United States v. Alston ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
2-26-1996
United States v. Alston
Precedential or Non-Precedential:
Docket 94-2195
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
------------
No. 94-2195
------------
UNITED STATES OF AMERICA,
Appellee
v.
MICHAEL DAVID ALSTON,
Appellant
----------
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Criminal No. 93-cr-00445-1)
----------
Argued Monday, December 11, 19950
BEFORE: ROTH, McKEE and GARTH, Circuit Judges
----------
(Opinion filed February 26, l996)
----------
Joel P. Trigiani (Argued)
1411 Walnut Street, Suite 700
Philadelphia, PA 19102
Attorney for Appellant
0
This matter was originally heard on June 27, 1995 before Judges
Hutchinson, Roth, and Garth. Because Judge Hutchinson died prior
to an opinion being rendered, the Panel was reconstituted to
include Judge McKee, and the appeal was reargued.
1
Michael R. Stiles
United States Attorney
Walter S. Batty, Jr.
Assistant United States
Attorney, Chief of Appeals
Joel D. Goldstein (Argued)
Assistant United States Attorney
United States Attorney's Office
Eastern District of Pennsylvania
615 Chestnut Street, Room 1250
Philadelphia, PA 19106-4476
Attorneys for Appellee
----------
OPINION OF THE COURT
----------
GARTH, Circuit Judge:
On September 30, 1993, defendant Michael David Alston
("Alston") was indicted on two counts. Count I charged him with
conspiracy under 18 U.S.C. § 371: (i) to defraud the United
States and the Treasury and (ii) to structure to avoid the
reporting requirements of 31 U.S.C. § 5313(a), in violation of
the anti-structuring provisions of 31 U.S.C. § 5324(a)(3) and
§ 5322. Count II charged him with structuring in violation of 31
U.S.C. § 5324(a)(3), § 5322(b); 31 C.F.R. § 103.11, § 103.22; and
18 U.S.C. § 2(b). Following a non-jury trial, Alston was
convicted on both counts.
After Alston was convicted, the Supreme Court rendered
its opinion in United States v. Ratzlaf, -- U.S. --, 114 S. Ct.
655 (1994), in which it held that, in order to obtain a
structuring conviction, the government must prove that the
2
defendant "willfully" structured. "Willfulness" was defined as
the defendant's knowledge that structuring was illegal. The
government conceded that it had not proven the mens rea
(knowledge of illegality) that Ratzlaf required in order to
sustain Count II, the substantive count of structuring and that
portion of Count I that charged conspiracy to structure. The
district court therefore vacated those portions of Alston's
conviction. However, the district court refused to set aside
Alston's conviction under Count I which charged a § 371
conspiracy to defraud, reasoning that Ratzlaf's mens rea
requirement did not apply.
We have jurisdiction over this appeal pursuant to 28
U.S.C. § 1291. We will reverse because the indictment, in
charging under the "defraud" clause of § 371, (Indictment ¶7(a)),
alleges no more than a conspiracy to defraud the United States by
structuring, a far different conspiracy than the genre of "Klein
conspiracies"0 relied on by the government. In addition, we have
such substantial difficulty in understanding how Alston can be
convicted of a conspiracy to defraud by structuring when he
cannot be guilty of a conspiracy to structure or of structuring
itself,0 that we reverse Alston's conviction.
0
A "Klein conspiracy" is discussed at note 13, infra.
0
In this opinion, we discuss only Alston's argument that his §371
conspiracy must be vacated, as we find no merit in Alston's other
ground for appeal, i.e., that the district court abused its
discretion in admitting evidence of Alston's failure to file tax
returns in 1987 and 1988.
Alston had also originally raised a third ground for appeal:
that the district court had erred in enhancing his offense level
by two levels for obstruction of justice. However, by letter
filed February 16, 1995, Alston abandoned this ground for appeal.
3
I.
On July 28, 1988, Alston, operator of an unprofitable
convenience store, and his brother Henry each arranged to
purchase top-of-the-line BMW automobiles from West German Motor
Imports for approximately $70,000 apiece.0 The sales contract on
each car provided that a down payment of $41,000 would be paid
toward the purchase price of the car on or before the date of
delivery, and that the remainder of the purchase price would be
financed. The salesman was co-defendant Richard Rosa. Alston
and his brother each left a personal check for $500 toward their
respective down payments.
Alston's car became available on September 12, 1988.
Alston made cash remittals to Motor Imports of $5,000 on
September 30, 1988, $2,500 on October 4, 1988, and $1,500 on
October 5, 1988, for a total of $9,000 within that week. A
single $10,000 cash payment would have triggered Motor Imports's
obligation to file an IRS Form 8300 for cash payments over
$10,000.0
0
After factoring in all costs, each vehicle cost approximately
$83,000.
0
Internal Revenue Code section 6050I requires "[a]ny person . . .
who is engaged in a trade or business, and who, in the course of
such trade or business, receives more than $10,000 in cash in 1
transaction (or 2 or more related transactions)" to file a return
identifying the person from whom the cash was received, the
amount of the cash received, and the date and nature of the
transaction. 26 U.S.C. § 6050I(a), (b). Structuring
transactions to evade the reporting requirements of § 6050I is
prohibited. 26 U.S.C. § 6050I(f).
Because the statute of limitations for structuring under
section 6050I had run, Alston was not charged with such a
violation.
4
On October 5, 1988, Alston paid cash for a $9,000 money
order payable to Motor Imports from Therese Drew, the head bank
teller at Stenton Avenue Branch of Meridian Bank and a close
personal friend of Alston's, who also kept the books for Alston's
convenience store. At trial, Drew testified that she knew about
the currency transaction report ("CTR") filing requirements
imposed by law and had discussed the CTR filing requirements with
Alston. On October 7, 1988, Alston purchased with cash another
$8,000 money order payable to Motor Imports from the Stenton
Avenue Branch of Meridian Bank.
A similar pattern was followed for the purchase of
Henry Alston's BMW, and on December 9, 1988, both Michael and
Henry Alston took delivery of their new cars.
On September 30, 1993, Alston was charged in two counts
of a three count indictment. Count I charged Alston with
conspiracy under 18 U.S.C. § 371: (i) to defraud the United
States and the Treasury and (ii) to structure to avoid the
reporting requirements of 31 U.S.C. § 5313(a),0 in violation of
the anti-structuring provisions of 31 U.S.C. § 5324(a)(3)0 and
0
In 1970, Congress enacted 31 U.S.C. § 5313(a), which provided
that financial institutions such as banks are obligated to file
CTR's for cash transactions in excess of $10,000. See 31 U.S.C.
§ 5313(a) (reporting requirement); 31 C.F.R. § 103.22(a)(1)
($10,000 floor).
0
In 1986, Congress enacted an "antistructuring" provision, 31
U.S.C. § 5324, which provides that no person shall, "for the
purpose of evading the reporting requirements of section 5313(a)
. . . structure . . . any transaction with one or more financial
institutions." 31 U.S.C. § 5324(a)(3).
5
§ 5322.0 Count II charged Alston with the substantive offense
of structuring, that is, evasion of the reporting requirements of
31 U.S.C. § 5313(a), in violation of the anti-structuring
provisions of 31 U.S.C. § 5324(a)(3), § 5322(b); 31 C.F.R.
§103.110, § 103.22;0 and 18 U.S.C. § 2(b).0
0
At all times relevant to this appeal, 31 U.S.C. § 5322(a)
provided criminal penalties only for "willful" violations of
§ 5313 or 5324. Prior to its amendment in 1994, § 5322 read as
follows:
A person willfully violating this subchapter
[31 U.S.C. § 5311 et seq.] or a regulation
prescribed under this subchapter (except
section 5315 of this title or a regulation
prescribed under section 5315) shall be fined
not more than $250,000, or imprisoned for not
more than five years, or both.
31 U.S.C. § 5322(a). Section 5324 was subsequently amended in
1994 to provide its own penalty provision. The 1994 amendment
did not impose a "willfulness" requirement. See n. 12, infra.
0
Section 103.11(gg) of the C.F.R. defines "structuring" as
follows:
Structure (structuring). [A] person structures a
transaction if that person, acting alone, or in
conjunction with, or on behalf of, other persons,
conducts or attempts to conduct one or more
transactions in currency, in any amount, at one or more
financial institutions, on one or more days, in any
manner, for the purpose of evading the reporting
requirements under section 103.22 of this part. "In
any manner" includes, but is not limited to, the
breaking down of a single sum of currency exceeding
$10,000 into smaller sums, including sums at or below
$10,000, or the conduct of a transaction, or series of
currency transactions, including transactions at or
below $10,000.
31 C.F.R. § 103.11(gg).
0
Section 103.22(a)(1) of the C.F.R. provides that "[e]ach
financial institution other than a casino or the Postal Service
shall file a report of each deposit, withdrawal, exchange of
currency or other payment or transfer, by, through, or to such
6
On November 17, 1993, a non-jury trial was held. On
November 18, 1993, Alston was convicted of all counts. The
district court sustained Alston's conviction relying on the Third
Circuit law in effect at that time. Our jurisprudence then
provided that to obtain a structuring conviction, the government
need only prove that the defendant knew of the financial
institution's obligation to report financial transactions of over
$10,000, and that the defendant structured his transactions in
order to avoid triggering such reports. See United States v.
Shirk, 981 F.2d 1382 (3d Cir. 1992), cert. denied, 114 S. Ct. 873
(1994). The district court concluded that Alston knew of the
bank's reporting requirements from his conversations with Drew,
and that he had intentionally structured his transactions to
avoid having CTR's filed with the IRS.
On January 11, 1994, after the trial, but before the
district court ruled on Alston's post-trial motions, the Supreme
Court held that in order to obtain a structuring conviction the
government must prove that the defendant knew that structuring
itself was illegal. United States v. Ratzlaf, -- U.S. --, 114 S.
Ct. 655 (1994).
Alston moved to set aside the verdict and sought the
entry of a judgment of acquittal under Rule 29 of the Federal
financial institution which involves a transaction in currency of
more than $10,000." 31 C.F.R. § 103.22(a)(1).
0
Under 18 U.S.C. § 2(b), a person who causes an act to be done
which if directly performed by himself would be an offense
against the United States, is punishable as if he had committed
the act himself. 18 U.S.C. § 2(b). In this case, Count II of
the indictment charged Alston under § 2(b) with causing the bank
to fail in its statutory duty to file CTR's.
7
Rules of Criminal Procedure. The government conceded that it had
not proven knowledge of illegality. It therefore conceded that
Alston's convictions for structuring and conspiracy to structure
under § 5324 and § 5322 could not stand.
By order filed April 6, 1994, the district court
granted Alston's post-trial motion to set aside the verdict with
respect to the substantive count of structuring and so much of
Count I that had charged conspiracy to structure (Indictment
¶ 7(b)). The district court entered a judgment of acquittal on
those charges. The district court refused, however, to set aside
Alston's conviction under that portion of Count I that had
charged conspiracy to defraud, (Indictment ¶ 7(a)). It did so on
the ground that Ratzlaf's mens rea requirement did not apply to
§ 371 conspiracies to defraud.
On November 29, 1994, Alston was sentenced to a term of
imprisonment of one year and one day for conspiracy to defraud
the United States, as charged in Count I of the indictment.
II.
Section 5313 of title 31 of the United States Code, and
31 C.F.R. § 103.22(a)(1) promulgated thereunder, provide that
banks and other "financial institutions" must file CTR's for cash
transactions of $10,000 or more. In 1986, Congress enacted 31
U.S.C. § 5324 and § 5322 as part of the Anti-Drug Abuse Act of
1986. Section 5324 provides that it is illegal for an individual
to "structure," that is, to conduct one or more cash transactions
at one or more financial institutions, for purposes of evading
8
the financial institution's reporting requirements under 31
C.F.R. § 103.22. Structuring includes reducing a sum of cash
exceeding $10,000 into smaller sums. Because, prior to 1994,
section 5324 did not itself contain a penalty provision, its
penalty provision was supplied by section 5322(a), which provided
that "a person willfully violating" section 5324 was subject to
criminal penalties.
We originally interpreted the term "willful" in
§ 5322(a) to mean knowledge of the bank's reporting requirements
under § 5313 coupled with the intent to evade those requirements.
United States v. Shirk, 981 F.2d 1382, 1390-92 (3d Cir. 1992).
However, in Ratzlaf v. United States, -- U.S. --, 114 S. Ct. 655
(1994), the Supreme Court held that the term "willful" in
§ 5322(a) required proof beyond knowledge of a bank's reporting
duties and intent to evade them. Ratzlaf for the first time
required that the government prove that the defendant "knew the
structuring in which he engaged was unlawful." Ratzlaf, -- U.S.
at --, 114 S. Ct. at 663 (emphasis added). Thus, at all times
relevant to this appeal, structuring was one of the few crimes
for which the government had to prove knowledge of illegality.
See United States v. Zehrbach, 47 F.3d 1252, 1261 (3d Cir. 1995),
cert. denied, 115 S. Ct. 1699 (1995).0
0
After the Supreme Court decided Ratzlaf, Congress eliminated the
willfulness requirement for structuring convictions by amending
18 U.S.C. § 5324 to contain its own criminal penalty provision.
The penalty provision of § 5324, unlike § 5322, does not require
willfulness. 1994 Riegle Community Development and Regulation
Improvement Act, Pub. L. No. 103-325, § 411, 108 Stat. 2253
(1994). Thus, following the 1994 amendment, the mens rea
requirement for a structuring conviction is met if the government
9
As earlier noted, the government conceded following
trial that it had failed to prove that Alston knew it was illegal
to avoid CTR's, and agreed that Alston's convictions for the
substantive offense of structuring and conspiracy to structure
should be vacated. However, the government maintained that
Alston's structuring may nonetheless be punished as the object of
a "Klein conspiracy"0 under the "defraud" clause of 18 U.S.C.
§ 371. The district court agreed and declined to vacate the
charge against Alston for conspiracy to defraud the United States
under § 371.
III.
Section 371, the general federal conspiracy statute,
provides as follows:
If two or more persons conspire either to
commit any offense against the United States,
or to defraud the United States, or any
agency thereof in any matter for any purpose,
and one or more of such persons do any act to
effect the object of the conspiracy each
shall be [subject to criminal penalties].
merely establishes that the defendant had the purpose of causing
a financial institution to not file a required report.
In light of the 1994 amendment to § 5324, we observe that
the instant situation is unlikely to occur again.
0
The term "Klein conspiracy" comes from the Second Circuit case
of United States v. Klein, 247 F.2d 908 (2d Cir. 1957), and has
become the generic term for a conspiracy to frustrate the
government (particularly the IRS) in its lawful information
gathering functions. See, e.g. United States v. Montalvo, 820
F.2d 686 (5th Cir. 1987) (defendant convicted under the defraud
clause of § 371 for conspiracy to impede the IRS in the
ascertainment and collection of revenue by laundering money in
order to disguise the true source of United States currency).
10
18 U.S.C. § 371. Section 371 refers to two types of
conspiracies: (1) conspiracy to commit a substantive offense
proscribed by another statute (the ""offense" clause"); and (2)
conspiracy to defraud the United States (the ""defraud" clause").
See United States v. Vazquez, 319 F.2d 381, 384 (3d Cir. 1963).
While the "offense" clause requires reference to another part of
the criminal code, the "defraud" clause does not, simply because
the substantive offense (fraud) is contained in the statute
itself.
It is well settled that to convict a defendant of
conspiracy under the "offense" clause, the government must prove
whatever level of mens rea is required for conviction of the
underlying substantive offense. The Supreme Court has made clear
that "in order to sustain a judgment of conviction on a charge of
conspiracy to violate a federal statute [under the "offense"
clause of § 371], the Government must prove at least the degree
of criminal intent necessary for the substantive offense itself."
United States v. Feola, 420 U.S. 671, 685-86 (1975) (citing
Anderson v. United States, 417 U.S. 211, 226 (1974)).0
In order to convict a pre-1994 structuring defendant,
the government must prove "willful" violation of the anti-
structuring statute, that is, knowledge of the illegality of
structuring, Ratzlaf v. United States, -- U.S. --, 114 S. Ct. 655
(1994). A pre-1994 conspiracy to structure must also be
0
As Justice Jackson once stated, conspiracy, "chameleon-like,
takes on a special coloration from each of the many independent
offenses on which it may be overlaid." Krulewitch v. United
States, 336 U.S. 440, 447 (1940).
11
dismissed absent a showing of a "willful" violation. Thus, "it
is necessary to establish knowledge of the illegality of
structuring in order to convict a defendant for conspiracy to
structure financial transactions." United States v. Kim, 65 F.3d
123, 126 (9th Cir. 1995) (reversing conviction for conspiracy to
structure where the jury was not instructed to find that the
defendant had knowledge of the illegality of structuring). It
was obviously for these reasons that the district court in the
instant pre-1994 case dismissed the substantive charge of
structuring as well as the charge of § 371 conspiracy to
structure.
After the district court dismissed all but the charge
of § 371 conspiracy to defraud, of which Alston was convicted,
the issue then remaining before us was whether Alston, in light
of Ratzlaf's pre-1994 standard of willfulness -- a standard since
amended (see footnote 12, supra) -- could be convicted of a
conspiracy to defraud by structuring without proof of knowledge
of illegality. In United States v. Curran, 20 F.3d 560 (3d Cir.
1994), we answered that question in connection with the Federal
Election Campaign Act. We held that the standard that applied to
the substantive offense also applied to § 371 conspiracy to
defraud. Here, we answer that question consistent with Curran's
principle and holding and require that a conviction to defraud
the United States by pre-1994 structuring must also be supported
by proof that the defendant knew that structuring was illegal.0
0
Judge Roth, writing in dissent (dissent typescript page 24)
claims that we have misread United States v. Curran, 20 F.3d 560
12
The defendant in Curran had asked his employees to make
individual contributions to the election campaigns of certain
candidates for federal office. He then reimbursed them in cash,
thereby circumventing the maximum campaign contributions
permitted to any individual under federal law. Following trial,
Curran was convicted on charges of causing election campaign
treasurers to submit false reports to the Federal Election
Commission (the "FEC"), in violation of 18 U.S.C. § 2(b) and
§ 1001,0 and of conspiracy to defraud the United States under
§ 371.
Like the antistructuring statutes, § 1001 punishes only
"willful" conduct. We held that "willfully" causing a violation
of the disclosure obligations under the Federal Campaign Act, was
no different than "willfully" causing the failure by a bank to
(3d Cir. 1994). She charges that our reading of Curran would
lead to a conflict with United States v. Vasquez, 319 F.2d 381
(3d Cir. 1963).
Vasquez, however, said no more than: "[t]he latter
conspiracy [to defraud the United States] is itself the
substantive offense, and a count of an indictment drawn under it
need refer to no other statute than § 371" -- a statement to
which we have referred in text, supra, at page 11.
Curran, therefore, cannot conflict with Vasquez: first,
because the Vasquez statement is dicta and second, because each
of the two cases deals with vastly different subject matters and
with vastly different principles. Hence, neither Vasquez nor any
other authority cited by the dissent trenches upon the principle
that where the Supreme Court or Congress has identified and
specifically considered particular conduct and has ruled
specifically with respect to that conduct, as the Supreme Court
has ruled in Ratzlaf, effect must be given to the ruling and
standard prescribed not only for the specific offense but also
for the conspiracy to commit that offense.
0
Section 1001 prohibits the making of a false statement or the
concealment of a material fact within the jurisdiction of a
department or agency of the United States. 18 U.S.C. § 1001.
13
file a CTR under the Bank Secrecy Act. Curran, 20 F.3d at 568-
69. Thus, applying Ratzlaf, we defined "willfulness" in cases
brought under § 2(b) and § 1001 in the Federal Election law
context to require the prosecution to prove "that defendant knew
of the treasurers's reporting obligations, that he attempted to
frustrate those obligations, and that he knew his conduct was
unlawful." Curran, 20 F.3d at 569.
Because the Curran court's "willfulness" instruction
was legally deficient in that it did not charge the jury that
Curran had to have knowledge of the illegality of his actions, we
vacated Curran's convictions on the substantive counts, 18 U.S.C.
§ 2(b) and 18 U.S.C. § 1001. Most significantly, however, we
vacated Curran's § 371 "conspiracy to defraud" conviction because
critical aspects of Curran's mens rea were lacking, including
proof that he knew his actions to be illegal. We held that the
district court's misstatement of the legal standard for
"willfulness" "undermined not only the substantive counts, but
the conspiracy [to defraud] one as well. The essence of
conspiracy is an agreement to commit an act that is illegal."
Curran, 20 F.3d at 571. "The comments we have previously made
about the failings of the instruction on intent apply to the
conspiracy [to defraud] count as well." Id. "On retrial, the
instruction on intent as to the conspiracy count must track those
applicable to the substantive counts." Id. (quoting United
States v. American Investors of Pittsburgh, Inc., 879 F.2d 1087,
1100 (3d Cir.), cert. denied, 493 U.S. 955 (1989)).
14
Both logic and our decision in Curran dictate our
holding here. The government in this case has conceded that it
has failed to prove that Alston "willfully" structured under
Ratzlaf. Therefore, the charge against Alston for conspiracy to
defraud, which was premised exclusively on Alston's structuring
activity, must be vacated for failure to prove the mens rea
(knowledge of illegality) required not only by the underlying
substantive offense of structuring, but also by the conspiracy to
defraud by structuring.
In the present case, the indictment, in charging Alston
with conspiracy to defraud, relied exclusively on allegations of
his structuring activity. The indictment reads in relevant part:
From on or about July 28, 1988 to on or
about December 9, 1988 in the Eastern
District of Pennsylvania, defendants
MICHAEL DAVID ALSTON, and
RICHARD ROSA
did knowingly, willfully and unlawfully
conspire, combine, confederate, and agree
together with an unindicted co-conspirator,
and others unknown to the grand jury:
a. to defraud the United States and
the Department of the Treasury, an agency of
the United States, by impairing, obstructing,
and defeating its lawful governmental
function of collecting data and reports of
currency transactions in excess of $10,000;
and
b. to knowingly and willfully
structure, and attempt, aid, abet and cause
the structuring of, financial transactions
with a domestic financial institution for the
purpose of evading the reporting requirements
of 31 U.S.C. § 5313(a), in violation of 31
U.S.C. § 5324(a)(3).
15
"Structuring" entails the breaking down
of large amounts of U.S. currency into
smaller amounts of less than $10,000
preliminary to transacting business with a
financial institution in an attempt to avoid
the CTR reporting requirements.
Indictment ¶ 7 (emphasis added).
The indictment, in charging conspiracy to defraud,
asserts only that Alston impaired the United States and Treasury
"in its lawful governmental function of collecting data and
reports of currency transactions in excess of $10,000," language
that sounds in structuring. Indeed, the entire indictment speaks
only to structuring activities and contains no allegations that
Alston defrauded the government in any other respect. Because
the indictment is narrowly drawn to rest solely on the alleged
facts of structuring, and because it is conceded that Alston
lacked the requisite mental state to be guilty of structuring,
Alston's conviction on unspecified broader grounds cannot be
sustained. See United States v. Murphy, 809 F.2d 1427, 1432 (9th
Cir. 1987) (where indictment was narrowly drawn to state that
defendants conspired to defraud the IRS in its collection of
information with regard to currency transactions, the defendant
could not be convicted of conspiracy to defraud based on his
money laundering operations).
Moreover, the government has conceded that its theory
against Alston for fraud against the United States is nothing
more than structuring. See Gov't Supp. Mem, June 30, 1995 at 2
("[T]he basis for our definition of the underlying legal
obligation/legal prohibition to make out a case of an agreement
16
to defraud the government is found at 31 U.S.C. § 5324(a)(3).").
As a consequence, the government offered the same body of
evidence at trial to support both the charge against Alston for
"conspiracy to defraud" and the charge against him for
"conspiracy to structure." The government neither charged, nor
attempted to prove at trial, that Alston engaged in any
fraudulent activity separate from, or in addition to, what can
only be characterized as "structuring."
Despite this concession and the proof at trial, and
even though the only charges found in the indictment describe the
act of structuring, the government argues that Alston's
"conspiracy to defraud" conviction did not require proof of the
"willfulness" required for a structuring conviction. The
government contends instead that Alston was guilty of
participating in a so-called "Klein conspiracy" "to defraud the
United States by obstructing or impeding the IRS in its functions
and duties under the Bank Secrecy Act to collect analyze, and
disseminate information contained in CTR reports." (Appellee's
Brief at 11).0 Because establishing a true Klein conspiracy
0
As previously explained, supra at 10 n.13, the term "Klein
conspiracy" is derived from United States v. Klein, 247 F.2d 908
(2d Cir. 1957), cert. denied, 355 U.S. 924 (1958). A Klein
conspiracy is comprised of three elements: "(1) the existence of
an agreement, (2) an overt act by one of the conspirators in
furtherance of the [agreement's] objectives, and (3) an intent on
the part of the conspirators to agree, as well as to defraud the
United States." United States v. Shoup, 608 F.2d 950, 956 (3d
Cir. 1979). Several courts have sustained Klein convictions when
the evidence sufficed to prove an accompanying "intent and
purpose of impeding and obstructing the IRS in the collection of
revenue and the performance of its duties." U.S. v. Vogt, 910
F.2d 1184, 1203 (4th Cir. 1990), cert. denied, 498 U.S. 1083
(1991). See United States v. Montalvo, 820 F.2d 686, 690 (5th
17
under the "defraud" clause does not generally require proof of
knowledge of illegality, the government contends that its proof
that Alston knew of the bank's CTR filing requirements is a
sufficient showing of mens rea to sustain his conviction for
conspiracy to defraud.
We cannot discern any difference between the
government's "defraud" scenario and the "structuring" scenario of
which Alston was acquitted. Both conspiracies involve
structuring prior to the 1994 amendment to § 5324. Therefore,
given the indictment and the proofs at trial, we conclude that to
obtain a conviction under either the "defraud" or "offense"
clause of § 371, the government had to prove that Alston knew
that his structuring activities were illegal. See Ratzlaf,
supra. Although we do not foreclose the possibility of
convicting a defendant under § 371's "defraud" clause based on
charges in addition to or different from pre-1994 acts of
structuring, as we have just discussed, the present indictment,
under paragraph 7(a), charged no more or less than a straight-out
structuring conspiracy.
Notably, the cases that have upheld convictions for
conspiracy to defraud under § 371 have all involved additional
charges in the indictment and additional evidence produced at
trial, over and beyond that required for a conviction for pre-
1994 structuring. For instance, in United States v. Jackson, 33
F.3d 866 (7th Cir. 1994), cert. denied, 115 S. Ct. 1316 (1995),
Cir. 1987); United States v. Browning, 723 F.2d 1544 (11th Cir.
1984).
18
the Seventh Circuit affirmed the defendants' convictions for
conspiracy to defraud under § 371 despite reversing their
antistructuring convictions.
In Jackson, however, the indictment, in charging the
§ 371 "defraud" count, "never mentions a structuring violation or
the relevant antistructuring statutes." Id. at 870. Furthermore,
Jackson involved extensive "other evidence" beyond structuring
activity demonstrating a conspiracy to defraud the United States,
id. at 868, including record evidence that the defendants had no
wage or other income, id. at 869, and yet had spent over $300,000
to purchase homes and exotic automobiles. Id. at 869.
Because, in the present case, the charge against Alston
for "conspiracy to defraud" was nothing more than a charge of
conspiracy to structure, we will reverse Alston's conviction
where his conviction was not based on proof that he had
"willfully" structured, as required under Ratzlaf. Where either
Congress or the Supreme Court has spoken on the required level of
mens rea required to obtain a conviction for structuring, the
government may not subvert that mandate by juggling the "defraud"
and "offense" clauses of § 371 so as to substitute one for the
other.
If the "offense" clause of § 371 specifically covers an
act or offense and the indictment charges only that act or
offense as having been committed, and the proofs at trial reveal
no more than such acts of offense, a defendant not guilty under
the "offense" clause cannot alternatively be convicted under the
broad "defraud" clause of § 371.
19
IV.
Because the indictment here charged no more than a
conspiracy to defraud the United States by structuring and the
proofs at trial established no more than a conspiracy to defraud
the United States by structuring, we will reverse Alston's
conviction.
ALSTON
94-2195
Roth, Circuit Judge: Dissenting
Appellant Michael David Alston appeals his conviction
of conspiracy to defraud the United States and the Department of
the Treasury in violation of 18 U.S.C. § 371. The district court
found that Alston engaged in a Klein conspiracy with the intent
to "impair, obstruct and defeat the lawful government function of
collecting data and reports of currency transactions" by
20
arranging his bank transactions to avoid the reporting
requirements of 31 U.S.C. § 5313(a) and 31 C.F.R. § 103.22(a)(1).
United States v. Alston, Crim. No. 93-445-1 at 11 (Apr. 6, 1994);
Appellant's App. at 41. Because I believe that the evidence is
sufficient to support a conviction for violation of 18 U.S.C.
§371, I would affirm the district court. Therefore, I dissent.
The majority believes that because the conviction for
conspiracy to defraud the United States is "premised exclusively
on Alston's structuring activity," the government must
demonstrate the same mens rea for a conviction under 18 U.S.C.
§371 as is necessary for a conviction under 31 U.S.C. § 5322.
Majority Op. at ___ [slip op. at 15]. I disagree.
Section 5322 requires that a defendant "willfully"
commit a violation. The Supreme Court has interpreted this
"willfulness" requirement to mean that a defendant who
intentionally commits unlawful acts must also have known that his
actions were unlawful. Ratzlaf v. United States, ___ U.S. ___,
114 S. Ct. 655, 657, 663 (1994). Section 371, in contrast,
imposes no such "willfulness" requirement, and we should not
create one. As we stated in United States v. Vazquez, a § 371
conspiracy to defraud "is itself a substantive offense, and a
count of an indictment drawn under it need refer to no other
statute than § 371." 319 F.2d 381, 384 (3d Cir. 1963). Thus
there is no logical reason to apply the willfulness requirement
contained in § 5322 when § 371 encompasses the entire statutory
charge against Alston.
21
The government, having failed to prove the requisite
mens rea for conviction under one statute, 31 U.S.C. § 5322, has
obtained a conviction under another more general statute, 18
U.S.C. § 371. Section 371 requires only a showing that Alston
intentionally committed unlawful acts -- not a showing that he
knew his actions to be unlawful. The fact that the two charges
are premised on the same factual scenario is of no legal
significance in this case. There is nothing unusual or improper
in the government's alternative characterization of the same
facts, so long as both theories are alleged in the indictment, as
they were here. Indictment, Count I at ¶ 7(a)-(b); App. at 12a;
Id. at Count II, ¶ 2; App. at 17a.
I
Alston was originally convicted on two counts of a
three count indictment. Count I charged Alston in two subparts
with conspiracy to defraud the United States and the Department
of the Treasury in violation of 18 U.S.C. § 371 and with
conspiracy to structure for the purpose of evading the reporting
requirements of 31 U.S.C. § 5313(a).0 Alston, Crim. No. 93-445-1
0
Count I reads in pertinent part:
7. From on or about July 28, 1988 to on or about
December 9, 1988 in the Eastern District of
Pennsylvania, defendants
MICHAEL DAVID ALSTON, and
RICHARD ROSA
did knowingly, willfully and unlawfully conspire,
combine, confederate, and agree together with an
unindicted co-conspirator, and others unknown to the
grand jury:
22
at 1; Appellant's App. at 31; Indictment, Count I at ¶7(a)-(b);
App. at 12a. Count II charged Alston with "structuring" a
financial transaction in violation of 31 U.S.C. §5324(a)(3).
Alston, Crim. No. 93-445-1 at 1; Appellant's App. at 31;
Indictment, Count II at ¶ 2; App. at 17a.
The structuring and conspiracy to structure charges
were prosecuted pursuant to 31 U.S.C. § 5322, which provided that
defendants must be convicted of "willfully violating" the anti-
structuring laws.0 At the time of Alston's indictment and trial,
we interpreted the "willfulness" mens rea requirement in §5322 to
mean that a defendant had to have "knowledge of the legal
reporting requirements and the intent to prevent the bank from
furnishing the required information." United States v. Shirk, 981
F.2d 1382, 1391-92 (3d Cir. 1992) (footnote omitted), vacated,
___ U.S. ___, 114 S. Ct. 873 (1994) (citing Ratzlaf v. United
a. to defraud the United States and the
Department of the Treasury, an agency of the
United States, by impairing, obstructing, and
defeating its lawful governmental function of
collecting data and reports of currency
transactions in excess of $10,000 . . ..
b. to knowingly and willfully structure, and
attempt, aid, abet and cause the structuring of,
financial transactions with a domestic financial
institution for the purpose of evading the
reporting requirements of 31 U.S.C. § 5313(a), in
violation of 31 U.S.C. § 5324(a)(3).
Indictment, Count I at ¶ 7; App. at 12a.
0
Section 5324 has since been amended to add a criminal penalty
provision so that a prosecution can now be brought directly under
that statute without reference to § 5322. See United States v.
Zehrbach, 47 F.3d 1252, 1262 n.7 (3d Cir. 1995) (citing 1994
Riegle Community Development and Regulation Improvement Act,
Pub.L. No. 103-325, § 411, 108 Stat. 2253 (1994)).
23
States. ___ U.S. ___, 114 S. Ct. 655 (1994)). The government did
not have to prove that the defendant knew that he was violating
the law by structuring his transactions.
After the conclusion of Alston's bench trial, the
Supreme Court decided Ratzlaf v. United States. ___ U.S. ___,
114 S. Ct. 655 (1994). Ratzlaf interpreted the word "willfully"
as it then appeared in 31 U.S.C. § 5322 to require that the
government show not only that a defendant intended to circumvent
a bank's obligation to report currency transactions but that the
defendant knew that his efforts to circumvent those requirements
were unlawful. Id. at 657, 663. In light of Ratzlaf, Alston
filed post-trial motions to set aside his convictions. The
district court, with the government's acquiescence, vacated the
structuring charge in Count II and the conspiracy to structure
charge in Count I and acquitted Alston of these crimes.
Despite Ratzlaf, the district court affirmed Alston's
conviction for conspiracy to defraud the United States and the
Treasury Department in violation of 18 U.S.C. § 371. The court
held that Alston was "a co-conspirator in a scheme to prevent the
United States from receiving information to which it is entitled
when a bank files a CTR . . .." Alston, Crim. No. 93-445-1 at
14; Appellant's App. at 44. The court distinguished Ratzlaf "on
the basis that its analysis of the willfulness element centers on
the use of the term 'willfully' in the antistructuring statute
found at 31 U.S.C. §§ 5322(b) and 5324(a)(3)." Id.0 Because
0
As the majority notes, 31 U.S.C. § 5322 imposed criminal
penalties only for "willful" violations of §§ 5313 or 5324 at all
24
§371 does not contain an analogous willfulness element, the court
did not require proof that Alston knew that his actions were
unlawful.
The district court's analysis is clearly correct. At
the time Alston was charged and convicted, the relevant portion
of § 371 provided as follows:
If two or more persons conspire either to commit any
offense against the United States, or to defraud the
United States, or any agency thereof in any matter for
any purpose, and one or more of such persons do any act
to effect the object of the conspiracy, each shall be
fined not more than $10,000 or imprisoned not more than
five years, or both.
18 U.S.C. § 371. In United States v. Vazquez, we explained that
this general conspiracy statute
condemns two types of conspiracies: One, to commit
substantive offenses against the United States
specified under other statutes. The other to defraud
the United States. The latter conspiracy is itself the
substantive offense, and a count of an indictment drawn
under it need refer to no other statute than § 371.
319 F.2d at 384 (emphasis added) (citing Glasser v. United
States, 315 U.S. 60, 67 (1942)); see also United States v.
Jackson, 33 F.3d 866, 870 (7th Cir. 1994) (citing United States
v. Caldwell, 989 F.2d 1056, 1059 (9th Cir. 1993); United States
times relevant to this appeal. Prior to its amendment in 1994,
§5322 read as follows:
A person willfully violating this subchapter [31 U.S.C.
§ 5311 et seq.] or a regulation prescribed under this
subchapter (except section 5315 of this title or a
regulation prescribed under section 5315) shall be
fined not more than $250,000, or imprisoned for not
more than five years, or both.
31 U.S.C. § 5322(a).
25
v. Bucey, 876 F.2d 1297, 1312 (7th Cir. 1989), cert. denied, 493
U.S. 1004 (1989); United States v. Rosengarten, 857 F.2d 76, 78
(2d Cir. 1988), cert. denied, 488 U.S. 1011, (1989)); United
States v. Vogt, 910 F.2d 1184, 1200 (3d Cir. 1990), cert. denied,
498 U.S. 1083 (1991).
Section 371 "reaches 'any conspiracy for the purpose of
impairing, obstructing or defeating the lawful function of any
department of Government.'" Dennis v. United States, 384 U.S.
855, 861 (1966) (citations omitted). Klein conspiracies, for
example, may be prosecuted under the "defraud" clause of § 371.
See United States v. Tarnopol, 561 F.2d 466, 474-75 (3d Cir.
1977) (acquitting defendants of Klein conspiracy because there
was no basis for jury finding of intent "to impede and obstruct
the functions of the Internal Revenue Service"); United States v.
Klein, 247 F.2d 908 (2d Cir. 1957), cert. denied, 355 U.S. 924
(1958), and cert. denied sub nom., Haas v. United States, 355
U.S. 924 (1958), and cert. denied sub nom., Alprin v. United
States, 355 U.S. 924 (1958); see also United States v.
Derezinski, 945 F.2d 1006, 1010 (8th Cir. 1991); United States v.
Farm & Home Savings Assoc., 932 F.2d 1256, 1260 (8th Cir. 1991),
cert. denied sub nom., Meyer v. United States, 502 U.S. 860
(1991), and cert. denied sub nom., Williams v. United States, 502
U.S. 860 (1991); United States v. Cambara, 902 F.2d 144, 145-47
(1st Cir. 1990).
Klein conspiracies are conspiracies to defraud the
United States by obstructing or impeding the Internal Revenue
Service in the collection of taxes or in its lawful functions and
26
duties to collect, analyze, and disseminate information contained
in CTRs. Derezinski, 945 F.2d at 1010; Farm & Home Savings
Assoc., 932 F.2d at 1260; Cambara, 902 F.2d at 145-47. A Klein
conspiracy consists of three elements: "(1) the existence of an
agreement, (2) an overt act by one of the conspirators in
furtherance of the [agreement's] objectives, and (3) an intent on
the part of the conspirators to agree, as well as to defraud the
United States." United States v. Shoup, 608 F.2d 950, 956 (3d
Cir. 1979). Knowledge of illegality is not an element of a Klein
conspiracy. As the majority concedes, a conviction under the
"defraud" clause of 18 U.S.C. § 371 requires a lesser showing of
intent than does a conviction under 31 U.S.C. § 5322. Majority
Op. at ___ [slip op. at 17-18] ("establishing a true Klein
conspiracy under the 'defraud' clause does not generally require
proof of knowledge of illegality . . ..").
The district court convicted Alston of a Klein
conspiracy based upon several transactions conducted by or on
behalf of Alston between October 5 and October 7, 1988. On
October 5, Alston purchased from Meridian Bank a $9,000 money
order payable to West German Motor Imports to be used toward the
purchase of a new BMW. On October 6, 1988, Alston had co-
conspirator Rosa purchase from Provident National Bank a $6,000
cashiers check payable to West German. The following day,
October 7, 1988, Alston purchased with cash an $8,000 money order
payable to West German from Meridian Bank. That same day, Alston
purchased a second money order at Meridian Bank for $6,500 with a
cash advance from a credit card. All of these negotiable
27
instruments were delivered to West German and credited toward
Alston's purchase of the BMW.0
Alston conducted three of these four transactions
through Terese Drew, a bank teller at Meridian Bank. Drew, who
became head teller at Meridian in 1986 or 1987, described herself
as a "very close friend" of Alston. Drew knew about the CTR
reporting requirements imposed by law. The district court
concluded that Drew discussed the CTR requirements with Alston
some time before the events that led to the indictment. The
court discounted Drew's statement that she did not believe that
Alston knew of the CTR requirements because "it appeared to be
part of her attempt to protect the defendant and it was asking
her to speculate as to the defendant's state of mind." Alston,
Crim. No. 93-445-1 at 10 n.5; Appellant's App. at 40.
Furthermore, the parties stipulated that Alston failed
to file income tax returns for the calendar years 1987 and 1988.
Based upon this evidence, the district court concluded that
Alston arranged his transactions because "he did not want his
name called to the attention of the Internal Revenue Service as
someone who was financially capable of making large cash payments
but nevertheless had failed to file income tax returns." Id. at
11; Appellant's App. at 41.
0
Alston presumably paid West German in negotiable instruments in
order to avoid triggering West German's duty to file an IRS Form
8300 reporting a series of cash transactions in excess of
$10,000. No criminal indictment was brought for failure to file
8300 forms because the applicable three year statute of
limitations for this offense had already run.
28
The district court summarized its understanding of
these facts as follows:
The circumstantial evidence presented at trial shows
that the overt acts were done willfully and resulted in
the bank failing to file CTRs because the transactions
occurred on separate days and at separate banks in
amounts less than $10,000 and were done with the
purpose of preventing CTRs from being filed.
Id. at 14; Appellant's App. at 44. Thus the district court found
all three elements necessary for conviction of a Klein conspiracy
under 18 U.S.C. § 371: (1) an agreement between Alston and Rosa,
(2) "overt acts" in furtherance of that agreement, and (3) an
intent to defraud the United States of the CTRs to which it was
entitled under 31 U.S.C. § 5313(a) and 31 C.F.R. § 103.22(a)(1).
Alston possessed the requisite mens rea for a § 371
conviction because these overt acts were done "with the purpose
of preventing CTRs from being filed." No other mens rea is
necessary for conviction. As the majority itself acknowledges,
"[s]everal courts have sustained Klein convictions when the
evidence sufficed to prove an accompanying 'intent and purpose of
impeding and obstructing the IRS in the collection of revenue and
the performance of its duties.'" Majority Op. at ___ [slip op.
at 18 n.16] (citing United States v. Vogt, 910 F.2d at 1203;
United States v. Montalvo, 820 F.2d 686, 690 (5th Cir. 1987);
United States v. Browning, 723 F.2d 1544 (11th Cir. 1984)).
Ratzlaf is inapposite because it discusses a different
statute with a different mens rea requirement. The Supreme Court
stressed in Ratzlaf itself that it did not discard "the venerable
principle that ignorance of the law generally is no defense to a
29
criminal charge." Ratzlaf, 114 S. Ct. 655, 663 (1994). The Court
simply made an exception in one instance pursuant to a specific
decree from Congress. Id. Because there is no "willfulness"
requirement in § 371, Ratzlaf does not apply, and the government
is not required to prove that Alston knew that his actions were
illegal. The majority should not graft an additional mens rea
requirement onto § 371 when it is warranted by neither the words
of the statute nor Supreme Court precedent.
II
To understand how the majority came to impose this
additional mens rea requirement on a § 371 conspiracy to defraud
case, it is helpful to examine the majority's general approach to
the issue. The majority reverses Alston's conviction for
conspiracy to defraud the United States because it has
"substantial difficulty in understanding how Alston can be
convicted of a conspiracy to defraud by structuring when he
cannot be guilty of a conspiracy to structure or of structuring
itself . . .." Majority Op. at ___ [slip op. at 3-4] (footnote
omitted). The majority never lays the facts of this case and the
elements of a Klein conspiracy side by side to determine whether
the facts satisfy the elements necessary for conviction under 18
U.S.C. § 371.0 Instead, the majority emphasizes the similarity
between the factual scenario supporting the structuring and
conspiracy to structure charges and the factual scenario
0
When the majority does address the government's Klein
conspiracy theory, it does so in a perfunctory manner, dismissing
it as "a far different conspiracy" than the one alleged in the
indictment. Majority Op. at ___ [slip op. at 3].
30
supporting the conspiracy to defraud charge -- a consideration
that I believe is irrelevant.
The majority opinion proceeds along two closely linked
lines of reasoning. First, the majority identifies a perceived
deficiency in the indictment. According to the majority, the
indictment does not adequately allege a Klein conspiracy
independently of the structuring and conspiracy to structure
charges. See Majority Op. at ___ [slip op. at 3]; see also Id.
at ___ [slip op. at 16]. Second, the majority argues that Alston
cannot be convicted of a conspiracy to defraud the United States
based upon the same factual scenario used to support the
unsuccessful structuring and conspiracy to structure charges.
Majority Op. at ___ [slip op. at 3-4, 15, 17-20]. I will address
these contentions in turn.
The Indictment
Count I of the indictment clearly indicates the
government's intention to seek a conviction of Alston under 18
U.S.C. § 371. The language in the indictment mirrors relevant
statutory and judicial pronouncements on § 371 and Klein
conspiracies. The indictment alleges in pertinent part that
Alston and Rosa conspired
a. to defraud the United States and the Department of
the Treasury, an agency of the United States, by
impairing, obstructing, and defeating its lawful
governmental function of collecting data and reports of
currency transactions in excess of $10,000 . . ..
Indictment, Count I at ¶ 7(a); App. at 12a.
Section 371 penalizes individuals who "conspire . . .
to defraud the United States, or any agency thereof . . .." 18
31
U.S.C. § 371. In Dennis v. United States, the Supreme Court
elaborated on this statutory language, noting that § 371 covers
not only fraud but any conspiracy for the purpose of "impairing,
obstructing, or defeating the lawful function of any department
of government . . .." 384 U.S. at 861 (citations omitted). The
language of paragraph 7(a) of the indictment closely tracks the
language of § 371 and Dennis. It is therefore clear that the
government intended to charge Alston with a violation of § 371
for obstructing lawful governmental functions.
A Klein conspiracy, which may be prosecuted under §371,
is a conspiracy "to interfere with or obstruct one of [the
government's] lawful governmental functions . . .." Klein, 247
F.2d at 916. Obstruction of lawful government functions is
exactly what was alleged in paragraph 7(a) of the Alston
indictment. Alston was accused of impairing and obstructing the
government's lawful function of "collecting data and reports of
currency transactions in excess of $10,000 . . .." The
indictment in Klein was "framed to make a general charge of
impeding and obstructing the Treasury Department in the
collection of income taxes . . .." Id. at 916. Likewise, the
indictment in this case was framed to make a general charge of
impeding and obstructing the Treasury Department in the
collection of CTRs. See Derezinski, 945 F.2d at 1010; Farm &
Home Savings Assoc., 932 F.2d at 1260; Cambara, 902 F.2d at 145-
47.
The district court understood the indictment to allege
a Klein conspiracy, and Alston has not disputed that the
32
indictment charges a crime under 18 U.S.C. § 371 that is separate
from the structuring and conspiracy to structure charges.
Paragraph 7(a) clearly alleges a Klein conspiracy to thwart the
government's lawful purpose in collecting information from CTRs.0
The majority argues that United States v. Murphy
supports its argument concerning the insufficiency of the Alston
indictment. Majority Op. at ___ [slip op. at 16]. The
indictment in Murphy was narrowly drawn to state that defendants
conspired to defraud the IRS in its collection of information
with regard to currency transactions. 809 F.2d 1427, 1431-32
(9th Cir. 1987). Specifically, the § 371 conspiracy to defraud
charge rested "solely on the alleged falsehoods in the CTR
[defendant] filed." Id. The court found, however, that
defendant had in fact filed an accurate CTR. Id. at 1429-32.
Therefore, the § 371 charge alleged in the indictment was
manifestly unsupported by the evidence.
The government argued that although the CTR alone could
not support a conviction on the § 371 charge, the court should
0
The majority argues that "the entire indictment speaks only to
structuring activities and contains no allegations that Alston
defrauded the government in any other respect." Majority Op. at
___ [slip op. at 16]. The majority's characterization of the
activities in the indictment as "structuring activities" begs the
question. Whether Alston engaged in "structuring" activities is
a legal question, not a factual matter. We could assume a
different result just as easily by insisting that the indictment
alleges only "Klein-conspiracy activities" and that the language
in indictment paragraph 7(a) "sounds in Klein-conspiracy."
The "Overt Acts" section of the indictment alleges a
series of activities by Alston and Rosa. Indictment, Overt Acts
at ¶¶ 1-14; App. at 13a-16a. The majority's repeated
characterization of these activities as "structuring activities"
ignores Count I paragraph 7(a), which proffers an alternative
characterization of the facts.
33
nevertheless entertain a charge of conspiracy to defraud based
upon broader allegations of money laundering. Id. at 1432. The
government argued that the CTR was a thread in a larger web of
transactions designed to thwart the IRS in the performance of its
duties. The court refused to consider these broader allegations
because "[t]he indictment d[id] not allege a conspiracy to
defraud premised upon the defendants' entire laundering
operations. It is far more narrowly drawn . . .. Therefore, the
indictment before us does not properly allege a conspiracy to
defraud." Id. (citing United States v. Dela Espriella, 781 F.2d
1432, 1435 (9th Cir. 1986)).
This case is clearly distinguishable from Murphy. In
Murphy, the government attempted to switch the factual basis and
legal theory of its case from defendants' currency transactions
to a broader charge encompassing the whole of defendants' money
laundering operations, even though this broader charge was not
alleged in the indictment. In this case, however, the government
has not attempted to switch either its factual allegations or its
legal theories. The indictment clearly alleged a § 371
conspiracy to defraud in Count I, paragraph 7(a), based upon the
"Overt Acts" alleged in the indictment. The government has
alleged the same Klein conspiracy to defraud based upon the same
facts throughout the proceedings. Where the government attempted
in Murphy to switch factual scenarios and legal theories
midstream, the government in this case merely seeks affirmation
of the conspiracy to defraud that it alleged in the district
court. Murphy is completely inapposite.
34
Mens Rea Necessary for Conviction
The majority's second major contention is that Alston
cannot be convicted of a § 371 conspiracy to defraud the United
States unless he possesses the requisite mens rea for conviction
of structuring or conspiracy to structure as set out in Ratzlaf.
The majority states that "the charge against Alston for
conspiracy to defraud, which was premised exclusively on Alston's
structuring activity, must be vacated for failure to prove the
mens rea (knowledge of illegality) required not only by the
underlying substantive offense of structuring, but also by the
conspiracy to defraud by structuring." Majority Op. at ___ [slip
op. at 15].
The majority refers to the crime of which Alston was
convicted as "conspiracy to defraud by structuring" at least four
times in its opinion. Majority Op. at ___ [slip op. at 3-4, 13,
15, 20]. This formulation is indicative of what I believe to be
a fundamental flaw in the majority's conception of this case. See
supra note 6. The crime for which Alston was actually convicted,
of course, is a § 371 conspiracy to defraud the United States.
The indictment alleges this conspiracy to defraud in a separate
paragraph that does not include any reference to structuring.
Indictment, Count I at ¶ 7(a); App. at 12a. Section 371 does not
refer to "structuring" or conspiracy to defraud "by structuring."
Congress included nothing in § 371 to indicate that the
requirements for a § 5322 structuring conviction should be
grafted onto a prosecution for a § 371 conspiracy to defraud the
United States. Without aid of close statutory interpretation or
35
legislative history, the majority unilaterally amends § 371 to
add the words "by structuring" and thereby allows all of the
requirements for a § 5322 conviction to slip into a § 371 case
where they do not belong.0
The gravamen of the majority's argument seems to be
that there is something improper about basing the case for a §371
violation on the same so-called "structuring" behavior for which
the government failed to obtain a conviction under § 5322. See,
e.g., Majority Op. at ___ [slip op. at 15]. The majority
observes that there is no difference between "the government's
'defraud' scenario and the 'structuring' scenario of which Alston
was acquitted." Majority Op. at ___ [slip op. at 18]. Neither
the government, nor the district court, nor I have ever argued
that there is a difference between the factual scenarios
supporting each charge. There simply are two alternative
charges, brought pursuant to two different statutes, based upon
the same factual scenario. Because 18 U.S.C. § 371 has a lower
mens rea requirement than 31 U.S.C. § 5322, Alston's behavior is
culpable under § 371, even though he lacked the mens rea to be
convicted under § 5322.
It has long been recognized "that when an act violates
more than one criminal statute, the Government may prosecute
under either so long as it does not discriminate against any
class of defendants." United States v. Batchelder, 442 U.S. 114,
0
As we have already noted, the "defraud" clause of § 371 is an
independent offense requiring no reference to any other statute
in the U.S. Code. Vazquez, 319 F.2d at 384.
36
123-24 (1979). It does not matter that the government decides to
invoke a general statute when a more specific criminal statute is
available. United States v. Curran, 20 F.3d 560, 565-66 (3d Cir.
1994) (citing United States v. Woodward, 469 U.S. 105, 108 (1985)
(per curiam); United States v. Beacon Brass Co., 344 U.S. 43, 46
(1952); United States v. Parsons, 967 F.2d 452, 456 (10th Cir.
1992); United States v. Hopkins, 916 F.2d 207, 218 (5th Cir.
1990); United States v. Hansen, 772 F.2d 940 (D.C. Cir. 1985);
United States v. Gordon, 548 F.2d 743, 745 (8th Cir. 1977);
United States v. Carter, 526 F.2d 1276, 1278 (5th Cir. 1976));
United States v. Derezinski, 945 F.2d 1006, 1010 (8th Cir. 1991).
Thus, the government could have pursued a conviction in
this case under the "defraud" clause of 18 U.S.C. § 371 alone,
without ever bringing a charge for the more specific offenses of
structuring or conspiracy to structure and without ever
referencing 31 U.S.C. § 5322. In that case, there would be no
question of characterizing the facts as "structuring" or of
imposing the Ratzlaf mens rea on a § 371 case. We would simply
examine the facts and compare them with the elements and mens rea
necessary for conviction of a § 371 violation to determine
whether Alston is guilty of a Klein conspiracy to defraud the
United States. See supra Part I. I submit that this is
essentially the case we now have before us. If Alston's actions
satisfied the requirements for a § 371 conspiracy to defraud the
United States, it should not matter that he was acquitted of
independent, narrower charges in a multiple-count indictment.
Unless the majority can explain precisely which element of a §371
37
conspiracy to defraud the United States is lacking, we should
affirm the district court.
The Seventh Circuit's opinion in United States v.
Jackson is indistinguishable from this case. 33 F.3d 866 (7th
Cir. 1994). In Jackson, defendants were originally convicted of
structuring, conspiracy to structure, and conspiracy to defraud
the United States--the exact same charges of which Alston was
originally convicted. Id. at 867. Pursuant to Ratzlaf, the
court reversed the structuring and conspiracy to structure
convictions, but affirmed the § 371 conspiracy to defraud. Id.
at 868.
The majority argues that Jackson is distinguishable
because it "involved additional charges in the indictment and
additional evidence produced at trial, over and beyond that
required for a conviction for pre-1994 structuring." Majority
Op. at ___ [slip op. at 19]. Contrary to the majority's
assertion, however, the Jackson court never said that additional
charges or evidence were necessary for a conviction on the § 371
count. The court's reasoning was quite clear:
[Defendant's] first contention--that Ratzlaf requires
reversal of the § 371 conviction--is misplaced because
the government did not have to demonstrate that the
defendants violated the antistructuring laws. Ratzlaf's
holding concerning the meaning of "willfully violating"
in the antistructuring laws, therefore, has no bearing
on the defendants' § 371 convictions; § 371 contains no
such language.
Jackson, 33 F.3d at 871 (emphasis added).
The majority's attempts to distinguish Jackson miss the
mark. First, the majority argues that it is significant that the
38
Jackson indictment, in charging the § 371 count, "never mentions
a structuring violation or the relevant antistructuring
statutes." Majority Op. at ___ [slip op. at 19] (quoting
Jackson, 33 F.3d at 870). An examination of this sentence in
context shows that it does not deserve the prominence that the
majority gives it:
[T]he government argues that a § 371 conspiracy to
defraud the United States is an independent violation
that need not be based on the violation of another
substantive statute. The government points out that
count one of the indictment in this case, which sets
forth the § 371 charge, never mentions a structuring
violation or the relevant antistructuring statutes.
Count one charges a conspiracy "to defraud the United
States"; it does not allege a conspiracy "to commit any
offense against the United States."
Jackson, 33 F.3d at 870. The Jackson court was merely
emphasizing that the government alleged an independent conspiracy
to defraud count and that that count is not dependent upon the
other structuring counts--a point that I have emphasized and that
supports a conviction on the independent § 371 count. The court
meant nothing more by this statement, and it set out no general
rule.
The majority's selected quotation from Jackson also
fails to distinguish the language in the Jackson indictment from
the language in the Alston indictment. Paragraph 7(a) of the
Alston indictment, like Count I in Jackson, "never mentions a
structuring violation or the relevant antistructuring statutes."
Even though the § 371 conspiracy to defraud charge is based upon
the same facts as the structuring charges, it is framed as an
39
independent allegation in paragraph 7(a). Thus any perceived
"distinction" based upon this language is entirely illusory.
The majority's second "distinction" is equally futile.
The majority argues that it is significant that Jackson involved
other "extensive evidence" beyond structuring activity to
demonstrate the conspiracy to defraud. As examples of such
extensive evidence, the majority cites the fact that defendants
had no wage or income and that they spent over $300,000 to
purchase homes and exotic automobiles. Majority Op. at ___ [slip
op. at 19].
The Jackson court, however, never indicated that these
additional facts were necessary for a conviction under § 371. The
court "set[s] forth in detail the structuring activity of the
defendants--as well as other evidence--that demonstrates a
conspiracy to defraud the United States under § 371." Jackson,
33 F.3d at 868. It does not mention or even allude to this
"other evidence" when it explains its reasoning, however, and it
never implies that such "other evidence" is essential for a
conviction. Id. at 870-71.
The majority not only fails to explain why other
evidence of a conspiracy to defraud the United States is
necessary for a conviction; it ignores the existence of
additional evidence in this case. There was evidence that
Alston, like the defendants in Jackson, failed to file income tax
returns. Compare Alston, Crim. No. 93-445-1 at 10; Appellant's
App. at 40 with Jackson, 33 F.3d at 869. The majority offers no
guidance as to how much "other evidence" is sufficient to support
40
a § 371 conviction. Surely a failure to file income taxes is an
indication that defendants had a motive to defraud the United
States of information about large cash purchases that would
otherwise appear in CTRs. Again, the majority finds a
"distinction" when there is no significant difference between the
factual scenarios.
United States v. Derezinski, a case very similar to the
case at bar,0 also supports the district court's reasoning.
Derezinski was prosecuted under the "defraud" clause of § 371,
even though he might have been prosecuted under the more specific
"offense" clause. 945 F.2d at 1010. Since specific statutes
existed, Derezinski argued, "it is no longer appropriate for the
Government to prosecute conspiracies to commit acts governed by
those statutes under the general defraud clause." Id. The
Eighth Circuit firmly rejected this argument:
[Defendant's] arguments attempt to draw our attention
away from the true issue in this case. His claim that
the Government is really charging him with conspiring
to violate [specific substantive statutes] is simply
not true. The Government has steadfastly persisted in
proving that [the defendant] participated in a Klein
conspiracy to defraud the United States. While it may
be true that the Government could have also charged
[the defendant] under the specific offense clause of
section 371, it is well settled that when conduct
violates more than one criminal statute, the Government
may choose which statute it will apply. [citing
Batchelder]. The Government was within its discretion
when it decided to prosecute [the defendant] under the
general defraud clause of section 371.
0
Like the defendant in this case, Derezinski was prosecuted
under the defraud clause of § 371 for a Klein conspiracy that
consisted, inter alia, of circumventing the financial reporting
requirements of a financial institution. Derezinski, 945 F.2d at
1009-10.
41
Id. It should make no difference to the § 371 prosecution in
this case that the government failed to obtain convictions under
the substantive statutes.
Most importantly, the Eighth Circuit denied
Derezinski's challenge to the district court's jury charge
regarding intent. Derezinski argued that because the criminal
tax statute defining the specific offense required a showing of
"willfulness" (as defined by Cheek v. United States), the
government should bear the burden of demonstrating the same level
of willfulness when pursuing a conviction under the "defraud"
clause of § 371. Id. at 1012 (citing Cheek v. United States, 498
U.S. 604 (1991)). The Eighth Circuit flatly rejected this
contention: "Cheek does not apply to this case because the
Government prosecuted Derezinski under a general conspiracy
statute, not a criminal tax statute, and because 'willfulness' is
not an express element of section 371." Likewise, Ratzlaf does
not apply to this case. The government prosecution at issue is
pursuant to § 371, not § 5322. "Willfulness" is not an express
element of § 371.
The majority offers United States v. Curran as
authority to support its argument concerning mens rea. Majority
Op. at ___ [slip op. at 13-14] (citing United States v. Curran,
20 F.3d 560 (3d Cir. 1994)). The majority's reading of Curran
would make § 371 dependent upon the level of mens rea necessary
for a conviction under § 5322. Thus the majority's analysis of
Curran conflicts directly with Vazquez's statement that the
"defraud" clause of § 371 is an independent charge that need be
42
based on no other part of the U.S. Code. It also conflicts with
the analysis of § 371 in Derezinski and Jackson. I do not
believe that we intended in Curran to overrule Vazquez or to
change radically our reading of the defraud clause of § 371. I
also do not believe that the majority's interpretation of
Curran's holding comports with a close reading of that case.
The defendant in Curran was prosecuted for causing
campaign treasurers to make false statements to the Federal
Election Commission (FEC). The defendant could not be prosecuted
directly under 18 U.S.C. § 1001 for concealing material facts and
making false representations, however, because it was the
campaign treasurers, rather than the defendant, who prepared the
false reports and submitted them to the Commission. Curran, 20
F.3d at 567. The government therefore used 18 U.S.C. § 2(b) in
conjunction with § 1001 to charge defendant with causing campaign
treasurers to file false reports. Section 2(b), like 31 U.S.C.
§5322, requires "willfulness" on the part of the defendant in
order to sustain a conviction. Relying on Ratzlaf, we
interpreted § 2(b) "willfulness" in cases brought under §§ 2(b)
and 1001 in the federal election law context to mean that the
prosecution must prove that "defendant knew of the treasurers'
reporting obligations, that he attempted to frustrate those
obligations, and that he knew his conduct was unlawful." Id. at
569 (emphasis added).
The indictment in Curran alleged that defendant caused
treasurers of various campaign committees to make incorrect
reports to the FEC. Id. Nevertheless, the trial judge
43
erroneously charged the jury that "as a matter of law, . . .
defendant had a legal duty to disclose the facts in question to
the agency in question, the Federal Election Commission or to
make certain that [the] information would have gotten to them."
Id. (emphasis added). In regard to intent, the trial judge
erroneously failed to instruct the jury that it must find that
the defendant knew that his conduct was unlawful. Id. We
therefore overturned the district court on two grounds: (1) its
charge erroneously placed the reporting duty directly on the
defendant and (2) the instruction on § 2(b) and § 1001
willfulness did not communicate the proper mens rea.
The majority's discussion of Curran begins with the
definition of "willfulness" as it appears in §§ 1001 and 2(b).
Majority Op. at ___ [slip op. at 14]. Because there is no
"willfulness" requirement in § 371, this part of the Curran
opinion is not directly applicable to this case. See discussion
Part I, supra. The majority then addresses the section of the
Curran opinion dealing with the "defraud" clause of § 371. The
majority quotes Curran as holding that the district court's
misstatement of the legal standard for "willfulness" "undermined
not only the substantive counts, but the conspiracy [to defraud]
one as well. The essence of conspiracy is an agreement to commit
an act that is illegal." Majority Op. at ___ [slip op. at 14]
(citing Curran, 20 F.3d at 571).
A careful reading of Curran demonstrates that the
majority's interpretation of this dictum is plainly incorrect.
The paragraph from which the majority quotes reads in full:
44
As stated earlier, the misstatement of the law
applicable to the defendant's legal duty to disclose
facts to the Commission amounted to plain error. This
misstatement undermined not only the substantive
counts, but the conspiracy one as well. The essence of
conspiracy is an agreement to commit an act that is
illegal. If a jury is misled into considering as
unlawful the omission of an act that the defendant is
under no duty to perform, then a finding of conspiracy
based on such conduct cannot stand. It follows that
the conspiracy count must therefore be vacated.
Curran, 20 F.3d at 571 (citations omitted). Reading these
sentences in context, it is clear that we refer not to the
district court's misstatement of the legal standard for
"willfulness," as the majority contends, but to its misstatement
of the defendant's duty to report to the FEC. This portion of
Curran, like most of the opinion, discusses the duty of defendant
relative to that of the campaign treasurers, not the mens rea
requirement for a § 371 conspiracy to defraud.
The majority's argument that Curran makes the defraud
clause of § 371 dependent on the intent necessary for conviction
of another offense, therefore, hinges entirely on one paragraph
of dictum. That paragraph says in pertinent part that:
The comments we have previously made about the failings
of the instruction on intent apply to the conspiracy
count as well. As noted in American Investors, 879
F.2d at 1100, '[i]n order to prove a conspiracy, the
government must show an agreement to commit an unlawful
act combined with intent to commit the underlying
offense.' On retrial, the instructions on intent as to
the conspiracy count must track those applicable to the
substantive counts.
Id.
Curran's restatement of the general rule for conspiracy
does nothing to change the outcome in this case. If the
majority insists on reading this dictum to make § 371 dependent
45
upon §5322, Curran conflicts with Vazquez's holding that a count
drawn under the defraud clause "need refer to no other statute
than §371." Vazquez, 319 F.2d at 384; see also Jackson, 33 F.3d
at 870; Derezinski, 945 F.2d at 1010. In case of a conflict, I
believe that our decision is controlled by Vazquez.
Moreover, the quote from American Investors, upon which
the Curran dictum relies, was taken from a general discussion of
conspiracy, without specific reference to the "defraud" clause of
§ 371 or to Vazquez. Vazquez, on the other hand, explicitly
stated a general rule for the "defraud" clause of § 371, 319 F.2d
at 384; see Glasser v. United States, 315 U.S. 60, 67 (1942); a
rule followed by this court and other courts in similar cases.
See, e.g., Vogt, 910 F.2d 1184 (3d Cir. 1990); Jackson, 33 F.3d
866 (7th Cir. 1994); Derezinski, 945 F.2d 1006 (8th Cir. 1991).
Three sentences of dictum in a case almost entirely concerned
with another legal issue should not serve to subvert our
precedent as well as Congress' expression of the mens rea
necessary for conviction under 18 U.S.C. § 371. The Curran
language is simply too slender a reed to support the weight that
the majority wishes it to bear.
For the above reasons, I conclude that Alston satisfies
all of the elements necessary for conviction of a Klein
conspiracy to defraud the United States under 18 U.S.C. § 371.
Nothing in Ratzlaf or in the structuring statutes themselves
changes this fact, and the majority barely addresses it. I
therefore respectfully dissent.
46