U.S. v. Yusuf

Citation461 F.3d 374
Decision Date24 August 2006
Docket NumberNo. 05-3484.,05-3484.
PartiesUNITED STATES of America; Government of the Virgin Islands, Appellants v. Fathi YUSUF Mohammed Yusuf a/k/a Fathi Yusuf; Waleed Mohammed Hamed a/k/a Wally Hamed; Waheed Mohammed Hamed a/k/a Willie Yusuf; Maher Fathi Yusuf a/k/a Mike Yusuf; Isam Mohamad Yousuf a/k/a Sam Yousef; United Corporation d/b/a Plaza Extra; Nejeh Fathi Yusuf.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Alan Hechtkopf, S. Robert Lyons (Argued), United States Department of Justice, Tax Division, Washington, DC, for Appellants.

Leon Friedman (Argued), New York, NY, for Appellees.

Henry C. Smock, Smock Law Offices, Charlotte Amalie, St. Thomas, for Appellee, Fathi Yusuf Mohammed Yusuf.

Gordon C. Rhea, Richardson, Patrick, Westbrook & Brickman, Mount Pleasant, SC, Randall P. Andreozzi, Marcus, Andreozzi & Fickess, Williamsville, NY, for Appellee, Waleed Mohammed Hamed.

Pamela L. Colon, Christiansted, St. Croix, for Appellee, Waheed Mohammed Hamed.

John K. Dema, Law Offices of John K. Dema, Christiansted, St. Croix, for Appellee, Maher Fathi Yusuf.

Thomas Alkon, Alkon & Meaney, Christiansted, St. Croix, for Appellee, United Corporation.

Derek M. Hodge, Mackay & Hodge, Charlotte Amalie, St. Thomas, for Appellee, Nejeh Fathi Yusuf.

Before FISHER, COWEN and ROTH,* Circuit Judges.

FISHER, Circuit Judge.

Defendants, a Virgin Islands corporation and several of its owners and operators, were charged in a seventy-eight count indictment with various criminal offenses, including money laundering, currency structuring, tax violations, mail fraud, obstruction of justice, and conspiracy.1 In connection with securing various search warrants, an FBI special agent submitted an affidavit that contained admittedly inaccurate information, which had been supplied by the Virgin Islands Bureau of Internal Revenue ("VIBIR") pursuant to a court order. The District Court held a hearing pursuant to Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1978), and determined that certain statements in the affidavit were made with reckless disregard for the truth. The District Court then excised those statements from the affidavit and found that the reconstituted affidavit would have lacked probable cause. As a result, the District Court suppressed all of the evidence seized during the execution of the search warrants, effectively dismissing the Government's case.

We find that the disputed representations in the affidavit were not made with reckless disregard for the truth because the FBI agent did not have an "obvious reason to doubt the truth" of the information supplied by VIBIR. The District Court erred by failing to recognize that government agents should generally be able to presume that information received from a sister governmental agency is accurate. To demonstrate that a government official acted recklessly in relying upon such information, a defendant must first show that the information would have put a reasonable official on notice that further investigation was required. If so, a defendant may establish that the officer acted recklessly by submitting evidence: (1) of a systemic failure on the agency's part to produce accurate information upon request; or (2) that the officer's particular investigation into possibly inaccurate information should have given the officer an obvious reason to doubt the accuracy of the information. As we will explain herein, defendants in this case have failed to make this requisite showing, and, as a result, we find that the District Court erred in excising the disputed representations from the affidavit.

In addition, even assuming that portions of the affidavit should be excised, we conclude that the District Court clearly erred in concluding that the reformulated affidavit lacked probable cause. The reformulated affidavit contained sufficient allegations of money laundering to provide probable cause to search the three grocery stores for specific types of corporate business records alleged to have been involved in the money laundering enterprise. It is clear that the District Court's analysis on this point cannot be supported by the record. Furthermore, the warrant does not fail as an unconstitutional general warrant. The listing of the corporate items to be searched in the warrant application was not unconstitutionally overbroad, particularly considering this Court's repeated pronouncements to give greater flexibility in making the probable cause determination in the context of large-scale, document-intensive corporate offenses.

For these reasons, we will reverse the decision of the District Court and remand the case for further proceedings consistent with this opinion.

I.

In seven deposits made between April 16-19, 2001, United placed $1,940,000 in currency in $50 and $100 denominations into its account with the Bank of Nova Scotia (the "Bank"). (App.408). Because this activity was inconsistent with United's normal business banking activity, the Bank generated a Suspicious Activity Report on May 17, 2001, which was forwarded to the FBI's St. Thomas office on July 20, 2001. Based on that information, the FBI immediately opened a criminal investigation to investigate, inter alia, possible money laundering violations. (Id.) Federal grand jury subpoenas were issued to the Bank in mid-August 2001, and the Bank began producing documents relating to United's operating account on August 31, 2001. (Id.)

The FBI's investigation culminated several weeks later in an application for search warrants submitted to a magistrate judge.2 That application contained a sworn affidavit that detailed, in thirty-six numbered paragraphs and two exhibits, the Government's investigation to that point. The affidavit contained some background information regarding past immigration violations at the Plaza Extra stores. In 1999, United paid a $20,000 fine to settle an administrative proceeding brought by the Immigration and Naturalization Service (INS)3 regarding its failure to fill out employee I-9 forms. Also in 1999, Fathi Yusuf pled guilty to three counts of unlawful employment of unauthorized aliens; he was subsequently sentenced in September 2001 to six months of house confinement. During that investigation, INS agents who searched the supermarkets found large amounts of U.S. currency inside the safe of one of the stores. A manager of the store who opened the safe told the agents that the money, which was in denominations of $50 and $100, totaled between $3 million and $7 million. Bank records obtained in the investigation revealed that United never made any large-scale currency deposits of that magnitude in 1999. (App.395.)

The affidavit also utilized the financial records provided by the Bank to profile United's average currency deposits over an eighty-seven week period between January 2000 and August 2001, which reflected a pattern of currency deposits of $300,000 to $500,000 per week. During that time span, currency deposits dipped below $300,000 on five occasions, the lowest total cash deposit being $140,000. (App.396.) In contrast, nineteen weekly deposits exceeded $614,000, and seven of those deposits exceeded $920,000, which FBI Special Agent Thomas Petri, the FBI agent in charge of the investigation, characterized as "excessive when compared to the normal currency deposit pattern of United Corp." (Id.)4

The affidavit focused in detail on the deposits made during the week ending April 21, 2001. According to the affidavit, the seven cash deposits made between April 16 and 19 were inconsistent with the normal pattern of deposits made by United in three respects: (1) the large total amount of $1.94 million deposited over a four-day period; (2) the fact that the deposits consisted solely of $50 and $100 bills; and (3) the fact that each deposit slip was marked "Cash (Stockholder's Investment)." (App.396.) Moreover, the deposits themselves contained certain similarities. Each deposit was made in rounded amounts: $225,000, $250,000 (2 deposits), $300,000 (3 deposits), and $315,000. Although each of the deposits was made between April 16 and 19, the deposit slips were filled out in advance, dated April 12 through 19. According to the affidavit, all of this information "strongly implie[d] that the $1,940,000 cash was originally structured into smaller deposit amounts in order to create an appearance of deposits more consistent with the normal business activity, as opposed to a one-time cash deposit." (App.397.)

The affidavit further noted that United issued two checks totaling $1.9 million to "Hamdan Diamond Corp." on August 17 and 19, 2001. The checks were signed by Waleed Hamed and marked "loan payment" and "partial payment" respectively. Hamdan is a retail business located in St. Maarten, Northern Antilles, owned in part by Fathi Yusuf. The affidavit noted that Fathi Yusuf is the sole signatory of Hamdan's Virgin Islands account, and that Hamdan shares the same Virgin Islands post office box as United. Moreover, the affidavit recounts information from a purportedly reliable foreign services agency which stated that Fathi Yusuf was a member of a network of Middle Eastern merchants who had made cash deposits in St. Maartens in 2000 in excess of $2.2 million. The agency told the FBI that these cash deposits were consistent with money laundering because "the amount of cash deposited appeared to far exceed the legitimate cash proceeds of their retail sales in St. Maartens." (App.398.)

In addition, the affidavit contained information purportedly from three reliable confidential informants and one anonymous source. The first confidential source ("CS # 1"), who had purportedly provided the Government with reliable information in the past, told the FBI that a known drug trafficker was in direct contact with the management of Plaza Extra in order to launder drug proceeds through the...

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