UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA :
:
:
v. : Case No. xx-139-01 (RCL)
:
:
xxxxxxxxxxxxxxxxx :
ET AL.
DEFENDANTS' MOTION TO DISMISS
COUNTS 5-15 FOR FAILURE TO STATE A CLAIM
The defendants, xxxxxxxx and xxxxxxxxxxxxxx, by and through undersigned counsel, hereby move to dismiss Counts 5-15 (charging violations of 18 U.S.C. §§ 1956 and 1957) for failure to state a claim. As more fully set forth in the accompanying memorandum, the facts alleged in these counts fail to establish that the charged financial transactions occurred after the completion of the alleged specified unlawful activity, namely the scheme to defraud charged in counts 1-4.
Respectfully submitted,
A.J. Kramer
Federal Public Defender
L. Barrett Boss
Assistant Federal Public Defender
625 Indiana Avenue, N.W., Suite 550
Washington, D.C. 20004
(202) 208-7500
Joseph Conte, Esquire
601 Pennsylvania Avenue, N.W., #900
Washington, D.C. 20004
(202) 638-4100
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA :
:
:
v. : Case No. xx-139-01 (RCL)
:
:
xxxxxxxxxx xxxxxxxxxxxxxxxxxx :
ET AL.
MEMORANDUM IN SUPPORT OF DEFENDANTS'
MOTION TO DISMISS COUNTS 5-15
Counts 5-15 charge money laundering violations. While counts 5 through 8 charge a violation of 18 U.S.C. § 1956 and counts 9-15 charge a violation of Section 1957, the argument for dismissal of all of these counts is similar. In short, these money laundering provisions were intended only to punish financial transactions which occurred after the completion of the specified unlawful activity, which in this case is the scheme to defraud charged in counts 1-4. Without this temporal distinction, at least in mail and wire fraud cases, there would be a complete merger of the underlying fraud and money laundering charges, and no meaningful distinction between the two charged crimes. Here, the charged financial transactions were merely part and parcel of the underlying scheme to defraud, not a temporally distinct conduct as required by both the statutes and the double jeopardy clause.
I. BACKGROUND
A. Counts 5-8
Counts 5 through 8 charge a violation of 18 U.S.C. § 1956(a)(1)(A)(i). That portion of the money laundering statute proscribes engaging in a financial transaction "knowing that the property involved ... represents the proceeds of some form of unlawful activity" and "which in fact involves the proceeds of specified unlawful activity --(A)(i) with the intent to promote the carrying on of specified unlawful activity."
According to the indictment, the defendants engaged in four transactions between May 19, 1994 and July 1, 1994 in which payments related to the Bayport transaction were sent or wired by Fulcrum to the purported investor (or his agent) in Florida. The indictment alleges that these payments "involved the proceeds of specified unlawful activities, that is wire fraud and mail fraud as set forth in Counts One through Four, with the intent to promote the carrying on of the specified unlawful activities...." (emphasis added). It is clear that the specified unlawful activity which the defendants are accused of trying to promote is the same scheme to defraud that is set forth in counts 1 through 4. That scheme to defraud, according to the indictment, began in late 1993 and continued until "about November 1994."
B. Counts 9-15
These counts charge a violation of 18 U.S.C. § 1957. That statute prohibits individuals from knowingly engaging or attempting to engage in a monetary transaction, through a financial institution, in criminally derived property with a value greater than $10,000, such property having been "derived from specified unlawful activity." The defendants are charged with engaging in seven financial transactions between May 19, 1994 and September 9, 1994, with those transactions involving the proceeds of the scheme to defraud in existence from late 1993 until approximately November of 1994.
II. COUNTS 5 THROUGH 8 FAIL TO CHARGE A VIOLATION OF 18 U.S.C. § 1956(a)(1)(A)(i) BECAUSE THE CHARGED FINANCIAL TRANSACTIONS WERE PART OF THE ALLEGED UNDERLYING SCHEME TO DEFRAUD, AND WERE NOT AFTER THE SCHEME TO DEFRAUD AND FOR THE PURPOSE OF PROMOTING OTHER CRIMINAL CONDUCT
The money laundering statute was designed to separately punish individuals engaged in financial transactions involving criminally derived property. However, the legislative history makes clear that Congress "intended the money laundering statute to be a separate crime distinct from the underlying offense that generated the money to be laundered." United States v. Edgmon, 952 F.2d 1206, 1213 (10th Cir. 1991), cert. denied, 505 U.S. 1223 (1992). Specifically, the Senate report on the bill reflects that the statute was designed to fill in the "gap in the criminal law with respect to the post-crime hiding of the illgotten gains." Id. (emphasis added, citation omitted). The statute was designed to punish conduct not already covered by the criminal statutes; namely, "conduct that follows in time the underlying crime rather than to afford an alternative means of punishing the prior 'specified unlawful activity.'" Id. at 1214 (emphasis added).
The specific terms of Section 1956(a)(1)(A)(i) provide additional support for the proposition that the charged financial transactions in this case, which were part and parcel of the charged underlying scheme to defraud, do not constitute violations of this portion of the statute. This particular subsection requires that the transactions be conducted with the intent to promote specified unlawful activity. If this were interpreted to mean that in a mail or wire fraud case any financial transaction related to the underlying fraud constituted a separate violation of the money laundering statute, then there would be absolutely no distinction between these two crimes. See United States v. Heaps, 39 F.3d 479, 484-86 (4th Cir. 1994) (rejecting government's claim that in drug distribution case, payment by defendants for ecstasy previously provided to them constituted a financial transaction conducted with the intent to promote specified unlawful activity).(1)
Here, the charged financial transactions occurred during the same period of time as the underlying scheme to defraud charged in counts 1-4. Moreover, the payments were directly related to the Bayport transaction which was the subject of the charged scheme to defraud. Indeed, each of the payments referenced in counts five through eight is also referenced in counts one through four as being "part of said scheme and artifice" to defraud. See Indictment at paras. 18, 23, 25, 27. Accordingly, since the charged financial transactions were part and parcel of the alleged scheme to defraud, and were not intended to promote other specified unlawful activity, they must be dismissed.
III. COUNTS 9 THROUGH 15 FAIL TO STATE A CLAIM UNDER 18 U.S.C. § 1957
BECAUSE THE CHARGED FINANCIAL TRANSACTIONS DO NOT FOLLOW IN TIME THE CHARGED UNDERLYING
SPECIFIED UNLAWFUL ACTIVITY.
Like Section 1956, the legislative history of Section 1957 reveals that "Congress intended to separately punish a defendant for monetary transactions that follow in time the underlying specified unlawful activity that generated the criminally derived property in the first place." United States v. Lovett, 964 F.2d 1029, 1042 (10th Cir.) (emphasis added, citation omitted), cert. denied, 506 U.S. 857 (1992). Again, any contrary interpretation would effectively eliminate any distinction, at least in fraud cases, between fraud and money laundering charges.
Here, all of the transactions serving as the basis for the alleged Section 1957 violations occurred during the time frame of the alleged scheme to defraud (late 1993 until November of 1994). Moreover, all of the transactions relate to the funds which were allegedly realized from the fraud. In addition, the transactions serving as the basis for counts 9-11 are specifically alleged as transactions conducted as part of the scheme to defraud set forth in counts 1-4. Accordingly, counts 9-15 should also be dismissed since they do not follow in time the specified unlawful activity. Respectfully submitted,
A.J. Kramer
Federal Public Defender
L. Barrett Boss
Assistant Federal Public Defender
625 Indiana Avenue, N.W., Suite 550
Washington, D.C. 20004
(202) 208-7500
Joseph Conte, Esquire
601 Pennsylvania Avenue, N.W., #900
Washington, D.C. 20004
(202) 638-4100
CERTIFICATE OF SERVICE
I hereby certify that on day of September, 1996, a copy of the foregoing Motion to Dismiss Counts 5-15 for Failure to State A Claim, and Memorandum in Support of Defendant's Motion to Dismiss Counts 5-15 was served upon:
Harry Benner
Assistant U.S. Attorney
555 4th Street, N.W.
Washington, D.C. 20001
L. Barrett Boss
Assistant Federal Public Defender
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA :
:
:
v. : Case No. xx-139-01 (RCL)
:
:
xxxxxxxxxxxxxxxxxx :
ET AL.
O R D E R
Upon consideration of defendant xxxxxx Motion to Dismiss Counts 5-15 for Failure to State a Claim, the government's response thereto, and the entire record in this matter, it is this day of September, 1996, hereby
ORDERED, that defendant xxxxxxxxxx motion is granted; and it is further
ORDERED, that Counts 5-15 are dismissed.
ROYCE C. LAMBERTH
U.S. DISTRICT COURT JUDGE
Copies to:
L. Barrett Boss
Assistant Federal Public Defender
625 Indiana Avenue, N.W., Suite 550
Washington, D.C. 20004
Joseph Conte, Esquire
601 Pennsylvania Avenue, N.W., #900
Washington, D.C. 20004
Harry Benner
Assistant U.S. Attorney
555 4th Street, N.W.
Washington, D.C. 20001
1. While we acknowledge that certain courts have taken a broader view of the scope of this subsection, e.g., United States v. Paramo, 998 F.2d 1212 (3d Cir. 1993), cert. denied, 114 S.Ct. 1076 (1994) (holding that cashing of embezzled IRS tax refund checks promoted the underlying mail fraud because the success of the scheme depended on the checks being converted to cash), we submit that the Fourth Circuit's reasoning Heaps, as well as the Seventh Circuit's decision in United States v. Jackson, 935 F.2d 832, 841 (7th Cir. 1991), is far more persuasive. It should be noted that the District of Columbia Circuit has not yet had occasion to analyze the scope of this particular section of the money laundering statute.