U.S. v. American Investors of Pittsburgh, Inc.
| Decision Date | 24 July 1989 |
| Docket Number | Nos. 88-3169,s. 88-3169 |
| Parties | The UNITED STATES v. AMERICAN INVESTORS OF PITTSBURGH, INC., John J. Bruno, John W. Mendicino, Charles Krzywicki, Alan Zytnick, Louis J. Pecori. Appeal of John J. BRUNO. The UNITED STATES v. AMERICAN INVESTORS OF PITTSBURGH, INC., John J. Bruno, John W. Mendicino, Charles Krzywicki, Alan Zytnick, Louis J. Pecori. Appeal of John W. MENDICINO. The UNITED STATES v. AMERICAN INVESTORS OF PITTSBURGH, INC., John J. Bruno, John W. Mendicino, Charles Krzywicki, Alan Zytnick, Louis J. Pecori. Appeal of Alan ZYTNICK. The UNITED STATES v. AMERICAN INVESTORS OF PITTSBURGH, INC., John J. Bruno, John W. Mendicino, Charles Krzywicki, Alan Zytnick, Louis J. Pecori. Appeal of AMERICAN INVESTORS OF PITTSBURGH, INC. The UNITED STATES v. AMERICAN INVESTORS OF PITTSBURGH, INC., John J. Bruno, John W. Mendicino, Charles Krzywicki, Alan Zytnick, Louis J. Pecori. Appeal of Charles KRZYWICKI. to 88-3171, 88-3231 and 88-3232. |
| Court | U.S. Court of Appeals — Third Circuit |
Richard Wile (Argued), Hess, Reich, Georgiades, Ray and Homyak, P.C., Pittsburgh, Pa., for appellants John J. Bruno and John W. Mendicino.
Thomas A. Livingston, (Argued), Livingston and Clark, Pittsburgh, Pa., for appellant Alan Zytnick.
Stanton D. Levenson (Argued), Pittsburgh, Pa., for appellants Charles Krzywicki and American Investors of Pittsburgh, Inc.
J. Alan Johnson, U.S. Atty., Constance M. Bowden (Argued), Asst. U.S. Atty., Pittsburgh, Pa., for appellee U.S.
Before HIGGINBOTHAM, MANSMANN and GARTH, Circuit Judges.
We today grapple with the extent of criminal liability imposed by the Currency Transactions Reporting Act, 31 U.S.C. Secs. 5313(a); 5322 (as amended 1982), and its attendant regulations, prior to their 1986 amendment. Specifically, we must decide whether customers of a financial institution, participating in both a sophisticated and simplistic money-laundering scheme, can violate the Act.
A corporation, American Investors of Pittsburgh, Inc., three of its principals, John J. Bruno, President, John Mendicino, Executive Vice-President, Charles Krzywicki, Secretary-Treasurer, and a corporate customer, Alan Zytnick, seek vacation of convictions resulting from charges that they conspired to and defrauded the United States by obstructing the lawful function of the Internal Revenue Service in collecting information about certain currency transactions involving amounts greater than $10,000. The defendants 1 were charged with various offenses concerning their failure to file Currency Transaction Reports ("CTRs"), required when cash transactions exceed $10,000, and causing another financial institution, Pittsburgh National Bank, to fail to file CTRs, as part of a pattern of illegal activity involving more than $100,000 in a twelve month period, contrary to provisions of the Reporting Act, 2 and the pertinent regulations 3 and in violation of 18 U.S.C. Secs. 2, 371 and 1001.
Recently, in United States v. Mastronardo, 849 F.2d 799 (3d Cir.1988), reh'g denied, we held that the Currency Transactions Reporting Act did not give customers of financial institutions fair notice that "structuring" cash transactions to avoid the reporting requirements constituted criminal activity. Not addressed in Mastronardo, but requiring resolution today, is whether structuring of transactions with the intent to avoid the financial institution's duty to file CTRs regarding the transaction in and of itself is forbidden by the Act. In a footnote in Mastronardo, we recognized that, when other courts had been confronted with the subissue of the statutory reporting duty of financial institutions, they considered the specifics of the transactions. We found it unnecessary to analyze the particular financial practices of the Mastronardo defendants because their convictions, solely as customers of a financial institution, clearly violated due process. Id. at 803 n. 9. Because here, however, American Investors was also convicted under 18 U.S.C. Sec. 2(b) of willfully causing a financial institution to fail in its statutory duty, the Mastronardo decision does not have a preclusive effect. We conclude that given the factual specifics, the particular structuring activity involved here was prohibited by the statute, the regulations and the case law interpreting them. Therefore, although Mastronardo would have appeared to compel vacation of the convictions of American Investors relating to its customer-based activity in causing Pittsburgh National Bank to violate the currency reporting laws (Counts 48 through 94), the presence of tandem 18 U.S.C. Sec. 2(b) "willfully causing" convictions, which impute the necessary intent of actors otherwise lacking legal capacity to commit a crime to an innocent intermediary, requires a different result. We find that American Investors here supplied the necessary willfulness element of 31 U.S.C. Sec. 5322 to the entity with the legal capacity to commit the crime, Pittsburgh National Bank, and with one limited exception, we will affirm the judgments of conviction on these counts. Since the arguments championing vacation of the remaining counts had as their premise an overturning of the Pittsburgh National Bank counts, the conspiracy convictions and the substantive convictions relating to American Investors' own failure to file CTRs will likewise stand.
We also conclude that the evidence supports the verdicts of guilty on both the conspiracy count and the aiding and abetting the money-laundering scheme count against Alan Zytnick, the customer of American Investors.
Finally, we decide that the search of American Investors' office and storage area and the seizure of a large amount of its corporate documents were not unconstitutional and evidence so secured was properly admitted at trial.
American Investors of Pittsburgh, located in Pittsburgh, Pennsylvania, is a broker and dealer of securities, registered with the Securities and Exchange Commission and a member of the National Association of Securities Dealers, a self-regulatory, non-governmental body which oversees the over-the-counter stock market. Under the Reporting Act's regulations, one of a broker/dealer's legal obligations requires filing a CTR with the Internal Revenue Service when transactions in currency in excess of $10,000 occur. 31 U.S.C. Sec. 5313(a); 31 C.F.R. Sec. 103.22(a). A transaction in currency is defined simply as: "[a] transaction involving the physical transfer of currency from one person to another." 31 C.F.R. Sec. 103.11(o). The form provided for reporting currency transactions, Treasury Form 4789, requests the identity of the individual providing the funds, and, if that individual is not the owner of the funds, the owner of the funds. 4 An additional requirement is that the iinstitution file the report within fifteen days following the day of the transaction. 31 C.F.R. Sec. 103.25(a).
American Investors never filed a required CTR in any instance of receipt of cash in excess of $10,000, although, during the time period charged in the indictment, such occasions were well-documented. The allegations of the indictment portrayed a scheme by which American Investors devised various recordkeeping manipulations to disguise the receipt of cash from customers, including, but not limited to, Alan Zytnick. The practice of American Investors' Secretary-Treasurer, Charles Krzywicki, allegedly included utilizing dead or inactive accounts to distort the recording of purchases of municipal bonds and securities by cash customers. 5 Another broker testified that in order to cover up the fact that cash received from certain customers had been placed in an unauthorized account, he would remove the part of the receipt indicating that the transaction had been so processed before sending it to the customer. He would then destroy the monthly statement for the improperly utilized account.
Other concealment techniques, ones utilized by President John Bruno and Executive Vice-President John Mendicino, included altering the data both in American Investors' internal records and on the customers' monthly statements to reflect that cash purchases in excess of $10,000 occurring on one day were inaccurately portrayed as having transpired over a number of days and in amounts of less than $10,000.
The practice to obscure the receipt of currency involved other aspects of the bookkeeping of American Investors. In recording the receipt of cash from some customers, the word "payment" would sometimes be substituted for the word "cash" on its ledgers. Since there was no corresponding field code for the word "payment" when entries were made on American Investors' computers for these cash transactions, these purchases were listed on the computer as having been accomplished by check. On a number of occasions monthly statements sent to customers who had made cash purchases indicated that the customer had paid by check.
The scheme required further refinement since it necessarily entailed the handling of the cash after its receipt from American Investors' customers. American Investors maintained its working and operating accounts at the Seventh Avenue Branch of Pittsburgh National Bank. Sometime after September 1980 the branch manager told Krzywicki that, under new Treasury regulations, the bank, in its capacity as a financial institution, would be obligated to file CTRs whenever American Investors transacted cash business in excess of $10,000. Thereafter, American Investors would pattern its deposits at the bank in order to avoid having single deposits of more than $10,000. For example, although American Investors would deposit all of its checks the day it received them, it maintained safety deposit boxes at the...
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