On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Criminal No. 93-cr-00445-1)
BEFORE: ROTH, McKEE and GARTH, Circuit Judges
Argued Monday, December 11, 1995 *fn1
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. Section(s) 371: (i) to defraud the United States and the Treasury and (ii) to structure to avoid the reporting requirements of 31 U.S.C. Section(s) 5313(a), in violation of the anti-structuring provisions of 31 U.S.C. Section(s) 5324(a)(3) and Section(s) 5322. Count II charged him with structuring in violation of 31 U.S.C. Section(s) 5324(a)(3), Section(s) 5322(b); 31 C.F.R. Section(s) 103.11, Section(s) 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 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 Section(s) 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 Section(s) 371, (Indictment Para(s) 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" *fn2 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, *fn3 that we reverse Alston's conviction.
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. *fn4 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. *fn5
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. Section(s) 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), *fn6 in violation of the anti-structuring provisions of 31 U.S.C. Section(s) 5324(a)(3) *fn7 and Section(s) 5322. *fn8 Count II charged Alston with the substantive offense of structuring, that is, evasion of the reporting requirements of 31 U.S.C. Section(s) 5313(a), in violation of the anti-structuring provisions of 31 U.S.C. Section(s) 5324(a)(3), Section(s) 5322(b); 31 C.F.R. Section(s) 103.11 *fn9, Section(s) 103.22; *fn10 and 18 U.S.C. Section(s) 2(b). *fn11
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 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 Section(s) 5324 and Section(s) 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 Para(s) 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 Para(s) 7(a)). It did so on the ground that Ratzlaf's mens rea requirement did not apply to Section(s) 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.
Section 5313 of title 31 of the United States Code, and 31 C.F.R. Section(s) 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. Section(s) 5324 and Section(s) 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 the financial institution's reporting requirements under 31 C.F.R. Section(s) 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 Section(s) 5322(a) to mean knowledge of the bank's reporting requirements under Section(s) 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 Section(s) 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). *fn12
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" *fn13 under the "defraud" clause of 18 U.S.C. Section(s) 371. The district court agreed and declined to vacate the charge against Alston for conspiracy to defraud the United States under Section(s) 371.
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]. 18 U.S.C. Section(s) 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 Section(s) 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)). *fn14
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 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 Section(s) 371 conspiracy to structure.
After the district court dismissed all but the charge of Section(s) 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 Section(s) 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. *fn15
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. Section(s) 2(b) and Section(s) 1001, *fn16 and of conspiracy to defraud the United States under Section(s) 371.
Like the antistructuring statutes, Section(s) 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 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 Section(s) 2(b) and Section(s) 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. Section(s) 2(b) and 18 U.S.C. 1001. Most significantly, however, we vacated Curran's Section(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)).
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 ...