Opinion ID: 2513
Heading Depth: 1
Heading Rank: 3

Heading: Monetary Transaction in Unlawful Funds

Text: Because we upheld the transaction and transportation money laundering convictions in Ness I, we did not address Ness's sufficiency challenge to his 18 U.S.C. § 1957(a) conviction. Because these other convictions are now overturned, however, we consider this issue. We conclude that this conviction must be overturned as well. To prove a violation of § 1957(a), the government must present evidence that the defendant knowingly engaged or attempted to engage in a monetary transaction in unlawful funds. The statute defines monetary transaction as the deposit, withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce, of funds or a monetary instrument . . . by, through, or to a financial institution (as defined in section 1956 of this title). . . . [1] 18 U.S.C. § 1957(f) (emphasis added). Thus, in order to sustain a § 1957(a) conviction, a financial institution must have been involved. In Ness I, we concluded that the district court's instruction to the jury with respect to the financial institution element was inaccurate, but held that Ness failed to demonstrate prejudice given that his conspiracy conviction would nonetheless stand under the transaction money laundering offense that did not include financial institution as an element. See 466 F.3d at 82. We now conclude that the evidence concerning the involvement of a financial institution was legally insufficient even if the instruction was correct. Section 1956 defines financial institution as including (1) any financial institution, as defined under 31 U.S.C. § 5312(a)(2), or the regulations promulgated thereunder; and (2) any foreign bank, as defined under 12 U.S.C. § 3101. See 18 U.S.C. § 1956(c)(6). Section 5312 of Title 31 of the United States Code defines financial institution by enumerating twenty-six types of institutions, including, inter alia, a commercial bank, a private banker, and a currency exchange. [2] See 31 U.S.C. § 5312(a)(2). The government has not argued that either Ness or his armored car company constitutes one or more of the enumerated types of institutions in Section 5312(a)(2). Therefore, we need not address whether Ness or his company qualify as a financial institution under this statute. The government rather rests its theory of liability on a definition of financial institution contained in a regulation promulgated under Section 5312. Turning to Section 1956(c)(6)'s definition of financial institution, which in turn looks to the meaning of financial institution under Section 5312(a)(2) and the regulations promulgated thereunder, the government relies upon Section 103.11 of Title 31 of the Code of Federal Regulations, which was promulgated under Section 5312. Section 103.11 defines financial institution as, inter alia, a money services business. 31 C.F.R. § 103.11(n)(3). The regulation defines money services business to include a person doing business as a money transmitter, which in turn is defined, inter alia, as any person engaged as a business in the transfer of funds. 31 C.F.R. § 103.11(uu)(5)(i)(B). Pointing to Ness's involvement in transporting the narcotics proceeds, the government contends that there was overwhelming evidence that Ness was a person engaged as a business in the transfer of funds, and was, therefore, a financial institution. This theory was not presented to the jury and therefore cannot support an affirmance. See Chiarella v. United States, 445 U.S. 222, 236, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980); United States v. Plaza Health Labs., Inc., 3 F.3d 643, 646 (2d Cir.1993). Even if it had been presented, Ness is, as matter of law, not a person engaged as a business in the transfer of funds. Section 103.11 defines funds transfer as a series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order. 31 C.F.R. § 103.11(q). Payment order, in turn, is defined as [a]n instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or to cause another bank or foreign bank to pay, a fixed or determinable amount of money to a beneficiary if: (1) The instruction does not state a condition to payment to the beneficiary other than time of payment; (2) The receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender; and (3) The instruction is transmitted by the sender directly to the receiving bank or to an agent, funds transfer system, or communication system for transmittal to the receiving bank. 31 C.F.R. § 103.11(y). The government does not claim that Ness's transactions involved any payment orders. Moreover, money transmitter is, by definition, limited to certain facts and circumstances. 31 C.F.R. § 103.11(uu)(5)(ii). The Financial Crimes Enforcement Network (FinCEN) explained in its Federal Register notice that many commenters sought clarification of the definition of money transmitter and objected to any interpretation that would cause businesses that simply transmit funds as part of their other business activities to be categorized as money transmitters. See Amendment to the Bank Secrecy Act Regulations  Definitions Relating to, and Registration of, Money Services Businesses, 64 Fed.Reg. 45,438, 45,442 (Aug. 20, 1999) (to be codified at 31 C.F.R. pt. 103). FinCEN agreed that the breadth of the definition of money transmitter proposed in the Notice requires limitation to avoid both unnecessary burden and the extension of the Bank Secrecy Act to businesses whose money transmission activities either do not involve significant intermediation or are ancillary to the completion of other transactions. Id. at 45,442-43. The government has not presented any evidence of significant intermediation here. Thus, we must overturn the 18 U.S.C. § 1957(a) conviction as well.