conduct by the assistant United States attorney or that any of the alleged misbehavior occurred in front of the grand jury. Bank of Nova Scotia is instructive, however, because it teaches that the prejudice defendants are required to prove is the type that compromises the integrity of the judicial process. See also Williams, 504 U.S. at 45-46 (federal court may exercise supervisory power only when government misconduct results in violation of "clear rule" designed to protect integrity of grand jury or trial process).
According to the Bank of Nova Scotia Court, a defendant is prejudiced when the misconduct "substantially influenced the grand jury's decision to indict" or when there is "grave doubt" that the decision was free from the substantial influence of the misconduct. Id. at 256. A showing of prejudice, however, is not required when "the structural protections of the grand jury have been so compromised as to render the proceedings unfair." Id. The defendants contend that they do not have to establish prejudice because Special Agent White's alleged misconduct was "pervasive." The Supreme Court has not relieved defendants of the requirement of showing prejudice except in cases where there is racial or gender discrimination in the selection of grand jurors. Id. at 256-57. Because there is no allegation that the grand jury was selected improperly or that "the structural protections of ... [it] were compromised," the defendants must establish prejudice. See United States v. Soberon, 929 F.2d 935, 941 (3d Cir.), cert. denied, 502 U.S. 818, 116 L. Ed. 2d 47, 112 S. Ct. 73, 112 S. Ct. 74 (1991).
Thus, in order to warrant dismissal of an indictment pursuant to my supervisory power, the alleged misconduct must result in some improper advantage to the government either before the grand jury or the court. Misconduct which results in prejudice outside the judicial process, such as loss of business or personal or professional embarrassment, is not sufficient to warrant dismissal of an indictment. None of the defendants' allegations of misconduct, either alone or taken together, warrants exercise of my supervisory power.
Dismissal of the indictment pursuant to my supervisory power based on the defendants' allegations of violations of IRS regulations is not appropriate for several reasons. As detailed above, Special Agent White did not act in bad faith. Moreover, the fact that the IRS has already provided a remedy for violations of its regulations by disciplining employees who violate them makes the additional remedy of dismissal of the indictment unwarranted. See, e.g., Internal Revenue Manual ("IRM") §§ 751.12(2), 752.232(1), 752.432(1). Dismissal of an indictment may be a permissible and effective remedy in a case where the claimed misconduct is substantially more serious than that alleged in this case. Dismissing the charges against these defendants would interfere with the executive branch's function of promulgating and enforcing regulations. See Caceres, 440 U.S. at 756. Finally, as detailed above, most of the alleged "misconduct" did not even arguably violate any of the defendants' rights and none of it prejudiced them.
Similarly, dismissal of the indictment is not an appropriate remedy for Special Agent White's alleged violations of federal statutes. Both Congress and the IRS have already provided other remedies for violations of those statutes. See 26 U.S.C. § 7214(a) (providing for dismissal, fine, and imprisonment for IRS employees' failure to report revenue law violations); 18 U.S.C. § 1905 (providing for dismissal, fine, or imprisonment for disclosure of confidential return information in violation of 26 U.S.C. § 6103); IRM § 752.232(1) (providing for IRS discipline for statutory violations by employees); see also United States v. Michaelian, 803 F.2d 1042, 1049 (9th Cir. 1986); Marvin v. United States, 732 F.2d 669, 672-73 (8th Cir. 1984). Adding the sanction of dismissal of an indictment would thwart Congress' and the IRS' respective wills. Regardless, the defendants simply failed to establish that Special Agent White violated any federal statute. With respect to McGuigan and Azeff's alleged illegal conduct, the statute, 26 U.S.C. § 7214(a)(8), only requires that the allegations be reported to the IRS and it is undisputed that they were. There is no evidence that Special Agent White improperly disclosed tax return or grand jury information. Even if Special Agent White committed those violations, which he clearly did not, none of them compromised the fairness of the judicial process or grand jury in any way. If they occurred, those actions may have embarrassed the defendants, but they could not possibly have "prejudiced" them within the meaning of Bank of Nova Scotia or Williams.
Additionally, Special Agent White's obtaining documents from Accountant Cherry and McLaughlin, Piven and Vogel, without first issuing summonses does not violate 26 U.S.C. §§ 7602(a)(1) and 7609(a). There is no requirement that the IRS issue a summons every time it receives records from third parties. See Speck v. United States, 59 F.3d 106, 108 (9th Cir. 1995). The defendants' reading of the statute would prevent the IRS from conducting informal investigations and mandate court intervention every time an agent seeks documents from anyone, no matter how willing to provide them that person may be. While it is true that a summons may be used to obtain documents, it does not follow that where there is voluntary compliance with a reasonable request by an IRS agent that proceeding without a summons is somehow unlawful or constitutes misconduct.
For those reasons, I will refuse the defendants' motion to dismiss the indictment pursuant to the federal courts' supervisory power.
II. The Motion to Suppress.
In the alternative, the defendants request that I suppress statements made by Russell McLaughlin Jr. during the noncustodial interviews conducted by Special Agent White and the documents provided by Accountant Cherry. Defendants Robin and Mark McLaughlin do not have standing to move to suppress Russell's statements. Rakas, 439 U.S. at 134; Payner, 447 U.S. at 733-34. Suppression of those statements is not warranted because none of Russell McLaughlin Jr.'s constitutional or statutory rights were violated by Special Agent White's failure to warn him and, as discussed above, there is no evidence that Special Agent White acted in bad faith or coerced or intimidated him. See Caceres, 440 U.S. at 756. Furthermore, because the procurement of documents from Cherry was not improper, their suppression is not warranted.
III. The Motion to Dismiss the Superseding Indictment for Abuse of the Grand Jury.
Additionally, the defendants argue that the superseding indictment must be dismissed because it resulted from the government's improper use of the grand jury. The original indictment named only Russell McLaughlin Jr. and Mark McLaughlin as defendants. Subsequent to its return, the government presented more evidence to the grand jury and it returned the superseding indictment which included additional overt acts and named Robin McLaughlin as a defendant. The defendants contend that the obtaining of the superseding indictment shows that the government abused the grand jury process because, prior to the date of the original indictment, it was aware of the evidence against Robin McLaughlin. According to the defendants, this prior knowledge by itself establishes that the government used the grand jury improperly to conduct discovery and "freeze" the testimony of the witnesses presented to the grand jury between the return of the original and superseding indictments.
Abuse of the grand jury occurs when the government uses it for the "sole or dominant purpose" of conducting discovery or preparing for trial on a pending indictment. See, e.g., United States v. Leung, 40 F.3d 577, 581 (2d Cir. 1994); In Re Grand Jury Matter, 689 F. Supp. 454, 463 (E.D. Pa. 1987). The government does not abuse the grand jury process if, in addition to conducting a legitimate investigation, the government obtains additional evidence or freezes witnesses' testimony. In Re Grand Jury Matter, 689 F. Supp. at 463. Here, the government properly presented evidence to the grand jury which then elected to indict Robin McLaughlin. The mere fact that the government was aware of the evidence before the grand jury returned the superseding indictment does not establish that the government violated the defendants' rights to due process. I find that the defendants failed to overcome the presumption of regularity in the grand jury's proceedings and have not met their burden of establishing any improper use by the government. See In Re Grand Jury Proceedings, 632 F.2d 1033, 1041 (3d Cir. 1980). Therefore, I will deny their motion.
IV. The Motion to Dismiss the Indictment Against Robin McLaughlin on Statute of Limitations Grounds.
Finally, Robin McLaughlin argues that I must dismiss the superseding indictment against her because count one, the only count in which she is named, does not allege an overt act in furtherance of the charged conspiracy within the six-year statute of limitations period.
She contends that the only overt acts within the limitations period, numbers seven and eight, charge "acts of concealment" which were not in furtherance of the goal or "central purpose" of the conspiracy and are, therefore, improperly charged. Because overt acts seven and eight properly allege acts in furtherance of the conspiracy charged in count one of the indictment, I will deny her motion.
Overt act seven charges that Russell McLaughlin Jr. failed to disclose the existence of the BIU bank account at New Jersey National Bank during an IRS interview conducted on October 20, 1989. Overt act eight charges that in or about early 1990, Russell McLaughlin Jr. and Mark McLaughlin lied to BIU's accountant about the nature of that bank account. The accountant, identified in the indictment as "W.S.C.," had prepared the 1988 BIU tax return. Both those alleged acts occurred within six years of the return of the superseding indictment and when the IRS was conducting an investigation of the tax liability of Russell McLaughlin Sr. and several McLaughlin family owned companies.
Specifically, count one of the indictment alleges that the defendants:
conspired to defraud the United States by impeding, impairing, obstructing, and defeating the lawful government functions of the Internal Revenue Service ... in the ascertainment, computation, assessment, and collection of revenue, specifically, income tax due and owing the United States from companies owned and operated by [the defendants].