Opinion ID: 492031
Heading Depth: 2
Heading Rank: 5

Heading: Maktabi's Money Laundering Conspiracy

Text: 41 Count Four of the indictment alleged that one of the appellants, Hassan Abdul Kader Maktabi, and other co-conspirators, not appellants herein, engaged in a conspiracy to convert in excess of $117,000 in cash into money orders and travelers checks in violation of 18 U.S.C. Sec. 371. Section 371 has two separate prongs: it is a crime under Sec. 371 to conspire ... to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose. Id. (emphasis added). Maktabi was charged under Sec. 371 both with conspiracy to defraud the United States or an agency thereof, specifically the Internal Revenue Service (IRS), by depriving the IRS of information to which it was entitled, and with conspiracy to commit a substantive offense, namely, to violate 18 U.S.C. Sec. 1001. Section 1001 makes it a crime to knowingly and willfully falsif[y], conceal[ ], or cover[ ] up by any trick, scheme, or device a material fact in any matter within the jurisdiction of any department or agency of the United States. Id. 42 Specifically, the indictment alleged that Maktabi and his co-conspirators agreed to convert U.S. currency in an amount over $117,000 into money orders and travelers' checks. According to the government's theory, these purchases, each individually in an amount under $10,000, were undertaken at several different banks and bank branches over a period of days for the purpose of keeping the banks from submitting the Currency Transaction Reports (CTRs) that banks are required to file with the IRS in connection with transactions in currency exceeding $10,000 in a single day. For instance, the trial evidence showed that Maktabi and others purchased at various branches of the Chase Manhattan Bank in New York City approximately $23,000 worth of money orders on December 13, 1984, approximately $30,000 on December 14, and approximately $20,000 on December 17. All these money orders were purchased in $1,000 denominations. Of the $23,000 converted on December 13, $11,000 was purchased at the same branch in eleven separate $1,000 money orders. The other $12,000 was purchased at various other branches of the Chase Manhattan Bank. Other money orders were purchased in a similar manner at other banks in New York City, including the Anchor Savings Bank, Citibank, and Chemical Bank on these and other dates during December 1984. None of the banks filed CTRs with regard to the purchase of any of these money orders. 43 Maktabi argues on appeal, first, that the statutory and regulatory framework which requires the submission of CTRs by banks has no provision for imposition of criminal liability on a bank customer, including one who engages in transactions in an overall amount exceeding $10,000 but where none of the transactions individually exceeds $10,000, and where, as a consequence, the bank is unaware that a CTR should be filed. Second, he contends that even if such a substantive crime does exist, the evidence was insufficient to show that he had the requisite specific knowledge that banks are required to report to the government currency transactions over $10,000. In our view, the indictment properly charged a conspiracy to defraud the United States under Sec. 371 as well as a conspiracy to violate Sec. 1001, and the evidence was sufficient to support Maktabi's conviction.
44 The Bank Secrecy Act (the Act), 31 U.S.C. Sec. 5311 et seq., requires the making and keeping of certain reports or records [which] have a high degree of usefulness in criminal, tax or regulatory investigations or proceedings. 31 U.S.C. Sec. 5311. Section 5313 authorizes the Secretary of the Treasury to require domestic financial institutions, and any other participants in transactions for the payment, receipt, or transfer of United States currency, to report those transactions to the Secretary. 2 Under the regulations issued by the Secretary, only financial institutions are required to file these reports for transactions involving more than $10,000. 31 C.F.R. Sec. 103.22(a). 3 The CTR itself (IRS Form 4789) calls for, among other things, the name and address of the person conducting the transaction, and the name and address of such person, if any, for whom the transaction was completed. Criminal penalties for willful violation of the statute or regulations are set forth in 31 U.S.C. Sec. 5322. 45 Initially, we note that other circuits are divided on the question whether a bank customer can be prosecuted under the substantive provisions of the Act, 31 U.S.C. Secs. 5313, 5322, 18 U.S.C. Sec. 1001 (concealment of a material fact), and 18 U.S.C. Sec. 2(b) (causing another to commit an offense against the United States), for causing a bank to fail to file a CTR by not disclosing the structured nature of currency transactions. The Eleventh Circuit has adopted a position, termed a sensible, substance-over-form approach in dealing with schemes to circumvent financial institution reporting requirements, United States v. Tobon-Builes, 706 F.2d 1092, 1098 (11th Cir.1983) (citing United States v. Thompson, 603 F.2d 1200 (5th Cir.1979)). It holds that where a person causes a financial institution not to report currency transactions that it had a duty to report, the person is guilty of the substantive offense. United States v. Puerto, 730 F.2d 627, 631 (11th Cir.) (citing Tobon-Builes), cert. denied, 469 U.S. 847, 105 S.Ct. 162, 83 L.Ed.2d 98 (1984); see also United States v. Cure, 804 F.2d 625, 627 (11th Cir.1986) (per curiam); United States v. Giancola, 783 F.2d 1549, 1552-53 (11th Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 669, 93 L.Ed.2d 721 (1987); United States v. Denemark, 779 F.2d 1559, 1563 (11th Cir.1986); United States v. Sans, 731 F.2d 1521, 1531 (11th Cir.1984), cert. denied, 469 U.S. 1111, 105 S.Ct. 791, 83 L.Ed.2d 785 (1985). On the other hand, the First, Eighth, and Ninth Circuits have adopted the position that since the Act and regulations promulgated thereunder do not impose a duty on a bank customer to disclose his transactions to the government either directly or through the financial institution, there can be no substantive violation of the Act or violation of Secs. 2(b) or 1001 by a bank customer. United States v. Larson, 796 F.2d 244, 246 (8th Cir.1986); United States v. Varbel, 780 F.2d 758, 762 (9th Cir.1986); United States v. Anzalone, 766 F.2d 676, 682-83 (1st Cir.1985); see also United States v. Reinis, 794 F.2d 506, 508 (9th Cir.1986); United States v. Della Espriella, 781 F.2d 1432, 1435 (9th Cir.1986). 46 In this circuit, we have held that an individual, although under no legal responsibility himself to file a CTR, nevertheless, can be criminally liable under 18 U.S.C. Sec. 2(b) for causing a financial institution to fail to file a currency transaction report which it had a legal duty to file. United States v. Heyman, 794 F.2d 788 (2d Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 585, 93 L.Ed.2d 587. Heyman involved a Merrill Lynch employee, Alan Heyman, who structured his customer's deposits so that no single transaction involved an amount greater than $10,000. By doing so, Heyman willfully caused Merrill Lynch to fail to file the appropriate CTRs. Under the facts of that case, we held that had Merrill Lynch, a financial institution, structured the transactions as Heyman did, it would have violated the federal laws requiring the filing of CTRs, namely, 31 U.S.C. Secs. 5313 and 5322. Accordingly, since 18 U.S.C. Sec. 2(b) holds liable as a principal any person (Heyman) who willfully causes an act to be done which if directly performed by another (Merrill Lynch) would be a federal offense, Heyman was criminally liable for a violation of 31 U.S.C. Secs. 5313 and 5322. 47 Heyman, however, is only applicable in this case by analogy because it involved a prosecution under the Act and 18 U.S.C. Sec. 2(b), crimes not charged here. The questions presented here are whether an individual bank customer can be charged with a violation of either Sec. 371, conspiracy to defraud the United States, or Sec. 371, conspiracy to violate Sec. 1001, concealment of a material fact. The district court charged the jury herein under both prongs of Sec. 371 and the jury returned a general verdict of guilty. We now examine each prong of Sec. 371 not only for sufficiency of evidence but also to see if they state cognizable conspiracy offenses, assuming without deciding that it is necessary for us to do so, see Stromberg v. California, 283 U.S. 359, 367-68, 51 S.Ct. 532, 535, 75 L.Ed. 1117 (1931); United States v. Peterson, 768 F.2d 64, 67-68 (2d Cir.), cert. denied, 474 U.S. 923, 106 S.Ct. 257, 88 L.Ed.2d 264 (1985); United States v. Murray, 618 F.2d 892, 898-99 (2d Cir.1980); United States v. Natelli, 527 F.2d 311, 324-25 (2d Cir.1975), cert. denied, 425 U.S. 934, 96 S.Ct. 1663, 48 L.Ed.2d 175 (1976). 48 We turn first to the legal sufficiency of that part of Count Four of the indictment which charged a conspiracy to violate Sec. 1001. Reading the pertinent statute and regulations, it seems clear from the face of each that a bank customer is not required to file a CTR for any banking transaction; only financial institutions are required to file reports. Although section 5313 extends its coverage to the financial institution and any other participant in the transaction and, thus, the Secretary of the Treasury could have required not only banks to file reports, but also, bank customers, or participants other than financial institutions, nevertheless, 31 C.F.R. Sec. 103.22 limits the reporting requirement to financial institutions only. See California Bankers Ass'n v. Shultz, 416 U.S. 21, 58, 69-70 & n. 29, 94 S.Ct. 1494, 1521, 1521-22 n. 29, 39 L.Ed.2d 812 (1974). Courts that have considered this statutory and regulatory scheme are in agreement that there is no duty on bank customers themselves to file reports with the government of any transactions. Heyman, 794 F.2d at 791; accord Larson, 796 F.2d at 246; Varbel, 780 F.2d at 761-62; Anzalone, 766 F.2d at 681; Tobon-Builes, 706 F.2d at 1097. 49 It also seems clear from the statute and regulations that the requirement to file a CTR depends on a transaction occurring at a single financial institution. The statute speaks of a domestic financial institution  being involved in a transaction for the payment, receipt, or transfer of United States coins or currency. 31 U.S.C. Sec. 5313 (emphasis added). Thus, no obligation to file a CTR arises where a customer structures his transactions, each under $10,000, at different financial institutions. See Denemark, 779 F.2d at 1562-63. Similarly, transactions occurring on different days at the same financial institution are not aggregated to constitute a single transaction so that a bank would have to file a CTR. Heyman, 794 F.2d at 792; Reinis, 794 F.2d at 508. We need not address whether transactions on the same day, each under $10,000 at different branches of the same bank totalling over $10,000, trigger a bank's CTR filing requirement. See Giancola, 783 F.2d at 1552 (CTR requirement triggered). But see id. at 1554 (dissenting opinion). In this case, at least on one day, December 13, 1984, Maktabi and his associates procured $11,000 in $1,000 money orders at the same branch of one financial institution. 50 Thus, one fundamental question that we face is whether a bank customer can be liable for a violation of Sec. 1001, concealment of a material fact, where that customer is under no duty to file a CTR with the government. Generally, a defendant cannot be prosecuted under Sec. 1001 for concealing material facts unless he had a duty to disclose the material facts at the time he was alleged to have concealed them. United States v. Irwin, 654 F.2d 671, 678 (10th Cir.1981), cert. denied, 455 U.S. 1016, 102 S.Ct. 1709, 72 L.Ed.2d 133 (1982). While it is true that Maktabi had no duty himself to file CTRs with the government, it is not disputed that a bank is required to file a CTR for a single transaction in excess of $10,000 received on a single day. Had the bank intentionally structured the transactions as Maktabi did, splitting up large sums into blocks of less than $10,000 in order to avoid the filing of a CTR, it surely would have violated the Act as well as been guilty of concealing a material fact in violation of Sec. 1001. Heyman, 794 F.2d at 791; see also Puerto, 730 F.2d at 632-33; Tobon-Builes, 706 F.2d at 1099. Under 18 U.S.C. Sec. 2(b), a bank customer has a duty not to willfully cause a bank to violate the Act or to conceal material facts from the IRS. Heyman, 794 F.2d at 791-92. Had Maktabi been charged here with a substantive violation of Sec. 1001, he could have been held liable under Sec. 1001 by application of Sec. 2(b). Id. Here Maktabi is not charged with a substantive violation of Sec. 1001, but with conspiracy to violate Sec. 1001. It a crime to conspire to cause another to commit a crime. United States v. Perry, 643 F.2d 38, 45 (2d Cir.), cert. denied, 454 U.S. 835, 102 S.Ct. 138, 70 L.Ed.2d 115 (1981). This is true, even where, as here, the indictment and the jury instructions do not spell out in so many words that the defendant could be found guilty of conspiracy to cause another to commit a crime, as long as all the elements necessary [to find a conspiracy to cause another to commit a substantive offense] were fairly put to the jury. Id. In sum, not only is it a crime to conspire to violate Sec. 1001, but it is also a crime to conspire to cause another to violate Sec. 1001. Thus, bank customers who intentionally and with knowledge of the reporting requirements structure their transactions so as to circumvent or prevent a bank from complying with those requirements commit a crime. Herein, Maktabi is charged with conspiring to divide up the total amounts involved in the subject currency exchanges so that they did not exceed $10,000, in order to cause the bank to fail to file a CTR, and thus to conceal material facts from a government agency. An agreement to divide a large transaction in excess of $10,000 into a series of smaller ones each below $10,000 can constitute an unlawful agreement to conceal or cover up by ... trick, scheme, or device the material fact that the transaction involved a sum totalling more than $10,000. In our view, Maktabi was properly charged with a conspiracy to violate Sec. 1001 by causing a bank to conceal material facts from the IRS. See Puerto, 730 F.2d at 632; Tobon-Builes, 706 F.2d at 1099; United States v. Richter, 610 F.Supp. 480, 487 (N.D.Ill.1985), aff'd without opinion, 793 F.2d 1296 (7th Cir.), cert. denied, --- U.S. ----, 107 S.Ct. 191, 93 L.Ed.2d 124 (1986). 51 We turn next to the legal sufficiency of that part of Count Four of the indictment which charged a conspiracy to defraud. A conspiracy to defraud under Sec. 371 embraces any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of Government. Dennis v. United States, 384 U.S. 855, 860-61, 86 S.Ct. 1840, 1843-44, 16 L.Ed.2d 973 (1966) (quotations and citations omitted). It is well established that the term defraud as used in Sec. 371 not only reaches schemes which deprive the government of money or property, but also is designed to protect the integrity of the United States and its agencies. United States v. Johnson, 383 U.S. 169, 172, 86 S.Ct. 749, 751, 15 L.Ed.2d 681 (1966). Thus, the crime of conspiracy to defraud the United States includes acts that interfere with or obstruct one of its lawful governmental functions by deceit, craft, or trickery, or by means that are dishonest. Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924); United States v. Turkish, 623 F.2d 769, 771 (2d Cir.1980), cert. denied, 449 U.S. 1077, 101 S.Ct. 856, 66 L.Ed.2d 800 (1981). 52 The Supreme Court has recognized the importance to the government of having financial institutions provide the Secretary of the Treasury with reports of sizeable currency transactions by their customers. See Shultz, 416 U.S. at 26-27, 94 S.Ct. at 1500. For instance, one purpose for the filing of CTRs is to ferret out criminal activity. Id. at 27, 94 S.Ct. at 1500. The regulations emphasize the important purposes behind the filing of CTRs by stating that [t]he Secretary hereby determines that the records required to be kept by this subpart have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings. 31 C.F.R. Sec. 103.31. 53 It is our view that, to be held liable under the broad sweep of the fraud prong of Sec. 371, defendants need not have agreed to commit, or have actually committed, a specific substantive offense. They merely must have agreed to interfere with or to obstruct one of the government's lawful functions. See United States v. Southland Corp., 760 F.2d 1366, 1382 (2d Cir.1985), cert. denied, 474 U.S. 825, 106 S.Ct. 82, 88 L.Ed.2d 67 (1986). Thus, the fact that Maktabi, as an individual bank customer, had no duty to report transactions over $10,000 is not the operative issue as to whether he agreed to unlawfully defraud the United States by impairing and obstructing its lawful governmental functions of collecting data and reports of currency transactions in excess of $10,000. The IRS has an interest in receiving CTRs from financial institutions when customers arrange transactions in excess of $10,000. In order for this lawful governmental function to operate, it is imperative that reports be submitted by financial institutions. If Maktabi and his associates agreed to interfere with and to obstruct this lawful function of the IRS, they could properly be charged with a violation of the defraud prong of Sec. 371. See Puerto, 730 F.2d at 630-31; Sans, 731 F.2d at 1533-35; Richter, 610 F.Supp. at 485. 54 Having concluded that Maktabi was properly charged with a crime under both prongs of Sec. 371, conspiracy to violate Sec. 1001 and conspiracy to defraud the United States, we must still determine whether there was sufficient evidence to support his conviction.
55 Maktabi does not dispute, and there was ample evidence at trial, including the testimony of surveillance agents and bank tellers, as well as exhibits of bank records, to show that Maktabi and his associates actually converted large amounts of cash into money orders and travelers' checks in varying amounts under $10,000 between December 13, 1984 and December 17, 1984. However, Maktabi does dispute that there was sufficient evidence to prove that he specifically knew of the reporting requirements and, with that knowledge, deliberately sought to avoid its strictures by buying money orders in less than the triggering amount in related transactions. To find a defendant guilty of a conspiracy involving a willful currency transaction violation, the government must prove that the defendant had specific knowledge of the reporting requirements and intended to cause them to be evaded. See United States v. DiTommaso, 817 F.2d 201 (2d Cir.1987); United States v. Dichne, 612 F.2d 632, 636 (2d Cir.1979), cert. denied, 445 U.S. 928, 100 S.Ct. 1314, 63 L.Ed.2d 760 (1980). The district court properly charged the jury that to find Maktabi guilty of either a conspiracy to defraud or a conspiracy to conceal a material fact, it had to find that he knew there was a reporting requirement for currency transactions in excess of $10,000 and intended to evade that requirement. 56 Maktabi points to a number of facts that in his view show that he did not have actual knowledge of the currency reporting requirement. He claims that there was no pattern whatever in the amounts purchased and no series of purchases just short of the reporting minimum, which might have allowed for the inference of knowledge; that there was no evidence that he was told early on by a bank teller or by anyone else of the reporting requirements; and that there was no evidence that banks had signs or notices posted informing purchasers of the law. Moreover, he points to an episode which occurred on December 17, 1984, the last day on which Maktabi purchased money orders, which, in his view, provides conclusive evidence that he did not know of the currency transaction reporting laws. On that day, one of his associates entered a Chase Manhattan Bank branch, armed with $10,000 in cash that Maktabi had supplied, and asked to buy a single money order. When the teller responded by asking for the information needed for a CTR, appellant argues, another associate of Maktabi then intervened and arranged the transaction in such a way as to purchase money orders for less than $10,000. Maktabi argues that had he known of the reporting requirement or had he been attempting to buy money orders in such a way as to avoid the reporting requirement, he would not have told his associate to buy a money order for $10,000. Thus, according to Maktabi, the only possible conclusion that can be drawn from this incident is that, at the time of the final purchase of money orders, he did not have the requisite specific knowledge of the reporting requirements coupled with guilty intent. We do not agree. We have said that: 57 Knowledge ... may be inferred or gathered from the outward manifestations, by the words or acts of the party charged with knowledge and from the facts and circumstances surrounding or attendant upon the act with which it is charged to be connected. It may be proved by all the facts and circumstances disclosed by the evidence taken in connection with the case. 58 United States v. Sheiner, 410 F.2d 337, 340 (2d Cir.), cert. denied, 396 U.S. 825, 90 S.Ct. 68, 24 L.Ed.2d 76 (1969) (quoting Anderson v. United States, 270 F.2d 124, 127 (6th Cir.1959)); accord United States v. Sanzo, 673 F.2d 64, 69 (2d Cir.), cert. denied, 459 U.S. 858, 103 S.Ct. 128, 74 L.Ed.2d 111 (1982). [A] finding of knowledge that is largely inferential is not impermissible. Sheiner, 410 F.2d at 340. 59 Although the evidence does permit the inference that Maktabi did not know of the reporting requirements, we cannot conclude that there was no evidence from which any rational trier of fact could have found that Maktabi knew of the reporting requirements. Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979). That the evidence permits inferences that are consistent with innocence does not detract from its sufficiency. To be sufficient, the evidence need not have excluded every possible hypothesis of innocence. United States v. Soto, 716 F.2d 989, 993 (2d Cir.1983). The jury could have inferred from the fact that Maktabi chose to carry out his currency exchanges in a series of small transactions over a number of days, rather than in a single transaction or several larger transactions, that he knew of the reporting requirements and was attempting to avoid them. Contrary to Maktabi's assertion, more than one explanation exists for his associates' attempt to purchase a money order for $10,000 on December 17. Among other possibilities, the jury could have inferred that the associate misconstrued or misinterpreted Maktabi's instructions. Moreover, the jury could have inferred from the fact that another associate intervened to prevent the filing of a CTR that Maktabi was aware of the reporting requirements and that he had specifically instructed his associates to avoid triggering them. 60 We conclude that Maktabi was properly charged in Count Four of the indictment with conspiracy to either conceal material facts from the IRS or to defraud the United States, and that the evidence was sufficient to support an inference that he had specific knowledge and intent with respect to the reporting requirements. Maktabi's conviction on Count Four therefore is affirmed.