This is a matter of first impression in this circuit, requiring an examination of the statutory framework under which the United States has charged defendants with criminal liability for a sophisticated scheme to conceal from the government unreported and illegal income.
Defendants' liability is based on the Bank Secrecy Act of 1971 and its implementing regulations, which require financial institutions to file a report for any currency transaction exceeding $10,000. 31 U.S.C. § 5313; 31 C.F.R. § 103.22 (1985). Congress enacted these provisions to obtain records of large currency transactions as part of an effort to enforce criminal and tax laws. See California Bankers Ass'n v. Shultz, 416 U.S. 21, 26, 39 L. Ed. 2d 812, 94 S. Ct. 1494 (1974).
The indictment alleges that defendants intentionally "structured" their currency transactions so that each transaction fell just short of the $10,000 reporting limit. As a result, defendants were able to conceal a large currency transaction from the government by splitting the amount into several smaller sums below $10,000. By implementing an elaborate plan to systematically avoid the reporting requirements, defendants were able to convert at least one million dollars of illegal gambling profits or other unreported cash into untraceable legal income.
Although defendants' money laundering is not illegal on its face, see United States v. Dela Espriella, 781 F.2d 1432, 1436 (9th Cir. 1986) (money laundering itself is not a crime),
the indictment charges other crimes. Specifically, defendants are charged with violating: (1) 18 U.S.C. § 371 (conspiracy to defraud the United States through a scheme to violate currency reporting requirements); (2) 31 U.S.C. §§ 5313, 5322
and 18 U.S.C. § 2 (knowingly and willfully causing banks and defendant Shearson Lehman Brothers to fail to file Currency Transaction Reports (CTRs)); (3) 18 U.S.C. § 1001 and 18 U.S.C. § 2 (knowingly and willfully concealing, or causing to be concealed, material facts within the jurisdiction of the United States); and (4) 18 U.S.C. §§ 1952, 1955 (conducting an illegal gambling business and using interstate telephone service in aid of that gambling enterprise).
Defendants' various motions to dismiss focus primarily on the requirements for criminal liability from causing financial institutions to fail to file the necessary CTRs. Defendants allege that although the statutory scheme may require financial institutions to file CTRs, it fails to charge a crime against Shearson and the individual defendants for structuring their transactions to avoid triggering the CTR filing requirement. They also claim that even if the statutory scheme makes structuring a crime, it is unconsitutional because the statutes fail to give sufficient notice that structuring is unlawful.
In considering defendants' motions, I have accepted as true the factual allegations set forth in the indictment. See Boyce Motor Lines v. United States, 342 U.S. 337, 343 n. 16, 96 L. Ed. 367, 72 S. Ct. 329 (1952); United States v. Bloom, 78 F.R.D. 591, 597-98 (E.D. Pa. 1977). Based on these facts, I hold that although structuring a financial transaction is not unlawful per se, this scheme becomes criminal when used to intentionally cause a financial institution to fail to fulfill its legal duty to file a CTR for transactions totalling more than $10,000. Although banks had no duty to file a CTR at the time defendants presented the structured transactions, the initial act of intentionally breaking up the transactions into sums below $10,000 prevented the banks from fulfilling their statutory duty. This activity, which would have been a crime if committed by the banks, gives rise to defendants' criminal liability when viewed in the context of 18 U.S.C. § 2(b). See United States v. Gimbel, 632 F. Supp. 748, 753-55 (E.D. Wis. 1985); United States v. Richter, 610 F. Supp. 480, 489-90 (N.D. Ill. 1985), aff'd sub nom. United States v. Mangovski, 785 F.2d 312 (7th Cir.) and United States v. Konstantinov, 793 F.2d 1296 (7th Cir.), cert. denied, 479 U.S. 855, 107 S. Ct. 191, 93 L. Ed. 2d 124 (1986); United States v. Anzalone, 766 F.2d 676, 683 (1st Cir. 1985) (Aldrich, J., concurring). See also United States v. Heyman, 794 F.2d 788, 790-92 (2d Cir. 1986). Therefore, for the following reasons, I deny defendants motion to dismiss the structuring counts and all other counts of the indictment.
The indictment charges defendants Herbert Cantley, Joseph Mastronardo, Jr., Joseph Mastronardo, Sr., John Mastronardo, John Hector and Mario Scinicariello with conducting an illegal bookmaking operation in Pennsylvania, Florida, New York, and Alabama. Through Shearson Lehman Brothers, Inc. and Cantley, a sales manager at Shearson, these defendants undertook to convert the profits from their gambling business into bearer municipal bonds. These bonds are payable to the person having possession (the bearer) and require no endorsement or registration by the purchaser. More importantly, bearer bonds are tax free instruments and generate no government-required reports. Several defendants set up Shearson accounts in the names of other persons (nominee accounts) so that they could purchase the bonds without linking the transaction to their gambling operation.
Even with this elaborate system, defendants needed a device to avoid triggering CTR filings whenever they sought to transform at least $10,000 in currency into bearer bonds. See 31 U.S.C. §§ 5313, 5322; 31 C.F.R. § 103.22. As a result, defendants added another level of deception to their venture. Defendants split their currency into sums less than $10,000 (usually $9,900) and on the same day purchased cashier's checks, treasurer's checks, or money orders payable to Shearson from different tellers or different branches of the same bank. For example, by structuring a $19,800 transaction into two transactions under $10,000 (e.g., $9,900 and $9,900), defendants could successfully avoid triggering a banks duty to file a CTR. In other instances, gambling proceeds were paid directly to Cantley, in his role as a Shearson employee. He and his sales assistant then followed a similar pattern by converting the cash into checks and money orders structured to avoid the $10,000 CTR requirement.
Moreover, the indictment charges Shearson and Cantley with carrying out an identical scheme to conceal unreported income for defendant Scinicariello and Stanley Marvel, III, an unindicted co-conspirator.
II. Does the Indictment Charge a Crime ?
Based on several recent decisions in other circuits, see, e.g., United States v. Larson, 796 F.2d 244 (8th Cir. 1986); United States v. Reinis, 794 F.2d 506 (9th Cir. 1986); United States v. Anzalone, 766 F.2d 676 (1st Cir. 1985), defendants allege that structuring their transactions to avoid triggering a CTR filing fails to constitute a crime. Defendants contend the law requires banks to file CTRs only for transactions in excess of $10,000. By steering clear of those situations (i.e., structuring all currency transactions to total less than $10,000), defendants maintain that they have committed no crime. Moreover, they argue, no law requires that they inform financial institutions that they have structured their transaction to avoid the statutory reporting requirements.
In one respect, defendants are correct: the currency reporting laws impose no affirmative obligations on individuals to disclose to the government the nature of their currency transactions. See 31 U.S.C. § 5313(a) (domestic financial institutions must file); 31 C.F.R. § 103.22(a)(1) (CTR required only if transaction in currency exceeds $10,000). In order for Shearson and the individual defendants to violate the law, liability must stem from their actions that caused the banks to breach a statutory duty.
The government concedes as much, and therefore charges defendants with a criminal violation based on 18 U.S.C. § 2(b), which provides:
Whoever 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.
(A) The Common Denominator: The Bank's Duty
The common theme running throughout the indictment is that defendants' liability depends on whether the banks had a duty to file CTRs under the facts of this case. For example, the counts charging the violation of 31 U.S.C. §§ 5313, 5322 and 18 U.S.C. § 2 state that defendants caused banks to fail to file CTRs. This charge is based on the bank's statutory duty to file CTRs in certain cases. Similarly, the counts under 18 U.S.C. §§ 1001 & 2 allege that defendants concealed and caused to be concealed material facts by designing their transactions to mislead banks into believing they had no duty to report the transaction to the government. If the law imposes no duty on banks under the facts of this case, defendants cannot be charged with concealment. Finally, defendants are charged under 18 U.S.C. § 371 with conspiring to defraud the government by impeding the collection of data required in the CTRs. As with the other charges, defendants could not conspire to defraud the United States unless they agreed to prevent banks from reporting required information. The individuals themselves are not required to supply any information to the government.
Thus, the viability of each currency-related count in the indictment turns on the duty question.
Rather than launch immediately into an examination of each count, a detailed analysis of the duty issue, which transcends all counts, will simplify this task and clarify the confusion that has inevitably accompanied government prosecutions under this theory. As the indictment sets forth, defendants' liability on all counts depends on the existence of a bank's duty to file CTRs when a customer has intentionally structured a transaction to avoid a government-required filing. Only if a bank is capable of violating the law, can defendants be liable under the statutory scheme of 18 U.S.C. § 2(b). Although Heyman, 794 F.2d 788, is persuasive on the issue of liability under § 2(b), that court never satisfactorily addressed the threshold question of how the bank's failure to file CTRs upon receiving a structured transaction violated § 5313.
(B) The Government's Position
Apparently recognizing the Heyman court's failure to establish a bank's filing duty when processing a structured transaction, the government has attempted to create a duty by relying on the instructions accompanying the CTR form (IRS Form 4789). The instruction reads:
Who must file. - Each financial institution must file a form 4789 for each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to that financial institution, which involves a transaction in currency of more than $ 10,000. Multiple transactions by or for any person which in any one day total more than $10,000, should be treated as a single transaction, if the financial institution is aware of them.