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 g uilty 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 elaborat e frau d. He worked as an assistant manager of a grocery store, where he could orde r large volu mes of cards on the store account. When they arrived, he intercepted th e shipments and took them home or to a storage shed he had rented for keepin g the cards. He retained some portion of the shipments but sold the remainder. Using hi s employer's shipping account, he sent cards to dealers in Minnesota and Texas, wh o pur chased them at a 25 percent discount. O'Kane intercepted the checks from thos e dea lers 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 g ains to purchase various items of personal property, including a persona l computer and a pickup truck.
When his scheme came to light in January 1 996, O'Kane immediately confessed his crime to store investigators and again to police. A federal grand jury returned a 24- count indict ment against him on May 22, 1996, charging 18 counts of mail fraud, i n vio lationof 18 U.S.C. § 1341; one count of interstate shipment of stolen goods, i n violation o f 18 U.S.C. § 2314; three counts of money laundering by engaging i n
mo netary transactions involving criminally derived property of a value in excess o f $1 0,000, in violation of 18 U.S.C. § 1957; one count of money laundering with th e inten t 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 th e government, in which he agreed to plead guilty to one count of mail fraud and to a oneco unt information charging money laundering in the purchase of a pickup truck, of a
va lue greater than $10,000, in violation of 18 U.S.C. § 1957, which information th e government then

filed on April 10, 1997. As part of the plea agreement, he agreed to3

forfeit all the sp orts cards still in his possession, money gained from selling the cards, and other personal property (some of which he had acquired with proceeds from th e fraud), as well as a large portion of an employee retirement account he had through the gro cery. 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 sen tencing, the district court first determined the base offense levels fo r O' Kane's two offenses of conviction according to the United States Sentencin g Guideline s. Mail fraud, 18 U.S.C. § 1341, has a base offense level of 6, whic h increases according to the value of the fraud. O'Kane's total fraud, $304,667, adde d 8 levels, a nd 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 laund ering under 18 U.S.C. § 1957, has a base offense level of 17, to be incr eased by two for knowledge that the funds were derived from a specifie d 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. Sin ce the government hadcharged O'Kane with laundering $73,562.50, his money laundering offense level remained 19. SeeUSSG § 2S1.2. T he court grouped the fraud and money laundering counts together to arrive at a single group with a base offense level of 19, see USSG § 3 D1.2(b), then reduced the base offense level three levels to 16 for O'Kane' s acceptance of responsibility. SeeUSSG § 3E1.1. The court then departed downward
an addition al four levels for unusual acceptance of responsibility, resulting in a fina l of fense level of 12 and a sentencing range of 10 to 16 months. O'Kane had no prio r criminal history. The court sentenced O'Kane on each of the two co unts to five months' im prisonment

with a work release recommendation, followed by five months' hom e conf inement. 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 er ror and give due deference to the district court's application of the guidelines to th e facts." United States v. Brelsford , 982 F.2d 269, 271 (8th Cir. 1992). But "wereview . . . the district court's applica tionand construction of the guidelines de novo," United States v. Wells , 12 7 F.3d 739, 744 (8th Cir. 1997), and "[w]e review a district court's decision to depar t 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 gov ernment argues first that the district court erred at sentencing b y grouping the mail fraud count with the money laundering c ount under Section 3D1.2(b) of the Guide lines. 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 distric t court found. A brief recapitulation of the grouping procedure clarifies th e calculation.

After determining the base offense level appropriate for each individual coun t 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 exercis e "seek[s] to provide incremental punishment for significant addit ional criminal conduct." USSG Ch. 3, Pt. D, intro. comment. First, the court must group closely related counts according to Section 3D1.2; then deter mine the offense level for each group according to Section 3D1.3; and th en 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
o ne 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 Sectio n 3D1.2(b), Section 3D1.3(a) determined the offense level, setting it at the level of the most serious c ount in the group. As indicated above, O'Kane's fraud count carried an offense level of 16; his money launderi ng count an offense level of 19. After grouping the two c ounts together there was only one group, so the court had no need t o "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 s ingle two-count group.

To group the two counts under Section 3D1.2(b) properly, the court mus t determ ine that the same person or entity was the victim of both crimes. Clearly , O'K ane's employer was the victim of his fraud, but it is not as immediately clear who suffe red as a result of his money laundering. Several courts have found mone y 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 th e elderly vi ctims 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 th e money laundering were integral cogs in continuing the scheme."); United States v

. Cusu mano , 943 F.2d 305, 313 (3d Cir. 1991) (grouping proper under (b) becaus e
mon ey laundering and fraud "were all part of one overall scheme" against a singl e victim.).

However, the government has support for its assertion that societal interests , rather than specific victims, are harmed by money laundering; and, therefore, tha t O'Kane's crimes should not be grouped under Sect ion 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 insurance6

company a

nd the victim of money laundering is society." United States v. Lombardi , 5 F.3d 568, 570 (1st C ir. 1993). See also United States v. Harper , 972 F.2d 321, 322 (1 1th Cir. 1992) (per curiam) (remarking that money laundering invades societa l 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 Sentenci ng Commission intended the grouping rules to "limit the significance of th e 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 o ffense conduct substantially identical to laundering part of the proceeds of tha t 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 mone y laundering, with no additional punishment for his fraud. The district court's grouping defeat s the express purpose of Part 3D, "to provide incremental punishment fo r significant additional criminal conduct." Id.

The Gui delines instruct the sentencing court first to calculate all individua l 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'Kan e's fraud and money laundering are not closely interrelated. Again, we do no t simply squint at shadows on a d ark wall; the Guidelines provide clear examples of the typ es of counts which should be grouped under Section 3D1.2(b). A count o f conspiracy to commit extortion and the sub stantive extortion count should be grouped; multiple counts of

mail and wire fraud directed at the same victim should be grouped; and multi ple counts of delivery of a controlled substance can be grouped, all unde r Sectio n 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 different7

kin ds of proscribed conduct, punishable on different scales, which harm distinct an d different victims.

The Guide lines expressly state that so-called "victimless crimes" harm societal int erests. "For offenses in which there are no identifiable victims . . . the 'victim' fo r purposes of su bsections (a) and (b) is the societal interest that is harmed." USSG § 3D1. 2, comment. (n.2). Fraud clearly harms the defrauded. But money launderin g harm s society's interest in discovering and deterring criminal conduct, because b y laundering the proceeds of crime, the criminal vests that money with the appearance of legiti macy. The interest of the law-abiding general public in preventing the criminals among us from profiting from their crimes is invaded when crimi nally derived funds are laundered to all ow the criminal unfettered, unashamed and camouflaged access to the fruits of those ill-gotten gains. Therefore, we choose to follow those circuits whic h have h eld that money laundering invades a distinct societal interest. Since O'Kan e harmed two different

victims--his employer by fraud and society by laundering his illgott en proceeds--the district court erred by grouping his counts of conviction unde r Section 3D1.2(b).

In support of grouping under Section 3D1.2(b), O'Kane points to undispute d facts i n the Presentence Investigation Report (PSIR) showing that his act of mone y laundering involved the purch ase 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 un der Section 3D1.2(b). This conclusion hangs
on a thread too slender to bear its weight. O'Kane had begun both his fraud and hi s
mone y laundering activities over a year before he purchased the pickup truck, an d although the PSIR i ndicates that, after its purchase, he used the truck to remove some cards from his employer's premises, O'Kane does not clai m that the truck purchase was for the sole or even pr

imary purpose of continuing his fraud. The undisputed fact that it was incidentally used on occasions "to haul stolen property from" his employer's8

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 seriou s "reinvestment" money laundering statute. Section 1956(a)(1)(A)(i) proscribes money lau ndering done "with the intent to promote the carrying on of specified unlawfu l activity" and carries a base offen se 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 fro m what it would have been had he gone to trial and been convicted. Part of that reduction comes from him not pleading guilty to re investing his laundered funds into his ongoing criminal enterprise. Having pled guilty to the less serious form of money launderin g under Sec tion 1957, he should not be allowed to further reduce his offense level b y
ar guing 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) doe s not end our grouping inquiry. "Counts are to be grouped together into
a si ngle 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 i s determined largely on the basis of the total amount of harm," USSG § 3D1.2(d), and, if covered by different guidelines, where those offen ses "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 Hildebrandpanel, 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 groupe d under Sectio n 3D1.2(d) than when they are grouped under (a) through (c). Whe n 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 determine d by the applicable Guidelines rules from Chapter 2. So, while O'Kane was charged with defrauding his employer of $304,667 bu t laundering only $73,562.50 of the fraudulently obtained monies, if the counts wer e 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 lau ndering are much higher than the base offense level for fraud, . . . it is wrong to assume that the Sentencing Commissio n intende d to equate the amount of fraud loss with the value of money laundered fo r 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), a s could several fraud counts, it is not clear that counts of those separate offenses necessarily "otherwise meet the criteria for grouping under10

this sub section [d]." USSG § 3D1.2, comment. (n.6). One of the criteria is that th e offense level be "largely determined" by "the amount of harm or loss." Sectio n 3D1.2(d). Here, there is no question that the fraud offense level was large ly determined (a ndincreased) by the aggregate amount involved. The money laundering count, o n the ot her hand, did not increase because of amount, but rather did increase by tw o levels for O'Ka

ne's knowledge that the funds came from a specified unlawful activity, and ended up at 19. Laundering any am ounts less than $100,000 (as O'Kane did here) has no effe ct at all on the offense level for money laundering. On the facts before us, the offe nse level for money laundering is not "determined largely on the basis of th e total amount of harm or loss;" rat her it is determined largely by the eleven level higher starting base offense level. Therefore, g rouping under Section 3D1.2(d), as argued for by the government, is n ot 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 o f convicti on, those counts must remain in separate, one-count "groups" for the purpose of "combining" under Section 3D1.4. After separately comp uting the offense levels for each group, the Guidelines instruct the court to "[c]ount a s one Unit the Group with the highest offense level. Count one addition al Unit for each Group that is equally serious
or from 1 to 4 levels less serious." USSG § 3D1.4(a). O'Kane's money launderin g offense (level 19) counts as one Unit; his fraud offense (level 16) counts as a n additional Unit because it is not more than 4 levels less seriou s. For two Units, Section 3D1.4 ins tructs the sentencing court to add two levels to the higher offense group , which in O'Kane's case y ields 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 at11

a base offense level of 19, the court decreased O'Kane's offense level by two level s pursuant to USS G § 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 t he 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-releas e recommendation, followed by five months' home confinement, concurrent on each of the two counts.

"Th e appellate court should not review the departure decision de novo, bu t 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
conc lude that the district court erred in departing from the Guidelines based o n O' Kane's supposed exceptional acceptance of responsibility. To justify departure, a "ca se 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 fou r 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 immediat e admiss ionof his conduct to authorities; and his continued cooperation during th e investigation. (Appellant's Adden. at 7.) Our authorities, as well as the Guideline s themselves, make clear that this is an insufficient basis for departure.
Depart ure from the Sentencing Guidelines is warranted only when "the court finds that an aggravating or mitigating circumstance exists that was not adequatel y taken into consideration by the Sentencing Commission in formulating the guidelines12

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 th e Gui deline for acceptance of responsibility. "In determining whether a defendan t qualifie s under [section 3E.1.(a)], appropriate considerations include . . . voluntar y 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 of fense level for acceptance of responsibility, the court should consider whether th e defendant has voluntarily made restitution to the victims of his crimes. Since th e Commissio n

has explicitly listed restitution as a ground for adjustment within th e 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 h eartland of cases and j ustify a departure under Section 5K2.0 unless something considerably mor e unusual is at play.

This cour t has recognized that voluntary restitution can be made unde r 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 ov er $1.4 million even before he was indicted. Upon entering a plea o f gui lty, the sentencing court determined that the total harm caused by Garlich's crim e 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
co urt should consider whether the extent and timing of Garlich's restitution ar e sufficiently unusual to warrant a downward departure." Id. at 163. In this circuit, after Garlich , a si x-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 t o 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 i nto a plea agreement,13

one consequence of

which was that the government dropped 23 of 25 charges against hi m. Further, although by the terms of the plea agreement O'Kane stipulated to th e amount of his fraud, and thus the amount of res titution required of him, he disputed the accuracy of that amount a

t 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 pa rt of that consisted of returning the goods he had stolen but not yet peddle d elsewhere. Fin ally, although he admitted much of his conduct to investigators, he did not volu ntarily disclose the largest purchaser of his stolen merchandise. O'Kane' s
co nduct simply does not remove O'Kane's case from the heartland of acceptance o f responsibilit

y cases so as to permit departure. The district court abused its discretion when it departed.

We a re also troubled by the fact that the court did not explain why th e circumstances it found so excepti onal warranted a departure which more than doubled the red uction O'Kane had already received for acceptance of responsibility unde r Section 3E1 .1. The court did not explain why it took a departure of four level s (amounting to a two-thirds reduction in possible punishment) as opposed to, say, only a one level departure, in ord er to adequately compensate O'Kane for the extraordinary
acce ptance of responsibility the court thought was present. The absence of such a n explanation would have made it difficult for us to assess the reasonableness of th e 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.