Court Opinion

ID: 2667048
Source: CourtListenerOpinion
Date Created: 2014-04-04 13:08:16.099466+00
Date Added: 2024-06-11T11:17:48.855768
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,
Plaintiff,
V' Criminal Action No. 09-087 (CKK)
ABDUL KARll\/l KHANU,

Defendant.

MEMORANDUM OPINION
(October l6, 2009)

Before the Court is the Government’s [18] Notice of Intent to Offer Certain Evidence as
Intrinsic to the Charged Crimes, Or, in the Alternative, as Admissible Pursuant to F ederal Rule of
Evidence 404(b). Specifically, the Government intends to offer evidence that Defendant Abdul
Khanu used cash to pay contractors to make capital improvements at his nightclubs, that he paid
his employees in cash without reporting these payments to the IRS prior to 2002, and that he has
not paid employment and sales taxes to the District of Columbia. Defendant opposes the
introduction of this evidence on the ground that it is not intrinsic to the crimes charged, and that
even ifit were admissible under Rule 404(b), it should be excluded under Rule 403 because its
probative value is substantially outweighed by the prejudice that would result from its admission.
For the reasons explained below, the Court shall conditionally admit the evidence pursuant to
Rule 404(b). However, the Court shall defer judgment until trial as to whether the evidence

should be excluded under F ederal Rule of Evidence 403.

I. BACKGROUND
Defendant Abdul Karim Khanu is charged with one count of conspiring to defraud the

United States in violation of 18 U.S.C. § 371, three counts of attempted tax evasion in violation
of 26 U.S.C. § 7201, and eighteen counts of aiding and assisting in the preparation of filing false
corporate income and employment tax returns in violation of 26 U.S.C. § 7206(2). The charges
in the indictment pertain to Defendant’s operation of several nightclubs in Washington, D.C. that
were owned wholly or in part by Defendant. The indictment alleges that from at least November
1997 through December 2003, Defendant owned 24% of a corporation called TAF, Inc. ("TAF"),
which was co-owned by three unindicted co-conspirators. Indictment 11 5. TAF operated a
nightclub first known as DC Live and later renovated and reopened as VIP. Ia'. il 6. Defendant
separately formed a corporation called Abdul Productions II, Inc. for the purpose of running
another nightclub called Platinum. Id. W 7-8. Defendant initially owned 80% of Abdul
Productions II, Inc. and, by 2002, owned lOO%. Ia’, 11 7. The indictment alleges that Defendant
and the co-owners of TAF conspired to skim cash from TAF’S gross receipts so that the
employees of TAF could be paid wages in cash, avoid paying employment taxes on those wages,
assist the employees in avoiding paying income taxes, and concealing their own income and
avoid income taxes. Id. W 12-13. The indictment further alleges that Defendant skimmed cash
from both TAF and Abdul Productions II, Inc. and prepared false corporate and individual
income tax returns. Id. 1[1] 25-38. According to the indictment, the means and method of the
conspiracy included: paying employees all or part of their wages in cash; failing to report cash
wages to the IRS; concealing cash wages by not maintaining accurate payroll records and by

filing false corporate income tax returns; skimming cash from TAF for personal use and failing

to report this cash to the IRS as personal income; and, with respect to Khanu, concealing the
skimmed cash by dealing extensively in cash, creating inaccurate corporate records, and filing
false corporate and individual income tax returns with the IRS. Indictment M 12-l9.
II. LEGAL STANDARD

The first issue before the Court is whether the evidence the Government intends to offer
can be considered intrinsic to the crimes charged or whether it must be considered evidence of
"other acts" subject to Federal Rule of Evidence 404(b). The distinction is meaningful because
under Rule 404(b), "[e]vidence of other crimes, wrongs, or acts is not admissible to prove the
character of a person in order to show action in conformity therewith." Of course, such "other
acts" evidence may be admitted for "other purposes, such as proof of motive, opportunity, intent,
preparation, plan, knowledge, identity, or absence of mistake or accident," but the Defendant is
entitled to a limiting instruction restricting the jury’s consideration of the evidence to the purpose
for which it is admitted. See Fed. R. Evid. 404(b), l05. By contrast, evidence that is "intrinsic"
to the crimes charged is not subject to the limitations of Rule 404(b) because, by its very nature,
it does not involve "other crimes, wrongs, or acts," and thus there is no concern that it might be
used as improper character evidence. United States v. Bowz`e, 232 F.3d 923, 927 (D.C. Cir.
2000).

Evidence is intrinsic if it is "inexplicably intertwined" with the charged crime. B0wie,
232 F.3d at 927-28. However, in practice, determining which of the defendant’s acts are
inexplicably intertwined with the charged crime and which are not is a difficult and often a
frustrating task. The D.C. Circuit has rejected a broad construction of the "inexplicably

intertwined" test, noting that evidence needed only to "complete the story" or "explain the

circumstances" is not intrinsic to the charged crime. Bowie, 232 F.3d at 929. Rather, "if the
evidence is of an act that is part of the charged offense, it is properly considered intrinsic. In
addition, some uncharged acts performed contemporaneously with the charged crime may be
termed intrinsic if they facilitate the commission of the charged crime." Ia’. However, "it cannot
be that all evidence tending to prove the crime is part of the crime." Ia'.

For example, in United States v. Bowie, the D.C. Circuit held that evidence that the
defendant had been caught with counterfeit currency one month prior to his arrest for possession
of counterfeit bills with the exact same serial numbers was not intrinsic to the later crime of
possession 232 F.3d at 929. The Court concluded that although all of the bills "were doubtless
from the same batch, and the evidence indicated that Bowie purchased them at one time[,] . . . the
indictment charged him only with possession of the counterfeit bills found on [the later date]."
Id. By contrast, in United States v. Alexana’er, 331 F.3d 116 (D.C. Cir. 2003), the court
concluded that evidence that the defendant had a gun in his possession just minutes before he
was arrested for unlawful possession of a firearm constituted direct evidence of the charged
crime and not evidence of an "other" act. Id. at 125-26. These cases demonstrate that few acts
may be truly intrinsic to the charged crime.

However, where the crime charged is conspiracy, evidence closely related to the
conspiracy alleged in the indictment is admissible as intrinsic evidence. See United States v.
Baa'ru, 97 F.3d l471, 1475 (D.C. Cir. l996) (quoting 22 CHARLES A. WRlGHT & KENNETH W.
GRAHAM, JR., FEDERAL PRACTICE AND PRoCEDURE § 5239, at 450 (1978) ("In cases where the
incident offered is part of the conspiracy alleged in the indictment, the evidence is admissible
under Rule 404(b) because it is not an ‘other’ crime. The evidence is offered as direct evidence
of the fact in issue.") However, when evidence of prior acts relates to actions substantially

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different from the goals of the conspiracy charged, and occurs prior to the commencement of the
conspiracy period, that evidence is better analyzed as falling under the purview of Rule 404(b).
United States v. Morrow, Crim. No. 04-355, 2005 WL 3159572, at *8 (D.D.C. 2005).

If the evidence is not intrinsic to the charged crimes, it is generally admissible under Rule
404(b) for any purpose other than to prove character and to show action in conformity therewith.
See Bowie, 232 F.3d at 929-30 ("Rule 404(b) is a rule of inclusion rather than exclusion.") The
government need not show that the evidence is being offered for one of the purposes specifically
enumerated in the rule. Id. Rather, the government need only show that it is offered for a valid
purpose other than to prove the defendant’s propensity to commit similar acts.

Regardless of whether evidence is admitted as intrinsic to the charged crimes or as "other
acts" evidence under Rule 404(b), the evidence may be excluded under Rule 403 if "its probative
value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or
misleading the jury, or by considerations of undue delay, waste of time, or needless presentation
of cumulative evidence."

III. DISCUSSION

The Government has given notice of its intent to introduce three categories of evidence
against the Defendant. The Court must determine first whether the evidence the Government
intends to offer is "intrinsic" to the charged crimes or subject to Rule 404(b). The Court shall
therefore review the Government’s proposed evidence, make that determination, and then turn to
the question of whether the evidence should be excluded under Rule 403.

A. Alleged Cash Payments to Contractors

The Government intends to introduce evidence proving that Defendant was responsible

for hiring contractors to make improvements to both nightclubs and paid these contractors in

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cash, See Notice at 3-4. Specifically, the Govemment intends to show that Defendant tracked
these cash payments using "white slips," a form of preprinted receipt that the payee would sign
acknowledging payment for goods and services rendered. Notice at 4. The Government intends
to show that Defendant issued these "white slips" to contractors within the conspiracy period and
during the same time that he paid his employees in cash, Id. The Govemment argues that the
cash payments to contractors follows a "similar pattern of concealing financial activity from the
IRS" that Defendant used with respect to paying his employees. Id. The Government also argues
that this evidence demonstrates that Defendant had a large source of cash at his disposal, which is
integral to its theory of the case against Defendant.

The Court finds that the evidence of cash payments to contractors is not intrinsic to the
crimes charged, The indictment makes no mention of cash payments to contractors,‘ and there
does not appear to be any direct connection between the payments to contractors and the
payments to employees. To be sure, the alleged payments to contractors are contemporaneous
with the conduct alleged in the indictment, but that alone is not enough to make the payments
intrinsic evidence of the conspiracy. However, the evidence is admissible under Rule 404(b)
because it has some, albeit minimal, probative value in showing that Defendant had the
knowledge and opportunity to manage his expenses in cash with minimal record keeping.

B. Alleged Cash Payments to Employees Prior to 2002
The Govemment also intends to introduce evidence that Defendant was paying employees

of Abdul Productions II, Inc. in cash and failing to report those wages to the IRS prior to 2002.

1 The Court also notes that making cash payments to contractors without reporting them
to the IRS is not illegal because no employment taxes are owed on money paid to contractors.
Should the Court ultimately admit this evidence, the Court may explain this fact to the jury in an
appropriate limiting instruction.

See Notice at 4. Counts 9-15 of the indictment make identical allegations with respect to
quarterly employment tax returns during 2002 and 2003, but the Government could not charge
Defendant for acts committed prior to 2002 because of the statute of limitations. Ia'. The
Government contends that the pre-2002 conduct is admissible as intrinsic evidence of his later
crimes, Ia’.

The Court holds that the pre-2002 evidence cannot be considered intrinsic to the crimes
charged. In United States v. Bowie, the D.C. Circuit concluded that evidence of an earlier crime
that was nearly identical to and factually connected to a charge in the indictment could not be
considered intrinsic evidence of the crime charged. 232 F.3d at 929. Similarly, evidence that
Defendant committed the same crimes as charged in the indictment prior to 2002 cannot be
considered intrinsic but rather must be seen as evidence of other bad acts. The Govemment also
contends that this pre-2002 evidence of misconduct at Abdul Productions II, Inc. is connected to
the alleged conspiracy to skim cash from the gross receipts of TAF. Notice at 4-5. However, the
conduct at Abdul Productions II, Inc. is never alleged in the indictment to be a part of the
conspiracy, so the Government’s evidence cannot be intrinsic to that crime. Because the
evidence tends to show Defendant’s opportunity, knowledge, intent, and/or plan to commit the
crimes charged in the indictment, however, it is admissible under Rule 404(b).

C. Alleged Failure to Pay Proper D.C. Sales and Employment Tax

The last category of evidence the Government seeks to introduce is evidence that while
Defendant engaged in the activities alleged in the indictment, he also was failing to pay proper
sales and employment taxes to the District of Columbia govemment. See Notice at 5. The
Government contends that Defendant’s past tax history is relevant to prove his intent to willfully
file false tax returns. Ia’. That relevance, however, does not make the evidence intrinsic to the

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crimes charged, and the Government barely makes any argument in support of this point. The
Court finds that these other acts are just that_other acts.z As such, they may be admitted under
Rule 404(b) so long as they are not solely to prove the Defendant’s propensity to act in
conformity with them. Defendant claims that evidence of prior corporate tax filings cannot be
used to prove the intent of an individual. See Def.’s Opp’n at 7-8. However, the evidence the
government seeks to introduce is of conduct nearly identical to that charged in the
indictment-that Defendant willfully misreported to the IRS the wages paid by the corporations.i’
As such, the evidence is probative of the Defendant’s knowledge and intent, and it is admissible
under Rule 404(b).

D. Admissibility Under Rule 403

Federal Rule of Evidence 403 provides that "[a]lthough relevant, evidence may be

excluded if its probative value is substantially outweighed by the danger of unfair prejudice,
confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of
time, or needless presentation of cumulative evidence." Defendant contends that each of the
three categories of evidence should be excluded on this basis. With respect to the evidence of

cash payments to contractors, Defendant argues that the evidence will confuse the jurors because

contractors cannot be easily compared to employees given the different tax obligations imposed

2 Defendant notes that he has not been charged with any crimes relating to the filing vel
non of District of Columbia employment and sales taxes.

3 Defendant contends that the Govemment’s cited cases do not support the view that a
corporation’s tax history may be used to prove the intent of an individual. Def.’s Opp’n at 7-8.
But there is no such distinction apparent in the caselaw, which holds that "evidence need not
relate to prior acts of precisely the same character, but is admissible as broadly probative of the
defendant’s attitude toward reporting and payment of taxes generally." Baker v. United States,
401 F.2d 958, 975 (D.C. Cir. 1968) (internal quotation marks and citations omitted).

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on their payment. With respect to the pre-2002 cash payments to employees of Abdul
Productions II, lnc., Defendant argues that this evidence will be duplicative of other evidence
presented and confusing to the jurors, who may have difficulty distinguishing between the
conspiracy alleged to have occurred at TAF and the prior acts the Govemment seeks to introduce
at Abdul Productions II, Inc. Finally, Defendant argues that the evidence of alleged failure by
Abdul Productions II, Inc. to pay D.C. sales and employment taxes will be confusing to the jurors
and highly prejudicial to him.

The Court has considered these arguments, and based on the present record, the Court is
unable to determine whether the Rule 404(b) evidence would unfairly prejudice Defendant,
confuse the issues, or otherwise mislead the jury. Accordingly, the Court will reserve its final
decision regarding what evidence is admitted under Rule 403 until trial. If admitted, the Rule
404(b) evidence will be admitted at the end of the government’s case, which will allow the Court
to weigh its probative value against any possible unfair prejudice in the context of the evidence
presented at trial. Furthermore, the Court will give a limiting instruction to the jury as to the
purpose of the Rule 404(b) evidence and how the jury is to consider it. ln making its final
decision with respect to Rule 403, the Court shall consider the manner in which the Govemment
intends to present the Rule 404(b) evidence and the effectiveness of any proposed limiting

instructions.
/

/

III. CONCLUSION
For the foregoing reasons, the Court shall conditionally admit the Govemment’s proposed
evidence pursuant to Federal Rule of Evidence 404(b) and reserve its judgment as to Defendant’s
objections under Federal Rule of Evidence 403. An appropriate order accompanies this

Memorandum Opinion.

Date: October 16, 2009 §   
COLLEEN KO LAR-K TE LY

United States District Judge

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