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United States v. Mastronardo

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT


argued: May 2, 1988.

UNITED STATES OF AMERICA
v.
JOSEPH VITO MASTRONARDO, JR., APPELLANT; UNITED STATES OF AMERICA V. JOSEPH VITO MASTRONARDO, SR., APPELLANT; UNITED STATES OF AMERICA V. JOHN VITO MASTRONARDO, APPELLANT; UNITED STATES OF AMERICA V. HERBERT L. CANTLEY, APPELLANT; UNITED STATES OF AMERICA V. JOHN HECTOR, APPELLANT

On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Criminal No. 86-00293-02/03/04/05/06.

Gibbons, Chief Judge, Mansmann and Cowen, Circuit Judges.

Author: Cowen

Opinion OF THE COURT

COWEN, Circuit Judge.

Joseph Vito Mastronardo, Jr., Joseph Vito Mastronardo, Sr., John Vito Mastronardo, Herbert Cantley and John Hector each appeal to this Court to overturn their convictions for conducting an illegal gambling business in violation of 18 U.S.C. § 1955, using interstate telephone service in aid of an illegal gambling business, in violation of 18 U.S.C. § 1952, participating in a conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and concealing material facts from the United States, in violation of 18 U.S.C. § 1001.*fn1

Because we agree with Mastronardo, Jr., Mastronardo, Sr. and Cantley's argument that their convictions for conspiracy to defraud the United States and concealing material facts from the United States are based, at least in part, on allegations that they "structured" currency transactions so as to induce banks to fail to file Currency Transaction Reports ("CTRs"), and that the statutes and regulations then in force did not give them fair notice that such "structuring" was criminal, we will reverse these convictions. We find the remainder of the appellants' arguments to be without merit and affirm the remaining convictions.

I.

On June 26, 1986, a federal grand jury returned a 63 count indictment against eight defendants. The indictment named the five appellants -- Joseph Vito Mastronardo, Jr., Joseph Vito Mastronardo, Sr., John Vito Mastronardo, Herbert L. Cantley, and John Hector -- and three co-defendants not parties to this appeal -- Shearson Lehman Brothers, Inc. ("Shearson"), Mario Scinicariello, and Sheldon Shore. Each of the defendants was indicted for crimes arising out of an alleged multi-million dollar bookmaking and money laundering operation.*fn2

All defendants, except Scinicariello, were tried together before a jury. At the close of the government's case, the district court entertained defendants' motions for directed verdicts of acquittal, and granted those motions as to all of counts four to six, fifteen to seventeen, and twenty to twenty-two. The district court also granted Mastronardo, Sr.'s motion for directed verdicts on counts twenty-five to thirty-eight, and forty-eight to fifty-four. Finally, the district court granted John Mastronardo's motion for directed verdicts on counts twenty-five to thirty-nine, forty-eight to fifty-five, and sixty-one.

The jury returned the following guilty verdicts on February 25, 1987. Mastronardo, Jr. was convicted of conspiracy to defraud the United States (count one), conducting an illegal gambling business (count three), eight counts of using interstate telephone service in aid of a gambling business (counts eight to thirteen, eighteen, and nineteen), and concealing material facts from the United States (count sixty-one). Mastronardo Sr. was convicted of conspiracy to defraud the United States (count one), conducting an illegal gambling business (count three), two counts of using interstate telephone service in aid of a gambling business (counts eighteen and nineteen), and concealing material facts from the United States (count sixty-one). John Mastronardo was convicted of conducting an illegal gambling business (count three), and one count of using interstate telephone service in aid of a gambling business (count twenty-three). Cantley was convicted of two counts of conspiracy to defraud the United States (counts one and two), conducting an illegal gambling business (count three), and three counts of concealing material facts from the United States (counts sixty-one through sixty-three). Hector was convicted of conducting an illegal gambling business (count three), and two counts of using interstate telephone service (counts eleven and twenty-four).

These defendants were acquitted of the remaining charges against them, and defendants Shore and Shearson were acquitted of all charges.*fn3 Mastronardo, Sr., Mastronardo, Jr., John Mastronardo, Cantley and Hector appeal their convictions to this Court.

II.

The principal contention raised in this appeal is whether the above named defendants can be held criminally liable for "structuring" currency transactions to avoid having financial institutions report the transactions to the government.*fn4 As originally enacted, the Currency Transaction Reporting Act, 31 U.S.C. § 5311 et seq. (1982), authorized the Secretary of the Treasury to require the reporting of currency transactions.*fn5 Although the statute permitted the Secretary to adopt regulations requiring both "financial institutions"*fn6 and other "participants" in transactions to file CTRs, the Secretary, during the time period relevant to this case, issued regulations which required only financial institutions to file CTRs.*fn7 Such institutions were required to file CTRs when participating in a transaction involving more than $10,000 in currency. Failure to file a CTR when required by the Secretary's regulations subjected the offending institution to civil and criminal penalties. However, no provision of the Currency Transaction Reporting Act made it a crime for an individual to "structure" his transactions so as to keep each transaction under the $10,000 floor, thus inducing a financial institution not to file a CTR in instances where it might be required to file a CTR were the person's transactions aggregated.*fn8

The issue presented by this case is whether a person can be held criminally liable for "structuring" transactions during the relevant time period in such a way that a bank or other financial institution would not be aware that the person is making a number of transactions which, if aggregated, involve more than $10,000 in currency.*fn9 The United States asserts that such criminal liability exists under a number of statutes, and it charged the defendants in this case with violations of each. First, the United States charged the defendants with violating 18 U.S.C. § 2(b) ("§ 2(b)"),*fn10 which establishes that a person who causes another to commit an offense against the United States is chargeable as a principal. The government alleged that the defendants willfully caused bank officials to fail to file CTRs. The defendants, however, were acquitted of these § 2(b) charges.

The defendants were also charged, and convicted of violating 18 U.S.C. § 1001 ("§ 1001"),*fn11 which proscribes schemes to conceal, or cause to be concealed a material fact from the United States. Allegedly, the defendants' structuring of transactions in an attempt to induce banks not to file CTRs constituted an illegal deceptive scheme designed to deprive the Treasury Department of the information contained in the CTRs.

Finally, the defendants were charged, and convicted of violating 18 U.S.C. § 371 ("§ 371"),*fn12 by participating in two conspiracies to defraud the United States. The government charged that the defendants conspired to conceal income illegally produced by their gambling operation. Inducing banks to fail to file CTRs was referred to by the district court as an "object" of this conspiracy. App. 222-23. The government also individually charged Cantley with conspiring to conceal income earned by Mario Scinicariello. The indictment, in counts one and two, charged that the defendants conspired to defraud the United States by impairing its ability to collect data and reports on currency transactions, to enforce laws requiring the reporting of currency transactions, and to determine and collect income taxes. App. at 97, 112. Thus, while this appeal does not involve a specific conviction for the act of "structuring" transactions, both the § 1001 convictions and the § 371 conspiracy convictions rely upon the purported illegality of "structuring" in order to impose criminal liability upon these defendants.

The issue of whether the United States can impose criminal liability on persons for structuring currency transactions to avoid inducing financial institutions to file CTRs has been addressed by a number of circuit and district courts. The decisions have produced a severe split among the circuits. A number of circuits, including the First, Seventh, Eighth, Ninth and Eleventh, have reversed § 2(b) "willful causing", § 1001 "scheme to conceal" and § 371 conspiracy convictions, generally because they found either (1) that the statutes and regulations discussed above did not appear to proscribe such acts, or (2) that these convictions did not pass constitutional muster because the statutes and regulations failed to give fair warning that the conduct prosecuted was proscribed. See United States v. Anzalone, 766 F.2d 676, 680-83 (1st Cir. 1985) (reversing convictions under § 2(b), § 1001 and 31 U.S.C. §§ 5312, 5322 because prosecution violates fair warning clause of fifth amendment); United States v. Gimbel, 830 F.2d 621, 624-26 (7th Cir. 1987) (reversing convictions of bank customer under § 1001 via § 2(b) because statutes and regulations impose no duty upon bank to report "structured" transactions, and thus no derivative duty devolves to customer); United States v. Larson, 796 F.2d 244, 245-47 (8th Cir. 1986) (reversing convictions under § 2(b) and § 1001 because imposing duty on bank customer under statutes and regulations in force would violate due process); United States v. Varbel, 780 F.2d 758, 760-62 (9th Cir. 1986) (reversing convictions under § 2(b), § 1001, and § 371 because application of criminal sanctions against "structuring" customer would violate due process); United States v. Dela Espriella, 781 F.2d 1432 (9th Cir. 1986) (same); United States v. Reinis, 794 F.2d 506 (9th Cir. 1986) (same); United States v. Denemark, 779 F.2d 1559 (11th Cir. 1986) (reversing a conviction under § 1001 where bank customer had purchased 14 cashiers checks at 14 different banks, because such transactions do not create a duty on the part of banks to file CTRs); but see United States v. Bank of New England, N.A., 821 F.2d 844 (1st Cir.), cert. denied, 484 U.S. 943, 108 S. Ct. 328, 98 L. Ed. 2d 356 (1987) (distinguishing Anzalone from case involving prosecution of bank when customer presented more than $10,000 to same branch of bank during single visit); United States v. Giancola, 783 F.2d 1549, 1552-53 (11th Cir.), cert. denied, 479 U.S. 1018, 107 S. Ct. 669, 93 L. Ed. 2d 721 (1986) (upholding conspiracy convictions where co-conspirators made transactions of more than $10,000 in one day at single branch of bank).

While the First, Seventh, Eighth and Ninth Circuits would overturn convictions like those before this Court, the Eleventh apparently would not overturn a conviction if more than $10,000 is exchanged at a single bank branch in a single day. See Giancola, 783 F.2d at 1552-53.

Other Courts, including the Second, Fourth, and Tenth Circuits, have upheld convictions. See United States v. Heyman, 794 F.2d 788 (2d Cir.) cert. denied, 479 U.S. 989, 107 S. Ct. 585, 93 L. Ed. 2d 587 (1986); United States v. Richeson, 825 F.2d 17 (4th Cir. 1987); United States v. Cook, 745 F.2d 1311 (10th Cir. 1984), cert. denied, 469 U.S. 1220, 84 L. Ed. 2d 347, 105 S. Ct. 1205 (1985).*fn13 These courts have generally looked to the intent of the law and concluded that the statute and regulations do proscribe the conduct prosecuted.

We hold that this statute and regulation did not give a reasonable bank customer fair notice that "structuring" cash transactions to avoid the reporting requirement is criminal. Therefore, we need not reach an analysis of Congressional intent. Although the statute authorizes the Secretary to draft regulations requiring "participants" in transactions to file CTRs, the Secretary did not do so. Rather, the Secretary enacted regulations which, by their explicit language, place a duty to file CTRs only on financial institutions. The regulations do not even intimate that a bank customer might somehow be violating the law if he structures his transactions so as to avoid making a transaction in currency greater than $10,000. While a bank customer might reasonably conclude that doing so would frustrate the intent of Congress, frustrating the intent of Congress is not criminal. An additional factor, noted by the Ninth Circuit, is that "[tlhe present ambiguity regarding coverage of the Reporting Act and its regulations has indeed been created by the government itself." Varbel, 780 F.2d at 762.

Given the principle that criminal statutes must be strictly construed, United States v. Enmons, 410 U.S. 396, 411, 35 L. Ed. 2d 379, 93 S. Ct. 1007 (1973), and the Supreme Court's pronouncement that "a penal statute [must] define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited," Kolender v. Lawson, 461 U.S. 352, 357, 75 L. Ed. 2d 903, 103 S. Ct. 1855 (1983), we hold that imposing criminal liability on customers for "structuring" transactions violates due process.

Therefore we will reverse the convictions under § 1011 and § 371.

III.

For the foregoing reasons we will reverse Mastronardo, Jr.'s convictions under counts one and sixty-one, Mastronardo, Sr.'s conviction under count one, and Cantley's convictions under counts one, two, and sixty-one through sixty-three. We will affirm the remaining convictions.


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