The Honorable Michael J. Davis, United States District Judge for the District 1

of Minnesota, sitting by designation.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

________________

No. 97-3020

________________

United States of America, *

Appellant, *

v. * District Court for the

Terry O'Kane, *

Appellee. *

*

* Appeal from the United States

* Northern District of Iowa.

*

*

*

________________

Submitted: February 12, 1998

 Filed: September 9, 1998

________________

Before WOLLMAN and HANSEN, Circuit Judges, and DAVIS , District Judge. 1

________________

HANSEN, Circuit Judge.

The United States appeals the sentence imposed upon Terry O'Kane for his pleas

of guilty to one count of a 24-count indictment and to a one-count information drawn

against him. For the reasons given below, we reverse and remand for resentencing.
2

I.

Terry O'Kane collected baseball cards. What began as an innocuous hobby had

by 1992 become something more. O'Kane expanded his collection by an elaborate

fraud. He worked as an assistant manager of a grocery store, where he could order

large volumes of cards on the store account. When they arrived, he intercepted the

shipments and took them home or to a storage shed he had rented for keeping the cards.

He retained some portion of the shipments but sold the remainder. Using his

employer's shipping account, he sent cards to dealers in Minnesota and Texas, who

purchased them at a 25 percent discount. O'Kane intercepted the checks from those

dealers and deposited them in one of various bank accounts under his control. In all,

he managed to defraud his employer of over $300,000 worth of baseball cards before

investigators discovered his scheme. In the meantime, he had used a portion of his illgotten gains to purchase various items of personal property, including a personal

computer and a pickup truck.

When his scheme came to light in January 1996, O'Kane immediately confessed

his crime to store investigators and again to police. A federal grand jury returned a 24-

count indictment against him on May 22, 1996, charging 18 counts of mail fraud, in

violation of 18 U.S.C. § 1341; one count of interstate shipment of stolen goods, in

violation of 18 U.S.C. § 2314; three counts of money laundering by engaging in

monetary transactions involving criminally derived property of a value in excess of

$10,000, in violation of 18 U.S.C. § 1957; one count of money laundering with the

intent to carry on a specified unlawful activity, in violation of 18 U.S.C. §

1956(a)(1)(A)(i); and with the forfeiture of personal property pursuant to 18 U.S.C. §

982. On February 28, 1997, O'Kane entered into a plea agreement with the

government, in which he agreed to plead guilty to one count of mail fraud and to a onecount information charging money laundering in the purchase of a pickup truck, of a

value greater than $10,000, in violation of 18 U.S.C. § 1957, which information the

government then filed on April 10, 1997. As part of the plea agreement, he agreed to
3

forfeit all the sports cards still in his possession, money gained from selling the cards,

and other personal property (some of which he had acquired with proceeds from the

fraud), as well as a large portion of an employee retirement account he had through the

grocery. As a result, by the time he entered his plea of guilty, he had made complete

restitution to his former employer for his crime.

At sentencing, the district court first determined the base offense levels for

O'Kane's two offenses of conviction according to the United States Sentencing

Guidelines. Mail fraud, 18 U.S.C. § 1341, has a base offense level of 6, which

increases according to the value of the fraud. O'Kane's total fraud, $304,667, added

8 levels, and the court added two more for more than minimal planning, resulting in a

level 16 for the mail fraud count. See U.S. Sentencing Guidelines Manual § 2F1.1

(1995). Money laundering under 18 U.S.C. § 1957, has a base offense level of 17, to

be increased by two for knowledge that the funds were derived from a specified

unlawful activity. See USSG § 2S1.2(b)(1)(B). The Guidelines provide for no dollar

adjustment if the laundering is for an amount less than $100,000. Since the government

had charged O'Kane with laundering $73,562.50, his money laundering offense level

remained 19. See USSG § 2S1.2. The court grouped the fraud and money laundering

counts together to arrive at a single group with a base offense level of 19, see USSG

§ 3D1.2(b), then reduced the base offense level three levels to 16 for O'Kane's

acceptance of responsibility. See USSG § 3E1.1. The court then departed downward

an additional four levels for unusual acceptance of responsibility, resulting in a final

offense level of 12 and a sentencing range of 10 to 16 months. O'Kane had no prior

criminal history. The court sentenced O'Kane on each of the two counts to five months'

imprisonment with a work release recommendation, followed by five months' home

confinement. The sentences were to be served concurrently. The government raised

timely objections to both the grouping and departure decisions, and now appeals both.
4

II.

"We review findings of fact at the sentencing hearing for clear error and give due

deference to the district court's application of the guidelines to the facts." United States

v. Brelsford, 982 F.2d 269, 271 (8th Cir. 1992). But "we review . . . the district court's

application and construction of the guidelines de novo," United States v. Wells, 127

F.3d 739, 744 (8th Cir. 1997), and "[w]e review a district court's decision to depart

from the Guidelines for an abuse of discretion." United States v. McNeil, 90 F.3d 298,

300 (8th Cir. 1996), cert. denied, 117 S. Ct. 596 (1996).

The government argues first that the district court erred at sentencing by

grouping the mail fraud count with the money laundering count under Section 3D1.2(b)

of the Guidelines. According to the government, the proper application of Part 3D to

O'Kane's counts of conviction yields a base offense level of 21 rather than 19, as the

district court found. A brief recapitulation of the grouping procedure clarifies the

calculation.

After determining the base offense level appropriate for each individual count

pursuant to Chapter 2 of the Guidelines, the sentencing court then determines whether

to adjust the base levels to reflect the presence of multiple counts. This exercise

"seek[s] to provide incremental punishment for significant additional criminal conduct."

USSG Ch. 3, Pt. D, intro. comment. First, the court must group closely related counts

according to Section 3D1.2; then determine the offense level for each group according

to Section 3D1.3; and then find a combined offense level according to Section 3D1.4.

A "group" in Part 3D may consist of only one count, if no counts relate so closely to

one another as to justify grouping them together under Section 3D1.2. Or, all counts

of conviction may fall into a single "group," eliminating the need to "combine" groups

under Section 3D1.4. See USSG § 3D1.2, comment. (n.7).
5

Guided by these rules, the district court grouped O'Kane's two counts together

as "involving the same victim and . . . connected by a common criminal objective." See

USSG § 3D1.2(b). Then, since the court had grouped the two counts under Section

3D1.2(b), Section 3D1.3(a) determined the offense level, setting it at the level of the

most serious count in the group. As indicated above, O'Kane's fraud count carried an

offense level of 16; his money laundering count an offense level of 19. After grouping

the two counts together there was only one group, so the court had no need to

"combine" groups pursuant to Section 3D1.4, and thus concluded that, before assessing

any adjustment under Section 3E1.1 for acceptance of responsibility, or any departure

under Section 5K2.0, O'Kane had an offense level of 19 for the single two-count group.

To group the two counts under Section 3D1.2(b) properly, the court must

determine that the same person or entity was the victim of both crimes. Clearly,

O'Kane's employer was the victim of his fraud, but it is not as immediately clear who

suffered as a result of his money laundering. Several courts have found money

laundering to have as its specific victim the same victim as the underlying fraud. See,

e.g., United States v. Leonard, 61 F.3d 1181, 1186 (5th Cir. 1995) (holding fraud and

money laundering constituted "a single, integrated scheme to obtain money from the

elderly victims and to use that money to facilitate the continuance of the scam.");

United States v. Mullens, 65 F.3d 1560, 1564 (11th Cir. 1995) ("the fraud and the

money laundering were integral cogs in continuing the scheme."); United States v.

Cusumano, 943 F.2d 305, 313 (3d Cir. 1991) (grouping proper under (b) because

money laundering and fraud "were all part of one overall scheme" against a single

victim.).

However, the government has support for its assertion that societal interests,

rather than specific victims, are harmed by money laundering; and, therefore, that

O'Kane's crimes should not be grouped under Section 3D1.2(b). In a First Circuit case

in which a defendant was sentenced under the same guidelines as O'Kane, the court

held that "for the purposes of these subsections, the victim of fraud is the insurance
6

company and the victim of money laundering is society." United States v. Lombardi,

5 F.3d 568, 570 (1st Cir. 1993). See also United States v. Harper, 972 F.2d 321, 322

(11th Cir. 1992) (per curiam) (remarking that money laundering invades societal

interests); United States v. Lopez, 104 F.3d 1149, 1150 (9th Cir. 1997) (per curiam)

(holding that money laundering harms society generally).

The Guidelines also indicate those concerns which should drive our inquiry. The

Sentencing Commission intended the grouping rules to "limit the significance of the

formal charging decision and to prevent multiple punishment for substantially identical

offense conduct." USSG Ch. 3, Pt. D, intro. comment. Defrauding one's employer is

not offense conduct substantially identical to laundering part of the proceeds of that

fraud, and the court moved far beyond "limit[ing] the significance of the . . . charg[e]"

by grouping the counts in a manner which punishes O'Kane solely for his money

laundering, with no additional punishment for his fraud. The district court's grouping

defeats the express purpose of Part 3D, "to provide incremental punishment for

significant additional criminal conduct." Id.

The Guidelines instruct the sentencing court first to calculate all individual

sentences according to Chapter 2, then, "[w]hen offenses are closely interrelated,

group them together for purposes of the multiple-count rules." Id. (emphasis added).

O'Kane's fraud and money laundering are not closely interrelated. Again, we do not

simply squint at shadows on a dark wall; the Guidelines provide clear examples of the

types of counts which should be grouped under Section 3D1.2(b). A count of

conspiracy to commit extortion and the substantive extortion count should be grouped;

multiple counts of mail and wire fraud directed at the same victim should be grouped;

and multiple counts of delivery of a controlled substance can be grouped, all under

Section 3D1.2(b). USSG § 3D1.2 comment. (n.4). These examples make clear that,

had O'Kane pled guilty to multiple counts of fraud, those counts would properly have

been grouped. But O'Kane's separate offenses of fraud and money laundering are not

so closely interrelated as to justify grouping under (b). The offenses entail different
7

kinds of proscribed conduct, punishable on different scales, which harm distinct and

different victims.

The Guidelines expressly state that so-called "victimless crimes" harm societal

interests. "For offenses in which there are no identifiable victims . . . the 'victim' for

purposes of subsections (a) and (b) is the societal interest that is harmed." USSG §

3D1.2, comment. (n.2). Fraud clearly harms the defrauded. But money laundering

harms society's interest in discovering and deterring criminal conduct, because by

laundering the proceeds of crime, the criminal vests that money with the appearance of

legitimacy. The interest of the law-abiding general public in preventing the criminals

among us from profiting from their crimes is invaded when criminally derived funds are

laundered to allow the criminal unfettered, unashamed and camouflaged access to the

fruits of those ill-gotten gains. Therefore, we choose to follow those circuits which

have held that money laundering invades a distinct societal interest. Since O'Kane

harmed two different victims--his employer by fraud and society by laundering his illgotten proceeds--the district court erred by grouping his counts of conviction under

Section 3D1.2(b).

In support of grouping under Section 3D1.2(b), O'Kane points to undisputed

facts in the Presentence Investigation Report (PSIR) showing that his act of money

laundering involved the purchase of a pickup truck which he used to help facilitate his

fraud. Therefore, he concludes, his money laundering had the same victim as his fraud,

and the two counts should be grouped under Section 3D1.2(b). This conclusion hangs

on a thread too slender to bear its weight. O'Kane had begun both his fraud and his

money laundering activities over a year before he purchased the pickup truck, and

although the PSIR indicates that, after its purchase, he used the truck to remove some

cards from his employer's premises, O'Kane does not claim that the truck purchase was

for the sole or even primary purpose of continuing his fraud. The undisputed fact that

it was incidentally used on occasions "to haul stolen property from" his employer's
8

premises, see PSIR Adden. n.2, does not change the legal conclusion that he harmed

a different victim by his money laundering than by his fraud.

Further, O'Kane did not plead guilty to money laundering under 18 U.S.C. §

1956, although he was originally charged with one count under that more serious

"reinvestment" money laundering statute. Section 1956(a)(1)(A)(i) proscribes money

laundering done "with the intent to promote the carrying on of specified unlawful

activity" and carries a base offense level of 23. The terms of O'Kane's plea agreement

permitted him to plead guilty only to a violation of 18 U.S.C. § 1957, which does not

require that the laundering conduct promote the underlying crime, and it likewise has

a significantly lower base offense level, 17. O'Kane cannot have his cake and eat it,

too. His plea agreement with the government reduced his offense level by six from

what it would have been had he gone to trial and been convicted. Part of that reduction

comes from him not pleading guilty to reinvesting his laundered funds into his ongoing

criminal enterprise. Having pled guilty to the less serious form of money laundering

under Section 1957, he should not be allowed to further reduce his offense level by

arguing that he harmed the same victim by both crimes because his illegal laundering

truly was of the more serious Section 1956(a)(1)(A)(i) "reinvestment" kind.

Simply because the district court did not properly group the counts under Section

3D1.2(b) does not end our grouping inquiry. "Counts are to be grouped together into

a single Group if any one or more of the subsections provides for such a grouping."

USSG § 3D1.2, comment. (n.1). The government argues that if grouping is proper at

all, it is proper under Section 3D1.2(d), which requires grouping counts for which "the

offense level is determined largely on the basis of the total amount of harm," USSG §

3D1.2(d), and, if covered by different guidelines, where those offenses "are of the same

general type and otherwise meet the criteria for grouping under this subsection." Id.

§ 3D1.2, comment. (n.6).
The government's brief does not correctly account for the increase due to 2

aggregate quantity. It contends that the offense level under Section 3D1.2(d) would

be 21, due to a two level increase for a quantity between $200,000 and $350,000. 

But O'Kane's unobjected-to relevant offense conduct contained in the PSIR includes

$304,667 of fraud and $73,562.50 of money laundering under 18 U.S.C. §§ 1956

and 1957. The total, $378,229.50, requires a three level increase. See USSG §

2S1.2(b)(2).

We note, as did the Hildebrand panel, that in a case where all the fraud 3

proceeds were also laundered, these concerns might not arise. See id. at *4 n. 2.

9

The government's argument is foreclosed by the recent decision of this court

"that fraud and money laundering are not so closely related as to allow loss and value

grouping under § 3D1.2(d)." United States v. Hildebrand, 1998 WL 420504, at *4.

The final offense level determination is made differently when counts are grouped

under Section 3D1.2(d) than when they are grouped under (a) through (c). When

multiple counts covered by different Guidelines are grouped under (d), the aggregate

quantity of harm from all counts is used to increase the base offense level of the most

serious count in the group determined by the applicable Guidelines rules from Chapter

2. So, while O'Kane was charged with defrauding his employer of $304,667 but

laundering only $73,562.50 of the fraudulently obtained monies, if the counts were

grouped under Section 3D1.2(d), he would be punished for laundering the total sum of

$378,229.50, thereby increasing his offense level to 22. See USSG § 3D1.3(b).

2

"[B]ecause the base offense levels for money laundering are much higher than the base

offense level for fraud, . . . it is wrong to assume that the Sentencing Commission

intended to equate the amount of fraud loss with the value of money laundered for

every fraudulent scheme that includes some form of money laundering." Hildebrand,

1998 WL 420504, at *4.3

While it is clear that several separate money laundering counts could properly

be grouped together under (d), as could several fraud counts, it is not clear that counts

of those separate offenses necessarily "otherwise meet the criteria for grouping under
10

this subsection [d]." USSG § 3D1.2, comment. (n.6). One of the criteria is that the

offense level be "largely determined" by "the amount of harm or loss." Section

3D1.2(d). Here, there is no question that the fraud offense level was largely determined

(and increased) by the aggregate amount involved. The money laundering count, on

the other hand, did not increase because of amount, but rather did increase by two

levels for O'Kane's knowledge that the funds came from a specified unlawful activity,

and ended up at 19. Laundering any amounts less than $100,000 (as O'Kane did here)

has no effect at all on the offense level for money laundering. On the facts before us,

the offense level for money laundering is not "determined largely on the basis of the

total amount of harm or loss;" rather it is determined largely by the eleven level higher

starting base offense level. Therefore, grouping under Section 3D1.2(d), as argued for

by the government, is not appropriate. See, e.g., United States v. Kneeland, 148 F.3d

6, 15-16 (1st Cir. 1998).

Since none of the grouping rules properly apply to O'Kane's two counts of

conviction, those counts must remain in separate, one-count "groups" for the purpose

of "combining" under Section 3D1.4. After separately computing the offense levels for

each group, the Guidelines instruct the court to "[c]ount as one Unit the Group with the

highest offense level. Count one additional Unit for each Group that is equally serious

or from 1 to 4 levels less serious." USSG § 3D1.4(a). O'Kane's money laundering

offense (level 19) counts as one Unit; his fraud offense (level 16) counts as an

additional Unit because it is not more than 4 levels less serious. For two Units, Section

3D1.4 instructs the sentencing court to add two levels to the higher offense group,

which in O'Kane's case yields an offense level 21 before any reduction for acceptance

of responsibility.

III

The government also challenges the district court's departure which was based

on unusual acceptance of responsibility. After grouping the two counts and arriving at
11

a base offense level of 19, the court decreased O'Kane's offense level by two levels

pursuant to USSG § 3E1.1(a), finding that he had "clearly demonstrate[d] acceptance

of responsibility for his offense." The court further reduced O'Kane's offense level by

one additional level pursuant to USSG § 3E1.1(b), finding that he had "timely provided

complete information to the government concerning his own involvement in the offense;

or timely notified authorities of his intention to enter a plea of guilty." Id. The court

continued, however, finding "that a downward departure of 4 additional levels [was]

warranted based on [O'Kane's] extraordinary acceptance of responsibility. With the 4-

level reduction, [O'Kane's] total offense level [was] 12. And with [his] criminal history

category of I, the guideline range [was] 10 to 16 months." (Sent. Tr. at 82-83.) The

court then sentenced O'Kane to five months' imprisonment with a work-release

recommendation, followed by five months' home confinement, concurrent on each of

the two counts.

"The appellate court should not review the departure decision de novo, but

instead should ask whether the sentencing court abused its discretion." Koon v. United

States, 518 U.S. 81, 91 (1996). But even reviewing under this deferential standard, we

conclude that the district court erred in departing from the Guidelines based on

O'Kane's supposed exceptional acceptance of responsibility. To justify departure, a

"case must be found unusual enough for it to fall outside the heartland of cases in the

Guideline." Id. at 98. This case clearly does not. The district court departed four

levels based on O'Kane's acceptance of responsibility as demonstrated by his restitution

to his employer of the full value of his fraud prior to adjudication; his immediate

admission of his conduct to authorities; and his continued cooperation during the

investigation. (Appellant's Adden. at 7.) Our authorities, as well as the Guidelines

themselves, make clear that this is an insufficient basis for departure.

Departure from the Sentencing Guidelines is warranted only when "the court

finds that an aggravating or mitigating circumstance exists that was not adequately

taken into consideration by the Sentencing Commission in formulating the guidelines
12

and that should result in a sentence different from that described." 18 U.S.C. §

3553(b). Victim restitution is a listed basis for reducing the offense level within the

Guideline for acceptance of responsibility. "In determining whether a defendant

qualifies under [section 3E.1.(a)], appropriate considerations include . . . voluntary

payment of restitution prior to adjudication of guilt." USSG § 3E1.1, comment.

(n.1(c)). That is, in deciding whether a defendant qualifies for the initial adjustment in

offense level for acceptance of responsibility, the court should consider whether the

defendant has voluntarily made restitution to the victims of his crimes. Since the

Commission has explicitly listed restitution as a ground for adjustment within the

acceptance of responsibility Guideline, it is not possible to view it as a "circumstance

. . . not adequately considered" which would move O'Kane out of the heartland of cases

and justify a departure under Section 5K2.0 unless something considerably more

unusual is at play.

This court has recognized that voluntary restitution can be made under

circumstances which warrant the district court's consideration of a departure. In United

States v. Garlich, 951 F.2d 161 (8th Cir. 1991), the defendant had repaid the victims

of his fraud over $1.4 million even before he was indicted. Upon entering a plea of

guilty, the sentencing court determined that the total harm caused by Garlich's crime

was only $253,000. In remanding for resentencing we said, "Although the district court

gave Garlich this reduction [for acceptance of responsibility], we conclude the district

court should consider whether the extent and timing of Garlich's restitution are

sufficiently unusual to warrant a downward departure." Id. at 163. In this circuit, after

Garlich, a six-fold repayment of harm, made over the objection of one's own counsel,

a full year before indictment, may be sufficiently outside the heartland of cases to

warrant the district court's consideration of departure.

O'Kane's restitution does not approach the circumstances of Garlich. We note

that O'Kane was actively involved in negotiations with state and federal authorities for

over a year after his crime was first discovered before he entered into a plea agreement,
13

one consequence of which was that the government dropped 23 of 25 charges against

him. Further, although by the terms of the plea agreement O'Kane stipulated to the

amount of his fraud, and thus the amount of restitution required of him, he disputed the

accuracy of that amount at sentencing and again in his briefs to this court. Nor has he

overpaid any restitution, a la Garlich. To his credit, he has made full restitution, but a

large part of that consisted of returning the goods he had stolen but not yet peddled

elsewhere. Finally, although he admitted much of his conduct to investigators, he did

not voluntarily disclose the largest purchaser of his stolen merchandise. O'Kane's

conduct simply does not remove O'Kane's case from the heartland of acceptance of

responsibility cases so as to permit departure. The district court abused its discretion

when it departed.

We are also troubled by the fact that the court did not explain why the

circumstances it found so exceptional warranted a departure which more than doubled

the reduction O'Kane had already received for acceptance of responsibility under

Section 3E1.1. The court did not explain why it took a departure of four levels

(amounting to a two-thirds reduction in possible punishment) as opposed to, say, only

a one level departure, in order to adequately compensate O'Kane for the extraordinary

acceptance of responsibility the court thought was present. The absence of such an

explanation would have made it difficult for us to assess the reasonableness of the

extent of the court's departure if it were necessary for us to proceed to determine that

issue.

IV.

Accordingly, we reverse the judgment of the district court, vacate O'Kane's

sentence, and remand for resentencing in accordance with this opinion.
14

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.