U.S. v. Levy

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
________________
No. 91-3574
________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
DAVID L. LEVY and HOWARD MC NAUGHTON,
Defendants-Appellants.
Appeals from the United States District Court
For the Eastern District of Louisiana
( August 11, 1992 )
Before WISDOM, SMITH, and EMILIO M. GARZA, Circuit Judges.
WISDOM, Circuit Judge.
The defendants/appellants were convicted on several counts as
active participants in a money laundering scheme and conspiracy to
evade currency reporting requirements. They contend that they were
not required to file currency transaction reports with respect to
the alleged money laundering because their activities fell within
a loophole in the law. We hold that this loophole does not exist.
We are also asked to interpret the aiding and abetting statute, 18
U.S.C. § 2, so that a defendant may not be found guilty of causing
2
a violation to be committed by an undercover operative. We decline
the offer to restrict the plain language of the statute in such a
manner. Finally, one defendant contends that his sentence reflects
an improper application of the Federal Sentencing Guidelines. We
reject this contention.
I. BACKGROUND
In 1987, the Internal Revenue Service and the Federal Bureau
of Investigation began a joint investigation into money laundering
in New Orleans. The agencies established an undercover "sting"
operation utilizing the services of Mr. Amado Hernandez, a
"cooperating undercover source", who posed as a money manager for
drug dealers. In January 1987, Mr. Hernandez met with Mr. Charles
LeChasney in Atlanta, Georgia to discuss the possibility of
laundering millions of dollars in drug money. Mr. LeChasney then
sought the assistance of a New Orleans attorney, Mr. David Levy.
In April 1987, Mr. Hernandez, Mr. LeChasney, and Mr. Levy met
in Miami to discuss the money laundering scheme. Mr. Hernandez
explained to the others that they would be exchanging cash from
drug traffickers. Mr. Levy informed Mr. Hernandez that he could
deposit the cash in client trust accounts and give Mr. Hernandez
checks drawn against these accounts. The three men discussed bank
reporting requirements and Mr. Levy agreed that Mr. Hernandez's
name would not be reported in any of the transactions. The men
also agreed upon a six point fee for their services.
In May 1987, Mr. Hernandez and Mr. LeChasney met with Mr. Levy
3
in New Orleans. Mr. Hernandez gave Mr. Levy $200,000 in cash (plus
the $12,000 fee), and Mr. Levy gave Mr. Hernandez four checks
totaling $200,000 drawn against one of Mr. Levy's trust accounts
and signed by Mr. Levy. The cash was deposited into Mr. Levy's
trust accounts over the next few days in the form of small (under
$10,000) cash deposits or small cashier checks. Between May and
October 1987, Mr. Levy and Mr. LeChasney laundered an additional
$550,000 of cash from Mr. Hernandez, using the same basic cash for
checks system utilized in the first transaction, and they received
an additional $33,000 in fees.
In October 1987, Mr. Hernandez met in New York City with Mr.
LeChasney, Mr. Levy, and Mr. Joe DiFlumera, an acquaintance of Mr.
Levy. The men discussed laundering drug money through Mr.
DiFlumera's contacts with American Airlines and Red Apple grocery
stores. In November, Mr. Hernandez travelled to Boston to meet
with Mr. DiFlumera. Mr. DiFlumera introduced Mr. Hernandez to Mr.
Howard McNaughton, a food broker. The three men discussed a
proposed money laundering operation in which Mr. DiFlumera would
give Mr. Hernandez a personal check in exchange for the cash and
the check would later be exchanged for a number of checks drawn
against grocery accounts. The plan was to exchange cash for checks
drawn on the grocery accounts, with Mr. DiFlumera's personal check
serving as collateral until Mr. Hernandez received the grocery
account checks. Mr. DiFlumera indicated to Mr. Hernandez that Mr.
McNaughton would be in charge of the mechanics of the operation.
Over the next few weeks, Mr. Hernandez, Mr. DiFlumera, and Mr.
4
McNaughton discussed the operation over the telephone. They agreed
upon a ten point fee. The men finally agreed to make an exchange
of $200,000 in Boston on December 18, 1987. On December 18, Mr.
Hernandez travelled to Boston as arranged. He gave Mr. McNaughton
and Mr. DiFlumera $200,000 in cash in exchange for sixteen checks
totalling $200,000. Mr. McNaughton explained to Mr. Hernandez that
grocery stores could deposit large amounts of cash because they
were exempt from the reporting requirements, and therefore, there
would be no reporting problems with these transactions.
In January 1988, Mr. Hernandez again travelled to Boston to
meet with Mr. DiFlumera and Mr. McNaughton. Again they exchanged
$200,000 in cash for several checks totalling $200,000. The men
agreed to meet in ten days for another exchange. This meeting
never occurred, however, because Mr. Hernandez's undercover role
ended on January 27, 1988 when several of the defendants were
arrested.
In October 1989, a federal grand jury returned a forty-count
indictment against fourteen defendants, including the appellants
Mr. David Levy and Mr. Howard McNaughton. Thirty-two counts of the
indictment charged Mr. Levy with: (1) conspiring as a financial
institution, and in exchange for a fee, unlawfully to evade federal
monetary reporting requirements by failing to file required
currency transaction reports, by structuring currency transactions,
and by using interstate commerce to facilitate the commission of
these crimes in violation of 18 U.S.C. § 371 (the conspiracy
count); (2) participating in the affairs of a racketeering
5
enterprise in violation of 18 U.S.C. § 1962(c) (the RICO count);
(3) travelling in or using interstate commerce, or causing the use
of interstate facilities in furtherance of a racketeering
enterprise in violation of 18 U.S.C. §§ 2 and 1952(a)(3) (the
Travel Act count); and (4) aiding and abetting the failure to file
and report currency transactions and the structuring of currency
transactions to evade reporting requirements in violation of 18
U.S.C. § 2 and 31 U.S.C. §§ 5313(a), 5322(b), and 5324 (the
currency transaction count).
Mr. McNaughton was charged in the conspiracy count, the RICO
count, and in two separate Travel Act counts.
Six of the defendants entered into plea agreements with the
government prior to trial, and the district court dismissed all
charges against one of the defendants under a Rule 29 motion.
After a two month trial, the jury considered the guilt of the
remaining seven defendants and reached a guilty verdict with
respect to three of them, the two appellants and one other
defendant.
The defendants who appealed were convicted on all counts in
which they were named. Mr. Levy was sentenced to a total of
seventy months imprisonment and three years of supervised release.
Mr. McNaughton was sentenced to a total of twenty-four months
imprisonment and three years supervised release. This appeal
followed.
6
II. DISCUSSION
A. The Definition of "Financial Institution"
The Currency Transaction Reporting Act, 31 U.S.C. § 5313,
authorizes the Secretary of the Treasury to issue regulations
requiring that domestic financial institutions report certain
domestic currency transactions. Pursuant to this authority, the
Secretary promulgated 31 C.F.R. § 103.22(a)(1) which requires that
[e]ach financial institution . . . shall file
a report of each deposit, withdrawal, exchange
of currency or other payment or transfer, by,
through, or to such financial institution
which involves a transaction in currency of
more than $10,000.
Almost all of the counts against the defendants were based on the
failure to file currency transaction reports (CTRs) with respect to
the cash for checks transactions. Mr. Levy and Mr. McNaughton
contend on appeal that they had no obligation to file CTRs because
the transactions in which they engaged did not make them "financial
institutions".
Definitions of the term "financial institution" are found in
the statute and in the regulations issued by the Secretary under
the statute. The defendants' first argument is that their
activities do not fit within the definition of "financial
institution" found in the regulations. Their second argument is
that, if their activities do fit within that definition, then the
Secretary of the Treasury exceeded his authority under the statute
by impermissibly enlarging the meaning of "financial institution".
7
1. The Regulations
"Financial institution" is defined in the regulations as
including
[e]ach agent, agency, branch, or office within
the United States of any person doing
business, whether or not on a regular basis or
as an organized business concern, in one or
more of the capacities listed below:
* * * *
(3) A currency dealer or exchanger, including
a person engaged in the business of a check
casher.1
The defendants contend that they do not fall within this
definition because a "currency dealer or exchanger" must be
involved in the exchange of foreign currency. This argument is
without merit.
The term "currency dealer or exchanger" is defined in the
regulations as "[a] person who engages as a business in dealing in
or exchanging currency, except for banks which offer such services
as an adjunct to their regular services"2.
"Currency" is defined in the regulations as
[t]he coin and paper money of the United
States or of any other country that is
designated as legal tender and that circulates
and is customarily used and accepted as a
medium of exchange in the country of issuance.
Currency includes U.S. silver certificates,
U.S. notes and Federal Reserve notes.
Currency also includes official foreign bank
notes that are customarily used and accepted
as a medium of exchange in a foreign country.3
1
31 C.F.R. § 103.11(g) (1987).
2
31 C.F.R. § 103.11(e) (1987).
3
31 C.F.R. § 103.11(d) (1987).
8
Contrary to the defendants' assertions, there is no requirement in
the regulations that foreign currency be involved in the
transaction. It is true that the defendants' activities were not
those provided in the example given in the regulation--a person
engaged in the business of a check casher. Rather, they were
receiving cash from the undercover agent, and for a fee, would
convert that currency into checks. The defendants argue that while
the business of cashing checks is a business dealing in or
exchanging currency, the business of issuing checks in exchange for
cash is not. This argument elevates form over substance. Both
businesses involve dealing in currency. Thus, the defendants'
business of exchanging checks for cash is within the definition of
"financial institution" found in the regulations.4
2. The Secretary's Authority
Having found that the defendants' activities fall within the
definition of "financial institution" in the regulations issued by
the Secretary, this Court must now consider whether the Secretary
exceeded his authority by issuing this regulation. The argument
runs that while the Secretary was given the authority to specify
various aspects of the reporting requirements, that authority does
not include the authority to expand the definition of "financial
institution".
This argument rests upon a false premise. The statutory
4
This Court has previously held that similar activities fall
within the definition of "financial institution". See, e.g.,
United States v. Gollott, 939 F.2d 255 (5th Cir. 1991).
9
definition of "financial institution" includes "another business or
agency carrying out a similar, related, or substitute duty or power
the Secretary of the Treasury prescribes"5. Thus, Congress
intended that the Secretary supplement the definition of "financial
institution".6 The regulations under which the defendants were
convicted are well within that grant of authority.
B. Mr. McNaughton's Travel Act Convictions
Mr. McNaughton was convicted on counts 38 and 40, which
charged that "Howard McNaughton did cause Amato [sic] Hernandez to
travel from New Orleans, Louisiana, to Boston, Massachusetts, with
the intent to promote, manage, establish, carry on, and facilitate
the promotion, management, establishment, and carrying on of an
unlawful activity . . .". Mr. McNaughton raises two arguments
contesting the validity of his conviction on these counts. First,
Mr. McNaughton argues that he could not be convicted for causing
Mr. Hernandez to travel because Mr. Hernandez was a paid government
agent. Second, Mr. McNaughton argues that the evidence of his
ability to cause Mr. Hernandez to travel was insufficient to
support his conviction. In the context in which they are
presented, these arguments are so intertwined that they must be
discussed together.
5
31 U.S.C.A. § 5312(a)(2)(U) (West 1983).
6
This conclusion is bolstered by later amendments which
provide that "financial institution" includes "any other business
designated by the Secretary whose cash transactions have a high
degree of usefulness in criminal, tax, or regulatory matters". 31
U.S.C.A. § 5312(a)(2)(Y) (West Supp. 1992).
10
18 U.S.C. § 1952 makes it a crime to travel in interstate
commerce to facilitate the carrying on of any illegal activity.
Mr. McNaughton's liability under this statute is a result of 18
U.S.C. § 2, which provides that "[w]hoever willfully causes an act
to be done which if directly performed by him or another would be
an offense against the United States, is punishable as a
principal". In his opening brief, Mr. McNaughton states that
"[t]here was no evidence to even suggest that Howard McNaughton or
anyone other than the government had the power to cause Amado
Hernandez to travel interstate". The evidence at trial, viewed in
the light most favorable to the government, showed that Mr.
Hernandez's travel to Boston on both occasions was at the request
of Mr. McNaughton and was for the purpose of exchanging cash for
checks. Mr. McNaughton's argument is that the "cause" of Mr.
Hernandez's travel was the instructions he received from the
government rather than the request he received from Mr. McNaughton.
Mr. McNaughton attempts to analogize his case to cases holding
that a defendant cannot be convicted for conspiring solely with a
government agent. There is no analogy. The essence of a
conspiracy is a meeting of the minds--a shared criminal intent.
Under 18 U.S.C. § 2(b), there is no requirement of shared intent;
only the person charged need have the criminal intent, the
individual whom the defendant has caused to perform the act may be
entirely innocent.7
7
E.g., Pereira v. United States, 202 F.2d 830, 837 (5th Cir.
1953), aff'd, 347 U.S. 1 (1954).
11
Nor is this a case in which the government has manufactured a
crime. The defendants were aware from the outset that interstate
travel would be necessary to carry out the money laundering scheme.
Moreover, the evidence at trial showed that the two instances of
interstate travel charged in counts 38 and 40 were at the request
of Mr. McNaughton and Mr. DiFlumera. The fact that the government
gave Mr. Hernandez permission to follow through on Mr. McNaughton's
request does not affect the fact that Mr. McNaughton's request
caused Mr. Hernandez to travel interstate for this illegal purpose.
Mr. McNaughton would have this Court interpret the phrase
"causes an act" to mean that the defendant must be the sole and
proximate cause of the performance of the act. Such an
interpretation would render 18 U.S.C. § 2(b) meaningless. The
evidence is sufficient to support Mr. McNaughton's convictions on
counts 38 and 40.8 There is no reason why Mr. McNaughton, on the
pretext that Mr. Hernandez was cooperating with the government at
the time, should escape the consequences of causing Mr. Hernandez
to travel in interstate commerce to facilitate the money laundering
scheme.
C. Sentencing Guidelines
Mr. Levy contends that the district court erred by adding five
levels to his base offense level under the applicable sentencing
8
Because we affirm Mr. McNaughton's convictions on counts 38
and 40, we do not consider his argument that his RICO conviction
must be overturned if either Travel Act conviction is overturned.
12
guidelines.9 The contested increase was the result of the district
court's finding that Mr. Levy believed the laundered funds were
indeed criminally derived funds. Section 2S1.3(b)(1) of the United
States Sentencing Commission Guidelines provides for a five level
increase when the "defendant knew or believed that the funds were
criminally derived". Although the guideline says "knew or
believed", Mr. Levy argues that the five level increase applies
only if he knew that the funds were criminally derived. Further,
because the funds Mr. Levy laundered were actually provided by the
government, he argues that such knowledge would be impossible.
Mr. Levy relies on the Application Note to support his
argument. The "Background" section of the Application Note to §
2S1.3 states in part that "[t]he offense level is increased by five
levels if the defendant knew that the funds were criminally
derived". Mr. Levy argues that this one sentence restricts the
application of § 2S1.3(b)(1) to cases in which there is knowledge
of the nature of the funds, not just a belief. The interpretation
of the Guidelines is a question of law, subject to de novo review.10
The Eleventh Circuit addressed this exact issue in United
States v. Ortiz Barrera, 922 F.2d 664 (11th Cir. 1991). That court
held that the plain language of the guideline controlled because
"[w]here the terminology of a statute is clear, we do not need to
rely on the commentary for its construction". We agree.
9
The guidelines at issue are those that were in effect on
January 26, 1988.
10
United States v. Gaitan, 954 F.2d 1005, 1008 (5th Cir.
1992).
13
The guideline itself says "knew or believed". There is no
ambiguity in this language requiring us to look to the Application
Note for guidance.11 A subsequent amendment to the Application Note
has made it clear that a belief that the funds were criminally
derived is sufficient to support the five level increase.12 We find
it significant, as did the Eleventh Circuit, that this change to
the Application Note was made without any change in the guideline
itself. "This indicates to us that the Guidelines were amended to
reflect an original intent that a defendant's belief alone can
trigger subsection (b)(1)."13
Because the language of the guideline encompasses knowledge or
belief, we hold that the district court correctly applied the five
level increase to Mr. Levy.
The Court has considered carefully all the arguments of the
defendants/appellants not directly addressed in this opinion.
The judgment of the district court is AFFIRMED.
11
Section 1B1.7 of the Guidelines provides that the
commentary accompanying the guidelines is in the nature of a policy
statement or legislative history.
12
The amended language provides in part: "Subsection (b)(1)
applies if the defendant knew or believed the funds were criminally
derived property." The purpose of the amendment was "to clarify
the guideline and commentary, to provide more complete statutory
references, and to conform the format of the guideline to that used
in other guidelines." United States Sentencing Commission
Guidelines Manual, Appendix C, amendment 218.
13
Ortiz Barrera, 922 F.2d at 666 n.4.