Opinion ID: 526736
Heading Depth: 2
Heading Rank: 2

Heading: A Pattern of Illegal Activity

Text: 35 The Currency Transactions Reporting Act defines both felony and misdemeanor offenses for knowing and willful failures to file CTRs. The felony provisions are implicated when: 36 A person willfully violat[es] this subchapter or a regulation prescribed under this subchapter (except section 5315 of this title or a regulation prescribed under section 5315), while violating another law of the United States or as part of a pattern of illegal activity involving transactions of more than $100,000 in a 12-month period.... 37 31 U.S.C. Sec. 5322(b). In the case at bar, the government charged the defendants with felonious violations, alleging that the acts named in the indictment constituted a pattern of illegal activity involving transactions of more than $100,000 in a 12-month period. The trial judge instructed the jury that it could find there was a pattern of illegal activity if it determined beyond a reasonable doubt that there were repeated and related violations of the Act. The defendants argue that the government has failed to produce any evidence that could support a finding that the transactions named in the indictment formed a pattern of illegal activity. We cannot agree. 38 In United States v. Bank of New England, N.A., 821 F.2d 844 (1st Cir.), cert. denied, 484 U.S. 943, 108 S.Ct. 328, 98 L.Ed.2d 356 (1987), we dealt with the issue of what constitutes a pattern of illegal activity under 31 U.S.C. Sec. 5322(b). We affirmed the felony convictions of the Bank for failing to file CTRs for thirty-one currency transactions, each involving the same individual customer and the same form of currency transfer. In interpreting the meaning of the phrase pattern of illegal activity, we examined the limited case law on point. See United States v. Valdes-Guerra, 758 F.2d 1411, 1414 (11th Cir.1985); United States v. Dickinson, 706 F.2d 88, 92 (2d Cir.1983); United States v. Beusch, 596 F.2d 871, 878 (9th Cir.1979) (interpreting same language in 31 U.S.C. Sec. 5322(b)'s predecessor statute). We concluded that to form a pattern under the Act, the transactions must be repeated and related. Bank of New England, 821 F.2d at 853 (emphasis in original). Although the trial judge in that case had charged the jury that a pattern could be established by proving repeated violations, she did not instruct that the transactions also must be related. We found that did not constitute plain error because: 39 Under the evidence adduced, it was clear that the repeated failures by the Bank to report were directly related to the withdrawals by McDonough [the individual customer]. These failures were not isolated events; they entailed repeated failures to file CTRs on similar transactions by the same customer. The similarity of the transactions, coupled with the frequency and regularity of their repetition, establish a related scheme. 40 Id. 41 Sacharczyk and St. Michael's argue mightily that here, unlike in Bank of New England, there is absolutely no evidence that would link the currency transfers named in the indictment to one another. They stress that the indictment charged fifty different violations of the Act involving twenty-five different customers. They point out that the transactions named in the indictment consisted of differing forms of currency transfers: cash withdrawals, cash deposits, purchases of Treasurer's checks, loan proceeds, and the cashing of third-party checks. Absent evidence of some relation among these transactions, Sacharczyk and St. Michael's contend that they are simply repeated, isolated events, which are prosecutable only under the misdemeanor provision of the Act. See Bank of New England, 821 F.2d at 853; Dickinson, 706 F.2d at 92 (The requirement that the violations be part of a pattern merely excludes cases where the violations are isolated events and not part of a common or systematic scheme.). Although this is a plausible reading of the repeated and related standard set forth in Bank of New England, we believe it proves too much and refuse to read that standard so narrowly. 42 At the outset, we reaffirm that to establish a pattern of illegal activity under the Act, the government must prove that the transactions involved were both repeated and related to one another. See Bank of New England, 821 F.2d at 853. In the normal prosecution under 31 U.S.C. Sec. 5322(b), a financial institution is indicted for failing to file CTRs for a limited number of transactions; the institution has filed CTRs for certain transfers while failing to file them for others. To prove a pattern of illegal activity in such a case, the government must establish an underlying relationship or linkage among the unreported transactions. To do this it might prove, inter alia, a common feature among the customers involved, the forms of transfers of currency, and/or the purposes for which the funds were used. See, e.g., Bank of New England, 821 F.2d at 853. 43 In a case like the one at bar, however, where a financial institution has systematically failed to file any CTRs, the above approach is inapt. While a relationship must still be established, it may be proven without linking the underlying transactions. The necessary connection can be shown by proving that the financial institution chronically and consistently failed to file any CTRs. By showing a consistent failure to report, the government has proven an overall relationship among the transactions. There is a pattern of not reporting. 44 The language of the statute and its legislative history support this interpretation. 31 U.S.C. Sec. 5311 declares that the purpose of the statute is to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings. We agree with the Second Circuit that, in passing this legislation 45 Congress was largely concerned with the fact that the relative freedom accorded domestic and foreign currency transactions by American law in combination with the secrecy accorded currency transactions by certain foreign nations facilitated major criminal schemes, such as the laundering of money earned in criminal enterprises, the evasion of income taxes by gambling establishments, and the perpetuation of multinational securities frauds. In selecting among remedies, Congress rejected substantive restrictions on monetary or currency transactions but instead provided for a system of compulsory recordkeeping and reporting designed to diminish the advantages accorded such illegal activities by existing domestic and foreign law. See generally Currency and Foreign Transactions Reporting Act: Hearings on H.R. 15073 Before the House Committee on Banking and Currency, 91st Cong., 1st and 2d Sess. 11 (1970); Currency and Foreign Transactions Reporting Act: Hearings on S. 3678 and H.R. 15073 Before the SubComm. on Financial Institutions of the Senate Committee on Banking and Currency, 91st Cong., 2d Sess. 13 (1970); H.R.Rep. No. 975, 91st Cong., 2d Sess. (1970), reprinted in 1970 U.S.Code Cong. & Ad.News 4394-4416. 46 Dickinson, 706 F.2d at 91-92; see also California Bankers Ass'n v. Shultz, 416 U.S. 21, 26-30, 94 S.Ct. 1494, 1500-02, 39 L.Ed.2d 812 (1974) (noting same). Congress evidently believed that to effectively fight petty criminals, members of the underworld, white collar criminals, and income tax evaders it was necessary for financial institutions to maintain adequate records. United States v. Kattan-Kassin, 696 F.2d 893, 896 (11th Cir.1983). 47 When the government proves that a financial institution has willfully failed to file CTRs for any of its reportable transactions or that it has filed for only a few out of a vast number of its reportable transactions, a sufficient relationship has been established between those acts to constitute a pattern of illegal activity and thereby trigger the Act's felony provision. Congress placed the responsibility for filing CTRs on the financial institutions. It is incongruous to believe that Congress intended that a financial institution could insulate itself from felony prosecution by showing that it had not filed CTRs for any of its reportable transactions. Such a systemic disregard of the Act's reporting requirements is an open invitation to money launderers and other criminals to use the financial institution for hiding their ill-gotten gains. Moreover, allowing only misdemeanor prosecutions of such pervasive and repeated violations may not be sufficient to deter future transgressions. As the House Report explained in discussing the felony provisions of the Act: 48 It should be noted that serious violations under this title may involve very large sums of money, and fines of as much as $10,000 or more might be shrugged off as a mere cost of doing business. To have any real deterrent effect, the potential fine must be large enough to have some real economic impact on potential violators. 49 H.R.Rep. No. 975, 91st Cong., 2d Sess. (1970), reprinted in 1970 U.S.Code Cong. & Admin.News 4394, 4406; see also Valdes-Guerra, 758 F.2d at 1414; United States v. So, 755 F.2d 1350, 1355 (9th Cir.1985); Dickinson, 706 F.2d at 92; Kattan-Kassin, 696 F.2d at 897. 50 We hold that under the standards outlined above, there was sufficient evidence for the jury to have found that St. Michael's failure to file any CTRs comprised a pattern of illegal activity.