Opinion
Criminal Action No. CR 99-120.
July 15, 1999
MEMORANDUM AND ORDER
Presently before the Court is Defendant Lorraine Howard's Motion to Dismiss counts fourteen through fifty-two of her indictment. Counts one through thirteen of the indictment, not contested here, charge Howard with bank and wire fraud. Counts fourteen through fifty-two allege violations of 18 U.S.C. §§ 1956 and 1957. For the reasons that follow, Howard's Motion to Dismiss counts fourteen through fifty-two is denied.
I. The Motion to Dismiss Standard
The purpose of a motion to dismiss the indictment is to question the sufficiency of the indictment to charge an offense.United States v. Sampson, 371 U.S. 75, 78-79 (1962). The indictment "must be taken as a whole, read reasonably and given fair construction." United States v. Schramm, 75 F.3d 156, 162 (3d Cir. 1996). The indictment is sufficient if it contains the elements of the charged offense and informs the defendant of the charge which must defended against. See Hamling v. United States, 418 U.S. 87, 117 (1974). The indictment must also enable the defendant to plead a prior acquittal or conviction to preclude future prosecutions for the same offense. Id. The words of the indictment therefore must "themselves fully, directly, and expressly, without any uncertainty or ambiguity, set forth all the elements necessary to constitute the offense intended to be punished." Hamling, 418 U.S. at 117.
II. The Money Laundering Charge
A. § 1956
To prove its case under the money laundering statute, 18 U.S.C. § 1956, the government must show four elements:
(1) an actual or attempted financial transaction (2) involving the proceeds of specified unlawful activity; (3) knowledge that the transaction involves the proceeds of some unlawful activity; and (4) either (a) an intent to promote the carrying on of specified unlawful activity, or (b) knowledge that the transaction is designed to promote the underlying specified unlawful activity or "to conceal or disguise the nature [or] the source . . . of the proceeds of specified unlawful activity."United States v. Morelli, 169 F.3d 798, 804 (3d Cir. 1999) (citing 18 U.S.C. § 1956(a)(1)). None of these requirements is very rigorous, however. Perhaps in recognition of this, Howard contests only the crime's fourth element in her motion.
A. Counts Fourteen through Twenty-one
Counts fourteen through twenty-one allege that wire transfers from Howard's business account at CoreStates Bank ("CoreStates") to Sean Tucker, an alleged victim of Howard's fraud, and to a nursing home violated 18 U.S.C. § 1956(a)(1)(A)(I). Defendant argues that the return of money to a person she defrauded does not demonstrate the intent to promote her bank fraud scheme, and she therefore lacked the requisite mens rea for the crime.
The Third Circuit has interpreted the "intent to promote the carrying on of specified unlawful activity" prong of the money laundering statute broadly. See United States v. Paramo, 998 F.2d 1212, 1215 (3d Cir. 1993) (holding jury could infer that Defendant had intent to promote antecedent mail fraud by cashing embezzled IRS checks). For example, in United States v. Conley, the Third Circuit again addressed the "intent to promote" prong and found that money paid to repair and purchase poker machines was intended to promote an illegal gambling scheme. Conley, 37 F.3d 970, 979 (3d Cir. 1994) (citing United States v. Jackson, 935 F.2d 832 (7th Cir. 1991) (holding that purchasing beepers promoted drug activity)). The common theme running through these cases is that "promotion" generally means the advancing or furthering the illegal activity. See e.g., id.
The Third Circuit's expansive view of "promotion" undermines Howard's argument. Assuming the indictment's allegations to be true, a jury might find the withdrawals made from Howard's CoreStates account to make a refund to Mr. Tucker might have enabled Howard to continue her scheme to defraud other clients. The jury might also find that the monthly payments to the nursing home where her client's mother resided could give her client the impression that her money had legitimately been invested, further enabling her scheme. These conceivable findings of advancement or furtherance of illegal activity fall comfortably within the purview of "promotion" and Howard's motion to dismiss counts fourteen through twenty-one is denied.
B. Counts Twenty-two through Thirty-seven
Counts twenty-two through thirty-seven of the indictment, which concern wire transfers from Defendant's CoreStates account to her personal account with the Philadelphia Federal Credit Union, allege violations of 18 U.S.C. § 1956(a)(1)(B)(I). The indictment alleges the purpose of these transfers was to pay bills and other personal living expenses. Apparently attempting to challenge the applicability of 18 U.S.C. § 1956(a)(1)(B)(I)'s concealment element, Howard notes she is the sole signatory on her CoreStates account. She claims the transfer of funds from this account to another listing her as an owner is not money laundering.
Howard's argument fails because the mere presence of a seemingly legitimate business account in the midst of a fraudulent scheme does not defeat a money laundering charge. For example, although cashing an illegally obtained check does not itself constitute money laundering, the use of a false business account may permit the defendant to "cloak their activities with a semblance of legitimacy." See United States v. Hairston, 46 F.3d 361, 374-75 (4th Cir. 1995) (upholding a money laundering conviction where defendants asked victims of charity fraud to endorse checks to business account but cashed the checks and used the funds for other purposes). A defendant's structuring of transactions or use of third parties to avoid detection also might support a finding of intent to conceal. United States v. Garcia-Emanuel, 14 F.3d 1469, 1475-76 (10th Cir. 1994).
In the present case, a jury could conclude that Howard's use of her business account and the transfer of funds to a personal account owned by Howard and her mother demonstrates an intent to conceal the source, nature, location, ownership, and control of the proceeds derived from the bank and wire fraud. Conley's admonition that "depositing the proceeds of unlawful activity in a bank account in his own name and using the money for personal purposes" does not constitute money laundering, Conley, 37 F.3d 970, 979 (3d Cir. 1994), does not apply to the facts alleged in the indictment, where Howard went through a series of transactions before the funds were used for personal purposes. Accordingly, Howard's motion to dismiss counts twenty-two to thirty seven is also denied.
Counts Thirty-eight through Forty-four
Counts thirty-eight through forty-four allege that Howard's office space rental payments to her landlord violated 18 U.S.C. § 1956(a)(1)(A)(I). Howard argues that she occupied her office space both before and after her alleged fraudulent activities. As discussed above, to violate § 1956(a)(1)(A)(I) the Defendant must have intended to promote the specified unlawful activity. The use of the office space may have given Howard's prospective clients the appearance that she was running a legitimate investment business, thereby promoting her scheme to defraud. In addition, even if Howard used her office prior to the alleged fraud with funds not derived from fraud, it is enough that the rental payments were derived only in part from specified unlawful activities. Jackson, 935 F.2d at 840. For these reasons, Howard's motion to dismiss counts thirty-eight to forty-four is denied.
Howard relies on Jackson, 935 F.2d at 841, in which the court found the government failed to prove rental payments promoted the defendant's drug activities. Jackson is distinguishable, however, because the drug activities did not take place in the rented space; the rental payments were merely "expenditures [that] maintained [Defendant's] lifestyle." Id.
Counts Forty-five through Fifty
Counts forty-five through fifty pertain to payments toward Defendant's automobile, allegedly in violation of 18 U.S.C. § 1956(a)(1)(B)(I). Defendant contends that the open and notorious use of an automobile purchased with funds from a specified unlawful activity precludes the application of the money laundering statute. The Court disagrees.
The money laundering statute is applicable where the defendant takes steps to conceal the source of the funds before engaging in ordinary commercial transactions. See e.g., United States v. Nattier, 127 F.3d 655, 659 (8th Cir. 1997) (finding evidence that defendants deposited embezzled funds into a seemingly legitimate business account was sufficient to support a conviction under 18 U.S.C. § 1956(a)(1)(B)(I)); United States v. Cavalier, 17 F.3d 90, 93 (5th Cir. 1994) (stating "[t]his was not a case of a person simply using illegally obtained funds to purchase personal items."). Although Howard's use of the automobile was open and notorious, the alleged series of steps that ultimately led to the payment of the automobile was not open and notorious and may have been designed to conceal the source of the funds. Howard's motion as to these counts is denied.
Several courts have held that the purchase of an automobile with proceeds from specified unlawful activity is not a financial transaction designed to conceal the nature, location, source of the money. Those cases, however, involve defendants who used their proceeds to engage directly in ordinary commercial transactions. See e.g., United States v. Stephenson, No. 98-1490, 1999 WL 437082, *9-10 (June 30, 1999 2d Cir. 1999) (finding evidence insufficient to show that defendant's cash down payment on automobile was made with intent to conceal); United States v. Schoff, 151 F.3d 889, 891-92 (8th Cir. 1998) (reversing a money laundering conviction for defendant's purchase of car because he used his client's check, directly endorsed to the car dealers, to purchase them); United States v. Garcia-Emanuel, 14 F.3d 1469, 1475 (10th Cir. 1994) (employing statutory interpretation to find that "transactions engaged in for present personal benefit, and not to create the appearance of legitimate wealth" do not necessarily satisfy the intent to conceal requirement of money laundering).
B. § 1957
Section 1957 makes it a crime to "knowingly engage or attempt to engage in a monetary transaction in criminally derived property of a value greater than $10,000 and is derived from specified unlawful activity." 18 U.S.C. § 1957. The five elements the government must prove for a conviction under this section of the statute are that:
(1) the defendant engage[d] or attempt[ed] to engage (2) in a monetary transaction (3) in criminally derived property that is of a value greater than $10,000 (4) knowing that the property is derived from unlawful activity, and (5) the property is, in fact, derived from `specified unlawful activity.'United States v. Sokolow, 91 F.3d 396, 407-08 (3d Cir. 1996).
Counts fifty-one and fifty-two
Finally, counts fifty-one and fifty-two concern other transactions in excess of $10,000 that allegedly violate 18 U.S.C. § 1957. The indictment alleges Howard wrote a $30,000 check to a friend for an interest-free loan and also returned $23,000 to a victim of her fraud. Howard argues that neither of these transactions, a loan to a friend or the return money to a victim, can be considered a financial transaction. There is no support for this contention.
For the purposes of the money laundering statute "monetary transaction" is defined 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 . ., but such term does not include any transaction necessary to preserve a person's right to representation as guaranteed by the sixth amendment to the Constitution.18 U.S.C. § 1957(f)(1). "The term `monetary transaction' includes any transaction that would constitute a `financial transaction' under section 1956(c)(4)(B)." United States v. Ables, 167 F.3d 1021, 1029 (6th Cir. 1999). Under section 1956(c)(3), a financial transaction is "a purchase, sale, loan, pledge, gift, transfer, delivery or other disposition" and disposition means "`placing elsewhere, a giving over to the care or possession of another.'"United States v. Puig-Infante, 19 F.3d 929, 938 (5th Cir. 1994). The $30,000 loan to Howard's friend, whether it was a transfer or other disposition, plainly is a financial transaction. It therefore also is a monetary transaction under § 1957(f)(1). Likewise, the $23,000 transfer is a transaction.
The interstate commerce element of § 1957(f)(1) poses no obstacle for the government, either. Section 1957(f)(1) requires the transactions visit only "a minimal effect" on interstate commerce. See e.g., id.; United States v. Lovett, 964 F.2d 1029, 1038 (10th Cir. 1992). Because both transactions here involve transfers of funds drawn from a federally-insured financial institution this requirement is satisfied. See e.g., United States v. Kunzman, 54 F.3d 1522, 1527 (10th Cir. 1995);United States v. Peay, 972 F.2d 71, 74-75 (4th Cir. 1992). There is no merit to Howard's argument that these transactions do not fall within the statute's definition of a monetary transaction, therefore, and her motion to dismiss counts fifty-one and fifty-two is denied.
ORDER
AND NOW, this day of July, 1999, upon consideration of the Motion to Dismiss Counts Fourteen through Fifty-Two Inclusive of the Indictment, and the Government's Response thereto, it is ORDERED that the Motion is DENIED.