The opinion of the court was delivered by: McCLURE, District Judge.
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.
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.
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.
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:
(a)(1) Whoever, knowing that the property
involved in a financial transaction represents the
proceeds of some form of unlawful activity,
conducts or attempts to conduct such a financial
transaction which in fact involves the proceeds of
specified unlawful activity —
(A)(i) with the intent to promote the carrying
on of specified unlawful activity; or
(B) knowing that the transaction is designed in
whole or in part —
(i) to conceal or disguise the nature, the
location, the source, the ownership, or the
control of the proceeds of specified unlawful
activity;
shall be sentenced to a fine of not more than
$500,000 or twice the value of the property
involved in the transaction, whichever is
greater, or imprisonment for not more than twenty
years, or both.
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:
A conviction on a count charging a conspiracy to
commit more than one offense shall be treated as
if the defendant had been convicted on a separate
count of conspiracy for each offense that the
defendant conspired to commit.
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.
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.
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.