536 F.3d 178 (3rd Cir. 2008), 07-3308, United States v. Yusuf

Docket Nº:07-3308.
Citation:536 F.3d 178
Party Name:UNITED STATES of America; Government of the Virgin Islands, Appellant 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.
Case Date:June 17, 2008
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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536 F.3d 178 (3rd Cir. 2008)

UNITED STATES of America; Government of the Virgin Islands, Appellant


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.

No. 07-3308.

United States Court of Appeals, Third Circuit

June 17, 2008

Argued Dec. 11, 2007.

As Amended July 21, 2008.

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[Copyrighted Material Omitted]

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Richard T. Morrison, Esquire, Acting Assistant Attorney General, S. Robert Lyons, Esquire (Argued), Anthony J. Jenkins, Esquire, Alan Hechtkopf, Esquire, United States Attorney, United States Department of Justice, Tax Division, Washington, DC, for Appellant.

Gordon C. Rhea, Esquire (Argued), Richardson, Patrick, Westbrook & Brickman, LLC, Mt. Pleasant, SC, Randall P. Andreozzi, Esquire, Marcus, Andreozzi, Fickess, LLP, Williamsville, NY, Pamela L. Colon, Esquire, John K. Dema, Esquire, Thomas Alkon, Alkon & Meaney, Christiansted, St. Croix USVI, Derek M. Hodge, Esquire, MacKay & Hodge, Charlotte Amalie, St. Thomas, USVI, Henry C. Smock, Esquire, Smock Law Offices, Charlotte Amalie, St. Thomas, USVI, for Appellee.

Before: SMITH, NYGAARD and ROTH, Circuit Judges.


ROTH, Circuit Judge:

The government has appealed the District Court's pretrial order, dismissing from the indictment various counts and allegations based on international money laundering.1 The narrow issue on appeal is whether unpaid taxes, which were unlawfully disguised and retained by means of the filing of false tax returns through the U.S. mail, are “proceeds" of mail fraud for purposes of sufficiently stating a money laundering offense under the federal, international money laundering statute, 18 U.S.C. § 1956(a)(2). We hold that such unpaid taxes are “proceeds" of mail fraud for purposes of sufficiently stating an international money laundering offense. For this reason, we will vacate the orders of the District Court and remand the case for further proceedings consistent with this opinion.

I. Background

Because we have previously outlined the facts of this case in United States v. Yusuf, 461 F.3d 374 (3d Cir.2006) and United States v. Yusuf, 199 Fed.Appx. 127 (3d Cir.2006), we recite only those facts pertinent

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to our analysis in this particular appeal.

There are seven defendants in this case: (1) United Corporation, a family-owned business located in the Virgin Islands that operates a chain of three Plaza Extra Supermarket stores in St. Thomas and St. Croix; (2) Fathi Yusuf, the primary shareholder of United; (3) Maher “Mike" Yusuf, Fathi's son, who is a part-owner of United and manager of one of the Plaza Extra stores; (4) Waheed “Willie" Hamed, Fathi's nephew, who manages the second Plaza Extra store; (5) Waleed “Wally" Hamed, Fathi's nephew and Waheed's brother, who manages the third Plaza Extra store; (6) Isam “Sam" Yousef, Fathi's nephew, who is a resident of St. Maarten, Netherlands Antilles, and owns and operates a retail furniture and appliances store; and (7) Nejeh Fathi Yusuf, Fathi's son, who is an owner and employee of United and who participated in the operation of the Plaza Extra stores.

Because defendant United conducts business through its Virgin Islands supermarkets, it is required to comply with statutorily-mandated monthly reporting of gross receipts and payment of tax on those receipts. Section 43(a), Title 33, of the Virgin Islands Code provides, in pertinent part, that “[e]very individual and every firm, corporation, and other association doing business in the Virgin Islands shall report their gross receipts and pay a tax of four percent (4%) on the gross receipts of such business." 33 V.I.C. § 43(a) (emphasis added). Section 44(c) provides for monthly returns and payments and states that “[t]he returns and payments required by this subsection shall be due within 30 calendar days following the last day of the calendar month concerned." 33 V.I.C. § 44(c). Thus, taxes imposed on United's gross sales receipts from its supermarkets during a particular month were due and payable on the last day of the following month.

In July 2001, the Federal Bureau of Investigation (FBI) received a suspicious activity report from the Bank of Nova Scotia in St. Thomas, U.S. Virgin Islands. The report stated that, over a four day period in April 2001, $1,920,000 (in $50 and $100 bills) was deposited into United's bank account. The FBI began an investigation which revealed that defendants allegedly conspired to avoid reporting $60,000,000 of the supermarkets' gross receipts on United's Virgin Islands gross receipts monthly tax returns and failed to pay the Virgin Islands government the 4% tax that United owed on those unreported gross receipts.2 The investigation further revealed that defendants allegedly engaged in various efforts to disguise and conceal the illegal scheme and its proceeds.3 Such efforts included allegedly depositing

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these monies into bank accounts, controlled by defendants, outside of the United States.

On September 9, 2004, a grand jury in the Virgin Islands returned a seventy-eight count, superseding 4 indictment, charging various counts relating to mail fraud, tax evasion, and international money laundering.5 At Counts 3 through 43, the indictment charged forty mail fraud offenses, in violation of 18 U.S.C. § 1341, alleging in paragraphs 30 and 31 as follows:

Beginning at least as early as in or about January 1996 and continuing through at least in or about September 2002, in the District of the Virgin Islands and elsewhere, [defendants] knowingly and willfully devised and intended to devise a scheme and artifice to defraud and to obtain money and property, specifically money belonging to the Virgin Islands in the form of territorial gross receipts tax revenue, by means of material false and fraudulent pretenses, representations and promises, knowing that the pretenses, representations and promises were false when made, as more particularly described in paragraphs 9 through 12 and 14 through 20 6 of this Indictment.

On or about the dates specified in each count below, the defendants, for the purpose of executing and attempting to execute and in furtherance of the aforesaid scheme and artifice to defraud and for obtaining money and property by means of material false and fraudulent pretenses, representations and promises, did knowingly cause to be sent and moved by the United States Postal Service, at the East End United States Post Office in St. Thomas, Gross Receipts Monthly Tax Returns, Forms 720 V.I., addressed to the Virgin Islands Bureau of Internal Revenue, St. Thomas, Virgin Islands, 00802.

At Counts 44-52, the indictment charged nine substantive international money laundering offenses, in violation of

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18 U.S.C. § 1956(a)(2)(B)(i), alleging in paragraph 33 as follows:

On or about the dates listed in each count below, in the District of the Virgin Islands and elsewhere, the [defendants] transported and transferred, and attempted to transport and transfer, monetary instruments and funds in amounts described below from a place in the United States, specifically the United States Virgin Islands, to and through a place outside the United States, specifically, Amman, Jordan, knowing that the monetary instruments and funds involved in the transportation and transfer represented the proceeds of some form of unlawful activity and knowing that such transportation and transfer was designed in whole or in part to conceal and disguise the nature, location, source, ownership, and control of the proceeds of a specified unlawful activity, that is, mail fraud, in violation of Title 18, United States Code Section 1341.

Thus, the indictment relied on mail fraud as the predicate offense, or “specified unlawful activity," to support the money laundering charges against defendants. See 18 U.S.C. § 1956(a)(2)(B)(i).

Defendants moved to dismiss the substantive money laundering charges on the basis that any unpaid taxes disguised and retained as a result of filing false tax returns through the U.S. mail do not equate to “proceeds" of mail fraud and, accordingly, Counts 44 through 52, charging money laundering, failed to state an offense. On February 13, 2007, the District Court granted the motion and dismissed the nine substantive money laundering counts for failure to state an offense. For the same reason, the District Court also dismissed the charge of money laundering conspiracy (Count 2); struck from two structuring counts the sentence-enhancing allegations grounded upon money laundering (Counts 53 and 54); and dismissed paragraphs of Criminal Forfeiture Allegation 1, which were grounded upon money laundering. The District Court reasoned as follows:

Defendants contend that a tax savings resulting from filing false tax returns does not “represent the proceeds of some form of unlawful activity," and that, therefore, Counts 44 through 52 fail to state an offense. In the Third Circuit, “ ‘proceeds' as that term is used in § 1956 means simply gross receipts from illegal activity.’ " United States v. Grasso, 381 F.3d 160, 169 (3d Cir.2004) [overruled by United States v. Santos, __ U.S. __, 128 S.Ct. 2020, 170 L.Ed.2d 912 (2008) ]. “ ‘[P]roceeds' are something which is obtained in exchange for the sale of something else as in, most typically, when one sells a good in exchange for money." United States v. Maali, 358 F.Supp.2d 1154, 1158 (M.D.Fla.2005)[,] [aff'd sub nom. United States v. Khanani, 502 F.3d 1281 (11th Cir.2007) ]. The Court agrees with the final analysis in Maali, that “[h]aving ascertained the plain and ordinary definition of ‘proceeds,’ it is clear that...

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