Court Opinion

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Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

6-8-1994

United States of America v. Retos
Precedential or Non-Precedential:

Docket 93-3341

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                   UNITED STATES COURT OF APPEALS
                       FOR THE THIRD CIRCUIT

                               ----------

                              No. 93-3341

                               ----------

                        UNITED STATES OF AMERICA

                                   v.

                           GEORGE RETOS, JR.,

                                        Appellant

                               ----------

           On Appeal from the United States District Court
              for the Western District of Pennsylvania
                    (D.C. Crim. No. 92-00110-01)

                               ----------

                      Argued Monday, May 2, 1994

            BEFORE:    GREENBERG and GARTH, Circuit Judges
                      and ROBRENO, District Judge0

                               ----------

                      (Opinion filed June 8, 1994)

                                   George Retos, Jr., Pro Se
                                   Retos, Held & Mascara
                                   70 East Wheeling Street
                                   Washington, Pennsylvania 15301

                                   Richard A. Sprague
                                   James J. West (Argued)
                                   Bill Wolf, Jr.
                                   Sprague & Sprague
                                   135 South 19th Street
                                   Wellington Building, Suite 400

0
     Honorable Eduardo C. Robreno, United States District Court for
    the Eastern District of Pennsylvania, sitting by designation.

                                   1
                                 Wellington, Pennsylvania 19103
                                 Attorneys for Appellant

                                 Frederick W. Thieman
                                 United States Attorney
                                 Paul J. Brysh
                                 Assistant U.S. Attorney
                                 Michael L. Ivory (Argued)
                                 Assistant U.S. Attorney
                                 633 United States Post Office
                                      & Courthouse
                                 Pittsburgh, Pennsylvania 15219

                                 Attorneys for Appellee

----------

                        OPINION OF THE COURT

                             ----------

GARTH, Circuit Judge:

          Defendant George Retos ("Retos") was convicted on nine

counts of an eleven-count indictment, including two counts of

income tax evasion, in violation of 26 U.S.C. § 7201, and one

count of currency structuring, in violation of 31 U.S.C.

§§ 5324(3) and 5322(a).    On appeal, Retos contests a number of

rulings made by the district court during trial.    He also argues
that the district court's jury instruction with respect to the

structuring count was inconsistent with the Supreme Court's

holding in Ratzlaf v. United States, ___ U.S. ___, 114 S. Ct. 655

(1994), a case decided while Retos' appeal was pending before us.

          We have jurisdiction pursuant to 28 U.S.C. § 1291.

Although the bulk of Retos' appeal is without merit, we conclude

that, in the aftermath of Ratzlaf, the jury instruction given by

the district court without objection constituted plain error,

which we may review.    We will vacate Retos' structuring

                                 2
conviction and will remand to the district court for retrial on

the structuring count and for resentencing on Retos' remaining,

valid convictions, which we will affirm.

                                I

          George Retos was the managing partner of Retos, Held &

Mascara, a Washington, Pennsylvania law firm.    He also advised

clients as a solo practitioner, separate from, and apparently

concurrent to, his association with the law firm.    On May 21,

1992, a federal grand jury returned an eleven-count indictment

against Retos alleging numerous federal offenses arising out of

his professional and personal financial activities, and the

convergence of the two.

          Counts 1 through 3 charged Retos with income tax

evasion in violation of 26 U.S.C. § 7201.0    The government

alleged that Retos had understated his taxable income in 1985

("Count 1").   A government audit of Retos' 1986 tax return

revealed that he had understated his taxable income in 1986 by

$218,714.96 ("Count 2").   Retos never filed an income tax return

in 1987 ("Count 3").
0
          Section 7201 provides as follows:

               Any person who willfully attempts in any
          manner to evade or defeat any tax imposed by
          this title or the payment thereof shall, in
          addition to other penalties provided by law,
          be guilty of a felony and, upon conviction
          thereof, shall be fined not more than
          $100,000 ($500,000 in the case of a
          corporation), or imprisoned not more than 5
          years, or both, together with the costs of
          prosecution.

                                3
           Count 4 charged Retos with structuring a currency

transaction in violation of 31 U.S.C. §§ 5324(3)0 and 5322(a).0

The government alleged that in connection with the purchase of an

automobile dealership by a Retos client, Robert Bruno, Retos

caused $15,000 to be paid over to the seller, Bud Spesak, in two

separate checks, each made out to "Cash" in the sum of $7,500

(i.e., below the $10,000 currency transaction report threshold).

           Count 5 charged Retos with scheming to defraud by use

of wire communications, in violation of 18 U.S.C. § 1343.   In

1987, Retos applied for a residential loan from a federally

insured savings and loan institution using allegedly fraudulent

income tax returns.   In connection with his application, Retos

wired $216,264.49 into his own personal bank account.

           Count 6 charged Retos with making false statements in

connection with a credit application, in violation of 18 U.S.C.

§ 1014.   In 1988, Retos obtained a line of credit from a

federally insured bank by providing the bank with false

information concerning the status of his income tax liability and

by using falsified copies of his never-filed 1987 tax return.

0
          31 U.S.C. § 5324 provides as follows: "No person shall
for the purpose of evading the reporting requirements of section
5313(a) . . . (3) structure or assist in structuring, or attempt
to structure or assist in structuring, any transaction with one
or more domestic financial institutions."
          After the indictment issued on May 21, 1992, Congress
amended § 5324, designating the existing text as subsection (a),
and adding a new subsection (b). Section 5324(3) is now codified
at § 5324(a)(3).
0
          31 U.S.C. § 5322(a) provides as follows: "A person
willfully violating this subchapter or a regulation prescribed
under this subchapter . . . shall be fined not more than
$250,000, or imprisoned for not more than five years, or both."

                                4
          Counts 7 through 10 charged Retos with mail fraud, in

violation of 18 U.S.C. § 1341.   Retos had been retained by a

client, Samir Gayed, to incorporate Gayed's investment company,

Golden Falcon, Inc.   Retos never did so.   Rather, Retos falsely

held himself out as the president of Golden Falcon and had Golden

Falcon's interests transferred to him.   The effect of this

transfer was that Retos knowingly and fraudulently received, and

caused to be received, through the United States mail, four

revenue checks which rightly belonged to Golden Falcon.

          Count 11 charged Retos with the interstate

transportation of stolen property, in violation of 18 U.S.C.

§§ 2314 and 2.   Retos unlawfully transported a stolen limited

partnership certificate from Midland, Texas to Washington,

Pennsylvania.

          Trial commenced on November 30, 1992.   Retos

immediately objected to a number of statements made by the

prosecutor in his opening statement, and moved for a mistrial.

The district court denied Retos' motion.    On December 18, 1992, a

jury found Retos guilty on nine of the eleven counts charged,

including two of the three tax evasion counts and the one

structuring count.0   Thereafter, on May 4, 1993, the district

court denied Retos' post-trial motion for judgment of acquittal.

          On June 29, 1993, Retos was sentenced to concurrent

terms of 27 months imprisonment on Counts 2, 3, and 6 through 11.

0
          Count 5 was dismissed by the district court judge
pursuant to Federal Rule of Criminal Procedure 29. The jury
acquitted Retos on Count 1.

                                 5
He was sentenced to a consecutive term of three months

imprisonment on Count 4, the structuring count.     Retos also was

fined $30,000 and ordered to pay restitution in the amount of

$42,886.88 and a $450 special assessment.     This appeal followed.

                                 II

          Retos challenges a number of pronouncements made by the

prosecutor during his opening statement which, Retos claims,

prejudiced the jury against him.      In particular, Retos objects to

the prosecutor's reference to (1) drug use, (2) Retos' frequent

cash withdrawals of sums under $10,000, and (3) Retos' "crooked"

law practice.

          We review a district court's denial of a motion for

mistrial arising out of alleged prosecutorial misconduct for

abuse of discretion.    United States v. Gambino, 926 F.2d 1355,

1365 (3d Cir. 1991); United States v. Tyler, 878 F.2d 753, 756

(3d Cir. 1989).   We will vacate a defendant's conviction if "the

prosecutor's remarks, taken in the context of the trial as a

whole, were sufficiently prejudicial to have deprived [the

defendant of his] right to a fair trial."      United States v.
DiPasquale, 740 F.2d 1282, 1297 (3d Cir. 1984).     Even if a

prosecutor does make an offending statement, the district court

can neutralize any prejudicial effect by carefully instructing

the jury "to treat the arguments of counsel as devoid of

evidentiary content."    United States v. Somers, 496 F.2d 723, 738

(3d Cir. 1974).   Accord United States v. Leftwich, 461 F.2d 586,
590 (3d Cir. 1972) (finding no prejudice where trial judge

                                 6
carefully instructed jurors that arguments of counsel were not

evidence).

                                  A.

             Here, the reference by Assistant United States Attorney

Garrett to drug-dealing was for the sole purpose of illustrating

to the jury the meaning of "structuring."0    The portion of the

prosecutor's opening statement, challenged by Retos, was as

follows:
                  One of the charges you heard mentioned
             of in this case involves a currency
             transaction. The particular violation is
             that Mr. Retos did what is known as he
             structured a currency transaction. A
             currency transaction that is affected by this
             particular offense is a transaction for
             currency in excess of $10,000.
                  Now, within the past couple of decades,
             I guess it has been determined by the United
             States Congress that there is a substantial
             risk that persons engaged in criminal
             activity will utilize currency. The reason
             for that is simple.
                  When currency exchanges hands between
             two individuals, there is no record made. If
             you think about it, when you write a check,
             the check goes through your bank account. The
             bank has to keep a record of that check
             because the bank has to keep your account
             straight. They don't want to be crediting
             your $10,000 against somebody else's account.
                  So that the bank keeps a record. So
             whenever you use a check or some written
             instrument in connection with the financial
             transaction, there is a record. But if you
             simply use currency, there is not any record.
             So in order to fill that gap, in 1971, I
             think it was, the United States Congress
             passed a law that provided that whenever a

0
          We discuss Count 4, the structuring count, in Section
IV, infra.

                                  7
         bank engages in a transaction with a customer
         involving more than $10,000 in cash, the bank
         must file a report.
              So, in other words, if I go to my bank
         because I am a drug dealer or because I am a
         tax cheat, and I want to create a transaction
         that does not have any record to it, and I
         get my $15,000 in currency, there is going to
         be a record because the bank has to file a
         report saying Garret [i.e., the prosecutor]
         got 15 grand.
              So it does not necessarily say what I
         did with the 15 grand, but it says I had it.
         So there is at least that much of a record.
              Now, when Congress passed the law, as I
         say, it required the bank to file a report
         and if the bank engaged in a transaction for
         more than $10,000, and did not file a report,
         the bank itself and bank employee who engaged
         in the transaction could be prosecuted for
         violating the law.
              In more recent years, I guess it has
         probably been about within the last ten years
         or so, the Congress also passed a law that
         provided that, if an individual designs or
         structures a transaction in such a way as to
         prevent the bank from filing a currency
         transaction report, then that individual is
         violating the law. In other words, Garret
         does not go to the bank once and get $15,000,
         Garret goes to the bank twice -- see, I am a
         smart guy. I get $7500 one time and $7500
         the next time. There was never any $10,000
         that the bank gave me, so the bank never had
         a $10,000 transaction to report.
              Well, Congress said time out; no. If
         you, Garret, structure your transaction in
         order to avoid ever exceeding $10,000, you
         have violated the law because you prevented
         the bank from filing the currency transaction
         report.

(Emphasis added.)

          It is clear from this passage that the prosecutor did

not tell the jury that Retos was a drug dealer, nor did the

prosecutor charge Retos with a drug offense.   As the district

court explained in denying Retos' motion for mistrial: "Mr.

                               8
Garret [the prosecutor] did that in the context of explaining the

congressional context in that statute.   At no point is there any

indication Mr. Retos is charged with a drug offense or is there

any faintly remotely connecting him."    See United States v.

Strissel, 920 F.2d 1162 (4th Cir. 1990) (denying appellant's

request for new trial based on argument that prosecutor had

compared him to "Al Capone" where reference to Capone was for the

purpose of illustrating that RICO statute applies to anyone who

engages in racketeering activity, not just gangsters).

                               B.

          Second, the prosecutor's reference to Retos' numerous

currency transactions involving sums under $10,000 did not amount

to an accusation of uncharged criminal conduct, as Retos argues.

The portion of the prosecutor's opening statement, challenged by

Retos, was as follows:
               Now, you will hear in this particular
          case that Mr. Retos was well aware of the
          currency transaction report law. In fact, we
          will demonstrate for you some transactions in
          which currency reports were filed in
          connection with Retos transactions.
               You will also hear that Mr. Retos in
          fact on a frequent basis obtained currency in
          less than $10,000 by various banking
          transactions . . . The charge before you
          involves a particular transaction in which on
          behalf of a client Mr. Retos structured a
          currency transaction deal in order to avoid
          the report.

          We have held that "[i]f an opening statement is an

objective summary of evidence the government reasonably expects

to produce, a subsequent failure in proof will not necessarily

                               9
result in a mistrial."     United States v. Wright-Barker, 784 F.2d
161, 175 (3d Cir. 1986).    Here, the prosecutor's statement was an

"objective summary" of the evidence the government expected to

produce and, ultimately, there was no failure in proof.    At

trial, witnesses testified as to Retos' practice of breaking down

deposits of $10,000 or more into smaller amounts.    This evidence

was directly relevant to the issue of whether Retos purposefully

engaged in structuring the $15,000 currency transaction alleged

in Count 4 of the indictment.

                                  C.

          Finally, the prosecutor's reference to Retos' "crooked

law practice" was clearly related to the tax-evasion offenses

charged in the indictment.    The portion of the prosecutor's

opening statement, challenged by Retos, was as follows:
          [T]he evidence that you will hear in this
          case will delve into the law practice of the
          defendant, George Retos, . . . The evidence
          will show that it was a crooked law practice,
          crooked in that Mr. Retos violated his legal
          duty to maintain a wall between his own
          business on matters being handled for
          clients, crooked in that Mr. Retos transacted
          his business in such a manner as to hide his
          income and evade his income taxes, and
          crooked in that Mr. Retos helped himself to
          client's money.

          Evidence presented at trial supported the prosecutor's

characterization of, and allegations with respect to, Retos'

shady professional practices.    Those practices were directly

connected to the specific criminal offenses with which Retos was

charged, and which the government was required to prove.

                                  10
                                  D.

             In any event, the district court thoroughly and

repeatedly instructed the jury that the parties' opening

statements were not to be considered as evidence.     In the context

of Retos' trial as a whole, we find no lingering prejudicial

effect which can be imputed to the prosecutor's opening

statement.

             In sum, the prosecutor's statements were not improper,

there was no failure of proof, and the district court gave

curative instructions to the effect that the prosecutor's

arguments were not to be considered as evidence.     Accordingly, we

hold that the district court did not abuse its discretion in

denying Retos' motion for mistrial.

                                 III

             Retos next argues that the district court erred in

permitting James Celestine to testify as to $36,000 in family

trust funds which Celestine had given to Retos to manage, but

which Retos transferred into his own personal bank account. Retos

argues that Celestine's testimony was both irrelevant, under

Federal Rule of Evidence 402,0 and inadmissible, under Federal

0
          Rule 402 provides as follows: "All relevant evidence is
admissible, except as otherwise provided by the Constitution of
the United States, by Act of Congress, by these rules, or by
other rules prescribed by the Supreme Court pursuant to statutory
authority. Evidence which is not relevant is not admissible."

                                  11
Rule of Evidence 404(b).0   Retos claims that he ultimately

transferred the money from his personal account to the law firm's

client trust account, the firm divided the partnership's income

among the partners, and the individual partners paid taxes on the

"embezzled" $36,000.   In addition, Retos emphasizes that he was

prepared at trial to stipulate that in 1986, he had received the

$36,000 in his personal income.

           The government argues that Celestine's testimony was

relevant to establish Retos' 1986 income level.   The government

claims that Retos did not, and could not, establish conclusively

that the $84,283.62 in funds transferred from Retos' personal

account to the firm's account during 1986, included the $36,000

which Retos had embezzled from Celestine.   The government refused

Retos' offer to stipulate to the $36,000 as income to Retos

because it wanted Celestine to testify.   The government contends

that when Celestine told Retos that IRS agents had been asking

him questions about the $36,000, Retos had instructed Celestine

to tell the authorities that Celestine had loaned the money to

Retos.   Proceeds from a loan, of course, do not constitute

taxable income, while embezzled funds do.   The government argued

that this evidence was probative of willfulness, an element it

was required to prove to convict Retos of tax evasion.

           We review a district court's decision to admit or

exclude evidence for abuse of discretion.   United States v.

0
          Rule 404(b) provides in relevant part as follows:
"Evidence of other crimes, wrongs or acts is not admissible to
prove the character of a person in order to show action in
conformity therewith. . . ."

                                  12
Console, 13 F.3d 641, 656 (3d Cir. 1993); United States v.

Eufrasio, 935 F.2d 553, 571 (3d Cir. 1991).

            At trial, the district court judge held that the

Celestine testimony was relevant, even if marginally so, under

Rule 402.    In so holding, the district court concluded that

Celestine's testimony would establish the source of the

unreported income, as well as part of Retos' level of income for

1986.   In addition, the district court determined that

Celestine's testimony could demonstrate willfulness.   It

therefore concluded that the probative value of Celestine's

testimony outweighed any prejudicial effect under Federal Rule of

Evidence 403.0   The court explicitly held that Rule 404(b) was

not implicated in its ruling because the embezzlement evidence

had relevance independent of Retos' character.0

            Our review of the record reveals that the testimony

with respect to Retos' embezzlement of Celestine's $36,000 trust

fund was somewhat complicated.    The inference of willfulness the

government sought to establish through this testimony was subtle,

yet highly probative.    Despite Retos' arguments to the contrary,

the government's expert did not concede that the $36,000 became a

"wash" transaction once Retos transferred a total of $84,283.62

0
           Rule 403 provides as follows: "Although 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."
0
           Thereafter, the district court reconsidered and
reaffirmed its ruling which admitted the Celestine testimony, two
more times.

                                 13
to the law firm's trust account.       Nor do we believe that there is

record evidence supporting Retos' characterization of the

transaction as a "wash," inasmuch as the $36,000 could not be

identified as a part of the total monies transferred.

          Rather, the record demonstrates that after Retos

transferred the $36,000 to his personal account, his ledger card

reflected a balance of $35,671.    That is, Retos immediately used

at least part of the $36,000 to cure an existing negative balance

in his personal account.

          In addition, there is no record evidence that the firm

of Retos, Held & Mascara, as distinct from George Retos, solo

practitioner, in any way earned a fee for legal work performed on

behalf of James Celestine.   Nor does the record contain evidence

that Retos forwarded the $36,000 to the firm because he believed

it was a fee owed to the firm on the Celestine matter.      In fact,

Retos freely admits that he was prepared to stipulate at trial to

the fact that the full $36,000 should have been recorded as

income to him on his 1986 personal income tax return.

          It is the trial court, of course, and not the Court of

Appeals, which is in the best position to consider the

complicated evidentiary issues involved in a given case, and to

strike the balance required by Rule 403.      United States v. Gatto,

995 F.2d 449, 457 (3d Cir. 1993; United States v. Sampson, 980
F.2d 883, 889 (3d Cir. 1992).   Here, the district court

scrupulously analyzed the propriety of the government's evidence

when it was first offered, and re-analyzed its ruling throughout

the course of the trial.   It concluded on each of these occasions

                                  14
that the testimony elicited by the government was relevant in

proving the underlying elements of the offenses charged.

          Retos has not cited a case which even suggests that the

district court committed legal error.0   From our vantage point --

based on the record before us -- we are satisfied that the

district court's Rule 403 balancing of prejudice and probity
0
           Among other of Retos' arguments, he asserts that the
embezzlement evidence was inadmissible under Federal Rule of
Evidence 404(b). Retos argues that under United States v.
Sampson, 980 F.2d 883 (3d Cir. 1992), the government was
obligated to (1) proffer a logical chain of inferences consistent
with the government's theory of the case, and (2) articulate
reasons why the evidence goes to show something other than
character.
           The district court concluded, however, and we agree,
that the Celestine testimony was not introduced to prove criminal
propensity or bad character but was admitted, rather, as direct
substantive evidence bearing on the two elements of tax evasion:
(1) Retos' level of income, and (2) willfulness. Rule 404(b)
simply was not implicated.
           Retos also objected to the government's summation which
referred to the embezzlement evidence as that evidence related to
Counts 7 through 11, the mail fraud counts. The district court
denied that objection on the grounds urged by the government,
i.e., that Celestine's testimony properly had been admitted as
substantive evidence. We agree.
           As we have explained previously, it is unavoidable that
evidence, once admitted as substantive evidence for certain
counts, may convey unfavorable impressions to the jury with
respect to other counts for which it was not offered. See United
States v. Blyden, 964 F.2d 1375, 1377-79 (3d Cir. 1992) (noting
that admitting evidence to prove an essential element of one
count, but "excluding" it as to other counts for which it might
have been inadmissible under Rules 403 and 404(b), would have no
practical effect). However, as we recognized in Blyden,
unforeseen developments can occur during trial which would
warrant rulings or instructions concerning the use of the
evidence with respect to counts for which it was not introduced.
Id. at 1379. Nevertheless, in this case, we do not believe that
the district court abused its discretion in denying Retos' motion
for mistrial. The evidence properly was before the jury, and the
prosecutor's summation was not so prejudicial as to have deprived
Retos of his right to a fair trial. United States v. Gambino,
926 F.2d 1355, 1365 (3d Cir. 1991).

                                15
constituted a proper exercise of its discretion.    Simply stated,

to convict Retos, the government was required to prove

willfulness and income level.    The embezzlement evidence, and

Retos' effort to have Celestine characterize the $36,000 as a

loan, was probative of both.    Consequently, we hold that the

district court did not abuse its discretion in admitting the

Celestine evidence.

                                 IV

           Finally, Retos argues that the district court's jury

instruction with respect to currency structuring was inconsistent

with the Supreme Court's decision in Ratzlaf v. United States,

___ U.S. ___, 114 S. Ct. 655 (1994), and that, therefore, his

conviction for violating 31 U.S.C. §§ 5324(3) and 5322, must be

vacated.

                                 A.

           Because Retos failed to object to the jury instruction

at trial, our review is limited to plain error under Federal Rule

of Criminal Procedure 52(b).0   United States v. Olano, ___ U.S.
___, 113 S. Ct. 1770 (1993). For plain error to exist:
          There must be an "error" that is "plain" and
          that "affects substantial rights." Moreover,
          Rule 52(b) leaves the decision to correct the
          forfeited error within the sound discretion
          of the Court of Appeals, and the court should
          not exercise that discretion unless the error
          "'seriously affect[s] the fairness, integrity
0
          Rule 52(b) provides: "Plain errors or defects affecting
substantial rights may be noticed although they were not brought
to the attention of the court."

                                 16
          or public reputation of judicial
          proceedings.'"

Id. at 1776 (internal citations omitted).
           A deviation from a legal rule is "error."    Id. at 1777.

A "plain" error is one which is "clear" or "obvious."    Id.     In

most cases, an error will "affect substantial rights" where it is

prejudicial: "It must have affected the outcome of the District

Court proceedings."   Id. at 1778.

           Finally, Rule 52(b) is a permissive, not a mandatory

rule.   "If the forfeited error is 'plain' and 'affect[s]

substantial rights,' the Court of Appeals has authority to order

correction, but is not required to do so."   Id. at 1778.   We

will, however, exercise our discretion "in those circumstances in

which a miscarriage of justice would otherwise result,"     id. at

1778-79, quoting United States v. Young, 470 U.S. 1, 15 (1985),

that is, where the defendant is actually innocent, or where,

regardless of the defendant's innocence or guilt, the error

"seriously affect[s] the fairness, integrity or public reputation

of judicial proceedings."   Olano, 113 S. Ct. at 1779, quoting

United States v. Atkinson, 297 U.S. 157, 160 (1936).    Accord

United States v. Martinez-Hidalgo, 993 F.2d 1052, 1057 (3d Cir.

1993); Government of Virgin Islands v. Smith, 949 F.2d 677, 681

(3d Cir. 1991).

                                1.

           Our first inquiry then is whether the district court

committed error in failing to charge the jury in accordance with

                                17
the Supreme Court's decision in Ratzlaf v. United States, ___

U.S. ___, 114 S. Ct. 655 (1994).       In Ratzlaf, the Supreme Court

held that "[t]o convict Ratzlaf of the crime with which he was

charged, violation of 31 U.S.C. §§ 5322(a) and 5324(3), the jury

had to find he knew the structuring in which he engaged was

unlawful." 114 S. Ct. at 663.   Because the Ratzlaf district

court had failed to instruct the jury in this regard, the Supreme

Court reversed Ratzlaf's structuring conviction.

          Here, the district court instructed the jury with

respect to Count 4 as follows:
               In order to prove the defendant guilty
          of Count 4, the Government must establish, by
          proof beyond a reasonable doubt, the
          following four elements.
               First, that on or about the dates
          alleged in the indictment June 26, 1987 and
          June 29, 1987, George Retos knew that the
          currency transaction reporting requirements
          required banks to report currency
          transactions in excess of $10,000 in one
          business day.
               Second, that George Retos knowingly and
          willfully structured or assisted in
          structuring a currency transaction in excess
          of $10,000. A currency transaction includes
          the negotiation of a check for cash, but does
          not include a wire transfer or other
          transaction which does not include the
          physical transfer of currency. Structuring
          refers to a person, acting alone, or in
          conjunction with other persons, conduct or
          attempts to conduct one or more transactions
          in currency, in any amount, at one or more
          financial institutions, on one or more days,
          in any manner, for the purpose of evading the
          reporting requirements applicable to
          financial institutions. Here, the Government
          claims that the transactions were the
          negotiation of two $7,500 checks drawn on Mr.
          Retos' firm's account at the Gallatin
          National Bank.

                                  18
                The third element that Mr. Retos'
           specific intent in structuring the
           transaction was to avoid activating the
           banks' reporting requirements established by
           law. And fourth, the transaction involved
           one or more domestic financial institutions.
           With respect to this last element, I charge
           you that as a matter of law the two banks
           alleged in the indictment to have been
           involved in this count, Pittsburgh National
           Bank and Gallatin National Bank are domestic
           financial institutions.
                If you find that the Government has
           proved all four elements beyond a reasonable
           doubt, then you should find the defendant
           guilty on this count. If you find that you
           have a reasonable doubt as to any one or more
           of the elements, you must find the defendant
           not guilty.

(Emphasis added.)

           Our review of the charge given in the present case

reveals that the district court only instructed the jury that it

was required to find that Retos knew of the bank's obligation to

file a currency transaction report, and that Retos intended to

avoid activating the bank's reporting obligation, in order to

convict.   The law of this circuit, prior to Ratzlaf, required no

more, and no different, a charge than that given by the district

court judge here.   Thus, the content of the district court's

instruction, and Retos' failure to object to the district court's

instruction, were quite understandable.   Accord United States v.

Jones, No. 93-2164, slip op. at ___ n.9 (7th Cir. April 5, 1994).

           Nevertheless, the district court's charge did not

explicitly instruct the jury that the government was required to

prove, and that the jury was required to find, that Retos had

                                19
actual knowledge that structuring was unlawful.      Under Ratzlaf,

the absence of such an instruction now constitutes legal error.

                                 2.

            The second stage of our inquiry under Olano is to

determine whether the error committed by the district was

"plain," i.e., clear and obvious.     In Olano, the Supreme Court

noted that it "need not consider the special case where the error

was unclear at the time of trial but becomes clear on appeal

because the applicable law has been clarified." 113 S. Ct. at

1777.    That, however, is the case before us now.

            Although the structuring charge offered by the district

court judge at the time of trial in December 1992 was consistent

with the law of this circuit, while Retos' appeal was pending,

the applicable law was clarified by the United States Supreme

Court.    That is, on December 16, 1992, when the district court

judge charged the jury in the instant case, its instruction

essentially was correct -- the district court judge was not

required to instruct the jury that Retos had to know that

structuring was illegal.    Not until January 11, 1994, when

Ratzlaf was decided and the "knowledge" element of § 5322(a)

clarified, did the error committed by the district court judge

become clear and obvious, i.e., "plain."

           The question, therefore, arises whether Retos should be

given the benefit of the change in the structuring law brought

about by Ratzlaf.   We have no hesitancy in holding that full

retroactive effect should be accorded to Ratzlaf in the present

                                 20
appeal.    Griffith v. Kentucky, 479 U.S. 314, 322 (1987); United

States v. Jones, No. 93-2164, slip op. at ___ (7th Cir. April 5,

1994).     See also United States v. Rogers, No. 93-5002 (4th Cir.

March 14, 1994). As the Supreme Court held in Griffith:
          [A] new rule for the conduct of criminal
          prosecutions is to be applied retroactively
          to all cases, state or federal, pending on
          direct review or not yet final, with no
          exception for cases in which the new rule
          constitutes a "clear break" with the past.
479 U.S. at 328.

            Griffith was decided in a constitutional context.

However, the government has not argued that the same principle is

inapplicable to the present statutory context involving the

currency structuring statute, 31 U.S.C. § 5324, and we know of no

reason why the holding in Ratzlaf should not benefit Retos in the

instant action.    Thus, inasmuch as the district court's

structuring charge was clearly and obviously erroneous under

current law, we hold that it constituted "plain" error.

                                  3.
            Our final "plain error" inquiry is whether or not the

district court's plain error "affect[ed Retos'] substantial

rights."    Olano, 113 S. Ct. at 1778.   As mentioned above, in most

cases, an error will affect substantial rights where it is

prejudicial: "It must have affected the outcome of the District

Court proceedings."    Id.0

0
          We note that, under Rule 52(b), it is the defendant who
bears the burden of persuasion with respect to prejudice. Olano,
113 S. Ct. at 1778.

                                  21
            Since Ratzlaf was decided, two Courts of Appeals have

reversed structuring convictions which were returned on non-

Ratzlaf jury charges.   Both cases held that the erroneous charges

constituted error which was plain, and which had "affected

substantial rights" of the respective defendants.

            In United States v. Jones, No. 93-2164 (7th Cir. April

5, 1994), the Seventh Circuit held that the district court's

instruction was "clear and obvious error under Ratzlaf."     The

Court of Appeals also held that the erroneous jury instruction

was prejudicial, inasmuch as it "clearly affected the outcome of

the unlawful structuring charge because the government had

presented no evidence at trial to establish this element of the

offense."

            The Fourth Circuit, too, in United States v. Rogers,

No. 93-5002 (4th Cir. March 14, 1994), reversed a structuring

conviction because the district court's charge was at odds with

that required under Ratzlaf:
          [T]he failure to instruct on the defendant's
          knowledge of the illegality of his own
          conduct is an erroneous omission of an
          essential element of the offense charged, and
          thus meets the first two tests of Olano. We
          are of the opinion that this failure to give
          an instruction on a required element of the
          crime is an error that affects substantial
          rights and one that seriously affects the
          fairness, integrity or public reputation of
          judicial proceedings, as required by Olano,
          since due process requires "proof beyond a
          reasonable doubt of every fact necessary to
          constitute the crime with which he is
          charged." In re Winship, 397 U.S. 358, 364
          (1970). We have no doubt that the failure to
          instruct on an essential element of the crime
          prejudiced the defendant here, because the

                                 22
          jury could not have been expected to make a
          finding beyond a reasonable doubt as to
          Roger's knowledge of the illegality of his
          structuring, in the face of an instruction to
          the contrary.

Id., slip op. at 7.

          Unlike the defendants in Jones and Rogers, however,

Retos is an attorney-at-law.   As the government argued before us,

a jury certainly could have inferred that Retos knew his actions

were unlawful.   By that token, it was urged that the district

court's error -- its omission of an essential element of the

offense charged -- did not affect the outcome of the district

court proceedings and, thus, was not prejudicial.   We cannot

agree.

          Rather, we find ourselves constrained by the Supreme

Court's decision in In re Winship, 397 U.S. 358, 364 (1970), and

our own decision in United States v. Xavier, 2 F.3d 1281, 1287

(3d Cir. 1993), to hold that Retos was indeed prejudiced by the

district court's error.   In Xavier, we held that the district

court's failure to instruct the jury as to a required element of

the crime charged constituted a plain error which had affected

the defendant's rights. We explained:
          Here, there can be no question that the
          failure to instruct had an impact on the
          jury's deliberations, because the jury could
          not have been expected to make a finding
          beyond a reasonable doubt as to Xavier's
          knowledge of his brother's status as a felon
          in the absence of an instruction to do so.
          The question, then, is whether the error in
          failing to instruct was prejudicial. In
          light of Winship's instruction and the
          evidence presented, we must conclude the
          failure to instruct on an essential element
          of the offense affected Clement Xavier's due

                                23
          process rights in a manner that "'seriously
          affect[ed] the fairness, integrity or public
          reputation of judicial proceedings.'" Olano,
113 S. Ct. at 1779.

2 F.3d at 1287 (vacating conviction for aiding and abetting ex-

felon's possession of firearm).    Cf. United States v. Curran, No.

93-1444 (3d Cir. March 30, 1994).0

          We remain unprepared to adopt a per sé rule that the

omission of an essential element of an offense constitutes "plain

error."   Xavier, 2 F.3d at 1287 (3d Cir. 1993); United States v.

Anderson, 859 F.2d 1171, 1175-76 (3d Cir. 1988).0   Here, however,

0
          In Curran, we held that the district court's erroneous
explanation of the law on the defendant's duty to report to the
Federal Election Commission, under 18 U.S.C. § 2(b), constituted
plain error and that the case had to be retried. We then alerted
the district court to other deficiencies in its jury instruction,
one of which was its failure to give a Ratzlaf instruction on
§ 2(b)'s "willfulness" requirement.
0
          In Anderson, the defendant was convicted of four drug
offenses, as well as one count of operating a continuing criminal
enterprise, in violation of 21 U.S.C. § 848(d). We upheld the
defendant's conviction on the latter count even though the trial
judge had failed to instruct the jury as to an essential element
of the crime, i.e., that to find a "continuing series of
violations" under § 848(d), the jury must unanimously find and
agree upon three violations of the federal drug laws.
          While recognizing that the district court's charge to
the jury was legally erroneous, we refused to find "plain error,"
inasmuch as our review of the entire record revealed that
Anderson had not been prejudiced by the district court's error:

          The jury unanimously found Anderson guilty of
          three counts of distribution of heroin and
          one count of conspiracy to possess with
          intent to distribute heroin and cocaine in
          addition to the continuing criminal
          enterprise count. In such a circumstance it
          is impossible to conclude that the jury may
          not have been in unanimous agreement that
          Anderson was guilty of three underlying drug
          crimes. Thus, it cannot be said that the
          district judge's error in any way prejudiced

                                  24
the evidence presented by the government on Retos' structuring

count, while sufficient, was not conclusive.   In such a case, we

cannot be certain that the jury found beyond a reasonable doubt

that Retos knew his actions were unlawful, absent a specific

instruction from the district court judge.0

          the jury's deliberations or resulted in
          manifest injustice.
859 F.2d at 1176.
          In contrast, in Xavier, we reversed the defendant's
conviction for aiding and abetting an ex-felon's possession of a
firearm. We held that the district court judge had committed a
clear error in failing to instruct the jury that it was required
to find that Xavier had knowledge that his brother -- the ex-
felon at issue -- was, in fact, an ex-felon. In addition, after
a thorough review of the record, we held that Xavier was, in
fact, prejudiced by the district court's error, despite the
existence of record evidence from which the jury could have
inferred the requisite knowledge:

          [A] jury could have inferred, on a
          preponderance of the evidence presented at
          trial [internal reference omitted] that
          Xavier knew his brother was an ex-felon, that
          evidence is not so conclusive as to have
          assured Xavier's due process right to "proof
          beyond a reasonable doubt of every fact
          necessary to constitute the crime with which
          [a defendant] is charged." Winship, 397 U.S.
          at 364.

2 F.3d at 1287 (emphasis in original).
0
          We recognize that Henderson v. Kibbe, 431 U.S. 145, 154
(1977), has been cited consistently for the proposition that
"[i]t is a rare case in which an improper instruction will
justify reversal of a criminal conviction when no objection has
been made in the trial court." We note, however, that Henderson
arose in a habeas context, and that the Supreme Court itself
acknowledged in its opinion that "[t]he burden of demonstrating
that an erroneous instruction was so prejudicial that it will
support a collateral attack on the constitutional validity of a
state court's judgment is even greater than the showing required
to establish plain error on direct appeal." 431 U.S. at 154
(emphasis added).

                               25
                                  B.

          Having determined that plain error permits our review,

the only remaining issue, then, is whether we should exercise our

discretion under Rule 52(b) and take corrective action.    Our

review of the record satisfies us that the district court's

understandable but, nevertheless, erroneous failure to instruct

Retos' jury in accordance with Ratzlaf, "seriously affect[ed] the

fairness" of Retos' trial, United States v. Olano, 113 S. Ct. at

1779, and thereby resulted in severe prejudice to him, a hallmark

of manifest injustice. Accord United States v. Jones, No. 93-2164

(7th Cir. April 5, 1994); United States v. Rogers, No. 93-5002

(4th Cir. March 14, 1994).

                                  V

          Thus, we will vacate Retos' conviction on Count 4, the

structuring count.    The government, of course, may, in its

discretion, retry Retos on Count 4, inasmuch as our vacatur of

Retos' structuring conviction did not result from a finding of

insufficient evidence.    United States v. Beros, 833 F.2d 455, 467
n.13 (3d Cir. 1987); United States v. Pervez, 871 F.2d 310, 319

(3d Cir. 1989).

          We will affirm Retos' convictions on Counts 2, 3, and 6

through 11, but we will remand to the district court for

resentencing.     We do so, because we cannot be certain that the

district court would have imposed the same sentence had Retos not

been convicted on Count 4, the structuring count.

                                  26
             Although it is clear that Retos was sentenced to a

consecutive term of three months imprisonment on the Count 4

conviction, we note that the district court failed to explain how

it allocated the $30,000 fine which it had imposed, among the

nine counts upon which Retos was convicted.     Consequently, we

cannot ascertain what part, if any, of the $30,000 fine was

imposed as punishment for the structuring conviction, as distinct

from punishment for Retos' other convictions.

             That being said, we express no opinion on resentencing.

The district court is free to impose the same sentence -- and the

same fine -- on the remaining convictions, if it deems such

sentence appropriate and lawful, providing of course that it

allocates the fine among the particular counts on which Retos was

convicted.

                                  27