Undisguised Transfers from Operating Accounts to Investment Accounts Not Proof of Concealment of Money Laundering or “Sophisticated Means” for § 2B1.1(b)(9)(C)

United States v. Valdez, No. 12-50027 (Aug. 12, 2013) (Higginbotham, Owen, Graves)

Valdez, a psychiatrist, appealed many aspects of his trial and sentence in his money laundering and health care fraud case.  For the money laundering charge, 18 U.S.C. § 1956(a)(1), the Government alleged the two alternative ways to violate that statute: to promote or further illegal actions, and to conceal or disguise the nature or source of the illegal proceeds.  The panel found there was insufficient evidence of money laundering by concealment but sufficient evidence to sustain the conviction based on promotion of unlawful activity. 

The prove money laundering by concealment, the government relied on Valdez’s transfers of funds from operating accounts to investment accounts and on his property purchases.  All transfers and purchases were done openly in Valdez’s name.  “None of the transactions pointed to by the government show a specific intent to conceal the nature, location, source or ownership of the funds used.  Valdez did not use false names, third parties, or any particularly complicated financial maneuvers, which are usual hallmarks of an intent to conceal.”

Nonetheless, the conviction stands because there was sufficient evidence that Valdez made irregular payments and “loans” to his employees with the fraudulently-obtained money satisfying the promotion prong of money laundering.  The district court did not give the jury a specific unanimity charge regarding the money laundering count, which would have instructed them to unanimously agree that Valdez was guilty of money laundering based on promotion, concealment, or both.  Valdez, however, did not object to the instruction, and panel held that Fifth Circuit precedent forecloses Valdez’s argument that this constituted plain error.  See United States v. Alford, 999 F.2d 818, 824 (5th Cir. 1993).

As for Valdez’s sentencing arguments, the panel found that Valdez’s transfers from operating accounts to investment accounts did not constitute “sophisticated means” to conceal the offense under U.S.S.G. § 2B1.1(b)(9)(C).  The panel also found that the district court erred by calculating the intended loss based on the value of the fraudulent claims filed without considering Valdez’s evidence in the record that he never expected full reimbursement for the fraudulent claims filed.   Despite these errors, the panel found that the 300-month sentence was within the adjusted Guidelines range and that the district court would have imposed that sentence regardless of the adjusted range.  The errors were harmless.  The panel also affirmed the abuse of trust enhancement under § 3B1.3, the mass-marketing enhancement under § 2B1.1(b)(2)(A)(ii), and the application of the vulnerable victims enhancement under § 3A1.1(b)(1) since there was sufficient evidence that some patients were harmed by Valdez’s conduct. 

RICO Sentence for Mail Fraud and Money Laundering Vacated and Remanded for Resentencing Due to Guideline Errors

United States v. Pratt, No. 11-31049 (Aug. 28, 2013) (Higginbotham, Owen, and Graves)

Pratt was found guilty at trial of conspiracy to violate RICO because of her abuse of her political influence and power to further the objectives of a criminal enterprise to illegally funnel state and federal funds and property to members of the conspiracy for their personal benefit.  She appealed her conviction and sentence.  The panel affirmed her conviction but vacated her sentence and remanded for resentencing.

The Government alleged two types of racketeering activity: mail fraud and money laundering.  The district court calculated the sentencing guidelines based on money laundering, when it should have based them on mail fraud.  Pratt did not appeal the use of the money laundering guidelines, though, so she waived that error.  In its use of the money laundering guideline, § 2S1.1, the district court erred by applying a two-level enhancement under § 2B1.1(b)(8)(A) and calculating the loss based on the value of all of the goods and services misappropriated according to § 2B1.1 instead of the value of the laundered funds according to § 2S1.1.  Section 2S1.1 refers to the table in § 2B1.1 to increase the base offense level according to the value of the laundered funds, but that does not mean the instructions and definitions of § 2B1.1 thereby apply to an offense subject to the § 2S1.1 guideline. 

Based on the district court’s miscalculations, it believed the guideline range was 78-97 months when it sentenced Pratt to 87 months.  The correct guideline range, based on the mail fraud guideline, was 70-87 months.  The panel held that the district court’s error was plain and that Pratt’s substantial rights were affected because the court “stated on the record that it was choosing a sentence within the middle of the Guidelines range as the appropriate sentence, indicating that the Guidelines range calculated by the district court was a primary factor in the selection of the 87-months’ sentence . . . .”  Under the correct guideline range, 87 months was the top instead of the middle, so the panel vacated the sentence and remanded.

As for the actual conviction, the panel found that the district court questioned the venire adequately about pretrial publicity.  The potential jurors completed an eight-page screening questionnaire, and the court questioned all potential jurors during voir dire and out of the presence of other potential jurors about their ability to be impartial.  The panel rejected Pratt’s contention that only a trial lawyer can ask sufficiently probing and nuanced questions to uncover bias.  The panel also affirmed the district court’s determination that the Government did not use its peremptory challenges to exclude jurors on the basis of race, since the Government offered other plausible reasons for striking five of the six potential jurors who were black.  Lastly, the panel found that the fourth superseding indictment sufficiently identified the pattern of racketeering activity underlying the conspiracy.

No Merger of Wire Fraud and Money Laundering Convictions

United States v. Kennedy, No. 11-60531 (Feb. 7, 2013) (Jolly, Jones, Graves)

Defendants argued that the wire fraud convictions merged with the money laundering convictions to impermissibly result in convictions for two crimes on the same facts. The panel rejected this argument.

In the Fifth Circuit, merger in the money laundering context

may be proved in two ways: (1) a defendant may demonstrate the underlying unlawful activity was not complete at the time the alleged money laundering occurred; or (2) a defendant may show the transaction upon which the money laundering count is based was not a payment from profits of the underlying crime made in support of new crimes, but, instead, was a payment from gross receipts of the previously committed crime made to cover the costs of that same crime.

Here,

Calhoun was a licensed home mortgage loan originator and a preacher who fleeced the flock. Larry and Keith Kennedy (collectively, "Kennedys"), who operated a loan closing business, Loan Closing and Title Service ("LCTS"), helped with the shearing.

First, the panel finds that the wire fraud crimes were complete before the conduct underlying the money laundering counts began. "Wire fraud is a consummated crime when the illicitly obtained funds are transmitted . . . ." Once that was completed, the indictment charges the defendants with money laundering for subsequent transactions.

Second, the panel concluded that the money laundering counts were not based on gross receipts of the wire fraud. The money laundering counts relied on transfers of money from LCTS to shell corporations and did not pay for the initial wire fraud, which was all profit. Thus, these crimes did not merge.

The panel also found that the evidence was sufficient for the convictions, and the deliberate ignorance instruction was proper. The district court did not err in denying the defendants’ Batson challenge, motion for mistrial, or motion for severance.

Sentences with Aggravating Role Enhancements and Upward Departure Affirmed in Alien Smuggling and Money Laundering Case

United States v. Chon, No. 11-50143 (Apr. 10, 2013) (Higginbotham, Smith, Elrod) (per curiam)

The panel affirmed convictions for alien smuggling, money laundering, and aiding and assisting in the filing of a false tax return despite challenges to the sufficiency of the evidence. Two defendants also challenged the reasonableness of their sentences.

The panel rejected Garcia-Rico’s argument that the district court erred in imposing a three-level enhancement (§ 3B1.1(b)) for his alleged role as a manager or supervisor of the conspiracy in light of the unrebutted facts in his PSR that "Garcia-Rico received wired monetary payments from alien smugglers that were then used to smuggle, transport, and harbor illegal aliens." Chon also challenged his four-level enhancement (§ 3B1.1(a)) for being a leader or organizer of the money-laundering offense, but the panel affirmed given the evidence in the record.

The panel found, however, that the district court procedurally erred by not explaining the upward departure of forty-five months for Chon’s sentence. Chon did not object before the district court, so this was subject to plain error review. The district court only made a passing reference to § 3553(a) and did not provide any explanation for the sentence it selected. In the statement of reasons, however, the court indicated that it was departing "for reasons authorized by the sentencing guidelines manual" and then selected the box indicating that the sentence was based upon the government motion for upward departure. While this was clearly erroneous, the panel held that it did not affect Chon’s substantial rights since the government’s motion extensively discussed the rationale for recommending the statutory maximum for each count of conviction.

So, be sure to object in district court to unreasonable sentences. Otherwise, a judge’s mere checking of a box and the government’s arguments in a motion or in the PSR will be sufficient for appellate review.

Use Present Tense to Adopt Prior Statement or Is Hearsay; Insufficient Evidence for Money Laundering Count

United States v. Demmitt, No. 11-11120 (Feb. 1, 2013) (Stewart, Garza, Elrod)

The factual resume of the basis for a plea was impermissibly admitted hearsay. The witness did not admit on the stand that he made the statement and that it was true, so it was not adopted pursuant to Rule 801(d)(1). Instead, the prosecutor asked him, "did you swear that everything contained in the factual resume was true and correct?" The past tense flawed the witness’s adoption of the factual resume. The Government argued that its admission was harmless because it later became a prior inconsistent statement and would have been admissible at that point. The panel rejected this argument but found the error to be harmless due to the totality of the evidence adduced at trial.

The panel found that the use of the deliberate ignorance instruction was proper but that the Government did not present sufficient evidence to support one of Demmitt’s convictions for money laundering. Specifically, the Government did not prove that the wire transfer in question was designed to conceal the nature, location, source, ownership, or control of the fraudulently obtained money. The Government only proved that the wire transfer occurred and that it was connected to fraudulently obtained money. That conviction—one out of twenty-seven counts—was vacated.

Supreme Court Grants Cert in Fifth Circuit Case Concerning Scope of "Concealment" Element of Money Laundering Statute

Does 18 U.S.C. § 1956(a)(2)(B)(i), which prohibits transporting the proceeds of illegal activity "to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds," apply to situations where the proceeds are physically concealed during the transportation, even if the concealment does nothing to disguise the source, ownership, etc. of the proceeds? Sparks flew when the Fifth Circuit considered that question en banc in United States v. Cuellar. The majority essentially held that concealing money while transporting it is sufficient to satisfy the concealment element of the offense. The strongly-worded dissent argued that the statute only reaches "transporting money to conceal it," not "concealing money to transport it."

Our initial coverage of the case remarked that "[i]t'll be interesting to see what happens with the inevitable cert petition in this case." Wonder no more. As SCOTUSblog reports here, the Supreme Court granted cert in Cuellar today. The question presented is "whether merely hiding funds with no design to create the appearance of legitimate wealth is sufficient to support a money laundering conviction." SCOTUSblog has also helpfully collected the petition for certiorari, the Solicitor General's brief in opposition, the petitioner's reply, and and amicus brief in support from the National Association of Criminal Defense Lawyers.

This should be a very interesting case to watch. And as always, don't forget to preserve the issue if it crops up in any of your cases.