U.S. v. BIFIELD

The opinion of the court was delivered by: McCLURE, District Judge.

BACKGROUND:

This case presents a unique instance of inmates at a high-security institution using sophisticated means to commit sophisticated, white-collar crimes, assisted by the above-named defendants. Moreover, it involves criminal activity over an extended period, employing the services of persons outside the prison system to facilitate and to prevent detection of the crime, and to continue the operation. It is a prime example of what can be accomplished despite the imposition of restrictive conditions of confinement.

Before the court is the question of sentencing ranges of the various defendants, based in part on each defendant's role in the charged offense.

DISCUSSION:

I. STATEMENT OF FACTS

A. Procedural History

On August 27, 1997, a grand jury sitting in the Middle District of Pennsylvania returned an indictment charging defendants Janet Bifield, Daniel Bifield, Beverly Davis, William McDermott, Thomas Harrison, Robert L. Sizemore, and Barry Spell with conspiracy to commit money laundering in violation of 18 U.S.C. § 1956(h). The case against Spell was transferred to the United States District Court for the District of Nevada pursuant to Fed.R.Crim.P. 20. Spell entered a plea of guilty to the conspiracy charge and was sentenced to a period of incarceration of 63 months, to be followed by a 3-year term of supervised release. Sizemore entered a plea of guilty to Count One of the indictment on December 4, 1997. Janet Bifield entered a plea of guilty to Count One on January 26, 1998.

On June 24, 1998, a grand jury sitting in the Middle District of Pennsylvania returned a superseding indictment charging the same offense against defendants Daniel Bifield, Davis, McDermott, Harrison, and Stephen Montgomery. Harrison entered a plea of guilty to Count One on September 30, 1998. Montgomery entered a plea of guilty to Count One on October 1, 1998. Only Daniel Bifield, Davis, and McDermott proceeded to trial, and all three were found guilty by a jury on November 9, 1998.

Defendant Diane Oberley was charged separately under § 1956(h) by information filed December 12, 1996, and entered a plea of guilty on January 13, 1997. Defendant Erica Rowlands was charged under § 1956(h) by information filed January 14, 1997, and entered a plea of guilty on February 11, 1997.

Pre-sentence reports were ordered and obtained for each defendant.

Between January 29 and March 19, 1999, the court heard evidence and argument related to the objections to the PSR's, and any motions for upward or downward departures from the imprisonment range as determined under the Sentencing Guidelines. Sentencing was deferred pending hearing all of this evidence and argument, so that the court would have complete information available and so that the sentences imposed would be consistent among the co-defendants/co-conspirators. This memorandum is issued for the purpose of resolving the divers issues raised.

B. Nature of the Scheme to Defraud

The originators of the underlying scheme appear to be two federal inmates named Rodney Archambeault and Anthony Pfeffer. The basic idea was to file false income tax returns with authorities in the States of Ohio and California for which refund checks would issue. The primary problems of such a scheme are avoiding detection by tax authorities in those states and depositing or cashing the checks once they are received, since an inmate obviously would not be employed full-time.

To avoid the "red flags" which would be raised, the inmates would use real Social Security numbers of persons outside the prison system on the false returns, and would prepare false IRS Forms W-2 using the tax identification numbers of actual Fortune 500 companies. Also, they would obtain demographic information from public offices which would indicate reasonable incomes and refunds of persons living in the locales from which the false returns were purported to originate. The schemers made sure to use the right forms, and even made sure that the returns were filed at the time of year best suited to avoid detection. As noted, the level of sophistication was remarkable.

To maximize their ability to capitalize on the fraud, the inmates needed Social Security numbers and their accompanying identities. Archambeault and Pfeffer therefore recruited other inmates who participated by preparing fraudulent returns and by obtaining more Social Security numbers. They did this at the various Bureau of Prisons institutions in which they were incarcerated. One investigator described the pair as a "cancer" within these facilities, an apt description.

One of the institutions to which Archambeault and Pfeffer were designated by the BOP was the United States Penitentiary at Allenwood, one of the facilities within the Federal Corrections Complex at Allenwood, located in White Deer, Union County, Pennsylvania. There, other inmates joined the scheme, including Daniel Bifield, Thomas McDermott, Mark Conway, David Hammer, Michael Sizemore, Wayne Bridgewater, Arthur Hill, and William Burke. People outside the institution, usually the inmates' family members who were not incarcerated, were recruited to cash refund checks, to deposit the checks into existing bank accounts, or to open new bank accounts for the purpose of obtaining cash for the fraudulently obtained refund checks.

The general pattern of distribution of the proceeds was to be 1/3 for Archambeault and Pfeffer, 1/3 for the person who cashed the check, and 1/3 for the inmate who coordinated the financial transactions. Of course, given the nature of the scheme, the participants did not adhere strictly to this general plan.

Once a check was received, it would be deposited or cashed, or otherwise negotiated so as to produce cash, by a person on the outside of the institution. The proceeds would be distributed using postal money orders, other money orders, wire transfers, etc., and also the deposit of proceeds into the commissary accounts of the inmate conspirators. To facilitate the offense, the conspirators used the mail, including legal mail, to and from USP-Allenwood, and made telephone calls (using guarded language) regarding the scheme from the penitentiary.

As necessary, relevant conduct of the individual defendants to be sentenced will be discussed in the proper context.

II. BASE OFFENSE LEVEL

A problem common to the defendants is the base offense level for conspiracy to commit money laundering. For most of the defendants, the Probation Office recited a base offense level under the Guidelines of 23. The source for this figure is USSG § 2S1.1(a)(1), which provides that the base offense level is 23 if the defendant is convicted under § 1956(a)(1)(A), (a)(2)(A), or (a)(3)(A).*fn1 Otherwise, the base offense level is 20. USSG § 2S1.1(a)(2). The first question is which of these figures applies. Second, we must determine whether a departure from either of these base offense levels is appropriate as significantly overstating the seriousness of the offense.

Defendants were charged with conspiracy to violate both § 1956(a)(1)(A)(i) and (B)(i), which provide:

18 U.S.C. § 1956(a)(1). Succinctly stated, the difference is money laundering to further the underlying criminal activity versus money laundering to avoid detection of the underlying criminal activity. The problem lies in the fact that the base offense level is higher under (A)(i) than under (B)(i) (23 versus 20).

Davis, in a brief joined by all of the other defendants save Rowlands (who waived a pre-sentence hearing), argues that the court must find beyond a reasonable doubt that the intent of the conspiracy was to promote the tax fraud scheme before the higher base offense level applies. We disagree, although as discussed below this necessary conclusion is not particularly logical; we reach our conclusion based on the language of the Guidelines.

The first applicable Guidelines provision reads:

USSG § 1B1.2(d). The Sentencing Commission elaborated on that provision as follows:

USSG § 1B1.2, comment. (n. 5).*fn2

In this instance, offenses for which § 2S1.1 applies are grouped under § 3D1.2(d); in fact, they are specifically listed as offenses to be grouped. By the terms of Application Note 5 to § 1B1.2 and § 3D1.2(d), the money laundering offenses are grouped and the court does not distinguish between the objects of a money laundering conspiracy. By operation of the grouping rules, the highest offense level (23) applies. USSG § 3D1.3(b).

The failure in the logic of this approach arises from the fact that the different base offense levels under § 2S1.1 exist because a defendant convicted under the subsections as to which the higher base offense level applies "encouraged or facilitated the commission of other crimes." USSG § 2S1.1, comment. (backg'd.). By grouping the offenses, the purpose for which separate base offense levels were created is not fulfilled. Most importantly, the intent of the Guidelines section is prevented from being achieved merely by the recitation of a conspiratorial aim in an indictment, not because it has been proven.

Stated another way, the purpose of grouping different counts is to prevent multiple sentences for substantially the same harm. USSG Ch. 3, Pt. D, intro. comment. Preventing detection and furthering additional criminal conduct, however, are separate harms. Grouping these offenses merely because a conspiracy has been charged, and thus applying the higher base offense level, without examining whether the defendant's conduct reflects the intent relative to the higher base offense level, defeats the purpose of the grouping rules. However, this is the result of the plain language of the Guidelines.

In a case such as this, for instance, it may well be proven by the government that there was a conspiracy to conceal the source of unlawfully acquired funds without proving that the conspirators also intended to promote carrying on of the unlawful activity. However, by charging the latter, and by obtaining a verdict of guilty as to conspiracy generally, the government in effect dictates that the higher offense level will apply, regardless of the actual conduct of the defendant.

This result conflicts with a number of other Guidelines provisions. First, it is contrary to the stated purpose of the Guidelines to impose a sentence based on the actual conduct of the defendant. See generally USSG § 1B1.3, comment. (n. 1). Second, it conflicts with the introductory commentary language of Chapter 3 of the Guidelines cited above and the introductory language of § 3D1.2, which indicates that counts are grouped when they "involv[e] substantially the same harm." Finally, it conflicts with the example provided in Application Note 5 to § 1B1.2 (quoted above), in which the separate offenses were the theft of 3 different government checks, which is consistent with the opening language of § 3D1.2.

It appears that this may be an instance in which a departure may be warranted, since the conflicting result obtained by following the language of § 3D1.2(d), as opposed to the policy of the Guidelines and the introductory language of § 3D1.2, does not appear to have been a matter adequately taken into consideration by the Sentencing Commission in formulating the Guidelines. See USSG § 5K2.0.

The evidence produced at trial by the government indicated that relatively minor sums were expended for the purpose of promoting the carrying on of the tax fraud scheme. For the most part, the expenses were for mailing, buying money orders, and telephone bills. Most of the transactions involved cashing the refund checks and converting the cash into money orders for distribution, both of which activities would disguise the source and ownership of the funds. It is true that the conduct of the schemers technically was within the scope of § 1956(a)(1)(A)(i), but the conduct more properly falls within § 1956(a)(1)(B)(i). The "promotion" conduct really was incidental or tangential to the "disguise" conduct. We therefore will depart from the total offense level by 3 levels, representing the difference between a base offense level of 23 and the more appropriate base offense level of 20.

In addition, Rowlands and Oberley entered guilty pleas to violating § 1956(a)(1)(B)(i), so that the lower base offense level of 20 applies. We conclude that it would be fundamentally unfair to deprive these defendants of the benefit of their plea agreement with the government, a factor not taken into consideration by the Guidelines. That is, Rowlands and Oberley negotiated plea agreements that gave them a base offense level three points lower than the other conspirators indicted in this court. We have deferred sentencing and held pre-sentence hearings for the purpose of consistency in the sentences to be imposed.

The Guidelines do not address the need for consistency among co-conspirators or defendants in related cases. But see United States v. Tally, 920 F. Supp. 597, 606 (M.D.Pa. 1996) (unfair to impose longer sentences on defendants with lesser role in schemes to grow marijuana and to obstruct investigation and prosecution), aff'd sub nom. United States v. Vancuren, 111 F.3d 128, 1997 WL 173170 (3d Cir. 1997) (table). The closest statement is found in USSG Ch. 6, Pt. B, intro. comment., which provides that plea negotiation practices should not be allowed to perpetuate unwarranted sentencing disparity. We conclude that preserving the "benefit of the bargain" for a defendant is a proper basis for a downward departure under USSG § 5K2.0 as a factor not adequately taken into consideration by the Sentencing Commission in formulating the Guidelines. We therefore will depart 3 levels from the Total Offense Levels of Rowlands and Oberley.

Davis also argues at length that the court should depart from the Guidelines because the offense committed by these defendants does not fall within the heartland of money laundering cases. She cites a number of cases in which courts have departed for this reason, and also relies on a report by the Sentencing Commission related to money laundering offenses. Report to the Congress: Sentencing Policy for Money Laundering Offenses, including Comments on Department of Justice Report (as directed by section 2(b) of Public Law 104-38) (September 18, 1997). In that report, the Sentencing Commission concluded that the Guidelines relating to money laundering should be revised because of the disparity of conduct among offenders receiving similar, lengthy sentences. Davis argues that the money laundering statutes were intended to attack organize crime and large-scale drug traffickers, not marginal participants in tax fraud schemes.

The first problem with this entire line of reasoning is that the Sentencing Commission's recommendation that the Guidelines be "recalibrated" for money laundering offenses was rejected by Congress. Pub.L. No. 104-38, § 1, 109 Stat. 334 (October 1, 1995). In United States v. Woods, 159 F.3d 1132, 1134-1136 (8th Cir. 1998), the Eighth Circuit reviewed both the recommendations and Congress' reaction thereto. Congress concluded that the past sentencing anomalies in a few money laundering cases did not warrant a sweeping adjustment in the Sentencing Guidelines. It did not suggest that downward departures in instances of money laundering outside the heartland were not appropriate. Id. at 1135. Congress also directed further study of the problem, particularly with respect to achieving uniformity in the use of the money laundering as a charging device. The general idea is that the money laundering statutes are not to be used as a means of increasing the penalty for simple "receipt and deposit" cases, "those in which the money laundering conduct is limited to depositing the proceeds of unlawful activity in a financial institution account identifiable to the person who committed the underlying offense." Id. at 1135.

In contrast to the type of case described in Woods, this case involves a complex scheme of tax fraud, not a "receipt and deposit" case. The money laundered was deposited or cashed for such purposes as distancing the funds from the state-issued refund checks and to pay the participants in the scheme. Bank accounts were opened specifically for that purpose, and the checks were made out to third parties. The actual perpetrators of the underlying fraud generally were not the recipients of the checks. They (the fraud perpetrators) benefitted after the funds had gone through several transactions, such as deposit and cash withdrawal, or direct exchange for cash, division among the money laundering conspirators, then money orders, further deposits (including into prison commissary accounts), etc.

In addition to the foregoing, we note that the charged offense of conspiracy to commit money laundering stands apart from the tax fraud scheme, based on the process described immediately above. We also note that the argument propounded by Davis actually seems to be rather self-defeating. The contention is that there are a large number of cases outside the heartland of money laundering which led to reconsideration of whether the base offense levels under the Guidelines are appropriate. If there are so many cases outside the heartland, the heartland must be larger than originally recognized, and so such cases either have become part of the heartland, or the heartland has grown. Also, the argument that these cases do not fit within the legislative intent behind the money laundering statute is flawed because Congress did not limit money laundering to organized crime and drug trafficking cases. The statutory language is unambiguous, and therefore an analysis of congressional intent is unnecessary and inappropriate.

This issue was addressed recently by the Court of Appeals for the Third Circuit in United States v. Morelli, 169 F.3d 798 (3d Cir. 1999) (opinion filed after brief by Davis). That opinion is relevant initially in its discussion of the sufficiency of the evidence of a wire fraud scheme, which in turn supported a charge of money laundering. Because wire transactions performed after the receipt of funds were intended to make detection of the fraud more difficult, the transactions both constituted the "wire" element of wire fraud and constituted a financial transaction with the proceeds of unlawful activity (the wire fraud). The Third Circuit concluded that the district court properly sentenced the defendants under the money laundering Guidelines. Id. at 808-809. Thus, as in this case, an overlap in the transactions as an element of the underlying offense or to obtain the benefit of the underlying offense does not preclude consideration of the transactions as money laundering.

Also, in a footnote, the Third Circuit addressed an argument by a defendant that the proposed amendments to the Guidelines reflected the Sentencing Commission's view that his conduct was not within the "heartland" of the Guidelines.*fn3 The Third Circuit noted first that the district court did not err when it rejected the argument because the proposed amendments to the ...