Opinion ID: 524661
Heading Depth: 2
Heading Rank: 1

Heading: Failure to File CTRs

Text: 15 Counts 8 and 9 charge, respectively, that on January 6, 1986, and February 20, 1986, Bucey and Witt, while acting in their capacity as a financial institution, received currency in excess of $10,000 and knowingly and intentionally failed to file the required CTRs with the IRS in violation of 31 U.S.C. sections 5313 and 5322(b). 6 It is undisputed that on both occasions Bucey completed CTRs upon depositing the currency at Freedom Federal, which the bank then properly filed with the IRS. But, irrespective of those bank filings, the government contends that Bucey himself had an independent legal duty to file CTRs when he received the currency from the third-party government agents. These charges are predicated on the theory that Bucey is a financial institution. Whether an individual acting in Bucey's capacity can be charged as a financial institution under the currency reporting laws is a question of first impression in this circuit. 7 The sufficiency of the indictment under the currency reporting laws and regulations, of course, raises questions of law for our de novo review. See United States v. Gimbel, 830 F.2d 621 (7th Cir.1987); United States v. Varbel, 780 F.2d 758 (9th Cir.1986). 16 To be valid, an indictment must allege acts which, if proven, would constitute an offense under the law that the defendant is charged with violating. If the indictment does not charge such a cognizable offense, of course, we must reverse any subsequent conviction based on that indictment. Gimbel, 830 F.2d at 624 (citing McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987)). Accordingly, we must determine whether the acts alleged in counts 8 and 9 establish a violation of the currency reporting laws by a financial institution. 17 We begin by examining the plain meaning of the statutes and regulations. [I]n determining the scope of a statute, one is to look first at its language. If the language is unambiguous, ... it is to be regarded as conclusive unless there is a clearly expressed legislative intent to the contrary. Dickerson v. New Banner Institute, Inc., 460 U.S. 103, 110, 103 S.Ct. 986, 74 L.Ed.2d 845 (1983), reh'g denied, 461 U.S. 911, 103 S.Ct. 1887, 76 L.Ed.2d 815 (1983). 18 The Currency Transactions Reporting Act, 31 U.S.C. section 5313, and its implementing regulations provide specific rules designating who is responsible for filing CTRs. See California Bankers Ass'n v. Schultz, 416 U.S. 21, 26, 94 S.Ct. 1494, 1500, 39 L.Ed.2d 812 (1974). Section 5313 authorizes the Secretary of the Treasury to require domestic financial institutions, and any other participants that the Secretary may prescribe, engaged in transactions for the payment, receipt or transfer of United States currency, to report this currency to the Secretary. 8 Pursuant to this authority, there are Treasury regulations directing financial institutions to file a report of each deposit [or] withdrawal ... which involves a transaction of more than $10,000. 31 C.F.R. Sec. 103.22(a) (1986). 9 In 1986, when the acts charged in the indictment occurred, a financial institution subject to the reporting requirements was defined in 31 C.F.R. section 103.11(e) as follows: 19 Financial institution. Each agency, branch, or office within the United States of any person doing business in one or more of the capacities listed below: 20 (1) A bank ...; 21 (2) A broker or dealer in securities; 22 (3) A person who engages as a business in dealing in or exchanging currency as, for example, a dealer in foreign exchange or a person engaged primarily in the cashing of checks ...; 23 (4) A person who engages as a business in the issuing, selling, or redeeming of travelers' checks, money orders, or similar instruments ...;(5) A licensed transmitter of funds, or other person engaged in the business of transmitting funds abroad for others; 24 (6) A [licensed] casino.... 10 25 Id. (emphasis supplied). 26 The indictment alleges that Bucey and Witt were persons acting as a financial institution by engaging as a business in dealing in currency and in transmitting funds abroad for others. Indictment p 1(c) at 1-2. Bucey claims that the indictment is legally deficient and, alternatively, that the evidence established at trial on this count was insufficient to support his conviction. 27 There is little case authority directly establishing whether an individual acting in Bucey's capacity could be criminally prosecuted as a financial institution under the currency laws in effect at the time of the offense alleged here. Most cases involving money laundering operations have involved the separate issue whether an individual engaged in money laundering can be derivatively liable under 18 U.S.C. section 2(b) 11 for causing what is indubitably a financial institution to fail to file an accurate CTR as required by the currency reporting laws. Yet these cases are replete with intimations that an individual such as Bucey could not be prosecuted as a financial institution. For example, in United States v. Gimbel, 830 F.2d 621 (7th Cir.1987), this court noted the government's concession that Gimbel, a lawyer who allegedly structured currency transactions for his clients in order to launder proceeds from narcotics trafficking and to conceal income from the IRS, had no independent duty to file a CTR reflecting the structured nature of the transactions. See id. at 624 n. 2. Instead, the government sought, albeit unsuccessfully, to convict Gimbel under 18 U.S.C. sections 2(b) and 1001 12 for causing a bank to conceal information, namely, CTRs, from the IRS. 13 28 Likewise, in United States v. Mastronardo, 849 F.2d 799 (3d Cir.1988), defendants who had engaged in a multimillion dollar bookmaking and money laundering operation were charged with structuring currency transactions to avoid having financial institutions file CTRs. The defendants themselves were not charged as a financial institution; rather, the government charged them on a derivative theory for violating 18 U.S.C. sections 2(b) and 1001. The Third Circuit stated:Although the statute authorizes the Secretary to draft regulations requiring participants in transactions to file CTRs, the Secretary did not do so. Rather, the Secretary enacted regulations which, by their explicit language place a duty to file CTRs only on financial institutions. The regulations do not even intimate that a bank customer might somehow be violating the law if he structures his transactions so as to avoid making a transaction in currency greater than $10,000.... [T]he present ambiguity regarding coverage of the Reporting Act and its regulations has indeed been created by the government itself. 29 Id. at 804-05 (quoting United States v. Varbel, 780 F.2d 758, 762 (9th Cir.1986)). See also United States v. Nersesian, 824 F.2d 1294, 1311-12 (2d Cir.) (bank customer involved in money laundering scheme had no legal duty to file a CTR himself) (dicta), cert. denied, --- U.S. ----, 108 S.Ct. 357, 98 L.Ed.2d 382 (1987); United States v. Heyman, 794 F.2d 788, 790-91 (2d Cir.1986) (government conceded, and court stated in dicta, that defendant, a Merrill Lynch account executive who devised scheme to structure customers' transactions in amounts less than $10,000 in circumvention of the currency reporting laws, had no legal duty to file CTRs), cert. denied, 479 U.S. 989, 107 S.Ct. 585, 93 L.Ed.2d 587 (1986); United States v. Varbel, 780 F.2d 758, 762 (9th Cir.1986) (defendants engaged in money laundering had no duty to report currency transactions to or through the bank); United States v. Denemark, 779 F.2d 1559, 1561 (11th Cir.1986) (dicta); United States v. Shearson Lehman Bros., Inc., 650 F.Supp. 490, 495, 500 (E.D.Pa.1986) (dicta), aff'd in part and rev'd in part sub nom. United States v. Mastronardo, 849 F.2d 799 (3d Cir.1988); United States v. Richter, 610 F.Supp. 480, 487 n. 4 (N.D. Ill.1985) (dicta), aff'd without op. sub nom. United States v. Mangovski, 785 F.2d 312 (7th Cir.), and aff'd without op. sub nom. United States v. Konstantinov, 793 F.2d 1296 (7th Cir.), cert. denied, 479 U.S. 855, 107 S.Ct. 191, 93 L.Ed.2d 124 (1986). 30 The only case in this circuit directly resolving this question is United States v. Riky, 669 F.Supp. 196 (N.D. Ill.1987). There, the defendant had engaged in a money laundering scheme in which he received commissions for assisting others in concealing the source of income from narcotics trafficking. Focusing on the opening language of 31 C.F.R. section 103.11(e), 14 the court held that, because the defendant was not an agency, branch, or office of any person doing business in one of the subsequently listed capacities, he was not a financial institution. A later amendment to the regulation, adding the term agent to the definition of financial institution, indicated that the government had not previously believed that the CTR filing obligation applied to individuals. Id. at 200. Accordingly, the court dismissed the indictment. Id. See also United States v. Gimbel, 632 F.Supp. 713, 721 n. 10 (E.D. Wis.1984), rev'd on other grounds, 830 F.2d 621 (7th Cir.1987) (the plain meaning of the term 'financial institution,' as it is defined by statute and regulation, would be strained to cover a person such as Gimbel, who had engaged in a money laundering scheme) (dicta). 31 The First Circuit took a similar tack in United States v. Anzalone, 766 F.2d 676 (1st Cir.1985). There, the defendant structured transactions with the bank so that each involved less than $10,000; hence, the bank did not file CTRs. The First Circuit reversed his conviction and dismissed the indictment, which charged him personally with failing to file CTRs in violation of 31 U.S.C. section 5313, with causing the bank to fail to file CTRs in violation of 18 U.S.C. section 2(b) and with causing the bank to conceal material facts from the IRS in violation of 18 U.S.C. sections 2(b) and 1001. See id. at 679-80. The court concluded that, since the currency regulations limited application of the reporting requirements to financial institutions only, the defendant had no independent duty to file CTRs. Id. at 681, 683. 15 Cf. United States v. Robinson, 832 F.2d 1165 (9th Cir.1987) (bank teller, who was acting as a private individual and was not charged with operating a currency exchange business, was not a financial institution within currency laws and, thus, had no duty to file CTRs). 32 However, several other circuits have disagreed. For example, in United States v. Goldberg, 756 F.2d 949 (2d Cir.), cert. denied, 472 U.S. 1009, 105 S.Ct. 2706, 86 L.Ed.2d 721 (1985), the Second Circuit held that three defendants engaged in money laundering, including two bank officers, constituted a financial institution, namely, a partnership or joint venture engaged as a business in dealing in currency. 16 The court adverted to the legislative history of the Bank Secrecy Act, 31 U.S.C. section 5311 et seq., which indicated a design to provide a sweeping law enforcement tool for locating large currency transfers of proceeds from unlawful transactions. See id. at 954-55 (citing H.R.Rep. No. 975, 91st Cong., 2d Sess. 11-12, reprinted in 1970 U.S.Code Cong. & Ad.News 4394, 4396-97). The court divined an intent to reach a vast range of criminal conduct and to grant the Secretary broad authority to impose reporting requirements. Id. at 954-55 (citing 116 Cong.Rec. 16957 (1970) (statement of Rep. Burton)). Relying on this legislative history, the court held that the defendants qualified as a financial institution. 33 The Eighth, Ninth and Eleventh Circuits have also on occasion broadly construed the term financial institution in the money laundering context. In United States v. Hernando Ospina, 798 F.2d 1570 (11th Cir.1986), the defendant, who provided a money laundering service in which he exchanged approximately $1.3 million for Colombian pesos for a total commission of $52,000, was deemed a financial institution, namely, a person who engages as a business in dealing in or exchanging currency. Likewise, in United States v. Mouzin, 785 F.2d 682 (9th Cir.), cert. denied, 479 U.S. 985, 107 S.Ct. 574, 93 L.Ed.2d 577 (1986), the Ninth Circuit held that a defendant who participated in an extensive money laundering and cocaine conspiracy qualified as a financial institution by virtue of her role in transferring currency across the country and overseas in an ostensibly legitimate business venture. The Mouzin court focused on the language in 31 C.F.R. section 103.11, which relates the definition of a financial institution to a person who engages as a business in dealing in or exchanging currency as, for example, a dealer in foreign exchange or a person engaged primarily in the cashing of checks and a person engaged in the business of transmitting funds abroad. Id. at 689. See also United States v. Cuevas, 847 F.2d 1417 (9th Cir.1988) (extensive money laundering operation with several international offices constitutes a financial institution), cert. denied, --- U.S. ----, 109 S.Ct. 1122, 103 L.Ed.2d 185 (1989); United States v. Dela Espriella, 781 F.2d 1432 (9th Cir.1986) (defendant, a kingpin of an intricate money laundering operation who delivered cash in excess of $10,000 to his couriers, qualified as a financial institution possessing a duty to file CTRs). But cf. United States v. Robinson, 32 F.2d 1165 (9th Cir.1987); United States v. Varbel, 780 F.2d 758 (9th Cir.1986). The Eighth Circuit has reflected a similar perspective. See United States v. Hawley, 855 F.2d 595, 602 (8th Cir.1988) (husband and wife team engaged in warehouse banking services constitute financial institution; currency dealers or exchangers who act as middlemen between individuals and commercial banks can appropriately be defined as 'financial institutions' under section 103.11(e)(3), and convicted for failing to [file CTRs]), cert. denied, --- U.S. ----, 109 S.Ct. 1141, 103 L.Ed.2d 202 (1989). 34 Some of these cases may be factually distinguishable; but, more importantly, none attempts to make sense of the directly operative agency, branch, or office language, which controls the definition contained in section 103.11(e). This language (which has subsequently been expanded) requires that, in order to qualify as a financial institution, the defendant must be an agency, branch, or office of a person acting in one of the listed capacities. This language, which was relied upon in Riky, 669 F.Supp. 196 (N.D. Ill.1987), is clearly inapplicable to an individual. Moreover, our opinion in Gimbel is presumably premised on the assumption that an individual cannot be charged as a financial institution. See 830 F.2d at 624 n. 2. 35 We are, of course, cognizant of the purpose underlying the Currency Transactions Reporting Act: Congress recognized the importance of reports of large and unusual currency transactions in ferreting out criminal activity and desired to strengthen the statutory basis for requiring such reports. California Bankers Ass'n v. Shultz, 416 U.S. 21, 38, 94 S.Ct. 1494, 1506, 39 L.Ed.2d 812 (1974). Nonetheless, it is not the role of the judiciary to strengthen the basis for requiring CTRs beyond that expressly provided by statute and regulation. 36 If the government wishes to impose a duty on customers, or other participants in the transaction, to report [currency] transactions, let it require so in plain language. It should not attempt to impose such a duty by implication, expecting that the courts will stretch statutory construction past the breaking point to accommodate the government's interpretation. 37 United States v. Anzalone, 766 F.2d at 682. 38 It is clear from the language of 31 C.F.R. section 103.22 that only financial institutions as defined are required to file CTRs. Therefore, it would be improper for us to resort to the legislative history as a basis for applying the regulation to entities other than those specified in it. Varbel, 780 F.2d at 762. 17 Accordingly, we conclude that the terms of the statute and regulations in existence at the relevant time did not impose a duty on Bucey to file CTRs. 18 To countenance the government's theory of prosecution imposing such a duty would deprive Bucey of his due process right to fair notice of the criminality of a failure to file. See Kolender v. Lawson, 461 U.S. 352, 103 S.Ct. 1855, 75 L.Ed.2d 903 (1983). 19 Hence, we conclude that the allegations contained in counts 8 and 9 of the indictment, charging Bucey as a financial institution with a duty to file CTRs, are legally insufficient to establish violations of 31 U.S.C. sections 5313 and 5322(b). Bucey's conviction on these counts must therefore be reversed and the indictment insofar as it relates to these counts dismissed. 39