount is unclear. Bockius' Pre-Sentence Report states "the
total amount of money taken is this case is approximately $751,444.31."
P 13. At his original sentencing, the government contended the actual
loss was $800,000. The District Court sentenced him to pay restitution
of $581,500. Because the transactions described in record show that
Bockius took $600,500 from the Asset Protection Management account,
we will use the figure of $600,000 as an approximation of the "proceeds."
2
Asset Protection Management sold insurance to business
clients. After collecting its clients' insurance premiums, it
deposited them in an escrow, or "premium," account for
payment to the insurance carriers. Most of Asset Protection
Management's clients pay most of their premiums at the
end of July.
On July 31 and August 2, 1995, Bockius wired $220,500
from the Asset Protection Management escrow "premium"
account in Pennsylvania to his personal account at
PaineWebber in New York. He then wired those funds to
gambling casinos in Atlantic City, New Jersey. Bockius
traveled to Atlantic City, lost some of the money gambling,
and carried the rest of the cash back to Pennsylvania. On
August 10, 1995, Bockius withdrew $380,000 in cash from
the Asset Protection Management escrow "premium"
account.
The next day, traveling under the name Louis Middleton,
Bockius flew to the Cayman Islands with more than
$500,000 in cash stashed in secret compartments in his
suit cases. There, he formed a corporation called Little
Mermaid Holdings and bought a house in the name of the
corporation with part of the cash. Bockius intended to
deposit the rest of the funds in Canadian banks in the
Cayman Islands in deposits less than $10,000 to avoid
reporting requirements, but asserts instead he formed a
partnership with Claudio Helvester who soon stole the rest
of his money.2
Asset Protection Management filed for bankruptcy. None
of the money has been recovered.
Never far ahead of the authorities, but ostensibly willing
to cooperate, Bockius turned himself in to the F.B.I. On
July 16, 1997, Bockius pled guilty to three substantive
charges: wire fraud, in violation of 18 U.S.C. S 1343;
transporting the proceeds of fraud and theft between the
United States and the Cayman Islands, in violation of 18
U.S.C. S 2314; and money laundering, in violation of 18
U.S.C. S 1956(a)(2)(B).3 He conceded the stolen money was
_________________________________________________________________
2. Helvester's role is not undisputed.
3. 18 U.S.C. S 1956(a)(2)(B) provides
Whoever transports, transmits, or transfers, or attempts to
3
subject to forfeiture as a result of his money laundering
under 18 U.S.C. S 982(a) and (b)(1).
The Pre-Sentence Report calculated Bockius' sentence
using the money laundering guideline U.S.S.G. S 2S1.1. At
his sentencing on March 25, 1998, Bockius objected that
his behavior fell outside the heartland of S 2S1.1. Denying
his motion for a downward departure, the District Court
sentenced Bockius to 48 months incarceration followed by
four years supervised release, restitution of $581,500, and
a special assessment in the amount of $150.
No appeal was filed but, on September 24, 1998, having
retained new counsel, Bockius filed a petition for habeas
corpus under 28 U.S.C. S 2255 alleging, among other
things, ineffective assistance of counsel for failure to file an
appeal on the heartland issue. See United States v. Bockius,
No. 98-CV-5130 (E.D. Pa. June 25, 1999). On the
recommendation of a Magistrate Judge, Bockius was
resentenced on November 8, 1999.
At resentencing, the District Court held, under Smith,
that Bockius' actions fell outside the heartland of the
money laundering guideline and declined to sentence him
under S 2S1.1. Employing the fraud guideline instead, the
court sentenced Bockius to 36 months incarceration.
_________________________________________________________________
transport, transmit, or transfer a monetary instrument or funds
from a place in the United States to or through a place outside the
United States or to a place in the United States from or through a
place outside the United States . . . (B) knowing that the monetary
instrument or funds involved in the transportation, transmission,
or
transfer represent the proceeds of some form of unlawful activity
and knowing that such transportation, transmission, or transfer is
designed in whole or in part --
(i) to conceal or disguise the nature, the location, the source,
the
ownership, or the control of the proceeds of specified unlawful
activity; or
(ii) to avoid a transaction reporting requirement under State or
Federal law, [commits a criminal offense.]
4
Contending the money laundering guideline is appropriate,
the government appeals.4
II
The District Court had jurisdiction under 28 U.S.C.
S 2255. We have jurisdiction under 28 U.S.C.SS 1291 and
2253. The government was not required to seek a certificate
of appealability in bringing its appeal. See Fed. R. App. P.
22(b)(3); Lambert v. Blackwell, 134 F.3d 506, 512 n.15 (3d
Cir. 1998). We review the District Court's legal conclusions
de novo. See United States v. Thomas, 221 F.3d 430, 433-
34 (3d Cir. 2000). Application of the guidelines is a
question of law reviewed under a plenary standard. See
Smith, 186 F.3d at 297.
III
After hearing argument on the heartland issue, the
District Court held:
[Smith's] instruction to the district court . . . is best
capsulized in page 10, next to the last paragraph there.
It says and I quote from the opinion:
"To use the money laundering guideline in this
routine fraud case would let the tail wag the dog. Strict
focus on the technicalities of the sentencing process
obscures the over-arching directive to match the
guidelines to the offense conduct which formed the
basis of the underlying conviction."
And they [the Third Circuit Court of Appeals] go on
to say:
"We are convinced that this case presents one of
those anomalies that Congress intended the courts to
deal with fairly. To fulfill this obligation--that
obligation--we direct the use of the fraud guideline,
rather than that for money laundering. Ultimately, we
conclude that the sentencing Commission itself, has
indicated that the heartland of the United States
_________________________________________________________________
4. The court's decision to resentence Bockius has not been challenged.
5
Sentencing Guideline Section 2S1.1, is the money-
laundering activity connected with extensive drug
trafficking and serious crime."
And in that case of Smith, I conclude here, that that
is not the type of conduct implicated here.
Tr. of Sentencing, App. 66-67 (quoting Smith, 186 F.3d at
300).
The government argues, and Bockius does not dispute,
that the District Court declined to apply S 2S1.1 because it
found that Bockius' conduct did not involve drug trafficking
or serious crime. The government presents three arguments
for the application of S 2S1.1 in this case: (1) under Smith,
the heartland of S 2S1.1 includes typical money laundering;
(2) Smith applies only to "atypical cases" and this is not an
"atypical" case of money laundering; and (3) Bockius'
international transportation of one half million dollars of
embezzled funds is a serious crime.
Because we agree with the government's first argument,
we need not reach its other two. The District Court read
Smith to create a narrower heartland than warranted. Smith
clearly contemplates applying S 2S1.1 to typical money
laundering as well as to those activities "connected with
extensive drug trafficking and serious crime." 5
_________________________________________________________________
5. S 2S1.1. Laundering of Monetary Instruments
(a) Base Offense Level:
(1) 23, if convicted under 18 U.S.C. SS 1956(a)(1)(A), (a)(2)(A),
or
(a)(3)(A);
(2) 20, otherwise.
(b) Specific Offense Characteristics
(1) If the defendant knew or believed that the funds were the
proceeds of an unlawful activity involving the manufacture,
importation, or distribution of narcotics or other controlled
substances, increase by 3 levels.
(2) If the value of the funds exceeded $100,000, increase the
offense level as follows . . . .
6
A
Money Laundering is a criminal offense under 18 U.S.C.
SS 1956 and 1957.
Whoever, knowing that the property involved in a
financial transaction represents the proceeds of some
form of unlawful activity, conducts or attempts to
conduct such a financial transaction which in fact
involves the proceeds of specified unlawful activity . . .
knowing that the transaction is designed in whole or in
part . . . to conceal or disguise the nature, the location,
the source, the ownership, or the control of the
proceeds of specified unlawful activity, [violates
S 1956(a)(1)(B)(i)].
Subsections (a)(2)(B), and (a)(3)(B) similarly forbid
transactions aimed at concealing or disguising proceeds.
Subsections 1956(a)(1)(A), (a)(2)(A) and (a)(3)(A) prohibit
promoting criminal activities.
Congress passed sections 1956 and 1957 as part of the
Money Laundering Control Act of 1986, Pub. L. No. 99-570,
100 Stat. 3207 (codified as amended at 18 U.S.C.SS 1956,
1957), "to `fill the gap in the criminal law with respect to
the post-crime hiding of ill-gotten gains.' " United States v.
LeBlanc, 24 F.3d 340, 346 (1st Cir. 1994) (quoting United
States v. Johnson, 971 F.2d 562, 569 (10th Cir. 1992).
Undoubtedly, Congress was intent on combating organized
crime.6 But that was not the sole purpose of the statute.7
_________________________________________________________________
6. See, e.g., 132 Cong. Rec. S9626-04 (Senator Thurman stating
"[c]reation of a money laundering offense is imperative if our law
enforcement agencies are to be effective against the organized criminal
groups which reap profits" through money laundering); id. (Senator
DeConcini stating "[w]ithout the means to launder money . . . organized
crime could not flourish as it does now").
7. Senator DeConcini went on to observe "Money laundering techniques
are used by large legitimate businesses as well. The President's
commission discovered that American corporations, such as Gulf Oil,
Lockheed Aircraft, and McDonnell Douglas, have engaged in illegal
money laundering. Each corporation was involved in schemes to make
illegal payments to foreign government officials in order to win lucrative
overseas contracts. The broad array of groups participating in money
laundering illustrates how widespread the problem has become." Id.
7
By its text, S 1956 covers a broad array of behavior.
Initiating, concluding or participating in the disposition of
funds with the intent of concealing or disguising the nature
of the funds or of promoting criminal activity may subject
a person to prosecution if the funds are derived from any of
a wide range of criminal activities. See 18 U.S.C. S 1956(c).
We have previously noted that Congress intended to punish
this use of criminally derived proceeds separately from and
in addition to the criminal conduct which produced them.
See United States v. Conley, 37 F.3d 970, 980 (3d Cir. 1994).8
In United States v. Smith, we recognized that the
government's use of the money laundering statutes to
sustain additional charges in criminal indictments,
combined with the sentencing guidelines' penalties, created
the possibility that money laundering could become a"dog-
wagging tail." See 186 F.3d at 300. In Smith, use of the
money laundering guideline, U.S.S.G. S 2S1.1, rendered a
base offense level of twenty while use of the fraud guideline,
U.S.S.G. S 2F1.1, would have rendered a base offense level
of six. Where the gravamen of the conduct was fraud, we
stated this disparity obscured "the overarching directive to
match the guideline to the offense conduct which formed
the basis of the underlying conviction." Smith, 186 F.3d at
_________________________________________________________________
8. We have held that S 1956's prohibition on laundering proceeds
obtained from a criminal offense applies only to funds from completed
offenses, or completed phases of ongoing offenses. See Conley, 37 F.3d
at 980. We have also held that crime is not "promoted" by depositing
criminally derived proceeds in a personal account and using the money
for personal needs. See id. at 979. When funds become "proceeds" and
when they are used to "promote" may at times be difficult questions. In
United States v. Paramo, 998 F.2d 1212 (3d Cir. 1993) (cited as
consistent by Conley, 37 F.3d at 980), we upheld a verdict for violating
S 1956(a)(1)(A)(i) by cashing checks received through mail fraud. The
checks were made out to fictitious individuals. Because the violation of
18 U.S.C. S 1341 was completed when the checks were mailed, we held
Paramo could reasonably be found to have promoted the antecedent
fraud by "creating value out of an otherwise unremunerative enterprise."
Id. at 1218. Therefore, although we have limited the scope of S 1956 to
the proceeds of completed offenses (or phases of offenses), we have
construed "promotion" and "completion" broadly. We understand the
scope of U.S.S.G. S 2S1.1 to be less expansive.
8
300 (quoting United States v. Kuku, 129 F.3d 1435, 1440
(11th Cir. 1997)).
As noted in Smith, the Sentencing Commission has
articulated similar concerns. In 1995, the Sentencing
Commission concluded money-laundering sentences were
being imposed for a broader scope of offense conduct than
originally anticipated. See United States Sentencing
Commission, Report to the Congress: Sentencing Policy for
Money Laundering Offenses, including Comments on
Department of Justice Report at 1, 5 (Sept. 18, 1997)
("Commission Report").
To address what it saw as sentencing disparities, the
Sentencing Commission proposed amended "guideline
penalties for money laundering offenses that were more
proportionate to both the seriousness of the underlying
criminal conduct . . . and to the nature and seriousness of
the conduct itself." Id. at 1. But Congress rejected the
amendments fearing their adoption would send a message
"that money laundering associated with drug and other
serious crimes is not viewed as the grave offense it once
was." H.R. Rep. No. 104-272, at 14-15 (1995), reprinted in
1995 U.S.C.C.A.N. 335, 348-49. Despite rejecting the
proposed amendments, Congress recognized "the
application of the current guidelines to receipt-and-deposit
cases, as well as to certain other cases that do not involve
aggravated money laundering activity, may be problematic."
Id.
Although Congress did not define "aggravated money
laundering activity," the Sentencing Commission has
described the guidelines' target conduct succinctly:
1) situations in which the `laundered' funds derived
from serious underlying criminal conduct such as a
significant drug trafficking operation or organized
crime; and, 2) situations in which the financial
transaction was separate from the underlying crime
and was undertaken to either: a) make it appear that
the funds were legitimate, or b) promote additional
criminal conduct by reinvesting the proceeds in
additional criminal conduct.
Commission Report at 4.
9
Congress also solicited a report from the Department of
Justice on money laundering enforcement practices. The
report noted money laundering statutes are not appropriate
"in cases where the money laundering activity is minimal or
incidental to the underlying crime," but specifically stated
the statutes should be used against white collar criminals.
See Department of Justice Report for the Senate and House
Judiciary Committees on the Charging and Plea Practices of
Federal Prosecutors with Respect to the Offense of Money
Laundering, at 2, 15 (June 17, 1996) (DOJ Report).
The foregoing discussion reinforces the view that,
although Congress was concerned the guidelines might be
too severe in punishing defendants who deposit or
withdraw the proceeds of their crimes in or from banks,
S 2S1.1 is intended to apply to defendants who knowingly
conduct financial transactions apart from an underlying
criminal offense to conceal that the proceeds involved are
tainted. We held no differently in Smith.
B
Smith held that under Appendix A to the Guidelines
manual, a sentencing court must engage in a two-step
inquiry before applying a particular guideline section.
1. Does the designated guideline apply or is the
conduct "atypical" in comparison to that usually
punished by the statute of conviction; and
2. If the conduct is "atypical," which guideline is more
appropriate?
Smith, 186 F.3d at 297 (citing United States v. Voss, 956
F.2d 1007, 1009 (10th Cir. 1992), superseded in part on
other grounds by amendment to U.S.S.G. S 2D1.1)).
Atypical money laundering conduct is conduct outside
the heartland of S 2S1.1. See Smith, 186 F.3d at 297-98.
When deciding whether to apply the guideline, a court must
undertake a heartland analysis "identical" to that employed
when evaluating downward departures under U.S.S.G. Ch.
1, Pt. A, intro. comment. 4(b). Id. at 298.
Because at one point in the opinion Smith recited:
"[u]ltimately, we conclude that the Sentencing Commission
10
itself has indicated that the heartland of U.S.S.G.S 2S1.1 is
the money laundering activity connected with extensive
drug trafficking and serious crime," Bockius contends his
conduct falls outside the heartland of S 2S1.1. Id. at 300.
This is a misinterpretation of Smith.
Analyzing the S 2S1.1 heartland, Smith reiterated the
guideline targets set forth by the Sentencing Commission.
Id. at 298. Smith also discussed the DOJ report, the
proposed amendments and Congress's rejection of those
amendments. See id. at 299. Smith makes clear that a
court's S 2S1.1 heartland analysis should address whether
defendants engaged in money laundering in which"the
`laundered' funds derived from serious underlying criminal
conduct such as a significant drug trafficking operation or
organized crime' " or in typical money laundering in which
a defendant knowingly conducted a financial transaction to
conceal tainted funds or funnel them into additional
criminal conduct. Id. at 298.
Smith concluded the defendants should not have been
sentenced under S 2S1.1 because neither the source of the
funds nor the nature of the money laundering brought the
defendants' conduct within the heartland of that guideline.
The defendants "left a paper trail, conduct inconsistent with
planned concealment"; the "money laundering activity . . .
was an `incidental by-product' of the kickback scheme" and
"Smith's disingenuous efforts towards a cover-up[fell] far
short of the large scale drug money laundering or serious
crime contemplated by the Sentencing Commission." Id. at
300.
Other Courts of Appeals have drawn similar distinctions
-- establishing the heartland of the money laundering
guidelines is narrower than the inclusive scope of the
money laundering statutes but declining to limit the
guidelines' scope to drug trafficking and organized crime.9
See United States v. Ross, 210 F.3d 916, 928 (8th Cir.
2000) (reversing departure but allowing that on remand,
"court may find Ross' case presents additional unique or
_________________________________________________________________
9. But see United States v. Adams, 74 F.3d 1093, 1101 (11th Cir. 1996)
(where defendants found guilty of violating 18 U.S.C. S 1956, U.S.S.G.
S 2S1.1 must be applied).
11
atypical features that take it outside the money laundering
guideline heartland similar to those in [Smith]"); United
States v. Prince, 214 F.3d 740, 768 (6th Cir. 2000)
(application of S 2S1.1 proper where defendants attempted
to conceal proceeds of wire fraud); United States v. Ford,
184 F.3d 566, 587-88 (6th Cir. 1999) (affirming refusal to
depart from U.S.S.G. S 2S1.2 but noting other courts had
affirmed departures "based in part on the fact that the
underlying offenses, though literally within the statute,
were not drug-trafficking, `organized crime',`serious money-
laundering', or `unusually severe fraud,' " and implying
departure might be appropriate where money laundering
created no additional societal harm); United States v.
Woods, 159 F.3d 1132, 1136 (8th Cir. 1998) (affirming
heartland departure from S 2S1.2 because depositing funds
in a personal account and obtaining cashier's checks to pay
personal bills did not constitute "serious money-laundering
conduct"); United States v. Hemmingson, 157 F.3d 347, 363
(5th Cir. 1998) (acknowledging S 2S1.1 may be applicable
outside of organized crime and drug trafficking but
affirming heartland departure because "defendants were
not seeking to legitimize a stream of illegal income into the
mainstream economy [nor to launder] . . . drug proceeds, or
proceeds from some other unlawful activity."); United States
v. Skinner, 946 F.2d 176, 177 (2d Cir. 1991) (holding
district court could depart from the guideline whereS 1956
violation rested solely on payments by drug dealer to her
supplier because payments did not "conceal a serious
crime" and promotion of the sale was de minimus (as the
transaction represented only completion of the sale)); see
also United States v. Caba, 911 F. Supp. 630, 636 (E.D.N.Y.
1996), aff 'd, 104 F.3d 354 (table) (if defendant's "actions
were part of a classic money laundering scheme designed to
conceal . . . sullied monies, . . . the more punitive money
laundering guideline would be appropriately used to
determine punishment," but absent such a finding
downward departure was required where funds were not
from drug trafficking).
C
In view of this discussion, we will vacate Bockius'
sentence and remand for resentencing. After embezzling
12
$600,000, Bockius admitted engaging in several acts to
conceal the illegal source of the money and his ownership.
After wiring funds from Asset Protection Management's
escrow "premium" account to an account in New York, he
wired them a second time to casinos where he converted
them into cash. In violation of 18 U.S.C. S 1956(a)(2)(B), he
secretly carried the cash or proceeds to the Cayman Islands
where he formed a corporation under a false name, planned
on depositing the money in bank accounts under different
names in amounts calculated to avoid reporting
requirements and bought a house in the name of the Little
Mermaid corporation. Moreover, he claims the remainder of
the funds was stolen by a person to whom he planned to
give his money in an attempt to make it untraceable. These
actions appear to constitute typical money laundering.
IV
As noted in Smith, on remand the District Court should
engage in a heartland analysis before applying the money
laundering guideline. Where money laundering is not
"minimal or incidental," and is "separate from the
underlying crime" and intended to "make it appear that the
funds were legitimate" or to funnel the money into further
criminal activities, S 2S1.1 is an applicable guideline. The
guideline may also be applicable if there is evidence that
the activities which fulfilled the broad statutory
requirements for money laundering were connected with
extensive drug trafficking or other serious crime. Although
the application of the correct guideline is a question of law,
the District Court may be required to make factualfindings
to resolve these underlying issues.
V
Here, the District Court found Bockius was not involved
with extensive drug trafficking nor other serious crime.
Because the court did not address Bockius' typical money
laundering, we will vacate the judgment of the District
Court and remand for resentencing.
13
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
14