U.S. v. Arch Trading Co.

• Decision Date: 26 February 1993
• Docket Number: No. 92-5098,92-5098
• Citation: 987 F.2d 1087
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. ARCH TRADING COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1087

987 F.2d 1087

UNITED STATES of America, Plaintiff-Appellee, v. ARCH TRADING COMPANY, Defendant-Appellant.

No. 92-5098.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 29, 1992.

Decided Feb. 26, 1993.

William Joseph Hardy, Kleinfeld, Kaplan & Becker, argued, Washington, DC, for defendant-appellant.

John Patrick Rowley, III, Asst. U.S. Atty., Office of the U.S. Atty., Alexandria, argued (Richard Cullen, U.S. Atty., Office of the U.S. Atty., Alexandria, VA, on brief), for plaintiff-appellee.

Before MURNAGHAN and NIEMEYER, Circuit Judges, and CHAPMAN, Senior Circuit Judge.

OPINION

NIEMEYER, Circuit Judge:

On August 2, 1990, Iraq invaded Kuwait. On that same day President Bush invoked the emergency powers provided to him by Congress and issued executive orders prohibiting United States persons from, among other things, traveling to Iraq and dealing with the government of Iraq and its agents. In the present appeal, Arch Trading Company, Inc., a Virginia corporation, challenges its convictions for various crimes arising from violations of these prohibitions. The company was convicted of conspiring to commit an offense against the United States, in violation of 18 U.S.C. § 371; of disobeying the emergency executive orders, in violation of the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. § 1701 et seq., and of lying to the Department of Treasury's Office of Foreign Assets Control (OFAC) about its conduct, in violation of 18 U.S.C. § 1001. It was sentenced to a fine of $50,000.

Arch Trading contends principally that (1) the indictment charging it with conspiracy to commit an offense under § 371 was defective because in the circumstances the company could only have been charged with conspiracy to defraud; and (2) the IEEPA (under which the President issued the executive orders) impermissibly delegated to the Executive Branch legislative authority to create crimes, is unconstitutionally vague, and was applied to Arch Trading ex post facto because implementing regulations were published only after the illegal conduct occurred. Arch Trading also challenges a search and seizure related to these convictions and the applicability of 18 U.S.C. § 1001, the statute prohibiting lying to an agency of the United States. After carefully considering each of Arch Trading's arguments, we affirm.

I

In November 1988 Arch Trading entered into a $1.9 million contract with Agricultural Supplies Company, a "quasi-governmental body owned by the government of Iraq" (Agricultural of Iraq), to ship to Iraq and install there laboratory equipment, including a "virology fermenter" and a "bacteriology machine," purportedly for veterinary use. Payment by Agricultural of Iraq to Arch Trading was assured by a $2 million irrevocable letter of credit issued by Rafidain Bank of Iraq and performance by Arch Trading was guaranteed by a letter of credit issued by the Commercial Bank of Kuwait. To secure that letter of credit, Arch Trading was required to deposit $200,000 with the Kuwaiti bank.

From April 1990 through July 1990 Arch Trading acquired the equipment and related chemicals and arranged for their delivery to Iraq. By early August 1990, five of a planned six shipments had arrived in Iraq, but none had been installed. The sixth shipment, which was never actually delivered, was en route. On August 2, 1990, when Iraq invaded Kuwait, President Bush, invoking the powers given him under the IEEPA, issued Executive Order No. 12722, 55 Fed.Reg. 31,803 (1990), prohibiting United States persons from, among other things, exporting goods, technology, or services to Iraq; performing any contract in support of an industrial, commercial or governmental project in Iraq; and engaging in any transaction related to travel to Iraq by United States persons. At Arch Trading's request, that same day the Treasury Department's OFAC faxed a copy of the Executive Order to Arch Trading's offices. A week later the President issued a slightly more detailed order, Executive Order No. 12724, 55 Fed.Reg. 33,089 (1990). Both executive orders were formally implemented through regulations published in the Code of Federal Regulations, 31 C.F.R., Pt. 575.

Notwithstanding the prohibitions of the first executive order, two executives of Arch Trading immediately attempted to enter Iraq via Cyprus to install the laboratory equipment that had already been delivered. When that effort failed, Arch Trading retained a Jordanian firm, Biomedical Technologies, Inc., to perform the installation. One of the Arch Trading executives who had earlier attempted to enter Iraq later joined Biomedical employees in Baghdad to help coordinate the installation, which was accomplished between October 24 and November 2, 1990. The travel expenses of both the Arch Trading executive and the Biomedical Technologies employees were reimbursed by Arch Trading, on authority of its president, Kamal Sadder, and upon completion of the installation, Biomedical Technologies was paid a bonus.

Arch Trading then sought to recover the $200,000 which had been deposited with the Kuwaiti bank to secure the letter of credit guaranteeing contractual performance, submitting backdated documents which falsely represented that contractual performance was completed on July 24, 1990, before the embargo of August 2 was imposed. Arch Trading also asked Biomedical Technologies to backdate its confirmation of performance. The Kuwaiti bank nevertheless denied the request for return of the funds "until [Arch Trading] obtain[ed] a license from the Office of Foreign Assets Control of the Department of the Treasury (OFAC)." To obtain the license, Arch Trading wrote a letter, dated April 3, 1991, to the Treasury Department's OFAC explaining the company's position. The letter stated: "We have performed our contract prior to August 2d, 1991 [1990], and stopped any contact with Iraq in conformity with the presidential executive [order]." Noting that the Kuwaiti bank said it required a license before the $200,000 deposit could be released, the letter concluded, "At this time we would like your office to inform us if such license is necessary for the release of our funds. If so, kindly issue us this license at the earliest possible time." (Emphasis added). The OFAC replied by letter, erroneously advising Arch Trading that no license was required.

Arch Trading's dealings with Iraq ultimately came to the attention of the United States Customs Service during an investigation into a shipment unrelated to this case. In late July 1990, customs agents discovered a personal computer at Dulles International Airport in Washington, D.C., that Arch Trading was shipping to Baghdad, Iraq, without proper documentation. During the course of the investigation the government questioned Arch Trading executives and subsequently executed a search warrant which led to the indictment and conviction in this case. This appeal followed.

II

Arch Trading first contends that it was improperly charged under 18 U.S.C. § 371. That section criminalizes conspiracies of two sorts: conspiracies to commit an offense against the United States and conspiracies to defraud the United States. ¹ Arch Trading was charged with, and convicted of, conspiring to commit an "offense" against the United States government. It asserts, however, it could only have been charged, if at all, with having conspired to "defraud" the United States, because violations of executive orders and regulations do not constitute an "offense." Arch Trading argues that the conspiracy count must therefore be dismissed, relying on United States v. Minarik, 875 F.2d 1186, 1193-94 (6th Cir.1989).

We reject this argument because we do not agree that violation of an executive order cannot constitute an offense as that term is used in 18 U.S.C. § 371. While it may be that executive orders cannot alone establish crimes, when such orders are duly authorized by an act of Congress and Congress specifies a criminal sanction for their violation, the consequence is different. In this case the IEEPA authorized the President to issue executive orders proscribing conduct, and 50 U.S.C. § 1705(b) makes criminal the disobedience of an order issued under the Act. ² There is no question that violation of a federal criminal statute may properly be charged under the "offense" clause. See United States v. Feola, 420 U.S. 671, 687, 95 S.Ct. 1255, 1265, 43 L.Ed.2d 541 (1975). We therefore hold that when Congress provides criminal sanctions for violations of executive orders that it empowers the President to issue, such violation constitutes an "offense" for the purposes of 18 U.S.C. § 371.

While Arch Trading's conduct could arguably have been charged also as a conspiracy "to defraud," the two prongs of § 371 are not mutually exclusive. Because of the broad interpretation which has been given the "defraud" clause, § 371's two clauses overlap considerably. The wide breadth of the "defraud" clause has long been established:

To conspire to defraud the United States means to cheat the government out of property or money, but it also means to interfere with or obstruct one of its lawful functions by deceit, craft or trickery, or at least by means that are dishonest. It is not necessary that the government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official actions and purpose shall be defeated by misrepresentation, chicane, or the overreaching of those charged with carrying out the governmental intention.

Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924).

Because of this overlap, given conduct may be proscribed by both of the section's clauses. In such a situation, the fact that a particular course of conduct is chargeable under one clause does not render it immune from prosecution under the other. When both prongs of § 371 apply to the conduct with which a particular defendant is charged, the...