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. e du/thir dc ir c uit_2000/204Filed September 25, 2000

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 99-1973

UNITED STATES OF AMERICA, Appellant

v.

DAVID G. BOCKIUS

On Appeal from the United States District Court for the Eastern District of Pennsylvania
D.C. Criminal No. 97-cr-00250-1
(Honorable Herbert J. Hutton)

Argued July 10, 2000

Before: SCIRICA, ALITO and FUENTES, Circuit Ju dges

(Filed: September 25, 2000)

RICHARD W. GOLDBERG, ESQUIRE (ARGUED)
WALTER S. BATTY, JR., ESQUIRE Office of United States Attorney 615 Chestnut Street, Suite 1250 Philadelphia, Pennsylvania 19106

Attorneys for AppellantEDWARD C. MEEHAN, JR.,

ESQUIRE (ARGUED)

Hetznecker & Meehan 1420 Walnut Street, Suite 911 Philadelphia, Pennsylvania 19102

Attorney for Appellee

OPINION OF THE COURT

SCIRICA, Circuit Judge.

In this appeal of a criminal sentence, we again add ress the heartland of cases covered by U.S.S.G. S 2S1.1 (Laundering of Monetary Instruments).

David G. Bockius pled guilty to wire fraud, foreign transportation of stolen funds, money laundering an d forfeiture. Citing United States v. Smith, 186 F.3d 290 (3d Cir. 1999), the District Court declined to sentence Bockius under the money laundering guideline U.S.S.G. S 2S1 .1
because it believed the S 2S1.1 heartland includes only money laundering associated with extensive drug tra fficking and serious crime. The government appeals, contendi ng the District Court misinterpreted Smith and adopted too narrow a view of the heartland. Because Smith made clear t he heartland includes typical money laundering as well as the money laundering activities connected with extensiv e drug trafficking and serious crime, we will vacate the s entence
and remand.

I

The facts are undisputed. Bockius was the president and one of four principals of Asset Protection Manageme nt, an insurance brokerage firm in Blue Bell, Pennsylvania , when, in the summer of 1995, he stole $600,000 from the brokerage and its clients and fled to the Cayman Is lands.1

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1. The exact amount is unclear. Bockius' Pre-Senten ce Report states "the total amount of money taken is this case is approxi mately $751,444.31." P 13. At his original sentencing, the government co ntended the actual loss was $800,000. The District Court sentenced him to pay restitution of $581,500. Because the transactions described in record show that Bockius took $600,500 from the Asset Protection Man agement account, we will use the figure of $600,000 as an approximat ion of the "proceeds."

2Asset Protection Management sold insurance to busin ess

clients. After collecting its clients' insurance pr emiums, it deposited them in an escrow, or "premium," account for payment to the insurance carriers. Most of Asset Pr otection Management's clients pay most of their premiums at the end of July.

On July 31 and August 2, 1995, Bockius wired $220,5 00 from the Asset Protection Management escrow "premiu m" account in Pennsylvania to his personal account at
PaineWebber in New York. He then wired those funds to gambling casinos in Atlantic City, New Jersey. Bock ius traveled to Atlantic City, lost some of the money g ambling, and carried the rest of the cash back to Pennsylvan ia. On August 10, 1995, Bockius withdrew $380,000 in cash from the Asset Protection Management escrow "premium"

account.

The next day, traveling under the name Louis Middle ton, Bockius flew to the Cayman Islands with more than $500,000 in cash stashed in secret compartments in his suit cases. There, he formed a corporation called L ittle Mermaid Holdings and bought a house in the name of the corporation with part of the cash. Bockius intended to deposit the rest of the funds in Canadian banks in the Cayman Islands in deposits less than $10,000 to avo id reporting requirements, but asserts instead he form ed a partnership with Claudio Helvester who soon stole t he rest of his money.2

Asset Protection Management filed for bankruptcy. N one of the money has been recovered.

Never far ahead of the authorities, but ostensibly willing to cooperate, Bockius turned himself in to the F.B. I. On July 16, 1997, Bockius pled guilty to three substan tive charges: wire fraud, in violation of 18 U.S.C. S 13 43; transporting the proceeds of fraud and theft betwee n the United States and the Cayman Islands, in violation of 18 U.S.C. S 2314; and money laundering, in violation o f 18 U.S.C. S 1956(a)(2)(B).3 He conceded the stolen mon ey was

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2. Helvester's role is not undisputed. 3. 18 U.S.C. S 1956(a)(2)(B) provides

Whoever transports, transmits, or transfers, or attempts to

3subject to forfeiture as a result of his money laun dering

under 18 U.S.C. S 982(a) and (b)(1).

The Pre-Sentence Report calculated Bockius' sentenc e using the money laundering guideline U.S.S.G. S 2S1 .1. At

his sentencing on March 25, 1998, Bockius objected that
his behavior fell outside the heartland of S 2S1.1. Denying his motion for a downward departure, the District C ourt
sentenced Bockius to 48 months incarceration follow ed by four years supervised release, restitution of $581, 500, and

a special assessment in the amount of $150.

No appeal was filed but, on September 24, 1998, hav ing retained new counsel, Bockius filed a petition for habeas

corpus under 28 U.S.C. S 2255 alleging, among other things, ineffective assistance of counsel for failu re to file an appeal on the heartland issue. See United States v. Bockius, No. 98-CV-5130 (E.D. Pa. June 25, 1999). On the recommendation of a Magistrate Judge, Bockius was resentenced on November 8, 1999.

At resentencing, the District Court held, under Smi th,
that Bockius' actions fell outside the heartland of the money laundering guideline and declined to sentence him under S 2S1.1. Employing the fraud guideline instea d, the
court sentenced Bockius to 36 months incarceration.

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transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or thro ugh a place outside the United States or to a place in the United St ates from or through a place outside the United States . . . (B) kn owing that the monetary instrument or funds involved in the transpor tation, transmission,

or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transm ission, or transfer is designed in whole or in part --

(i) to conceal or disguise the nature, the l ocation, the source,

the ownership, or the control of the proceeds of specified unlawful activity; or

(ii) to avoid a transaction reporting requir ement under State or Federal law, [commits a criminal offense.]

4Contending the money laundering guideline is approp riate,

the government appeals.4

II

The District Court had jurisdiction under 28 U.S.C. S 2255. We have jurisdiction under 28 U.S.C.SS 1291 and 2253. The government was not required to seek a cer tificate of appealability in bringing its appeal. See Fed. R . App. P. 22(b)(3); Lambert v. Blackwell, 134 F.3d 506, 512 n .15 (3d Cir. 1998). We review the District Court's legal co nclusions de novo. See United States v. Thomas, 221 F.3d 430, 433- 34 (3d Cir. 2000). Application of the guidelines is a question of law reviewed under a plenary standard. See Smith, 186 F.3d at 297.

III

After hearing argument on the heartland issue, the
District Court held:

[Smith's] instruction to the district court . . . is best capsulized in page 10, next to the last para graph there. It says and I quote from the opinion:

"To use the money laundering guideline in t his routine fraud case would let the tail wag th e dog. Strict
focus on the technicalities of the sentencin g process obscures the over-arching directive to match the guidelines to the offense conduct which form ed the basis of the underlying conviction."

And they [the Third Circuit Court of Appeal s] go on to say:

"We are convinced that this case presents o ne of those anomalies that Congress intended the c ourts to deal with fairly. To fulfill this obligation --that obligation--we direct the use of the fraud g uideline, rather than that for money laundering. Ultim ately, we conclude that the sentencing Commission itse lf, has
indicated that the heartland of the United S tates

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4. The court's decision to resentence Bockius has n ot been challenged.

5Sentencing Guideline Section 2S1.1, is the m oney-

laundering activity connected with extensive drug trafficking and serious crime."

And in that case of Smith, I conclude here, that that is not the type of conduct implicated here.

Tr. of Sentencing, App. 66-67 (quoting Smith, 186 F .3d at 300).

The government argues, and Bockius does not dispute
, that the District Court declined to apply S 2S1.1 b ecause it found that Bockius' conduct did not involve drug tr afficking or serious crime. The government presents three arg uments for the application of S 2S1.1 in this case: (1) un der Smith, the heartland of S 2S1.1 includes typical money lau ndering; (2) Smith applies only to "atypical cases" and this is not an "atypical" case of money laundering; and (3) Bockiu s' international transportation of one half million do llars of
embezzled funds is a serious crime.

Because we agree with the government's first argume nt,
we need not reach its other two. The District Court read
Smith to create a narrower heartland than warranted . Smith clearly contemplates applying S 2S1.1 to typical mo ney laundering as well as to those activities "connecte d with extensive drug trafficking and serious crime." 5

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5. S 2S1.1. Laundering of Monetary Instruments

(a) Base Offense Level:

(1) 23, if convicted under 18 U.S.C. SS 1956 (a)(1)(A), (a)(2)(A),

or (a)(3)(A); (2) 20, otherwise.

(b) Specific Offense Characteristics

(1) If the defendant knew or believed that t he funds were the proceeds of an unlawful activity involving t he manufacture, importation, or distribution of narcotics or other controlled substances, increase by 3 levels.

(2) If the value of the funds exceeded $100, 000, increase the

offense level as follows . . . .

6A

Money Laundering is a criminal offense under 18 U.S .C.
SS 1956 and 1957.

Whoever, knowing that the property involved in a financial transaction represents the proceed s of some form of unlawful activity, conducts or attem pts to
conduct such a financial transaction which i n fact involves the proceeds of specified unlawful activity . . . knowing that the transaction is designed in whole or in part . . . to conceal or disguise the nature , the location, the source, the ownership, or the control of the proceeds of specified unlawful activity, [vi olates S 1956(a)(1)(B)(i)].

Subsections (a)(2)(B), and (a)(3)(B) similarly forb id transactions aimed at concealing or disguising proc eeds. Subsections 1956(a)(1)(A), (a)(2)(A) and (a)(3)(A) prohibit promoting criminal activities.

Congress passed sections 1956 and 1957 as part of t he Money Laundering Control Act of 1986, Pub. L. No. 9 9-570, 100 Stat. 3207 (codified as amended at 18 U.S.C.SS 1956, 1957), "to `fill the gap in the criminal law with r espect to the post-crime hiding of ill-gotten gains.' " Unite d States v. LeBlanc, 24 F.3d 340, 346 (1st Cir. 1994) (quoting United States v. Johnson, 971 F.2d 562, 569 (10th Cir. 199 2). Undoubtedly, Congress was intent on combating organ ized crime.6 But that was not the sole purpose of the st atute.7

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6. See, e.g., 132 Cong. Rec. S9626-04 (Senator Thur man stating "[c]reation of a money laundering offense is impera tive if our law enforcement agencies are to be effective against th e organized criminal groups which reap profits" through money laundering ); id. (Senator DeConcini stating "[w]ithout the means to launder m oney . . . organized crime could not flourish as it does now").

7. Senator DeConcini went on to observe "Money laun dering techniques are used by large legitimate businesses as well. Th e President's commission discovered that American corporations, s uch as Gulf Oil, Lockheed Aircraft, and McDonnell Douglas, have enga ged in illegal money laundering. Each corporation was involved in schemes to make illegal payments to foreign government officials in order to win lucrative overseas contracts. The broad array of groups parti cipating in money laundering illustrates how widespread the problem h as become." Id.

7By its text, S 1956 covers a broad array of behavio r.

Initiating, concluding or participating in the disp osition of funds with the intent of concealing or disguising t he nature of the funds or of promoting criminal activity may subject a person to prosecution if the funds are derived fr om any of a wide range of criminal activities. See 18 U.S.C. S 1956(c). We have previously noted that Congress intended to punish this use of criminally derived proceeds separately from and in addition to the criminal conduct which produced them. See United States v. Conley, 37 F.3d 970, 980 (3d C ir. 1994).8

In United States v. Smith, we recognized that the government's use of the money laundering statutes t o sustain additional charges in criminal indictments, combined with the sentencing guidelines' penalties, created the possibility that money laundering could become a"dogwagging tail." See 186 F.3d at 300. In Smith, use o f the money laundering guideline, U.S.S.G. S 2S1.1, rende red a base offense level of twenty while use of the fraud guideline, U.S.S.G. S 2F1.1, would have rendered a base offens e level of six. Where the gravamen of the conduct was fraud , we stated this disparity obscured "the overarching dir ective to match the guideline to the offense conduct which fo rmed the basis of the underlying conviction." Smith, 186 F.3d at

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8. We have held that S 1956's prohibition on launde ring proceeds obtained from a criminal offense applies only to fu nds from completed offenses, or completed phases of ongoing offenses. See Conley, 37 F.3d at 980. We have also held that crime is not "promot ed" by depositing criminally derived proceeds in a personal account a nd using the money for personal needs. See id. at 979. When funds beco me "proceeds" and when they are used to "promote" may at times be dif ficult questions. In United States v. Paramo, 998 F.2d 1212 (3d Cir. 199 3) (cited as consistent by Conley, 37 F.3d at 980), we upheld a verdict for violating S 1956(a)(1)(A)(i) by cashing checks received throu gh mail fraud. The
checks were made out to fictitious individuals. Bec ause the violation of 18 U.S.C. S 1341 was completed when the checks were mailed, we held Paramo could reasonably be found to have promoted t he antecedent fraud by "creating value out of an otherwise unremu nerative enterprise." Id. at 1218. Therefore, although we have limited th e scope of S 1956 to the proceeds of completed offenses (or phases of of fenses), we have construed "promotion" and "completion" broadly. We understand the scope of U.S.S.G. S 2S1.1 to be less expansive.

8300 (quoting United States v. Kuku, 129 F.3d 1435, 1440

(11th Cir. 1997)).

As noted in Smith, the Sentencing Commission has articulated similar concerns. In 1995, the Sentenci ng Commission concluded money-laundering sentences wer e being imposed for a broader scope of offense conduc t than originally anticipated. See United States Sentencin g Commission, Report to the Congress: Sentencing Poli cy for Money Laundering Offenses, including Comments on Department of Justice Report at 1, 5 (Sept. 18, 199 7) ("Commission Report").

To address what it saw as sentencing disparities, t he Sentencing Commission proposed amended "guideline penalties for money laundering offenses that were m ore proportionate to both the seriousness of the underl ying
criminal conduct . . . and to the nature and seriou sness of the conduct itself." Id. at 1. But Congress rejecte d the amendments fearing their adoption would send a mess age "that money laundering associated with drug and oth er serious crimes is not viewed as the grave offense i t once was." H.R. Rep. No. 104-272, at 14-15 (1995), repri nted in 1995 U.S.C.C.A.N. 335, 348-49. Despite rejecting th e proposed amendments, Congress recognized "the application of the current guidelines to receipt-an d-deposit cases, as well as to certain other cases that do no t involve aggravated money laundering activity, may be proble matic."

Id.

Although Congress did not define "aggravated money laundering activity," the Sentencing Commission has described the guidelines' target conduct succinctly :

1) situations in which the `laundered' funds derived from serious underlying criminal conduct suc h as a significant drug trafficking operation or or ganized crime; and, 2) situations in which the finan cial transaction was separate from the underlying crime and was undertaken to either: a) make it app ear that the funds were legitimate, or b) promote add itional criminal conduct by reinvesting the proceeds in
additional criminal conduct.

Commission Report at 4.

9Congress also solicited a report from the Departmen t of

Justice on money laundering enforcement practices. The report noted money laundering statutes are not appr opriate "in cases where the money laundering activity is mi nimal or incidental to the underlying crime," but specifical ly stated the statutes should be used against white collar cr iminals. See Department of Justice Report for the Senate and House Judiciary Committees on the Charging and Plea Pract ices of Federal Prosecutors with Respect to the Offense of Money Laundering, at 2, 15 (June 17, 1996) (DOJ Report).

The foregoing discussion reinforces the view that, although Congress was concerned the guidelines migh t be too severe in punishing defendants who deposit or withdraw the proceeds of their crimes in or from ba nks, S 2S1.1 is intended to apply to defendants who know ingly conduct financial transactions apart from an underl ying criminal offense to conceal that the proceeds invol ved are tainted. We held no differently in Smith.

B

Smith held that under Appendix A to the Guidelines manual, a sentencing court must engage in a two-ste p inquiry before applying a particular guideline sect ion.

1. Does the designated guideline apply or is the conduct "atypical" in comparison to that usu ally punished by the statute of conviction; and

2. If the conduct is "atypical," which guide line is more appropriate?

Smith, 186 F.3d at 297 (citing United States v. Vos s, 956 F.2d 1007, 1009 (10th Cir. 1992), superseded in par t on other grounds by amendment to U.S.S.G. S 2D1.1)).

Atypical money laundering conduct is conduct outsid e the heartland of S 2S1.1. See Smith, 186 F.3d at 29 7-98. When deciding whether to apply the guideline, a cou rt must undertake a heartland analysis "identical" to that employed when evaluating downward departures under U.S.S.G. Ch. 1, Pt. A, intro. comment. 4(b). Id. at 298.

Because at one point in the opinion Smith recited: "[u]ltimately, we conclude that the Sentencing Comm ission

10itself has indicated that the heartland of U.S.S.G. S 2S1.1 is

the money laundering activity connected with extens ive drug trafficking and serious crime," Bockius conten ds his
conduct falls outside the heartland of S 2S1.1. Id. at 300. This is a misinterpretation of Smith.

Analyzing the S 2S1.1 heartland, Smith reiterated t he guideline targets set forth by the Sentencing Commi ssion. Id. at 298. Smith also discussed the DOJ report, th e proposed amendments and Congress's rejection of tho se amendments. See id. at 299. Smith makes clear that a court's S 2S1.1 heartland analysis should address w hether defendants engaged in money laundering in which"the `laundered' funds derived from serious underlying c riminal conduct such as a significant drug trafficking oper ation or organized crime' " or in typical money laundering i n which a defendant knowingly conducted a financial transac tion to
conceal tainted funds or funnel them into additiona l
criminal conduct. Id. at 298.

Smith concluded the defendants should not have been
sentenced under S 2S1.1 because neither the source of the funds nor the nature of the money laundering brough t the defendants' conduct within the heartland of that gu ideline. The defendants "left a paper trail, conduct inconsi stent with planned concealment"; the "money laundering activit y . . . was an `incidental by-product' of the kickback sche me" and "Smith's disingenuous efforts towards a cover-up[fe ll] far short of the large scale drug money laundering or s erious crime contemplated by the Sentencing Commission." I d. at
300.

Other Courts of Appeals have drawn similar distinct ions -- establishing the heartland of the money launderi ng guidelines is narrower than the inclusive scope of the money laundering statutes but declining to limit th e guidelines' scope to drug trafficking and organized crime.9 See United States v. Ross, 210 F.3d 916, 928 (8th C ir. 2000) (reversing departure but allowing that on rem and, "court may find Ross' case presents additional uniq ue or

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9. But see United States v. Adams, 74 F.3d 1093, 11 01 (11th Cir. 1996) (where defendants found guilty of violating 18 U.S. C. S 1956, U.S.S.G. S 2S1.1 must be applied).

11atypical features that take it outside the money la undering

guideline heartland similar to those in [Smith]"); United States v. Prince, 214 F.3d 740, 768 (6th Cir. 2000) (application of S 2S1.1 proper where defendants att empted to conceal proceeds of wire fraud); United States v . Ford, 184 F.3d 566, 587-88 (6th Cir. 1999) (affirming ref usal to depart from U.S.S.G. S 2S1.2 but noting other court s had affirmed departures "based in part on the fact that the underlying offenses, though literally within the st atute, were not drug-trafficking, `organized crime',`serio us moneylaundering', or `unusually severe fraud,' " and imp lying departure might be appropriate where money launderi ng created no additional societal harm); United States v. Woods, 159 F.3d 1132, 1136 (8th Cir. 1998) (affirmi ng heartland departure from S 2S1.2 because depositing funds in a personal account and obtaining cashier's check s to pay personal bills did not constitute "serious money-la undering conduct"); United States v. Hemmingson, 157 F.3d 34 7, 363 (5th Cir. 1998) (acknowledging S 2S1.1 may be appli cable outside of organized crime and drug trafficking but affirming heartland departure because "defendants w ere not seeking to legitimize a stream of illegal incom e into the mainstream economy [nor to launder] . . . drug proc eeds, or proceeds from some other unlawful activity."); Unit ed States v. Skinner, 946 F.2d 176, 177 (2d Cir. 1991) (holdi ng district court could depart from the guideline wher eS 1956 violation rested solely on payments by drug dealer to her supplier because payments did not "conceal a seriou s crime" and promotion of the sale was de minimus (as the transaction represented only completion of the sale )); see also United States v. Caba, 911 F. Supp. 630, 636 ( E.D.N.Y. 1996), aff 'd, 104 F.3d 354 (table) (if defendant's "actions were part of a classic money laundering scheme desi gned to conceal . . . sullied monies, . . . the more puniti ve money laundering guideline would be appropriately used to determine punishment," but absent such a finding downward departure was required where funds were no t from drug trafficking).

C

In view of this discussion, we will vacate Bockius' sentence and remand for resentencing. After embezzl ing

12$600,000, Bockius admitted engaging in several acts to

conceal the illegal source of the money and his own ership. After wiring funds from Asset Protection Management 's escrow "premium" account to an account in New York, he
wired them a second time to casinos where he conver ted them into cash. In violation of 18 U.S.C. S 1956(a) (2)(B), he secretly carried the cash or proceeds to the Cayman Islands where he formed a corporation under a false name, p lanned on depositing the money in bank accounts under diff erent names in amounts calculated to avoid reporting requirements and bought a house in the name of the Little Mermaid corporation. Moreover, he claims the remain der of the funds was stolen by a person to whom he planned to give his money in an attempt to make it untraceable . These actions appear to constitute typical money launderi ng.

IV

As noted in Smith, on remand the District Court sho uld engage in a heartland analysis before applying the money laundering guideline. Where money laundering is not "minimal or incidental," and is "separate from the underlying crime" and intended to "make it appear t hat the funds were legitimate" or to funnel the money into further criminal activities, S 2S1.1 is an applicable guide line. The guideline may also be applicable if there is eviden ce that the activities which fulfilled the broad statutory requirements for money laundering were connected wi th extensive drug trafficking or other serious crime. Although the application of the correct guideline is a quest ion of law, the District Court may be required to make factualf indings to resolve these underlying issues.

V

Here, the District Court found Bockius was not invo lved with extensive drug trafficking nor other serious c rime. Because the court did not address Bockius' typical money laundering, we will vacate the judgment of the Dist rict Court and remand for resentencing.

13A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

14